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
USTC ¶50,289] Leslie E. White, Plaintiff-Appellant
v United States of America, Defendant-Respondent.
Court of Appeals, 6th Circuit; 03-6010,
December 16, 2004
Affirming DC Tenn., 2003-1
District court jurisdiction: Collection Due Process hearing.
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. .
Sanctions and costs awarded: Appeals.
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.
Penalties, civil: Frivolous returns.
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
, District Judge. *
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.
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 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
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.
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.
District Court, Mid. Dist. Tenn.,
March 10, 2005
Notice of levy and right to hearing: Judicial review of Appeals
determinations: District Court jurisdiction: Collection Due
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.
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
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.
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 [
USTC ¶50,259], 250 F.Supp.2d 919, 921-922 (M.D. Tenn.
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.
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
(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
(4) this action is hereby DISMISSED WITHOUT PREJUDICE for lack of
subject matter jurisdiction.
IT IS SO ORDERED.
, 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
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.
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
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)
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.
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
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.
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 (
, 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
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.
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.
v. Walters, 638 F.2d 947 (6th Cir. 1981).
[2003-1 USTC ¶50,435] Gregory J. Raft, Plaintiff-Appellant v. Commissioner of Internal
Court of Appeals, 6th Circuit; 03-3566,
June 1, 2005
Unpublished opinion affirming DC Ohio, 2003-1
Procedure and administration: Collection: Seizure of property:
Requirement of notice before levy: Notice of levy and right to
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.
R. App. P. 38]
Procedure and administration: Rule 38: Penalty for frivolous
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
Caution: The court has designated this opinion as NOT FOR
PUBLICATION. Consult the Rules of the Court before citing this
VARLAN, District Judge: Pro se
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.
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
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
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.
, 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
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).
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.
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).
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).
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
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
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.
Honorable Thomas A. Varlan, United States District Judge for the
Eastern District of Tennessee, sitting by designation.
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
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
Secs. 6330 and 7421]
Levy and distraint: Injunctions: Collection of tax: Requests
for hearings. --
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.
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
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
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),
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.
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.... ).
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
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
Individual tax liability: Collection Due Process hearing:
Jurisdiction: Appeal: Procedural regularity: Underlying tax
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.
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.
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
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
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.
(Doc. no. 12, Response pg. 4) is correct, other case law does not
support her argument:
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
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.
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,
U.S. District Court, Mid. Dist. Ga., Macon. Div.; 5:05-CV-44(CAR),
July 19, 2005
Notice of levy and rights to hearing: Judicial review of
appeals determination: District Court jurisdiction: Impartial IRS
appeals officer. --
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.
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
ON DEFENDANT'S MOTION TO DISMISS OR ALTERNATIVELY FOR SUMMARY
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 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
[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
Collection Due Process hearing: District Court jurisdiction:
Defunct corporation. --
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.
Closing agreements: Requirement of writing. --
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.
District Court jurisdiction: Defunct corporation: Case or
controversy requirement. --
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
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
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.
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
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."
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
I. Claims under §§6320 and 6330
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
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
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
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
For any and all of the foregoing reasons, defendant's motion for
summary judgment is granted.
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.
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.
court notes that plaintiff alleges that he reached a
"settlement" with defendant, and does not challenge
defendant's argument that §7121