MARCH v. I.R.S

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Docket Number

No. 02-2087.

Attorney(S)

Submitted on the briefs: Paul F. Becht of the Becht Law Firm, Albuquerque, NM, for Plaintiffs-Appellants. After examining the briefs and appellate record, this panel has determined unanimously to honor the parties' request for a decision on the briefs without oral argument. See Fed.R.App.P. 34(f). The case is therefore submitted without oral argument. David C. Iglesias, United States Attorney, and Manuel Lucero, Assistant U.S. Attorney, District of New Mexico, Albuquerque, NM, for Defendant-Appellee.

Judges

Monroe G. McKay

Acts

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Smart Summary

Factual and Procedural Background

This case arises from a bankruptcy proceeding in which the Internal Revenue Service (IRS) filed a proof of claim for unpaid taxes for the years 1992 through 1997. The Appellants did not file tax returns or pay income tax for those years. They objected to the IRS's proof of claim, alleging noncompliance with certain Internal Revenue Code provisions and Treasury Regulations. The bankruptcy court dismissed these objections. Upon appeal, the district court adopted the magistrate judge's recommendation and dismissed the appeal. The current appeal to this court challenges the district court's dismissal.

Legal Issues Presented

Whether the Appellants were properly served with the requisite deficiency notices as required by the Internal Revenue Code and Treasury Regulations.
Whether the form provided by the IRS for the proof of claim was required to contain a seal of the district director of the IRS, specifically whether Form 23C is mandatory or if substitute forms satisfy the statutory and regulatory requirements.

Arguments of the Parties

Appellants' Arguments

Appellants contend they were never served with the required deficiency notices as mandated by 26 U.S.C. § 6203 and 26 C.F.R. § 301.6203-1.
They argue the IRS must complete and provide a Summary Record of Assessment on Form 23C, signed by an authorized IRS officer, and claim the Form 4340 certificates provided do not meet these regulatory requirements.
They assert that even if substitute forms are allowed, such forms must be certified with the seal of the district director pursuant to 26 C.F.R. § 301.7514-1(c), (d).

Appellee's Arguments

The IRS provided Certificates of Assessments and Payments on Form 4340, which courts have held constitute presumptive proof of a valid assessment.
The IRS has transitioned from using Form 23C to RACS Report 006, a computer-generated summary record of assessment signed by an assessment officer, which satisfies the signature and certification requirements of 26 C.F.R. § 301.6203-1.
The forms provided contained the necessary seal, and the Appellants waived the claim regarding the seal by failing to raise it in the bankruptcy court.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
In re Hedged-Investments Associates, Inc., 84 F.3d 1267, 1268 (10th Cir. 1996)	Standard of review for district court's legal determinations on appeal (de novo review)	The court applied de novo review to the district court's legal conclusions.
Guthrie v. Sawyer, 970 F.2d 733, 737 (10th Cir. 1992)	Certificates of Assessments and Payments on Form 4340 constitute presumptive proof of a valid tax assessment	The court relied on this precedent to uphold the validity of Form 4340 as evidence of a valid assessment.
United States v. Tempelman, 111 F.Supp.2d 85, 90-91 (D.N.H. 2000), aff'd 12 Fed.Appx. 18 (1st Cir. 2001)	Form 4340 is acceptable proof of assessment and satisfies regulatory requirements	The court cited this case to support the acceptance of Form 4340 certificates in lieu of Form 23C.
United States v. Estabrook, 78 F.Supp.2d 558, 561-62 (N.D.Tex. 1999)	Form 4340 certificates are presumptive proof of valid assessment	Used to bolster the court's conclusion that Form 4340 satisfies statutory and regulatory requirements.
Roberts v. Commissioner, 118 T.C. 365, 370 (2002), aff'd without published opinion 329 F.3d 1224 (11th Cir. 2003)	IRS transition from Form 23C to RACS Report 006 as the summary record of assessment	Supported the court's recognition that RACS Report 006 meets the regulatory requirements.
United States v. Letscher, 83 F.Supp.2d 367, 375 (S.D.N.Y. 1999)	Recognition of RACS Report 006 as a valid summary record of assessment	Confirmed the validity of RACS Report 006 used by the IRS.
Leier v. Dept. of Treasury/IRS, 73 A.F.T.R.2d (RIA) 94-533, 534 (M.D.Fla. 1993)	IRS use of RACS Report 006 as an acceptable substitute for Form 23C	Reinforced the court's conclusion regarding RACS Report 006.
Tsimbidis v. IRS, 72 A.F.T.R.2d (RIA) 6640, 6641 (E.D.Va. 1993)	Acceptance of RACS Report 006 in lieu of Form 23C	Supported the court's position on valid forms of assessment records.
Erickson v. United States, 1990 WL 322794 (W.D.Wash. Aug. 15, 1990)	Limited use of Form 23C when computer systems are unavailable	Used to explain the current limited role of Form 23C.

