6330 Annotations: Judicial Review of Appeals Determinations: District Court Jurisdiction- Levy

Notice of Levy and Right to Hearing: Judicial Review of Appeals Determinations: District Court Jurisdiction

Part 2

[2005-1 USTC ¶50,289] Leslie E. White, Plaintiff-Appellant v United States of America, Defendant-Respondent.

U.S. Court of Appeals, 6th Circuit; 03-6010, December 16, 2004 .

Affirming DC Tenn., 2003-1 USTC ¶50,259.

[ Code Sec. 6330]

District court jurisdiction: Collection Due Process hearing.  

An individual's claims involving the appropriateness of a Collection Due Process (CDP) hearing were dismissed for lack of subject matter jurisdiction. Only the Tax Court has jurisdiction over claims regarding the procedural due process of a CDP hearing. .

[ Code Sec. 6673]

Sanctions and costs awarded: Appeals.

The government's motion for sanctions was granted where the individual's appeal was frivolous. Claims based on a taxpayer's assertion that wages are not income and not taxable by the IRS have been consistently rejected as frivolous and sanctionable.

[ Code Sec. 6702]

Penalties, civil: Frivolous returns.

An individual's claim challenging the imposition of the penalty for filing a frivolous tax return was properly dismissed. The deficiencies in the tax return were based on the frivolous assertion that wages are not taxable income.

Before: Guy and Cole, Circuit Judges, and Tarnow , District Judge. ^*

ORDER

Tarnow, District Judge: Leslie E. White appeals pro se from a district court judgment dismissing a civil action that he had filed challenging the procedures used to assess his income tax liability and the imposition of a frivolous return penalty. His appeal has been referred to a panel of this court pursuant to Rule 34(j)(1), Rules of the Sixth Circuit. Upon examination, the panel unanimously agrees that oral argument is not needed in this case. Fed. R. App. P. 34(a).

White primarily alleged: 1) that the Internal Revenue Service ("IRS") failed to conduct an appropriate collection due process hearing under 26 U.S.C. §§6320 and 6330; and 2) that the IRS improperly imposed a $500 penalty against him under 26 U.S.C. §6702, for filing a frivolous personal income tax return. The district court dismissed White's first claim for lack of jurisdiction on January 10, 2003. It awarded summary judgment to the government regarding his remaining claim on June 11, 2003, as that claim was based on the frivolous assertion that wages are not taxable income. The district court subsequently granted White's motion for reconsideration; however, it declined to reverse any of its prior rulings.

White alleges that the IRS violated its own procedures by failing to hold an appropriate hearing. The Sixth Circuit has held that "[t]he tax court has jurisdiction over income tax issues and liabilities ... [t]hus, if the §6330 proceeding involves income tax issues, the district court does not have jurisdiction to consider the case." Diefenbaugh v. White [ 2000-2 USTC ¶50,839], No. 00-3344, 2000 WL 1679510, at *1 (6th Cir. Nov.10, 2000); see also 26 U.S.C. §6330(d)(1). The tax court also has jurisdiction over claims involving the procedural due process of a collection due process hearing. See, e.g., Tornichio v. United States [ 2002-1 USTC ¶50,411], No. 5:02 CV 0351, 2002 WL 508325, at *3 (N. D. Ohio Mar. 18, 2002). Thus, the court properly dismissed the claim for lack of subject matter jurisdiction. See Fed. R. Civ. P. 12(b)(1).

White now argues that the IRS violated the Administrative Procedure Act by failing to provide him with the requested documents and information at his hearing. See generally 5 U.S.C. §706. This claim was not clearly raised in his complaint, and we will not reach it for the first time on appeal. See Barker v. Shalala, 40 F.3d 789, 793-94 (6th Cir. 1994).

In his second claim, White challenged the government's imposition of a $500 penalty under 26 U.S.C. §6702, for filing a frivolous tax return. The district court properly dismissed this claim because the deficiencies in White's income tax return were based on the frivolous assertion that wages are not taxable income. It is well-settled that wages are taxable income within the meaning of 26 U.S.C. §61(a). See Sisemore v. United States [ 86-2 USTC ¶9576], 797 F.2d 268, 271 (6th Cir. 1986); Perkins v. Comm'r [ 84-2 USTC ¶9898], 746 F.2d 1187, 1188 (6th Cir. 1984). Since the pro se appellant has vigorously indicated his sincere intent to follow the law, he should be advised that, where the Supreme Court is silent on a matter, the decisions of the lower courts have the weight of law in their respective jurisdictions. Thus, the district court properly awarded summary judgment to the government on White's challenge to the penalty because his underlying assertion lacked an arguable basis in law.

The government now moves for a lump sum sanction in the amount of $6,000, arguing that White's appeal is frivolous and that $6,900 approximates the amount of expenses that it has incurred in similar appeals. See generally Fed. R. App. P. 38; Schoffner v. Comm'r [ 87-1 USTC ¶9198], 812 F.2d 292, 293 (6th Cir. 1987). Claims based upon a taxpayer's assertion that wages are not income and not taxable by the IRS have been consistently rejected by courts as frivolous and sanctionable. See, e.g., Perkins [ 84-2 USTC ¶9898], 746 F.2d at 1188-89. However, a recent decision from our court has indicated that $4,000 is a reasonable penalty for persisting in this type of frivolous appeal. See, e.g., Sawukaytis v. Comm'r [ 2004-1 USTC ¶50,238], No. 02-2431, 2004 WL 1376612, at *5 (6th Cir. June 16, 2004).

Accordingly, the district court's judgment is affirmed and the government's motion for sanctions is granted in the amount of $4,000. Rule 34(j)(2)(C), Rules of the Sixth Circuit.

^* The Honorable Arthur J. Tarnow, United States District Judge for the Eastern District of Michigan, sitting by designation.

[2005-1 USTC ¶50,295] William M. Burns, Plaintiff v. Scott Biggs, Defendant.

U.S. District Court, Mid. Dist. Tenn., Nashville Div.; 3:04-0463, March 10, 2005 .

[ Code Sec. 6330]

Notice of levy and right to hearing: Judicial review of Appeals determinations: District Court jurisdiction: Collection Due Process hearing.

A pro se individual's claim that an IRS agent violated his Fifth Amendment due process rights by denying him a Collection Due Process (CDP) hearing, was properly dismissed for lack of subject matter jurisdiction. The individual requested a face-to-face CDP hearing regarding the determination of his income tax deficiency. His request was denied, however, because he failed to raise any issues that would warrant a face-to-face hearing and did not accept an offer for a telephone conference. Notice was sent to the individual informing him that, if he wished to contest the denial, he was required to file a petition with the Tax Court. Instead, the individual filed his claim with the federal district court. The individual's argument that jurisdiction shifted from the Tax Court to the federal district court simply because he raised a Fifth Amendment due process claim was previously rejected by the court in L.E. White, 2003-1 USTC ¶50,259 (aff'd, CA-6, 2005-1 USTC ¶50,289). The taxpayer was, in fact, seeking a redetermination of his income tax liability, which was the sole jurisdiction of the Tax Court. Finally, to the extent that the individual was seeking an injunction under Bivens, his claim was rejected because adequate administrative procedures existed to correct any Constitutional due process violations.

ORDER

ECHOLS, District Judge: Pending before the Court are the Report and Recommendation entered by the United States Magistrate Judge on February 8, 2005 (Docket Entry No. 11), Plaintiff's Objection to Recommendation of Magistrate Judge Juliet Griffin Denying Subject Matter Jurisdiction (Docket Entry No. 12), and Defendant's Motion to Dismiss (Docket Entry No. 3). The Magistrate Judge recommends dismissal of this suit for lack of subject matter jurisdiction.

