Richard E. OLSEN, Plaintiff, v. UNITED STATES of America, Defendants., United States District Court, D. Massachusetts., 326 F.Supp.2d 184, No. CIV.A.03-11199-RCL., June 16, 2004
Richard E. OLSEN, Plaintiff, v. UNITED STATES of America, Defendants.
United States District Court, D. Massachusetts.
326 F.Supp.2d 184
June 16, 2004.
Timothy J. Burke, Burke & Associates, Braintree, MA, for Plaintiff.
Barbara Healy Smith, United States At╜torney's Office, Boston, MA, Lydia D. Bot╜tome, U.S. Department of Justice, Wash╜ington, DC, for Defendant.
MEMORANDUM AND ORDER ON DEFENDANT'S MOTION TO AFFIRM AND DISMISS
LINDSAY, District Judge.
Invoking due process rights guaranteed under a section of the Restructuring and Reform Act of 1998, 26 U.S.C. ╖ 6330, the plaintiff, Richard E. Olsen ("Olsen" or the "plaintiff"), seeks judicial review of a deci╜sion of an appeals officer of the Internal Revenue Service ("IRS"). The decision, which allowed a levy on the plaintiffs property to secure the satisfaction of un╜paid taxes, was made after the plaintiff requested and received a hearing to chal╜lenge the proposed enforcement action. The United States, as the defendant in this action, argues that the appeals officer act╜ed properly in rejecting the plaintiff's ap╜peal, and on that basis moves to affirm the officer's decision and dismiss the plaintiff's complaint. This memorandum and order addresses the defendant's motion 1 .
1. ═ In addition to opposing the defendant's mo╜tion to affirm and to dismiss, the plaintiff has filed his own motion to remand this case for further consideration by the appeals officer. Since the plaintiff's motion for remand raises the same issues as the defendant's motion, this memorandum and order will dispose of both motions.
On March 14, 2001, the IRS gave Olsen final notice of its intent to levy on his assets. See United States' Motion To Af╜firm Appeals Officer's Determination And Dismiss The Complaint ("Defendant's Mo╜tion"), Ex. A. The notice was given in accordance with section 6330 of the Inter╜nal Revenue Code, see 26 U.S.C. ╖ 6330(a), and indicated that Olsen owed nearly $105,000 in unpaid taxes. See Defendant's Motion, Ex. A. Section 6330 allows a tax╜payer to challenge a proposed tax enforce╜ment action within thirty days of receiving the final notice, see 26 U.S.C. ╖ 6330(b). Thus, on March 22, 2001, Olsen filed a formal "Request for a Collection Due Pro╜cess Hearing." See Defendant's Motion, Ex. B. The plaintiff stated in his request that he was appealing the proposed tax levy "to object to the Service's actions in attempting to undertake collections [sic] actions when an Offer in Compromise is the more effective and efficient means of collecting past due taxes." Id . Olsen did not submit an offer in compromise at that time.
The IRS appeals officer originally as╜signed to Olsen's case began the review of Olsen's file on April 25, 2001. See Defen╜dant's Motion, Ex. E. At that time, the appeals officer noted in the "Case Activity Records" for Olsen's appeal that "the tax╜payer's [sic] are not in filing compliance, yet the [taxpayer] wants to make an [Offer in Compromise]." Id. The appeals officer further noted that, since Olsen had made a timely request for a collection due process hearing, Olsen would have "an opportunity to file [the missing] returns by the ap╜pointment date." Id. Olsen's case re╜mained inactive for nearly a year thereaf╜ter.
On March 12, 2002, the original appeals officer sent Olsen's attorney, Timothy J. Burke ("Burke"), a letter notifying him that Olsen's hearing had been scheduled for March 26, 2002. See Defendant's Mo╜tion, Ex. C. In the letter, the appeals officer informed Burke that, at the hear╜ing, Olsen could "present facts, arguments, and legal authority to support [his] posi╜tion." Id . The letter also included a list of "items" that Olsen would have to submit if he wanted the hearing officer to "consider collection alternatives such as an offer in compromise, an installment agreement, etc. in your hearing ...." Id. These "items" included a "completed Collection Information Statement (Form 433-A for individuals and/or Form 433-B for busi╜nesses)." income tax returns for the years 1996-2000, and proof of estimated tax pay╜ments for 2001. See id. It is unclear from the record whether the hearing took place on the scheduled date.
