CALDWELL v. U.S., (D.Nev. 2003)

KENT DAWSON, District Judge

This matter comes before the Court on Defendant's Motion to Dismiss, or in the Alternative For Summary Judgment (#4). Plaintiffs filed a responses in opposition (#10). Additionally, before the court is Plaintiffs' Application for Default Judgment (#12).

In their complaint, Plaintiffs allege that the IRS improperly determined that collection actions against them should not be restricted. Plaintiffs now seek to set aside the IRS's determination. The collection activity at issue stems from frivolous return penalties the IRS assessed against Plaintiffs for returns they filed for the 1997 and 1998 tax years. Plaintiffs filed Form 1040 for the 1997 and 1998 tax years. The returns had zeroes on all lines which reflected amounts of income earned or taxes due. Plaintiffs also requested a refund of all taxes either withheld or paid for those tax years. Plaintiffs attached W-2 forms to the returns which indicated Plaintiffs had earned wages. Finally, attached to the returns was a two page document which set forth arguments as to why Plaintiffs did not believe that they owed federal income taxes. The IRS assessed a $500 civil penalty against Plaintiffs under 26 U.S.C. § 6702 for each filing of the above described tax returns. Section 6702 assesses a civil penalty of $500 if an individual "files what purports to be a return" but which contains "information that on its face indicates that the self-assessment is substantially incorrect" and is due to "a position which is frivolous." Plaintiffs' self assessment of their income tax liability was substantially incorrect in that they entered zeros for all income and tax information. According to the attached statement, Plaintiffs' self-assessment was based on the position that there is no statutory income tax liability that applies to them and that wages do not constitute income. Courts have found this position to be frivolous and patently without merit. See Sisemore v. United States, 797 F.2d 268, 270 (6th Cir 1986); Olson v. United States, 760 F.2d 1003, 1005 (9th Cir. 1985). Because Plaintiffs' self-assessment was on its face substantially incorrect and was based on a frivolous position, there is no doubt as to the validity of the penalty.

On January 4, 2001, the IRS sent Plaintiffs notice informing them of its intention to levy to collect the outstanding civil penalties assessed against them. This letter notified Plaintiffs of their right to appeal the IRS's levy within 30 days by requesting a Collection Due Process Hearing ("CDP Hearing"). Plaintiff filed Form 12153 "Request for a Collection Due Process Hearing" which the IRS received. Plaintiffs CDP Hearing was held on August 30, 2001 and October 31, 2001 in Las Vegas, Nevada before an appeals officer, Tony Aguiar. Mr. Caldwell attended the hearing. Subsequently, the IRS Appeals Office sent the Plaintiffs, by certified mail, a "Notice of Determination Concerning Collection Action(s) Under Section 6320 and/or 6330." The letter informed Plaintiffs that the proposed collection action should be allowed to proceed unrestricted. The letters also informed Plaintiffs of their right to dispute the determination by filing a complaint in Federal District Court within 30 days. Plaintiff filed a timely complaint with this Court. Defendant has now filed a motion for summary judgment.

A dismissal for failure to state a claim pursuant to Rule 12(b)(6) is a ruling on a question of law. See Clegg v. Cult Awareness Network, 18 F.3d 752, 754 (9th Cir. 1994). In reviewing a Rule 12(b)(6) motion, the Court "must construe the complaint in the light most favorable to the plaintiff and must accept all well-pleaded factual allegations as true."Swarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000). Moreover, because Plaintiff in this action is proceeding pro se, the Court must liberally construe all arguments set forth in his complaint. See Boag v. MacDougall, 454 U.S. 364, 365 (1982). Review is limited to the contents of the complaint. See Sprewell v. Golden State Warriors, 231 F.3d 520, 527 (9th Cir. 2000). A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claims that would entitle him to relief. See Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Sprewell, 231 F.3d at 528. If matters outside the pleadings are considered, the court should treat the motion as one for summary judgment. See Fed.R.Civ.P. 12(c).

Summary judgment may be granted if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. See Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The moving party bears the initial burden of showing the absence of a genuine issue of material fact. See Celotex, 477 U.S. at 323. The burden then shifts to the nonmoving party to set forth specific facts demonstrating a genuine factual issue for trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Fed.R.Civ.P. 56(e). The evidence, as well as all justifiable inferences drawn from it, must be viewed in the light most favorable to the nonmoving party.See Matsushita, 475 U.S. at 587. Summary judgment shall be entered "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." See Celotex, 477 U.S. at 322.

Plaintiffs' complaint contains a barrage of meritless arguments which they insist this Court must address. The only genuine issue before this Court is whether the IRS Appeals Office met all requirements of applicable laws and administrative procedures when making its determination that the collection action against Plaintiffs should continue unrestricted. The administrative procedures will be addressed first, followed by a discussion of Plaintiffs' purely meritless arguments.

Procedures for administrative collection actions are found in 26 U.S.C. § 6330 which requires that: (1) the IRS give 30 days' written notice of the taxpayer's right to a CDP Hearing before making a levy; (2) a hearing be conducted by an officer or employee who has no prior involvement with the subject tax liability; (3) the Appeals Office obtain verification from the IRS that the requirements of any applicable law or administrative procedure have been met; (4) the taxpayer may raise any relevant issue relating to the unpaid tax or the proposed levy at the time of the CDP Hearing, including appropriate spousal defenses, challenges to the collection actions and offer of collection alternatives; (5) the taxpayer may challenge the existence of the underlying tax liability under some circumstances; and (6) the final determination by the Appeals Officer shall take into consideration (a) the verification that applicable law and administrative procedures have been met, (b) the issues raised by the taxpayer, and (c) whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive than necessary.