Where a party makes a timely objection to a Report and Recommendation, the Court must conduct "a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made." 28 U.S.C. §636(b)(1). The Court may accept, reject, or modify, in whole or in part, the findings or recommendations made by the Magistrate Judge. Id.

The Court conducted de novo review of the record. The Court accepts the Magistrate Judge's Report and Recommendation and adds additional reasoning in support of dismissal.

Plaintiff challenges as a violation of his Fifth Amendment due process rights the decision of Internal Revenue Service Agent Scott Biggs to deny him a face-to-face Collection Due Process Hearing ("CDPH") in accordance with 28 U.S.C. §6330(b). The Magistrate Judge correctly reasons that this Court lacks subject matter jurisdiction because Plaintiff should have filed an action in the United States Tax Court if he wished to seek judicial review of the lawfulness of the procedure utilized by the Internal Revenue Service in determining his assessed tax liability. See e.g., White v. United States [ 2003-1 USTC ¶50,259], 250 F.Supp.2d 919, 921-922 (M.D. Tenn. 2003).

Furthermore, to the extent the Plaintiff seeks injunctive relief against IRS Agent Biggs for a violation of his Fifth Amendment right to procedural due process under Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics, 403 U.S. 388 (1971), Plaintiff's claim must fail under Schweiker v. Chilicky, 487 U.S. 412, 423 (1988), and Fishburn v. Brown [ 97-2 USTC ¶50,742], 125 F.3d 979, 982-983 (6 ^th Cir. 1997). The Supreme Court stated in Schweiker that "[w]hen the design of a Government program suggests that Congress has provided what it considers adequate remedial mechanisms for constitutional violations that may occur in the course of its administration, we have not created additional Bivens remedies." In Fishburn, the Sixth Circuit held that a Bivens action did not lie where the Plaintiff had available to her adequate levels of review to pursue a procedural or substantive due process claim concerning a federal income tax levy. Id. at 983. The appeals court noted "[t]he Supreme Court has repeatedly held that where internal revenue collection is at issue, a meaningful post-deprivation remedy will satisfy the Due Process Clause." Id. (citing Bob Jones Univ. v. Simon [ 74-1 USTC ¶9438], 416 U.S. 725, 747 (1974)).

For all of the reasons stated in the Magistrate Judge's Report and Recommendation and in this Order:

(1) Plaintiff's Objection to Recommendation of Magistrate Judge Juliet Griffin Denying Subject Matter Jurisdiction (Docket Entry No. 12) is hereby OVERRULED;

(2) the Magistrate Judge's Report and Recommendation (Docket Entry No. 11) is hereby ACCEPTED;

(3) Defendant's Motion to Dismiss (Docket Entry No. 3) is hereby GRANTED; and

(4) this action is hereby DISMISSED WITHOUT PREJUDICE for lack of subject matter jurisdiction.

IT IS SO ORDERED.

REPORT AND RECOMMENDATION

GRIFFIN , Magistrate Judge: By order entered June 7, 2004 (Docket Entry No. 2), the Court referred this action to the Magistrate Judge for proceedings under 28 U.S.C. §§636(b)(1)(A) and (B) and under Rule 72(a) and (b) of the Federal Rules of Civil Procedure.

Presently pending before the Court is Defendant's motion to dismiss (Docket Entry No. 3), to which Plaintiff has filed a response in opposition (Docket Entry No. 8). For the reasons set out below, the Court recommends that the motion be granted and this action be dismissed.

I. BACKGROUND

Plaintiff, who is proceeding pro se, filed this action on May 25, 2004, alleging that his civil rights had been violated. Named as defendant to the complaint is Scott Biggs, an agent with the United States Internal Revenue Service ("IRS").

On September 20, 2003, the IRS issued to Plaintiff a "Final Notice --Notice of Intent to Levy and Notice of Your Right to a Hearing" based upon Plaintiff's unpaid income tax liability for the year 2000. On October 20, 2003, Plaintiff filed a request for a Collection Due Process Hearing ("CDPH") in accordance with 28 U.S.C. §6330(b). After an exchange of letters with Plaintiff concerning the matter, Defendant informed Plaintiff by letter, dated March 2, 2004, that he had not raised any issues warranting a CDPH and had not accepted an offer for a telephone conference. See Complaint, Exhibit No. 1. Accordingly, on March 5, 2004, a "Notice of Determination Concerning Collection Action(s) under Section 6320 and/or 6330" was issued. This notice informed Plaintiff that, if he wanted to dispute the notice of determination, he should file a petition with the United States Tax Court within 30 days. See Complaint, Exhibit 2.

Instead of filing a petition with the United States Tax Court, Plaintiff filed the instant action. Plaintiff asserts that he is not challenging the alleged tax liability or collection thereof, but is solely challenging the Defendant's decision to deny him a face-to-face CDPH which Plaintiff contends violated his Fifth Amendment due process rights. Invoking jurisdiction under 28 U.S.C. §§1331, 1361, and 1391, Plaintiff seeks: 1) a declaratory judgment that Defendant violated the law and Plaintiff's due process rights; 2) injunctive relief ordering Defendant and/or the IRS to provide him with a CDPH and to obey the law in the future; 3) suspension of any collection efforts against Plaintiff pending a final determination; and 4) costs and attorney fees. See Complaint at 4-5.

In lieu of an answer, Defendant has filed the pending motion to dismiss pursuant to Rule 12 of the Federal Rules of Civil Procedure. Defendant contends that this Court lacks subject matter jurisdiction over the complaint because jurisdiction rests with the United States Tax Court, not with this Court. Defendant also contends that the complaint is untimely.

II. CONCLUSIONS

A motion to dismiss for lack of subject matter jurisdiction is reviewed under the standard that dismissal is appropriate only if it appears beyond doubt that Plaintiff can prove no set of facts in support of his alleged claims which would entitle him to relief. Conley v. Gibson, 355 U.S. 41 (1957); Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir. 1988). For the purpose of a motion to dismiss, the allegations of Plaintiff's complaint are liberally construed and taken as true. Westlake v. Lucas, 537 F.2d 857, 858 (6th Cir. 1976). Pro se complaints are to be construed liberally, Haines v. Kerner, 404 U.S. 509 (1972), however, that liberality does not allow the court to conjure up unpled facts. McFadden v. Lucas, 713 F.2d 143, 147, n.4 (5th Cir. 1983).

The Court finds Defendant's argument that this action should have been filed with the United States Tax Court to have merit. Because the tax liability at issue involves income tax, jurisdiction over an appeal of the tax liability determination is vested with the United States Tax Court. See 26 U.S.C. §6330(d)(1); Voelker v. Nolen, 365 F.3d 580, 581 (7th Cir. 2004).

Plaintiff argues that jurisdiction rests with this Court because what he is complaining about is a violation of his civil rights. Plaintiff explains that he is seeking mandamus relief, specifically an order requiring Defendant to "do his job." See Docket Entry No. 8, at 3. Regardless of how Plaintiff characterizes his complaint, he is essentially seeking review of the determination of the assessed tax liability. He challenges the procedure used to make this determination, asserting that the procedure was unlawful because a face-to-face CDPH did not occur. Further, Plaintiff's argument that jurisdiction shifts from the United States Tax Court to the United States District Court by the assertion of a due process claim has previously been made and rejected by this very Court in White v. United States [ 2003-1 USTC ¶50,259], 250 F.Supp.2d. 919, 921-22 (M.D. Tenn. 2003). See also Voelker, supra; True v. Commissioner of the Internal Revenue Service [ 2000-2 USTC ¶50,634], 108 F.Supp.2d 1361 (M.D. Fla. 2000); Brown v. Doran, 2003 WL 23168946 ( M.D. N.C. , Dec. 2, 2003). Plaintiff has asserted nothing in his response in opposition to dismissal which distinguishes his action in any significant way from White, Voelker, True, or Brown.