Court's Reasoning and Analysis

The court clarified that the IRS's use of Form RACS 006, a computer-generated summary record of assessment signed by an assessment officer in accordance with 26 C.F.R. § 301.6203-1, satisfies the statutory and regulatory notice requirements. Although Appellants argued that the IRS must use Form 23C, the court found no statutory or regulatory mandate for exclusive use of Form 23C. The regulations require that an assessment be signed by an assessment officer and that a taxpayer may request a copy of the assessment record, but do not specify the form.

The court noted that Form 4340 certificates are generally accepted as presumptive proof of valid assessments and that the IRS's transition from Form 23C to RACS 006 is well-established and consistent with regulatory requirements. The court rejected the Appellants' claim regarding the absence of the district director's seal on the form, finding that the forms provided did contain the seal and that this claim was waived by Appellants for failure to raise it in the bankruptcy court.

Thus, the court concluded that the IRS complied with the applicable statutory and regulatory procedures in filing its proof of claim, and the district court did not err in dismissing the appeal.

Holding and Implications

The district court's Order of December 31, 2002, dismissing the appeal is AFFIRMED.

The court granted the Appellee's Motion to Amend Opinion, construed as a Motion for Rehearing, to clarify that Form RACS 006 satisfies statutory and regulatory notice requirements. The Appellants' claims regarding deficiency notices and form certification were found without merit. The decision upholds the validity of the IRS's proof of claim based on Forms 4340 and RACS 006, and no new precedent beyond this clarification was established. The direct effect is the dismissal of Appellants' objections and affirmance of the IRS's claim in the bankruptcy proceeding.

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Brian Homer MARCH and Victoria Baca March, Plaintiffs-Appellants, v. INTERNAL REVENUE SERVICE, Defendant-Appellee.

McKAY, Circuit Judge.

We originally filed an opinion in this case on February 25, 2003. Appellee Internal Revenue Service subsequently filed a Motion to Amend Opinion and Appellants filed a Response to Appellee's Motion to Amend Opinion. We construe both Appellee's motion and Appellants' response as motions for rehearing and grant them to the extent necessary to clarify our discussion of the procedures and forms used by the IRS. Having reviewed the issues raised in the motion, we hereby vacate our opinion filed on February 25, 2003, and substitute this opinion to clarify that Form RACS 006 satisfies the statutory and regulatory notice requirements. The petitions for rehearing are in all other respects denied.

This is a review of a decision by the bankruptcy court denying Appellants' objection to the IRS's proof of claim for unpaid taxes. The facts, as found by the bankruptcy court and unchallenged by Appellants, indicate that Appellants did not file a tax return or pay income tax for the years 1992 through 1997. As part of Appellants' bankruptcy proceeding, the IRS filed a proof of claim for unpaid taxes. Appellants objected to the proof of claim, arguing that the IRS failed to comply with certain requirements of the Internal Revenue Code and Treasury Regulations. The bankruptcy court dismissed the objections. On appeal, the district court adopted the recommendation of the magistrate judge and dismissed the appeal.

On appeal to this court, Appellants make two claims: (1) that Appellants were never served with the requisite deficiency notices, and (2) that the form provided by the IRS did not contain a seal of the district director of the IRS. Specifically, Appellants claim that the IRS is required to complete a Summary Record of Assessment on Form 23C. We review the district court's legal determinations de novo. See In re Hedged-Investments Associates, Inc. 84 F.3d 1267, 1268 (10th Cir. 1996).

With respect to the first claim, Appellants argue that, pursuant to 26 U.S.C. § 6203 and 26 C.F.R. § 301.6203-1, the IRS must provide a taxpayer, upon request, with an assessment of taxes due. They further allege that the assessment must be made on Form 23C and signed by an authorized officer of the IRS. In response to Appellants' request for a proof of claim for unpaid taxes, the IRS provided Certificates of Assessments and Payments on Form 4340. Appellants assert that Form 4340 does not meet the requirements of the regulations.

Title 26 U.S.C. § 6203 simply provides that

[t]he assessment shall be made by recording the liability of the taxpayer in the office of the Secretary in accordance with rules or regulations prescribed by the Secretary. Upon request of the taxpayer, the Secretary shall furnish the taxpayer a copy of the record of the assessment.

The regulations accompanying this statute provide that "[t]he assessment shall be made by an assessment officer signing the summary record of assessment." 26 C.F.R. § 301.6203-1 (2002). The regulations further provide that the summary record of assessment shall include certain information and that upon a taxpayer's request, "he shall be furnished a copy of the pertinent parts of the assessment which set forth [certain information]." Id.

As Appellants note, the IRS has historically used Form 23C as the "Summary Record of Assessments" or "Assessment Certificate," as explained in the Internal Revenue Service Manual. As Appellants concede, however, the Service Manual is not binding on this court. Furthermore, no regulation or statute requires that the "copy of the record of the assessment" mentioned in 26 U.S.C. § 6203 be made on Form 23C.