A review of Plaintiffs' complaint illustrates that all of the above requirements have been met: (1) Plaintiffs received timely notice of levy and requested a CDP hearing; (2) Mr. Caldwell attended the CDP Hearing on August 30, 2001 and October 31, 2001 with Appeals Officer Aguiar, who had no prior involvement with the subject tax liability; (3) the Appeals Office obtained Form 4340 from the IRS which serves as verification that the requirements of any applicable laws or administrative procedures were met; (4) Plaintiff raised no relevant issues or appropriate defenses pertaining to the proposed collection action and offered no collection alternatives; (5) at the hearing, Plaintiff challenged the liability for the penalty and whether the return filed was frivolous, arguments determined to be frivolous by the appeals officer and (6) in the final determination, the appeals officer stated that he took into consideration all required statutory elements.

1. Inadequacy of Notice

Plaintiffs repeatedly argues that letters and notices the IRS sent as well as determinations and assesments made by the IRS are invalid because there is no evidence of any delegated authority from the Secretary of Treasury to the various IRS employees. Relevant statutes and regulations demonstrate, however, that the Secretary does have the power to collect taxes, and that such power can be delegated to local IRS agents. 26 U.S.C. § 6301 provides that "[t]he Secretary shall collect the taxes imposed by the internal revenue laws." The actual task of collecting the taxes, however, has been delegated to local IRS directors. See 26 C.F.R. § 301.6301-1 ("The taxes imposed by the internal revenue laws shall be collected by district directors of internal revenue."). The delegation of authority down the chain of command, from the Secretary, to the Commissioner of Internal Revenue, to local IRS employees constitutes a valid delegation by the Secretary to the Commissioner, and a re-delegation by the Commissioner to the delegated officers and employees. See 26 U.S.C. § 7701(a)(11)(A), (12)(A)(i); 26 C.F.R. § 301.7701-9; Hughes v. United States, 953 F.2d 531, 536 (9th Cir. 1992).

Plaintiffs also argue that they were neither sent nor received the required Statutory Notice and Demand for payment with regard to the penalties at issue. Plaintiffs want the information contained in a specific document or form. However, Plaintiffs' beliefs are based on faulty logic and sources. Notice and demand is not required to be sent on any particular form so long as the requisite information is included. See Hoffman v. United States, 209 F. Supp.2d 1089, 1094 (W.D. Washington 2002); Hughes, 953 F.2d at 536. Plaintiffs received notice mailed January 4, 2001 of the assessment and the IRS' intent to place a lien on Plaintiffs' property in attempt to collect the assessment.

2. Adequacy of Supporting Documentation

Plaintiffs contend the IRS has never produced a document supporting imposition of the penalties at issue. They do not believe that a computer transcript is adequate to verify an assessment was made or approved by the appropriate personnel. At the CDP Hearing, the Appeals Officer verified that all appropriate administrative procedures had occurred through Form 4340, "Certificate of Assessments and Payments" for the penalty assessment. The Ninth Circuit has held that a Form 4340 is sufficient evidence to support a grant of summary judgment on a claim that the IRS failed to issue notice of assessment and demand for payment. See Huff v. United States, 10 F.3d 1440, 1446-1447 (9th Cir. 1993); Hughes, 953 F.2d at 535. Official certificates, such as Form 4340, can constitute proof of the fact that the assessments actually were made. See Id. Additionally, there is no requirement in § 6330 of the IRS code that the appeals officer at the hearing present verification to Plaintiffs. The appeals officer is supposed to obtain the verification from the Secretary and shall consider that verification in making a determination. See 26 U.S.C. § 6330 (c)(3)(A).

3. Regulation Requiring Plaintiff to Pay Penalty

Plaintiffs contend that no Treasury Department regulation requires that they pay the penalties at issue and Defendant has not produced any such regulation. 26 U.S.C. § 6702 (a), however, provides the statutory authority for assessing the penalty and does not require any implementing regulations. See Hoffman, 209 F. Supp.2d at 1094.

4. Underlying Liability for Income Tax

Plaintiffs contend that no statute establishes an underlying liability for the income tax to which the penalties relate, and the IRS has not identified any such statute. Plaintiffs' liability for tax deficiencies is not at issue in this case, although they consistently tried to make it so at the CDP Hearing and in the instant complaint. Plaintiffs' remedy with regard to the liability for tax deficiencies does not lie in this Court. This Court does not have jurisdiction to consider Plaintiffs' income tax deficiencies. See 26 U.S.C. § 6213 (a); Moore v. Commissioner, 114 T.C. 171, 175 (2000).

Plaintiffs' 1997 and 1998 Forms 1040 were clearly frivolous and the civil penalty was validly assessed. More importantly, for purposes of this action, the Defendant properly followed all requirements of applicable laws and administrative procedures when assessing the civil penalty and then determining the collection action should continue unrestricted. Moreover, the arguments that the Court could glean from Plaintiffs' complaint and opposition to Defendant's motion are purely meritless. Since the Court is dismissing Plaintiffs' complaint, Plaintiffs' Application for Default Judgment is moot.

Accordingly, IT IS HEREBY ORDERED that Defendant's Motion to Dismiss, or in the Alternative For Summary Judgment (#4) is GRANTED.

IT IS FURTHER ORDERED that Plaintiffs' complaint is DISMISSED.

IT IS FURTHER ORDERED that Plaintiffs' Motion for Default Judgment (#12) is DISMISSED as moot.