Because the Court finds that this Court has no jurisdiction over Plaintiff's claims, it is not necessary to address Defendant's argument that the complaint was untimely.

RECOMMENDATION

The Court respectfully RECOMMENDS that the motions to dismiss (Docket Entry No. 3) be GRANTED and that this action be DISMISSED.

ANY OBJECTIONS to this Report and Recommendation must be filed with the Clerk of Court within ten (10) days of receipt of this notice and must state with particularity the specific portions of this Report and Recommendation to which objection is made. Failure to file written objections within the specified time can be deemed a waiver of the right to appeal the District Court's Order regarding the Report and Recommendation. See Thomas v. Arn, 474 U.S. 140 (1985); United States v. Walters, 638 F.2d 947 (6th Cir. 1981).

[2003-1 USTC ¶50,435] Gregory J. Raft, Plaintiff-Appellant v. Commissioner of Internal Revenue, Defendant-Appellee.

U.S. Court of Appeals, 6th Circuit; 03-3566, June 1, 2005 .

Unpublished opinion affirming DC Ohio, 2003-1 USTC ¶50,435.

[ Code Sec. 6330]

Procedure and administration: Collection: Seizure of property: Requirement of notice before levy: Notice of levy and right to hearing. --

A district court properly dismissed for lack of jurisdiction a civil complaint challenging an adverse decision of the IRS. The taxpayer failed to file a timely request for a Collection Due Process hearing; thus, the IRS held an "equivalent hearing", the resulting decision of which was not subject to judicial review.

[ Fed. R. App. P. 38]

Procedure and administration: Rule 38: Penalty for frivolous appeals. --

On appeal, the taxpayer waived his argument that the IRS official who sent him a notice of intent to levy lacked authority. It was not the focus of his pleadings and was not addressed by the district court's opinion. In addition, the delegation of authority down the chain of command to local IRS employees who issue notices has been held valid by numerous courts. Because the delegation of authority issue was both waived and wholly without merit, the taxpayer's appeal was frivolous. The court imposed sanctions jointly and severally on the taxpayer and his attorney because the attorney should have known that the appeal was frivolous.

Before: Kennedy and Cook, Circuit Judges, and Varlan, District Judge. ¹

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

VARLAN, District Judge: Pro se Michigan resident Gregory J. Raft appeals a district court judgment that dismissed a civil complaint challenging an adverse decision from the Internal Revenue Service ("IRS"). The case has been referred to this panel pursuant to Rule 34(j)(1), Rules of the Sixth Circuit. We unanimously agree that oral argument is not needed. See Fed. R. App. P. 34(a). We affirm the decision of the district court.

I.

On September 20, 2000, the IRS issued Raft a notice of intent to levy regarding his unpaid federal income tax liabilities for the tax years 1993 and 1994. The notice was sent by certified mail to Raft's post office box and the record contains a delivery notice from the postal service indicating that a certified letter was available to be picked up until October 8, 2000. Raft never claimed the notice of intent to levy and subsequently advised the IRS that he did not pick up the letter due to illness. On March 7, 2001, the IRS issued a notice of levy on wages, salary, and other income to Raft's employer to collect his outstanding tax liabilities, at that time calculated to be $11,406.68. Raft requested a collection due process ("CDP") hearing on April 2, 2001.

The IRS Office of Appeals rejected Raft's request for a CDP hearing because his request was received more than 30 days after the issuance of the September 20, 2000 notice. However, the IRS offered to hold an "equivalent hearing" not subject to judicial review pursuant to 26 C.F.R. §301.6330-1(i). Following the hearing, the IRS notified Raft that his request for relief from the levy was denied. The decision letter stated that Raft "did not present any relevant documentation to challenge" his tax liabilities and he "did not raise any relevant challenges to the appropriateness of the Levy or supply documentation to consider alternative methods of collection." (J.A. at 20.) The decision letter reiterated that Raft had no right to judicial review of the decision under sections 6320 and 6330 of the Internal Revenue Code ("IRC"), 26 U.S.C.

On January 14, 2002, Raft filed a petition in the Tax Court seeking to challenge the decision letter denying the relief requested at his equivalent hearing. The case was dismissed on the Commissioner's motion, with the Tax Court holding that the decision letter resolving Raft's equivalent hearing was not a notice of determination sufficient to confer jurisdiction on the Tax Court under IRC section 6330.

The instant case was filed on June 13, 2002, in which Raft purports to appeal an adverse CDP hearing decision. The district court granted the Commissioner's motion to dismiss for lack of subject matter jurisdiction, finding that Raft had failed to request a CDP hearing in a timely manner after the IRS had properly mailed him a notice of intent. The district court further held that actual receipt of the notice of intent to levy was not a necessary predicate to start the 30-day period for requesting a CDP hearing.

II.

We review de novo a district court's order dismissing a complaint for lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1). Hedgepeth v. Tennessee , 215 F.3d 608, 611 (6 ^th Cir. 2000). When the defendant challenges subject matter jurisdiction through a motion to dismiss, the plaintiff bears the burden of establishing jurisdiction. Id. The district court's factual findings made in resolving a motion to dismiss are reviewed for clear error while its application of the law to the facts is reviewed de novo. Id; see RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1135 (6 ^th Cir. 1996).

III.

On appeal, Raft argues that the district court failed to require the Commissioner to comply with 26 U.S.C. §6330(c)(1), that is, the district court did not require the Commissioner to provide verification that it complied with all administrative procedures. ² Raft contends that the Commissioner must demonstrate that the IRS employee who sent out the notice of intent to levy had authority to do so pursuant to a delegation order or redelegation order from the Secretary of the Treasury and that the Hearing Officer failed to obtain such verification. The Commissioner argues that the district court properly concluded that it lacked subject matter jurisdiction and further that Raft's argument on appeal is untimely and without merit. We agree.

The district court properly concluded that it lacked jurisdiction. Under §6330, the Commissioner must notify a taxpayer of his right to request a CDP hearing at least 30 days before a levy is made; the taxpayer then has 30 days from the date of the notice to request a CDP hearing. 26 U.S.C. §6330(a). Section 6330(d)(1) allows the taxpayer to seek judicial review of a notice of determination following a CDP hearing. The taxpayer may appeal to the Tax Court if the underlying taxes are among the types of taxes that the Tax Court generally has jurisdiction to review, such as income taxes. 26 U.S.C. §6330(d)(1); 26 C.F.R. §301-6330-1(f)(2) Q&A F3; Goza v. Comm'r [ CCH Dec. 53,803], 114 T.C. 176, 181 (2000). Otherwise, the taxpayer may appeal to a federal district court. 26 U.S.C. §6330(d)(1).

If, however, a taxpayer's request for a CDP hearing is not timely, the Commissioner may hold an "equivalent hearing," rather than a CDP hearing. 26 C.F.R. §301.6330-1(i). An equivalent hearing generally follows the same procedures as those used for CDP hearing except that the resulting decision is not subject to judicial review, either by the Tax Court or a federal district court. Id. See also Fabricius v. United States [ 2002-2 USTC ¶50,772], 2002 WL 31662301, at *2 (E.D. Cal. 2002); Moorhous v. Comm'r [ CCH Dec. 54,316], 116 T.C. 263, 270 (2001); Kennedy v. Comm'r [ CCH Dec. 54,315], 116 T.C. 255, 263 (2001).

