WALTER TRANSPORT, INC., Plaintiffs, v. UNITED STATES of America, Defendant., United States District Court, W.D. Missouri, Western Division., 432 F.Supp.2d 955, No. 05-0529-CV-W-JTM., April 14, 2006
WALTER TRANSPORT, INC., Plaintiffs, v. UNITED STATES of America, Defendant.
United States District Court, W.D. Missouri, Western Division.
432 F.Supp.2d 955
April 14, 2006.
Benjamin Ryan Prell, Armstrong Teas╜dale LLP, Kansas City, MO, for Plaintiff.
Stephanie McClure Page, Department of Justice, Tax Division, Washington, DC, for Defendant.
ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT
MAUGHMER, United States Magistrate Judge.
Plaintiff Walter Transport, Inc. ("Walter Transport") is a corporation that has been engaged in the trucking industry since 1984. In 2004, Walter Transport experi╜enced business difficulties leading to its underpayment 1 of federal payroll taxes for the first and second quarters of 2004. Subsequently, on October 4, 2004, Walter Transport was served with a NOTICE OF INTENT To LEVY by the Internal Revenue Service ("the IRS"). According to the NO╜TICE, Warner Transport owed $73,751.43 in taxes, penalty and interest for unpaid fed╜eral payroll taxes for the first quarter of 2004 and $159,758.61 in taxes, penalty and interest for unpaid federal payroll taxes for the second quarter of 2004. The NO╜TICE further provided (in compliance with federal law, 26 U.S.C. ╖ 6330, and basic constitutional due process considerations) that Walter Transport was entitled to an administrative hearing with the IRS Set╜tlement Office. On November 1, 2004, Warner Transport timely filed its REQUEST FOR A COLLECTION DUE PROCESS HEARING WITH APPEALS asserting that, in lieu of a levy, Warner Transport should be afforded time to obtain financing to permit it to make monthly installment payments to satisfy the tax deficiency.
1. ═ Warner Transport made deposits on the re╜spective tax liabilities, but not enough to cover the entire obligation.
26 U.S.C. ╖ 6330, which provides for pre-levy notice and hearing as well as judi╜cial review of the hearing's administrative determination, was added to the Internal Revenue Code by the IRS Restructuring and Reform Act of 1998, ╖ 3401, 112 Stat. 685, 747-49. Pursuant to 26 U.S.C. ╖ 6330(a), the IRS is required to give no╜tice before imposing a levy that includes notice of the right to request an adminis╜trative hearing within the 30-day period before the levy is imposed. Moreover, "[i]f the person requests a hearing . . ., such hearing shall be held by the Internal Revenue Service Office of Appeals." 26 U.S.C. ╖ 6330(b)(1). The hearing must be conducted by "an officer or employee who has had no prior involvement" with the specified unpaid tax subject to the proposed levy. 26 U.S.C. ╖ 6330(b)(3).
Under 26 U.S.C. ╖ 6330(c)(1), the ap╜peals officer must obtain verification from the IRS Operating Division that all re╜quirements of law and administrative pro╜cedure have been met. In addition, at the hearing:
The [taxpayer] may raise [ ] any rele╜vant issue relating to the unpaid tax or the proposed levy, including . . . (i) ap╜propriate spousal defenses; (ii) chal╜lenges to the appropriateness of collec╜tion actions; and (iii) offers of collection alternatives, which may include the post╜ing of a bond, the substitution of other assets, an installment agreement, or an offer-in-compromise.
26 U.S.C. ╖ 6330(c)(2)(A)(i)-(iii). Thereaf╜ter, the appeals officer makes a determina╜tion taking into consideration the tax liabil╜ity verification, any evidence and argument presented by the taxpayer on the three issues set out above, and "whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intru╜sive than necessary." 26 U.S.C. ╖ 6330(c)(3)(A)-(C).
On February 16, 2005, 2 an Appeals Offi╜cer with the IRS, Gary D. Osterhaus ("the Appeals Officer"), conducted a telephonic hearing with Warner Transport and its legal counsel. At the hearing, the Appeals Officer verified that the tax had been prop╜erly assessed and that all legal require╜ments had been followed. Thereafter, Warner Transport proposed an installment payment plan to satisfy the deficiency in lieu of a levy. Specifically, Warner Trans╜port suggested making monthly payments of a minimum of $10,000.00. In order to determine Warner Transport's ability to make these prosed installment payments, the Appeals Officer (who had previously obtained some financial information 3 from Warner Transport) then requested that the company provide a current profit and loss statement.