On July 26, 2002, Burke filed a formal offer in compromise with the IRS on Ol╜sen's behalf. See Defendant's Motion, Ex. B. In the offer in compromise, Olsen pro╜posed payment of $5000 to settle his in╜come tax liability for the years 1996-2000. See id. Olsen stated that the basis for the offer in compromise was doubt as to the ability of the IRS to collect the full amount of the taxes owed, because among other things, his "financial history for the past ten years shows a pattern of financial re╜verses which is broken by an occasional year of success." Id . With the offer in compromise, Olsen included a "Collection Information Statement for Wage Earners and Self-Employed Individuals" (i.e. IRS Form 433-A), and copies of his income tax returns for the applicable years. See id. The IRS received the offer in compromise and subsequently asked Burke to send in╜come tax returns with original, rather than photocopied, signatures. See Defendant's Motion, Ex. E.
On November 7, 2002, Olsen's appeal was transferred to a new appeals officer. See id . On that date, the new appeals officer reviewed the plaintiff's case history. See id. Olsen's case file indicated that he owned two cars which were unencumbered by liens and that he leased a third automo╜bile. See id. In the "Case Activity Rec╜ords" for Olsen's appeal, the appeals offi╜cer noted that Olsen had submitted an offer in compromise in connection with his appeal, but that he had yet to send his original income tax returns for the years 1996-2000. See id. Responding to this and other deficiencies in Olsen's offer in compromise, the appeals officer sent Burke a letter on November 13, 2002, in╜forming him of the outstanding problems with Olsen's offer in compromise. See De╜fendant's Motion, Ex. C. The letter gave instructions as to how those problems could be resolved so that the offer could be processed. See id. The appeals officer also requested the submission of certain financial information and included a blank Collection Information Statement for Busi╜nesses (i.e. IRS Form 433-B) for Olsen to fill out and return. See id.
On December 31, 2002, Burke mailed to the appeals officer Olsen's original income tax returns for the years 1996-2000. See Defendant's Motion, Ex. E. Olsen's offer in compromise was consequently processed by the IRS and became ripe for consider╜ation. See id. Burke, however, failed to return IRS Form 433-B to the appeals officer at the time he forwarded to her Olsen's original tax returns. Because the appeals officer required the financial infor╜mation sought in IRS Form 133-B to eval╜uate the plaintiffs offer in compromise, she requested this information by letters to Burke dated January 27, 2003, and April 8, 2003. See Defendant's Motion, Ex. C. In both of these letters, the appeals officer identified with specificity the forms she needed, and stated that the informa╜tion was necessary for her to complete her analysis of Olsen's offer. See id. In the letter dated April 8, 2003, the appeals offi╜cer warned that "[i]f the information re╜quested is not provided . . . my determina╜tion may be made with the information currently available." Id . Despite the ap╜peals officer's entreaties, neither Burke nor Olsen ever provided the appeals officer with the requested information. See De╜fendant's Motion, Ex. E.
On May 29, 2003, the appeals officer denied Olsen's appeal and sustained the proposed collection action. See Defen╜dant's Motion, Ex. F. In the notice accom╜panying her determination, the appeals of╜ficer stated that the offer in compromise could not be accepted because Olsen had failed to send the requested business and financial statements for his venture capital businesses. See id . The appeals officer concluded that the proposed collection ac╜tion was "now necessary to provide for the efficient collection of the taxes, despite the potential intrusiveness of enforced collec╜tion." Id . Less than a month later, Olsen filed a complaint with this court challeng╜ing the appeals officer's determination. See Complaint.