The district court concluded that Raft's request for a CDP hearing was untimely, coming some six months after the notice was issued. The district court further concluded that actual receipt of the notice is not required and the district court therefore had no jurisdiction to review the adverse decision from Raft's equivalent hearing. Assuming that this issue is properly before us, we agree that the district court properly dismissed Raft's claims for lack of subject matter jurisdiction. The regulations plainly state that a decision following an equivalent hearing is not subject to judicial review. 26 C.F.R. §301.6330-1(i). Moreover, it is undisputed that Raft's request for a CDP hearing came more than 30 days after the notice of intent to levy was issued. No CDP hearing was required, thus no appealable decision was issued from the IRS.

On appeal, however, Raft argues that the district court erred by failing to require the Commissioner to produce evidence that the IRS official who sent him the notice had the authority to do so. The Commissioner argues that Raft has waived this argument on appeal inasmuch as it was not presented to the district court in opposition to the Commissioner's motion to dismiss. Raft argues that this issue was presented to the district court by referencing paragraph 29 of the complaint in which the delegation argument is raised. (Reply Br. at 4.)

It is well settled that this court will not consider an error or issue which could have been raised below but was not. Niecko v. Emro Mktg. Co., 973 F.2d 1296, 1299 (6 ^th Cir. 1992); see Thurman v. Yellow Freight Sys., Inc., 90 F.3d 1160, 1172 (6 ^th Cir. 1996) ("[i]ssues that are not squarely presented to the trial court are considered waived and may not be raised on appeal"); Building Serv. Local 47 Cleaning Contractors Pension Plan v. Grandview Raceway, 46 F.3d 1392, 1399 (6 ^th Cir. 1995) ("vague references fail to clearly present the objection in the district court so as to preserve the issue for appellate review"). A fair reading of the record reveals that Raft's delegation argument was not the focus of his pleadings in opposition to the Commissioner's motion to dismiss and it is not addressed at all by the district court's opinion. Thus, we conclude that Raft has waived the only argument he has raised on appeal.

Even if we were to consider Raft's delegation argument, we find that it is without merit inasmuch as numerous courts have concluded that the relevant statutes and regulations demonstrate a valid delegation of authority from the Secretary of the Treasury down the chain of command to local IRS employees to issue notices. See Herip v. United States [ 2005-1 USTC ¶50,354], 106 Fed. Appx. 995, 999, 2004 WL 1987302, at *4 (6th Cir. 2004); Hughes v. United States [ 92-1 USTC ¶50,086], 953 F.2d 531, 536 (9 ^th Cir. 1992); Lonsdale v. United States [ 90-2 USTC ¶50,581], 919 F.2d 1440, 1448 (10 ^th Cir. 1990); Lemieux v. United States [ 2002-2 USTC ¶50,720], 230 F.Supp.2d 1143, 1146 n.3 (D. Nev. 2002); Nestor v. Comm'r [ CCH Dec. 54,655], 118 T.C. 162, 165-66; see also Israel v. Comm'r [ CCH Dec. 55,374(M)], T.C.M. 2003-338, 2003 WL 22940366 (U.S. Tax Ct. Dec. 15, 2003).

IV.

On appeal, the Commissioner has filed a motion for sanctions pursuant to 28 U.S.C. §1912 and Fed. R. App. P. 38, under which we are authorized to award damages and costs against an appellant who has been found to have filed and pursued a frivolous appeal. The record reflects that the Commissioner timely filed a motion for sanctions and Raft has responded. See Fed. R. App. P. 38. Tax protestors who assert frivolous claims may be legally assessed damages on appeal. See Schoffner v. Comm'r [ 87-1 USTC ¶9198], 812 F.2d 292, 294 (6th Cir. 1987). This court has indicated its disapproval of frivolous appeals in tax protestor cases and its intention to impose Fed. R. App. P. 38 sanctions and award costs. See Martin v. Comm'r [ 85-1 USTC ¶9238], 756 F.2d 38, 41 (6 ^th Cir. 1985); Perkins v. Comm'r [ 84-2 USTC ¶9898], 746 F.2d 1187, 1188-89 (6th Cir. 1984). An appeal is properly sanctioned as frivolous under 28 U .S.C. §1912 and Rule 38 when the only issue raised has been clearly resolved against the appellant. See Schoffner [ 87-1 USTC ¶9198], 812 F.2d at 293-94.

Raft's appeal can properly be classified as frivolous. The only issue raised on appeal is wholly without merit and has been rejected by numerous courts. Moreover, the sole issue raised on appeal was not squarely presented to the district court and was not the focus of the district court's opinion. Thus, Raft's appeal is dedicated to an argument he has waived.

The Commissioner has moved for sanctions to be awarded in the lump sum of $4,000. The Commissioner's request for an award of $4,000 is based on records of the Tax Division of the Department of Justice showing that the average expense incurred in the defense of taxpayer appeals in which sanctions were awarded during 1998 and the first half of 1999 was approximately $4,900. We have approved awarding lump-sum damages under Rule 38, rather than requiring a "detailed accounting" of expenses. See, e.g., Schoffner [ 87-1 USTC ¶9198], 812 F.2d at 294 (awarding $1,200 based on the average award in a recent two-year period). In addition, we have found $4,000 to be a reasonable penalty in at least two unpublished decisions in so-called "tax protester" cases. See Sawukaytis v. Comm'r [ 2004-1 USTC ¶50,283], 102 Fed. Appx. 29, 35, 2004 WL 1376612 at *5 (6 ^th Cir. 2004); United States v. Martin, 19 Fed. Appx. 345, 346, 2001 WL 1136126 at *1 (6th Cir. 2001) (unpublished decision); Lawrence v. United States [ 2000-2 USTC ¶50,678], 229 F.3d 1152, 2000 WL 1182452 at *3 (6th Cir. 2000) (unpublished decision). See also Stafford v. United States [ 2000-1 USTC ¶50,325], 208 F.3d 1177, 1179 (10th Cir. 2000) (imposing $4,000 award to the Commissioner in a frivolous tax case). Although Raft's claims are clearly frivolous, he has not been identified as a persistent frivolous litigant. See e.g., Tough v. I.R.S. [ 2004-1 USTC ¶50,173], 75 Fed. Appx. 438, 440, 2003 WL 22137237 at *2 (6 ^th Cir. 2003). Thus, we feel that a sanction of $2,000.00 would be sufficient.

The Commissioner also requests that the award be assessed against Raft's former attorney, Jerry Arthur Jewett, jointly and severally with Raft. ³ We have noted that "[w]here a client reasonably relies on the advice of counsel, it may be that a sanction for a frivolous appeal is properly imposed on the attorney if the appeal is without merit or substance." Wilton Corp. v. Ashland Castings Corp., 188 F.3d 670, 677 (6 ^th Cir. 1999). In addition, 28 U.S.C. §1927 provides that courts can impose excess costs, expenses, and attorneys' fees on an attorney who "multiplies the proceedings in any case unreasonably and vexatiously." We have found that this standard is met "when an attorney knows or reasonably should know that a claim pursued is frivolous." Tareco Props., Inc. v. Morriss, 321 F.3d 545, 550 (6th Cir. 2003) (quoting Jones v. Continental Corp., 789 F.2d 1225, 1230 (6 ^th Cir. 1986)).

It is clear to us, upon review of the record, that Jewett should have been aware of the frivolous nature of his client's claim given that the exact issue raised on appeal --by Jewett --was rejected by this court in the Herip case. See [ 2005-1 USTC ¶50,354], 106 Fed. Appx. at 999, 2004 WL 1987302 at *4. Moreover, the sole argument on appeal was not argued below, indicating that the attorney has unnecessarily multiplied the proceedings. Although Raft is now proceeding pro se and might well have pursued an appeal even in the absence of counsel, Jewett should have advised Raft that in pursuing an appeal, he and his client were risking the imposition of additional sanctions by this court. We thus have no difficulty in granting the Commissioner's final request and ordering that the award of $2,000 be imposed jointly and severally on the petitioner and his attorney.