2. ═ Prior to the hearing, on December 30, 2004, Warner Transport paid in full the deficiency for the federal payroll taxes for the first quar╜ter of 2004, consequently, the sole issue be╜fore the Appeals Officer (and the sole matter before this Court) was the tax liability for the underpayment of federal payroll taxes for the second quarter of 2004.
3. ═ Collection Information Statements and a 2004 balance sheet.
After receiving the requested additional documentation, the Appeals Officer deter╜mined that Warner Transport showed a year-end loss for 2004. In addition, the Appeals Officer reviewed IRS computer records reflected that Warner Transport's "failure to deposit" penalties for the fourth quarter of 2004 and that Warner Trans╜port had not made timely tax deposits for the first quarter of 2005. Furthermore, IRS records demonstrated that Warner Transport had begun experiencing prob╜lems in making timely tax deposits as ear╜ly as 1998. Ultimately, installment pay╜ment plans with respect to these earlier tax deposits were put in place. Due to late payment problems, the installment pay╜ment plans had to be reinstated on two occasions. Warner Transport contends, however, that it eventually satisfied the liability (including all interest and penalties).
On May 3, 2005, the Appeals Offi╜cer contacted Warner Transport's counsel and orally informed him the pending re╜quest for an installment payment plan was not being granted. The appeals Officer based the denial of the installment plan request on his conclusion that the business was not viable based on the financial state╜ments, Warner Transport had previously shown a difficulty in making payments un╜der a prior installment payment plan with the IRS, and Warner transport had other outstanding tax liabilities. On May 12, 2005, the IRS issued a formal written NO╜TICE OF DETERMINATION. In the Notice, the IRS reiterated the reasons for rejecting an installment payment plan:
Your failure to make timely Federal Tax Deposits on the current payroll is an indicator that the business is not viable and the financial information provided does not show the ability to make the proposed payments. The Internal Rev╜enue Service has been dealing with you in attempts to resolve tax matters since 1999 and it appears the situation is no different today than it was 5 years ago. The tax periods have changed but the underlying issues remain the same.
Consequently, the IRS, in part, concluded:
The Internal Revenue Service is charged with the duty to efficiently col╜lect tax and is able to consider less intrusive collection actions with a viable proposal from the taxpayer. Although a Notice of levy is intrusive, since you presented no viable alternative for col╜lection, the levy is the most efficient method of collection remaining. The proposed levy therefore balances the need for efficient collection with the tax╜payer's legitimate concern that the col╜lection action be no more intrusive than necessary.
Subsequently, Warner Transport has ap╜pealed the IRS determination to this Court, naming the United States as the party-defendant. 4
4. ═ Limited judicial review in federal district court of such an administrative determination is permitted (when the Tax Court does not have jurisdiction of the underlying tax liabili╜ty) if an appeal is filed within 30 days of the determination. 26 U.S.C. ╖ 6330(d)(1)(A)-(B). Because the Tax Court does not have jurisdiction over payroll/employment tax lia╜bilities, federal district court is the proper court in which to seek review in this case. See, e.g., Reid & Reid, Inc. v. U.S., 366 F.Supp.2d 284, 287 (D.Md.2005); Borges v. U.S. , 317 F.Supp.2d 1276, 1281 (D.N.M. 2004). Moreover, the United States is the proper defendant. See, e.g., In re Johnson, 310 B.R. 290, 292 (Bkrtcy D.S.C.2003) ( citing Louisiana v. McAdoo, 234 U.S. 627, 632, 34 S.Ct. 938, 940, 58 L.Ed. 1506 (1914)).
Presently pending before the Court are the parties' respective motions for summary judgment, to wit: the United States' motion [Doc. 7], filed September 9, 2005, and Warner Transport's motion [Doc. 10], filed November 29, 2005. After careful consideration of the motions and the rec╜ord submitted therewith, the Court grants the United States' motion and denies Warner Transport's motion.
The Court's disposition is driven in large measure by the standard of review. Where, as in this case, there is no dispute as to the underlying tax liability (either in substance or amount), a district court re╜views the determination made by an ap╜peals officer under an abuse of discretion standard. Living Care Alternatives of Utica, Inc. v. United States, 411 F.3d 621, 626 (6th Cir.2005). 5 Under this standard, administrative determinations are afforded considerable deference.