A. Standard of Review
The Restructuring and Reform Act of 1998 created collection due process hearings and entitles taxpayers to judicial review of the determinations made at those hearings. See 26 U.S.C. ╖ 6330. Unfortunately, the statute is silent as to the appropriate standard for reviewing such determinations. Moreover, because the law was only recently enacted, the issue of the applicable standard of review has not yet been decided by the First Circuit. The legislative history accompanying the statute, however, indicates that where, as here, the appellant's underlying tax liability is not at issue, "the appeals officer's determination as to the appropri╜ateness of the collection activity will be reviewed using an abuse of discretion stan╜dard of review." H. Rep. No. 105-599 at 266 (1998).
Citing this language in the House Con╜ference Report, other courts have evaluat╜ed decisions by appeals officers at collec╜tion due process hearings under the abuse of discretion standard. See, e.g., Dudley's Commercial and Industrial Coating, Inc. v. United States, 292 F.Supp.2d 976, 985 (M.D.Tenn.2003); Kitchen Cabinets, Inc. v. United States, 2001 WL 237384 *2 (N.D.Tex.2001); TTK Management v. United States, 2000 WL 33122706 *1-2 (C.D.Cal.2000). The abuse of discretion standard employed by these courts is not only supported by the legislative history, it is also consistent with the standard articu╜lated in other statutes providing for judi╜cial review of administrative decisions. See MRCA Information Services v. United States, 145 F.Supp.2d 194, 199 n. 8 (citing the abuse of discretion standard adopted by Congress in the Administrative Proce╜dure Act, 5 U.S.C. ╖ 706(2)). For these reasons, I will apply the abuse of discre╜tion standard in reviewing the appeals offi╜cer's determination in this case.
Section 6330(c) of the Restructuring and Reform Act sets forth the issues an ap╜peals officer must consider at a collection due process hearing. See 26 U.S.C. ╖ 6330(c). Specifically, the statute re╜quires the appeals officer to consider: (1) whether the requirements of any applica╜ble law or administrative procedure have been met; (2) any issues raised by the appellant relating to the unpaid tax, in╜cluding offers of collection alternatives such as offers in compromise; and (3) whether the proposed collection action bal╜ances the need for the efficient collection of taxes with the taxpayer's legitimate con╜cern that the collection action be no more intrusive than necessary. See id.
In his complaint, the plaintiff asserts that the appeals officer abused her discre╜tion by failing adequately to consider the offer in compromise the plaintiff submitted during the pendency of his appeal. The plaintiff specifically complains that the ap╜peals officer's "failure to communicate with [the plaintiff concerning] the [defendant's] view of the terms of an acceptable Offer establishes that the hearing required un╜der law was not properly concluded." Complaint ╤ 23. In support of this posi╜tion, the plaintiff points to Treasury regu╜lations regarding the consideration and ne╜gotiation of offers in compromise. See, e.g. , 26 C.F.R. ╖ 301.7122-1. 2 The plaintiff contends that these regulations required the appeals officer to respond affirmatively to the plaintiffs offer, and that her failure actively to negotiate with the plaintiff con╜stituted an abuse of her discretion.
2. ═ The plaintiff also contends that the appeals officer, in rejecting the offer in compromise, did not follow applicable guidelines set forth in the Internal Revenue Manual. See Internal Revenue Manual ╖ 5. 8.1.1. Courts have held, however, that "[t]he Internal Revenue Manual confers no rights on taxpayers," and that "[t]he procedures contained therein are in╜tended only to aid in the internal administra╜tion of the IRS." Chavez v. United States, 2004 WL 1124914 *4 (W.D.Tex. May 18, 2004) (cit╜ing In re Carlson, 126 F.3d 915, 922 (7th Cir.1997)); see also U.S. v. Horne, 714 F.2d 206, 207 (1st Cir.1983).