V.

For the reasons given above, we grant the Commissioner's motion for sanctions in the amount of $2,000.00 to be imposed jointly and severally on Raft and his attorney, Jerry Arthur Jewett, and we affirm the judgment of the district court.

¹ The Honorable Thomas A. Varlan, United States District Judge for the Eastern District of Tennessee, sitting by designation.

² 26 U.S.C. §6330(c)(1) states 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."

³ The record reflects that Mr. Jewett represented Raft throughout this litigation. After submitting briefs and a response to the motion for sanctions in this court, Mr. Jewett withdrew from representation of Raft, who is now proceeding pro se.

[2005-1 USTC ¶50,370] David Khalid, Plaintiff v. Mark Everson, Dept. of Treas., Defendant.

U.S. District Court, East. Dist. Pa.; Civ. 04-2683, March 31, 2005 .

[ Code Secs. 6330 and 7421]

Levy and distraint: Injunctions: Collection of tax: Requests for hearings. --

The court lacked jurisdiction to enjoin the IRS from collecting taxes by levy upon the taxpayer's wages due to the Anti-Injunction Act. No exceptions were applicable to the taxpayer's situation, including where a suit to enjoin a levy assessment is filed while an Appeals hearing is pending.

MEMORANDUM / ORDER

POLLAK, District Judge: Currently before the court is defendant s unopposed motion for summary judgment. Defendant asserts that this court lacks jurisdiction to entertain Mr. Khalid s suit, which seeks to enjoin the Internal Revenue Service from collecting taxes by way of levy on his employer, and award plaintiff $500 in damages for such levy. For the reasons expressed below, the court agrees with defendant that it lacks jurisdiction in the instant case.

The Internal Revenue Code s Anti-Injunction Act, 26 U.S.C . §7421(a), provides that, subject to a limited set of exceptions, no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed. Id. The [Supreme] Court has interpreted the principal purpose of this language to be the protection of the Government's need to assess and collect taxes as expeditiously as possible with a minimum of pre-enforcement judicial interference, and to require that the legal right to the disputed sums be determined in a suit for refund. Bob Jones University v. Simon [ 74-1 USTC ¶9438], 416 U.S. 725, 736 (U.S. 1974) (citing Enochs v. Williams Packing & Navigation Co. [ 62-2 USTC ¶9545], 370 U.S. 1. (1962)). Given the purpose of §7421(a), Congress has limited the set of circumstances warranting departure from the prohibition on enjoining tax assessment or collection. ¹

None of those circumstances arises here. The only exception that would potentially apply to an individual in Mr. Khalid s position is contained in 26 U.S.C. 6 §330(e)(1), ² which states:

Except as provided in paragraph (2), if a hearing is requested under subsection (a)(3)(B), the levy actions which are the subject of the requested hearing and the running of any period of limitations ... shall be suspended for the period during which such hearing, and appeals therein, are pending. In no event shall any such period expire before the 90th day after the day on which there is a final determination in such hearing. Notwithstanding the provisions of section 7421(a), the beginning of a levy or proceeding during the time the suspension under this paragraph is in force may be enjoined by a proceeding in the proper court, including the Tax Court. The Tax Court shall have no jurisdiction under this paragraph to enjoin any action or proceeding unless a timely appeal has been filed under subsection (d)(1) and then only in respect of the unpaid tax or proposed levy to which the determination being appealed relates. Id.

In other words, a federal court may exercise jurisdiction over a suit seeking to enjoin a levy assessment during the time that a hearing, and its result, are pending. The hearing in question shall be held by the Internal Revenue Service Office of Appeals, 26 USCS §6330(b)(1), and it must have been requested within thirty days of receiving notice of an intent to levy, §6330(a)(3).

Mr. Khalid s most recent Intent To Levy Due Process Notice was issued on May 24, 2002. At no time has Mr. Khalid sought a hearing before the IRS Office of Appeals. Accordingly, 26 U.S.C.S. §6330(e)(1) does not apply here. Since none of the other exceptions to §7421(a) applies here, the court lacks jurisdiction to hear Mr. Khalid s suit. Accordingly, it is hereby ORDERED that defendant s motion for summary judgment is GRANTED.

¹ These exceptions are exclusive. See, e.g., In re Becker's Motor Transp. [ 81-1 USTC ¶9348], 632 F.2d 242, 246 (3d Cir. 1980) ( we are of the opinion that judicially created exemptions to §7421(a) contravene clear congressional intent.... ).

² Other exceptions pertain to levies against partnerships, 26 U.S.C. §6225(b); individuals who file joint tax returns 26 U.S.C. §6015(e); individuals who post a bond, 26 U.S.C. §6672(c), or otherwise furnish partial payment of their tax liability, 26 U.S.C. §6694(c); and so on.

[2005-2 USTC ¶50,532] Charlotte Broderick, Plaintiff v. United States of America, Defendant.

U.S. District Court, Dist. Ariz.; 2:04cv01851-PHX-MHM, July 6, 2005 .

[ Code Sec. 6330]

Individual tax liability: Collection Due Process hearing: Jurisdiction: Appeal: Procedural regularity: Underlying tax liability.  

A taxpayer's complaint seeking judicial review of an IRS Appeals determination regarding a Collection Due Process (CDP) hearing was dismissed for lack of jurisdiction. Although the focus of her complaint, the IRS decision to conduct a telephone hearing, rather than a face-to-face hearing, was procedural, and the underlying tax liability was not at issue, the procedural argument did not provide for jurisdiction to challenge an IRS assessment.

ORDER

MURGUIA, District Judge: Plaintiff, Charlotte Broderick, proceeding pro se, filed this complaint in the United States District Court in the District of Arizona seeking "judicial review of a determination by the Defendants, [United States of America], from a collection due process hearing ("CDPH") under the provisions of 26 U.S.C. §6330." (Doc. no. 1, Complaint ¶¶1, 2). Plaintiff contends that the Defendant refused to conduct a face to face hearing, the statutory default according to the Plaintiff. ( id. at ¶¶8 - 10). Plaintiff further contends that substituting a face to face hearing with a telephone hearing should only be conducted at the request of the Plaintiff; however, the Defendant, deciding in advance that Plaintiff's claims were frivolous, determined that the Plaintiff was not entitled to a face to face hearing. ( id. at ¶¶9 - 10). Plaintiff contends, that despite her objection to a telephone hearing, the Hearing Officer conducted an ex parte hearing on June 30, 2004 and issued a determination letter on August 5, 2004 stating that the Plaintiff declined the telephone hearing. ( id. at ¶11). Plaintiff, however, asserts that she did not decline the telephone hearing, but, rather, objected to a change to that forum. ( id. at ¶11).

Defendant has filed a motion to dismiss Plaintiff's Complaint, claiming that this Court lacks subject matter jurisdiction under Fed.R.Civ.P. 12(b)(1). (Doc. no. 7-9). Plaintiff has filed a response to Defendant's motion to dismiss and Defendant has filed a reply. (Doc. no. 12, 13). The Court has considered the parties' arguments and enters the following Order.

A jurisdictional challenge under Rule 12(b)(1) may be made either on the face of the pleadings or by presenting extrinsic evidence. Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9 ^th Cir. 2003). When a question of the district court's jurisdiction is raised the court may inquire into the facts as they exist and may review extrinsic evidence to resolve factual disputes concerning the existence of jurisdiction. McCarthy v. United States, 850 F.2d 558, 560 (9 ^th Cir. 1998). "Once the moving party has converted the motion to dismiss into a factual motion by presenting affidavits or other evidence properly brought before the court, the party opposing the motion must furnish affidavits or other evidence necessary to satisfy the burden of establishing subject matter jurisdiction." Savage v. Glendale Union High School, Distr. No. 205, 343 F.3d 1036, 1040 n. 2 (9 ^th Cir. 2003) (citing St. Clair v. City of Chico, 880 F.2d 199, 201 (9 ^th Cir. 1989)).