5. ═ Although 26 U.S.C. ╖ 6330(d) does not set forth the standard of review for a federal district court, the legislative history states that:
The determination of the appeal officer maybe appealed to the Tax Court or where appropriate, the Federal district court . . . . Where the validity of the tax liability is not properly part of the appeal, the taxpayer may challenge the determination of the ap╜peals officer for an abuse of discretion. In such cases, the appeal officer's determina╜tion as to the appropriateness of the collec╜tion activity will be reviewed using an abuse of discretion standard of review.
H. CONF. REP. No. 105-599, 105th Cong., 2nd Sess., at 266 (1998), reprinted in 1998 U.S. CODE CONG. & ADMIN. NEWS 288.
In providing for [Collection Due Pro╜cess] hearings on what is ordinarily a scant record, Congress must have been contemplating a more deferential review of these tax appeals than of more formal agency decisions.
Olsen v. United States, 414 F.3d 144, 150 (1st Cir.2005) (quoting, in part, Living Care Alternatives, 411 F.3d at 631).
Thus, in considering the decision reached by the Appeals Officer herein, the Court's task "is not to determine whether in its own opinion [an] an installment agreement would best serve both the in╜terests of the IRS and [the taxpayer,] but to determine whether there is an adequate basis in law for the [appeal officer's] con╜clusion that it did not." MRCA Informa╜tion Services v. United States , 145 F.Supp.2d 194, 1 99 (D.Conn.2000). An ad╜ministrative agency typically only abuses its discretion when its decision "is without rational explanation, departs from estab╜lished policies, invidiously discriminates against a particular race or group, or where the agency fails to consider all fac╜tors presented . . . or distorts important aspects of the claim." Sukhov v. Gonzales, 403 F.3d 568, 570 (8th Cir.2005). In the respective motions for summary judgment, the United States argues that the determi╜nation made the Appeals Officer was prop╜erly grounded within his discretion while Warner Transport argues that it was not. 6
6. ═ As conceded by Warner Transport in its briefing with the Court, the "[r]ejection of [Warner Transport's] proposed installment agreement by [the] Appeals Officer . . . is the sole issue in this action."
With regard to the latter, Warner Transport specifically asserts that the Ap╜peals Officer abused his discretion in that he "did not conduct a detailed analysis of [Warner Transport's] business activity," he "did not request anything more than the 2004 profit and loss statement," and he "did not suggest a different monthly pay╜ment amount for the proposed installment agreement." Even accepting as true the allegations made by Warner Transport, these facts do not establish that the Ap╜peals Officer abused his discretion, nor do the allegations raise a jury question as to whether the discretion was abused.
On the other hand, there is considerable evidence supporting the conclusion that the Appeals Officer was acting within the bounds of his discretion. His decision to reject an installment payment plan was supported by rational and articulable ob╜jective and subjective considerations. As noted recently by another district court:
[T]his Court has determined, by a re╜view of the record, that the appeals offi╜cer had several rational explanations for his determination to reject the proposed installment agreement that do not con╜stitute unexplained departures from IRS policy and that are based on a review of the factual record. The appeals officer's decision is justifiable in light of the facts presented in the record that enumerate [the taxpayer's] poor financial situation, lack of compliance [with prior tax re╜sponsibilities] and lack of cooperation. Therefore, the appeal officer's action was justifiable.
Dudley's Commercial and Industrial Coating, Inc. v. C.I.R., 292 F.Supp.2d 976, 990 (M.D.Tenn.2003). See also MRCA In╜formation Services, 145 F.Supp.2d at 199 (no abuse of discretion in rejecting an in╜stall payment plan "based on the [taxpay╜er's] two prior defaults on prior install╜ment agreements, the escalating amount of [the taxpayer's] tax liability, [the taxpay╜er's] inability to make a lump sum pay╜ment"). Under these facts and the proper standard for judicial review, the Court con╜cludes that there are no genuine issues of material fact, that as a matter of law the Appeals Officer acted within discretion, and that summary judgment should be entered in favor of the United States and against Warner Transport.
ORDERED that the Motion For Sum╜mary Judgment By Taxpayer Walter Transport, Inc. filed November 29, 2005 (Doc. # 10) is DENIED. It is further
ORDERED that the United States' Mo╜tion For Summary Judgment, filed September 20, 2005 (Doc. # 7) is GRANTED . Accordingly, judgment is entered against plaintiff Walter Transport, Inc. and on be╜half of the United States of America.