In light of the plaintiff's claim, it is important, before turning to the admin╜istrative record, that I identify with preci╜sion which decision of the appeals officer is subject to judicial review. 26 U.S.C. ╖ 6330(d) provides for judicial review of an administrative appellate decision to sustain a proposed collection action. It does not impose on the appeals officer, however, any obligations concerning the negotiation of offers in compromise, or provide for judicial oversight of those negotiations. The acceptance or rejection of such offers is governed by a different statute, which sets forth the standards and procedures for evaluating offers in compromise. See 26 U.S.C. ╖ 7122. Under that statute, a taxpayer challenging the rejection of an offer in compromise is entitled to adminis╜trative, but not judicial review. See 26 U.S.C. ╖ 7122(d). Thus, whether the ap╜peals officer observed relevant Treasury regulations in negotiating an offer in com╜promise with the plaintiff is an issue that falls outside the scope of judicial review under ╖ 6330. 3
3. ═ Tellingly, the specific federal regulation which the plaintiff claims the appeals officer violated was promulgated by the Secretary of the Treasury pursuant to authority conferred by section 7122, not section 6330. See 26 C.F.R. ╖ 301.7122-1; see also Chavez, 2004 WL 1124914 *3.
Under ╖ 6330, the scope of my re╜view is limited to whether the appeals officer abused her discretion when, after holding a collection due process hearing, she upheld the proposed enforcement ac╜tion. Section 6330(c)(2)(a)(iii) allows a tax╜payer to raise at that hearing any offers of collection alternatives, including offers in compromise. Here, the plaintiff took ad╜vantage of that opportunity, and submitted an offer in compromise to the appeals offi╜cer. My task therefore is limited to deter╜mining whether the appeals officer ade╜quately considered the offer in compromise that the plaintiff had on the table when his appeal was denied.
Based on all of the record evidence, I conclude that the appeals officer did not abuse her discretion when she upheld the proposed enforcement action. The admin╜istrative record establishes that the plain╜tiff, in challenging the collection action, did not contest that he owed nearly $105,000 in unpaid taxes. The plaintiff's offer, howev╜er, was to pay only $5000 in exchange for the full exoneration of his tax liability. Despite the paltry size of the plaintiff's offer in comparison to his liability, it ap╜pears from the administrative record that the appeals officer took several steps to assist the plaintiff in perfecting his offer for processing. She communicated with the plaintiff's attorney on multiple occa╜sions to inform him of deficiencies in the plaintiffs offer in compromise, and to re╜quest information necessary for consider╜ation of the offer.
While the plaintiff cured the deficiencies that prevented his offer from being pro╜cessed, he did not provide all of the re╜quested financial information necessary for consideration of the offer in compromise. Of particular importance, the plaintiff did not provide collection information state╜ments for his business ventures. As a consequence of the plaintiffs failure to provide the requested information, the ap╜peals officer found that there was insuffi╜cient information to evaluate the plaintiffs offer in compromise and concluded that the offer could not be accepted. Given the affirmative steps taken by the appeals offi╜cer to obtain the financial information nec╜essary to evaluate the offer, I conclude that this determination was not an abuse of discretion.
Because the plaintiff did not contest his underlying tax liability, the only other is╜sue for the appeals officer to consider in evaluating the plaintiffs appeal was "whether [the] proposed collection action balance[d] the need for the efficient collec╜tion of taxes with the legitimate concern that any collection action be no more intru╜sive than necessary." 26 U.S.C. ╖ 6330(c)(3)(C). Here, the plaintiff has presented no evidence that the appeals officer abused her discretion when she de╜cided that the collection action proposed by the IRS appropriately balanced these competing concerns. In the case activity record maintained in connection with the plaintiff's appeal, the appeals officer identi╜fied particular property of the plaintiff, including three motor vehicles, on which a federal tax lien could be placed to secure the satisfaction of his unpaid taxes. This review of the plaintiff's financial circum╜stances and case history establishes that the appeals officer did not arbitrarily or capriciously sustain the proposed enforce╜ment action without considering the plain╜tiffs legitimate interest in minimally intru╜sive tax collection. I therefore conclude that the appeals officer did not abuse her discretion when she denied the plaintiffs appeal and upheld the proposed tax en╜forcement action.
For these reasons, the defendant's mo╜tion to affirm the appeals officer's determi╜nation is GRANTED, and the plaintiffs complaint is DISMISSED.
JUDGMENT OF DISMISSAL
In accordance with the Court's Order of June 16, 2004 allowing the motion to af╜firm and dismiss of the defendant United States of America, Judgment is hereby entered as follows: Judgment for the defendant United States of America dismissing this action.