In support of its motion to dismiss, Defendant has submitted the Declaration of John B. Snyder, III, Trial Attorney, Tax Division, Department of Justice. (Doc. No. 9). Mr. Snyder has attached to his Declaration documents relevant to the IRS appeals determination concerning Plaintiff's income tax liabilities. (Doc. No. 9, Exhibit A). The Court may consider this information on its determination of jurisdiction. On August 5, 2004, the IRS notified Plaintiff in a "Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330," sent via certified mail, that the IRS's decision, "that a levy by the Government is appropriate as it balances the Government's need to efficiently collect these tax underpayments," had been upheld. ( id.). The "Summary of Determination," included with the letter, indicated that the matter at issue concerned tax underpayments for the years 1995 through 1997. ( id.). The "Summary of Determination" explained that all applicable laws and procedures had been followed, that the Plaintiff had requested and was offered a CDPH, that a face to face hearing was not appropriate because Plaintiff did not raise any issues relevant to paying her tax liability, that Plaintiff declined a telephone hearing scheduled by the Settlement Officer, and that disputes to this determination must be filed with the United States Tax Court. ( id.).

On September 3, 2004, Plaintiff filed her Complaint in this Court seeking review of the appeals determination. (Doc. no. 1, Complaint ¶1). Plaintiff indicates in the Complaint that this Court has jurisdiction and not the United States Tax Court because "the underlying tax liability is not in dispute and no deficiency procedures are otherwise implicated determining liability." ( id. at ¶2).

Defendant contends that "when the proposed collection action at issue in a [CDPH] involves an income tax liability, as it does in this case, judicial review over any determination made lies with the United States Tax Court, not the District Court." (Doc. no. 8, p. 3). In support of this contention, Defendant relies on 26 U.S.C. §6330(d)(1), a specific Treasury Regulation, which is quoted in Defendant's motion to dismiss, and Krugman v. Commissioner [ CCH Dec. 53,355], 112 T.C. 230, n. 6 (1999). Defendant also relies on Bartschi v. Tracy [ 2001-2 USTC ¶50,672], No. 00CV1548, 2001 WL 1338795, at *3 (D. Ariz. Sept. 5, 2001), to support its contention.

Plaintiff, however, asserts that this is a case of first impression in this Circuit and "in order to resolve the matter, it is necessary to determine whether the claims involving the alleged income tax assessments involve the underlying tax liability." (Doc. no. 12, p. 2). Plaintiff views 26 U.S.C. §6330(c)(2)(b) as a section which defines the term "underlying tax liability." ( id.). Plaintiff reasons that "underlying tax liability" only involves how much is owed and is separate from any procedural aspects of 26 U.S.C. §6330. ( id.). Applying this definition to 26 U.S.C. §6330, and using techniques of statutory construction, Plaintiff contends that since she "is not challenging how much is owed, and is only challenging the procedural regularity, the District Court and not the Tax Court has jurisdiction." ( id. at p. 4).

Defendant, in response to Plaintiff's argument, contends that this is not a case of first impression as there are numerous cases in the Ninth Circuit dealing with this same issue. (Doc. no. 13, p. 2). Defendant has referred the Court to Bartschi [ 2001-2 USTC ¶50,672], 2001 WL 1338795, to support this claim. Furthermore, Defendant contends that Plaintiff is "confus[ing] the scope of the [CDPH] with the limits of the Court's jurisdiction to review [CDPH]." (Doc. no. 13, p. 2).

In True v. Commissioner [ 2000-2 USTC ¶50,634], 108 F.Supp.2d 1361, 1364 (M.D. Fla. 2000), the district court held that a "claimant is required to bring a §6330 appeal in the Tax Court, so long as the Tax Court has jurisdiction of the underlying tax liability." Because the tax liabilities in True were income tax liabilities, the district court ruled that it lacked jurisdiction and that the Tax Court had jurisdiction.

Similarly, in the instant case, the underlying tax liabilities involve income tax liabilities. Therefore, the Tax Court has jurisdiction over the judicial review sought by the Plaintiff. Such a ruling is in accordance with other decisions made in this District.

In Bartschi, the district court held that jurisdiction, under 26 U.S.C. §6330, "is dependent upon the underlying tax liability, not whether the claims are characterized as procedural or substantive. [ 2001-2 USTC ¶50,672], 2001 WL 1338795, at *3. When the IRS's proposed levy involves an underlying income tax liability, judicial review over a determination made in a [CDPH] lies in the United States Tax Court, not the district court." Id. The district court in Bartschi granted a motion to dismiss for lack of subject matter jurisdiction because the fact that the Plaintiff was challenging a procedural regularity of the assessment, and not the underlying tax liability, did not provide jurisdiction to the district court. Id.

Similarly, in this case, the Plaintiff claims that she is only challenging a "procedural regularity." (Doc. no. 12, Response pg. 4). However, a procedural argument does not provide for jurisdiction outside of the United States Tax Court for a challenge to an IRS assessment under 26 U.S.C. §6330.

And, while Plaintiff contends that her interpretation of 26 U.S.C. §6330 (Doc. no. 12, Response pg. 4) is correct, other case law does not support her argument:

While it is arguable that Congress only intended, while drafting §6330, to grant the United States Tax Court jurisdiction over the calculus of IRS assessments regarding income tax liability, ... following such a rationale would do no more than allow a plaintiff a second opportunity to litigate United States Tax Court decisions by simply redrafting their complaints to allege that it was the procedure followed and not the determination of the IRS that caused the injury. Generally accepted notions of res judicata cannot be so easily circumvented, no matter how careful the word-smithing.

Sepp v. Tracy [ 2002-1 USTC ¶50,341], No. CIV.00-1724-PHX-SMM, 2002 WL 741644, at *2 (D. Ariz. Mar 4, 2002 ).

Pursuant to 26 U.S.C. §6330(d)(1), where, as here, a court determines that the appeal was to an incorrect court, the appeal may be filed with the correct court within 30 days after the court's determination.

Accordingly,

IT IS ORDERED that Defendant's motion to dismiss Plaintiff's Complaint for lack of subject matter jurisdiction (Doc. no. 7) is granted.

IT IS FURTHER ORDERED that Plaintiff's Complaint and action are dismissed for lack of subject matter jurisdiction.

IT IS FURTHER ORDERED that pursuant to 26 U.S.C. §6330, Plaintiff shall have 30 days from the filing date of this Order to file her appeal with the appropriate court.

[2005-2 USTC ¶50,552] Heartland Automotive Enterprises, Inc., Plaintiff v. United States of America by and through Commissioner of Internal Revenue Service, Defendant.

U.S. District Court, Mid. Dist. Ga., Macon. Div.; 5:05-CV-44(CAR), July 19, 2005 .

[ Code Sec. 6330]

Notice of levy and rights to hearing: Judicial review of appeals determination: District Court jurisdiction: Impartial IRS appeals officer. --

A corporation's complaint seeking review of a Collection Due Process (CDP) determination was dismissed. Under Code Sec. 6330(c)(2)(B) and Reg. §301.6330-1(e)(3), a taxpayer may not challenge the merits of an underlying tax or penalty if the taxpayer previously had the opportunity to dispute the liability. Since the taxpayer had such an opportunity, the court was precluded from considering the taxpayer's liability for the penalties. However, the taxpayer was not without legal recourse because the taxpayer could pay the tax liability, penalties and interest and file a claim for refund. Then, if the IRS denied or failed to act on the refund claim, the taxpayer may file a refund suit. Finally, the court determined that the Appeals officer acted in an impartial matter and only took the appropriate actions to prepare for the Appeals hearing.