Nevertheless, regardless of the form used, the IRS must comply with the regulations governing the assessment process. The purpose of these regulations is to ensure both the efficiency and the accuracy of the assessment process. The signature requirement in 26 C.F.R. § 301.6203-1 appears to serve multiple purposes. The requirement ensures that an assessment officer reviews the assessment before it is sent to the taxpayer, and the placing of the officer's signature establishes an effective date of the assessment that is relevant for certain timing requirements. Historically, the document reviewed and signed by the assessment officer has been Form 23C.

To ensure the taxpayer's ability to challenge alleged errors in the assessment process, the regulations allow the taxpayer to request a copy of certain parts of the assessment record. However, the courts have generally held that the IRS need not provide a taxpayer with a copy of the actual Summary Record of Assessment. Instead, the courts have held that the IRS may submit Certificates of Assessments and Payments on Form 4340. Form 4340 details the assessments made and the relevant date that a Summary Record of Assessment was executed. The courts have also held that these Certificates on Form 4340 "are presumptive proof of a valid assessment." See Guthrie v. Sawyer, 970 F.2d 733, 737 (10th Cir. 1992) (quotations and citations omitted); United States v. Tempelman, 111 F.Supp.2d 85, 90-91 (D.N.H. 2000), aff'd, 12 Fed.Appx. 18 (1st Cir. 2001); United States v. Estabrook, 78 F.Supp.2d 558, 561-62 (N.D.Tex. 1999).

The Commissioner "has for a number of years been engaged in making a transition in [his] assessment procedure from the general use of a manually prepared Form 23C to the general use of RACS 006." Roberts v. Commissioner, 118 T.C. 365, 370, 2002 WL 844724 (2002), aff'd without published opinion 329 F.3d 1224 (11th Cir. 2003). See United States v. Letscher, 83 F.Supp.2d 367, 375 (S.D.N.Y. 1999); Leier v. Dept. of Treasury/IRS, 73 A.F.T.R.2d (RIA) 94-533, 534, 1993 WL 597116 (M.D.Fla. 1993); Tsimbidis v. IRS, 72 A.F.T.R.2d (RIA) 6640, 6641, 1993 WL 565340 (E.D.Va. 1993). Like Form 23C, RACS Report 006 is a summary record of assessment. However, RACS Report 006 is generated on the computer and then signed by an assessment officer on the date of assessment in accordance with 26 C.F.R. § 301.6203-1. See Internal Revenue Manual 3.17.63.21.6(2)(b) (Oct. 1, 2002). See also Roberts, 118 T.C. at 370, n. 8. Form 23C is now only used when the computer is unavailable. See Erickson v. United States, 1990 WL 322794, at *7 (W.D.Wash. Aug.15, 1990).

Therefore, as the IRS concedes in its brief, Form 23C is not generally used. Nevertheless, since RACS Report 006 contains the same information contained on Form 23C and is certified and signed by an assessment officer, RACS Report 006 satisfies the signature and certification requirements of 26 C.F.R. § 301.6203-1. Furthermore, as discussed above, production of a Form 4340 creates a presumption that a Summary Record of Assessment, whether on Form 23C or RACS Report 006, was validly executed and certified. As the magistrate judge found, the Certificates of Assessment provided to Appellants on Form 4340 were certified and valid. Therefore, Appellants' first claim has no merit.

We note that the General Accounting Office, in a report to Congress on March 6, 1996, identified certain inaccuracies and problems with the use of RACS 006. Such inaccuracies and deficiencies have not been raised with respect to the facts in this case and are therefore irrelevant. Our review is limited to a determination of whether an assessment on RACS 006 qualifies as a summary assessment for purposes of 26 C.F.R. § 301.6203-1.

The Appellants' second claim asserts that, even if the IRS is permitted to file its proof of claim on a form other than Form 23C, the substitute form must be certified with the seal of the district director pursuant to 26 C.F.R. § 301.7514-1(c), (d). As an initial matter, Appellants have waived this claim by not raising it in the bankruptcy court. Furthermore, the claim is clearly invalid since the forms sent by the IRS contained the seal.

The regulations cited by Appellants merely provide that the various official seals of certain offices of the IRS may be used in lieu of the seal of the Treasury Department when the attestation or certification is required of an officer in that office. The regulations further provide that courts must take judicial notice of the various seals of the IRS. 26 C.F.R. § 301-7514-1(c), (d). The regulations merely require that the assessments be signed by "an assessment officer," which is appointed by the district director. 26 C.F.R. § 301.6203-1 (2002). The Form 4340 provided to the taxpayers establishes a presumption that a Form 23C or RACS 006 was validly signed and certified.

After a thorough review of the record and the briefs, we conclude that the district court did not err in dismissing the appeal, and its Order of December 31, 2002, is AFFIRMED. Appellee's Motion to Amend Opinion, which we construe as a Motion for Rehearing, is GRANTED.