JUDGMENT

ROYAL, District Judge: Pursuant to this Court's Order dated July 19, 2005 , and for the reasons stated therein, JUDGMENT is hereby rendered in favor of Defendant(s). Plaintiff(s) shall recover nothing of Defendant(s). Defendant(s) shall also recover costs of this action.

ORDER ON DEFENDANT'S MOTION TO DISMISS OR ALTERNATIVELY FOR SUMMARY JUDGMENT

This case is presently before the Court on Defendant's Motion to Dismiss or Alternatively for Summary Judgment [Doc. 3]. Plaintiff Heartland Automotive filed a Response [Doc. 8], and Defendant, the United States of America, replied [Doc. 10]. Even accepting Plaintiff's facts as true, after having considered the briefs, information presented in the pleadings, relevant law, and the arguments of the parties, the Court hereby ORDERS that Defendant's motion is GRANTED for the reasons listed below.

A taxpayer in a collection due process proceeding, such as Plaintiff, may not challenge the merits of an underlying tax or penalty if the taxpayer previously had the opportunity to dispute the tax liability. I.R.C. §6330(c)(2)(B); Treas. Reg. §301.6330-1(e)(3) Q&A E2. Heartland had such a previous opportunity when it contacted the revenue officer assigned to collect the penalties, and she declined to abate the penalties at issue. Then, Heartland appealed that denial to the Office of Appeals of the Internal Revenue Service, and the appeal was assigned to Janice Murphy of the IRS Office of Appeals. Murphy determined that Heartland had not provided adequate evidence to establish a reasonable cause exception for not paying for not using the EFTPS system and in the case of the last quarter of 2001, not timely making its deposits. By letter dated October 9, 2003, she advised Heartland that its request for abatement was denied. This Court is precluded from considering Heartland's liability for the penalties at issue because Heartland had a prior opportunity to administratively contest that liability.

Despite the dismissal of this case, Plaintiff is not without an avenue by which it may challenge the merits of the penalty assessed against it. Plaintiff may pay the tax liability, file a claim for a refund with the IRS, and, if that claim is denied or if six months passes without action by the IRS, it may file a refund suit in federal court. See, e.g., 28 U.S.C. §1346(a)(1), 26 U.S.C. §§6532(a)(1) and 7422(a), and Treas. Reg. §301.6402-2. In other words, taxpayer's remedy in this case is a standard tax refund suit.

Also, the Court finds that Debra Daigle of the IRS Office of Appeals, the settlement officer for the Collection Due Process Hearing, had no prior involvement with the liabilities at issue. Daigle acted as an impartial officer of the IRS when she conducted the CDP hearing. Any action taken by Daigle prior to the hearing was standard preparation for a hearing of this type.

For the aforementioned reasons, Defendant's Motion to Dismiss is hereby GRANTED.

So Ordered.

[2005-2 USTC ¶50,555] B&E Wholesale Meats, Inc., Plaintiff v. Commissioner of Internal Revenue Service, Defendant.

U.S. District Court, No. Dist. Ill., East. Div.; 04 C 4232, June 16, 2005 .

[ Code Sec. 6330]

Collection Due Process hearing: District Court jurisdiction: Defunct corporation. --

A dissolved corporation's appeal of an adverse Collection Due Process hearing determination was rejected. The corporation's claim arose upon the filing of the tax lien, but at that point the corporation had already been dissolved, so it lacked capacity to sue under state (Illinois) law.

[ Code Sec. 7121]

Closing agreements: Requirement of writing. --

A corporation's claim that the IRS's continuing collection efforts violated an oral settlement agreement was rejected. A settlement agreement with the IRS must be in writing to be enforceable.

[ Code Sec. 7402]

District Court jurisdiction: Defunct corporation: Case or controversy requirement. --

A dissolved corporation's appeal of an adverse Collection Due Process hearing determination was rejected. There was no case or controversy over which the court could have jurisdiction since the IRS had stated through counsel that it was not pursuing any tax claim against the corporation. Fear of further IRS action against the corporation or its principal is not sufficient to create a justiciable controversy.

ORDER

G ETTLEMAN, District Judge: Plaintiff B&E Wholesale Meats, Inc. (B&E) filed a complaint appealing an adverse collection due process ("CDP") determination against plaintiff by defendant Commissioner of Internal Revenue Service ("IRS") under §6320 and §6330 of the Internal Revenue Code ("IRC"), 26 U.S.C. §6101 et al., and alleging breach of a settlement agreement by the IRS. Defendant filed a motion for summary judgment under Fed. R. Civ. P. 56, based on the fact that plaintiff is a dissolved corporation and the claims from which it appeals did not arise prior to its dissolution.

Jurisdiction is under §7402(a) of the IRC, 26 U.S.C. §6330(d)(1)(B), which provides that a taxpayer may appeal a collective due process ("CDP") determination to the district court if, as here, the Tax Court has determined ¹ that it does not have jurisdiction of the underlying tax liability.

FACTS ²

Plaintiff B&E was a sub-chapter S corporation incorporated under the laws of Illinois. Robert Wlasak ("Wlasak") was the president and sole employee of plaintiff. In 1993, Wlasak made quarterly payments of taxes, each in the amount of $2,750.00, to the Internal Revenue Service ("IRS"), as payment of estimated taxes by plaintiff. Each check included a notation with Wlasak's social security number. There was no notation on the checks and no tax return filed for them to indicate that they were payments of the withholding taxes of plaintiff B & E, rather than Wlasak as an individual. On May 2, 1994, the IRS refunded $15,670.00 to Wlasak. Shortly thereafter, Wlasak contacted the IRS and stated that $11,000, consisting of the four payments of $2,750, should not have been returned to him. The IRS responded that the payments were estimated tax payments made on his individual account, and thus the refund was proper.

On June 23, 1997, the IRS contacted plaintiff and requested that it file its Form 941 returns ³ for the four quarters of 1993 and pay the taxes due thereon. In early 1999, plaintiff ceased doing business, and on November 1, 1999, plaintiff was involuntarily dissolved. On September 13, 1999, the IRS again requested that plaintiff file its 941 returns for 1993. On September 26, 1999, the IRS received the requested returns. In December 1999, the IRS demanded payment of the taxes due, $11,000, plus interest and penalties as allowed by law, for a total of $26,000. Wlasak offered to pay the tax if the IRS would waive interest and penalties, which the IRS refused to do. The IRS requested time to look into the matter, and transferred the case to its Milwaukee, Wisconsin office.

On January 17, 2001, the IRS sent plaintiff notices of intent to levy for the last three quarters of 1993, and on February 21, 2001, the IRS sent notices of intent to levy for the first quarter of 1993. On November 28, 2001, the IRS sent plaintiff a notice of federal tax lien filing, and filed a tax lien against plaintiff with the Recorder of Deeds, Cook County, Illinois. On December 11, 2001, plaintiff requested a CDP hearing on both the levy and lien actions.

On May 8, 2002, the IRS and plaintiff's attorney participated in a telephone conference. Plaintiff maintained that it did not owe the taxes because it had timely paid them, and the IRS maintained that the taxes were not properly paid because they were made as estimated tax payments containing Wlasak's personal social security number. On July 6, 2002, an oral agreement was reached between plaintiff and an IRS revenue officer and a supervisor from the Morton Grove, Illinois office of the IRS. Pursuant to the agreement, plaintiff tendered a check in the amount of $7,779. Six months later plaintiff received a phone call from the Milwaukee, Wisconsin IRS office advising plaintiff that the matter was still pending in Wisconsin, and that plaintiff had not settled the non-trust fund portion of the tax. Plaintiff maintained that the $7,779 had settled its entire corporate liability. The IRS said it would investigate the matter.

Plaintiff did not hear from the IRS again until it received a Notice of Determination, dated July 17, 2003, from the IRS in Milwaukee. The Notice of Determination advised plaintiff that the case had not been settled because no offer in compromise had been signed by either party, that the lien was proper and would not be withdrawn, and that the corporate portion of the tax liability remained unpaid. The Notice of Determination also advised plaintiff that defendant "could place the account in the uncollectable, defunct corporation status."

SUMMARY JUDGMENT STANDARD

A movant is entitled to summary judgment under Rule 56 when the moving papers and affidavits show there is no genuine issue of material fact and the movant is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Unterreiner v. Volkswagen of America, Inc., 8 F.3d 1206, 1209 (7th Cir. 1993). Once a moving party has met its burden, the nonmoving party must go beyond the pleadings and set forth specific facts showing there is a genuine issue for trial. See Fed. R. Civ. P. 56(e); Becker v. Tenenbaum-Hill Associates, Inc., 914 F.2d 107, 110 (7th Cir. 1990). The court considers the record as a whole and draws all reasonable inferences in the light most favorable to the party opposing the motion. See Fisher v. Transco Services-Milwaukee, Inc., 979 F.2d 1239, 1242 (7th Cir. 1992).

DISCUSSION

I. Claims under §§6320 and 6330

Sections 6320 and 6330 of the IRC both give taxpayers rights to a CDP hearing and rights to appeal any adverse decision from such a hearing. 26 U.S.C. §§6320 and 6330. Defendant argues that plaintiff cannot sue for claims that arose after its dissolution, which plaintiff concedes took place on October 1, 1999. Pursuant to Fed. R. Civ. P. 17(b), "[t]he capacity of a corporation to sue or be sued shall be determined by the law under which it was organized." Plaintiff was organized under Illinois law, and the court looks to Illinois law to determine its capacity to sue. See Citizens Elec. Corp. v. Bituminous Fire & Marine Ins., Co., 68 F. 3d 1016, 1019 (7 ^th Cir. 1995). Under Illinois law, a corporation may commence a suit within five years after dissolution on any claim that arose prior to its dissolution. 805 ILCS 5/12.80 provides that "the dissolution of a corporation...shall not take away nor impair any civil remedy available to or against such corporation, its directors or shareholders, for any right or claim existing, or any liability incurred, prior to such dissolution if action or other proceeding thereon is commenced within five years after the date of such dissolution." In the instant case, it is undisputed that the action was commenced within the five year period. The question, then, is whether plaintiff's claims arose prior to its dissolution.

Section 6320 of the IRC gives a taxpayer rights to a CDP hearing after a notice of a federal tax lien filing is mailed. Defendant argues that no claim arises under this section until the notice of lien filing is mailed. In the instant case, the notice of lien filing is dated November 28, 2001, after plaintiff was dissolved. Thus, plaintiff lacked capacity to sue under Illinois law.

II. Breach of settlement agreement

Plaintiff's complaint also alleges that defendant breached its settlement agreement reached with a supervisor in the Morton Grove, Illinois IRS office to settle its tax liabilities from 1993. Defendant argues that there was no valid settlement contract because it was not in writing, as required by §7121 of the IRC, and that the alleged breach occurred post-dissolution, and is thus barred by Illinois statute of limitations.

The settlement or closure of a civil tax dispute with the IRS is an matter controlled by statute. See 26 U.S.C. §7721 (closing agreements), 7122 (compromises). ⁴ The Seventh Circuit has held that these provisions provide the exclusive method for settling civil tax disputes with finality. Section 7121 of the IRC provides, "The Secretary is authorized to enter into an agreement in writing with any person relating to the liability of such person (or of the person or estate for whom he acts) in respect of any internal revenue tax for any taxable period." The Seventh Circuit has held that absent a closing agreement signed by an authorized signatory, the IRS is not bound by any alleged settlement made by one of its agents. See Reynolds v. Commissioner [ 2002-2 USTC ¶50,525], 296 F.3d 607, 613 (7 ^th Cir. 2002) ( section 7121 is the exclusive method to settle a tax dispute with finality); Urso v. United States; 72 F.3d 59, 60 (7 ^th Cir. 1996); Kelley v. United States [ 98-2 USTC ¶50,508], 1998 WL 325219, at *4 (N.D. Ill. June 10, 1998). The Urso court rejected the taxpayers' argument that a tax examiner had entered into a binding agreement with them, holding, "Only a closing agreement signed by a person authorized to ink such pacts, the expiration of the statute of limitations, or the disposition of litigation brings the process to a guaranteed end. Apparent authority is not enough to bind the federal government to a contract; unless the agent has actual authority, any agreement is ineffectual. 72 F.3d at 60.

In the instant case, plaintiff alleges that after "settlement negotiations" at Morton Grove, the IRS supervisor made a final offer of $7,779. Plaintiff tendered a check in that amount, and asserts the "IRS agent assured [plaintiff and its counsel] that the matter was now settled once and for all and that there would be no further claims by the IRS for this matter." Plaintiff does not allege that his agreement with defendant was reduced to writing, or attach any documents reflecting the settlement to his complaint. Plaintiff does not address defendant's argument that an settlement agreement with the IRS must be in writing to be enforceable, and fails to identify any case law questioning the cases cited by defendant, which support defendant's position that a writing is required by statute. Accordingly, defendant's motion for summary judgment on plaintiff's breach of contract claim is granted.

III. Case or controversy

Finally, it is worth noting that there appears to be no case or controversy over which this court has jurisdiction under Article III to the Constitution. Plaintiff is a defunct corporation against which the IRS, through its counsel, has stated it is not pursuing any tax claim. Plaintiff's counsel's fear of potential further claim activity by the IRS against plaintiff or its principal, Mr. Wlasak, is insufficient to create a justiciable controversy.

CONCLUSION

For any and all of the foregoing reasons, defendant's motion for summary judgment is granted.

¹ Plaintiff states that the instant case was filed "within 30 days of an order of dismissal by the Tax Court case No. 13538-03 for Want of Jurisdiction," but does not provide a full citation or the date of that dismissal.

² Under L.R. 56.1(b), "each party opposing a motion for summary judgment pursuant to Fed. R. Civ. P. 56 shall serve and file (1) any opposing affidavits and other material referred to in Fed. R. Civ. P. 56(e); (2) a supporting memorandum of law; and (3) a concise response to the movant's statement of facts that shall contain: (A) a response to each numbered paragraph in the moving party's statement....and, (B) a statement, consisting of short numbered paragraphs of any length, of any additional facts that require denial of summary judgment..." Plaintiff states in its response to the motion for summary judgment that, "some of the [statements of uncontested facts] are presented in a manner that can be misleading or at least that needs clarification." Plaintiff, however, did not file a response to defendant's 56.1 statement. Accordingly, the court treats the facts stated by defendant as admitted. See L.R. 56.1(a) & (b)(3)(B); McGuire v. United Parcel Service, 152 F.3d 673, 675 (7 ^th Cir. 1998) ( "An answer that does not deny the allegations in the numbered paragraph with citations to supporting evidence in the record constitutes an admission."). Moreover, the court notes that Leonard Rubin, the only lawyer who has appeared on behalf of plaintiff, is the primary witness for plaintiff and filed an affidavit attesting to the facts asserted by plaintiff. Under L.R. 83.53.7(a), Mr. Rubin would be barred from representing plaintiff advocate at trial or evidentiary hearing.

³ Form 941 is an Employer's Quarterly Federal Tax Return.

⁴ The court notes that plaintiff alleges that he reached a "settlement" with defendant, and does not challenge defendant's argument that §7121 applies.