DUDLEY'S COMMERCIAL AND INDUSTRIAL COATING, INC., Plaintiff v. UNITED STATES INTERNAL REVENUE SERVICE, Commissioner of Revenue, Defendants., United States District Court, M.D. Tennessee, Nashville Division., 292 F.Supp.2d 976, No. 3:02-0106., March 17, 2003
DUDLEY'S COMMERCIAL AND INDUSTRIAL COATING, INC., Plaintiff v. UNITED STATES INTERNAL REVENUE SERVICE, Commissioner of Revenue, Defendants.
United States District Court, M.D. Tennessee, Nashville Division.
292 F.Supp.2d 976
March 17, 2003.
Mark Harrington Westlake, Westlake & Marsden, Nashville, TN, for plaintiff.
Richard Fox Clippard, Office of the United States Attorney, Nashville, TN, Ja╜son S. Zarin, Department of Justice, Washington, DC, for defendant.
HAYNES, District Judge.
Plaintiff, Dudley's Commercial and In╜dustrial Coating, Inc. ("Dudley's"), filed this action pursuant to the tax collection due process provisions of 26 U.S.C. ╖ 6330 against the Defendant. United States In╜ternal Revenue Service ("IRS"). The gravamen of Plaintiffs claim is that Defen╜dant abused its discretion in determining that Plaintiff's proposed installment agree╜ment should be rejected in favor of a levy against Plaintiff's assets.
Before the Court is Defendants's motion for summary judgment (Docket No. 14) and Plaintiff's motion for summary judge╜ment (Docket Entry No. 18) for which oral argument was held March 14, 2003 (Dock╜et No. 22).
As stated in oral argument and on brief, Defendant contends in sum, that all proce╜dural requirements of 26 U.S.C. ╖ 6330 were satisfied and that the IRS appeals officer did not abuse its discretion by re╜jecting Plaintiff's proposed installment agreement on grounds that: (1) Plaintiff had a long history of non-compliance with federal tax laws; (2) Plaintiff did not have the financial ability to pay current operat╜ing expenses and current taxes; (3) the proposed installment agreement would not fully pay the taxes before the Collection Statute Expiration Date ("CSED") with a five-year extension; and (4) Plaintiff had a documented history of not keeping its com╜mitments to resolve tax problems.
Plaintiff responds, in sum, that the ap╜peals officer's refusal to accept an install╜ment payment agreement in lieu of the proposed levy action was an abuse of dis╜cretion on grounds that: (1) the appeals officer incorrectly concluded that the pro╜posed installment agreement would not pay in full the outstanding tax liability within the applicable collection statute of limitations; (2) the proposed monthly pay╜ment represented a reasonable collection alternative and that its rejection was an abuse of discretion; (3) the appeal's officer incorrectly concluded that Plaintiff was un╜able to pay its current operating expenses and current taxes; (4) the appeals officer abused its discretion by rejecting the pro╜posed installment agreement on the basis of Plaintiff's prior non-compliance; and (5) the IRS standard permitting the rejection of a proposed installment agreement for any reason, renders a district court's re╜view under 26 U.S.C. ╖ 6330(d) and empty appeal.
For the reasons set forth below, the Court concludes that Defendant's motion for summary judgement (Docket Entry No. 14) should be granted and Plaintiff's motion for summary judgement (Docket Entry No. 18) should be denied.
A. Findings of Fact 1
1. ═ Upon a motion for summary judgment, the factual contentions are viewed in the light most favorable to the party opposing the mo╜tion, for summary judgment. Duchon v. Ca╜jon Co. , 791 F.2d 43, 46 (6th Cir.1986) app . 840 F.2d 16 (6th Cir.1988) (unpublished opin╜ion). As discussed infra, under recent Su╜preme Court holdings, upon the filing of a motion for summary judgment, the opposing party must come forth with sufficient evi╜dence to withstand a motion for directed verdict, Anderson v. Liberty Lobby, 477 U.S. 242, 247-52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986), particularly where there has been an opportunity for discovery. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265, 276 (1986). The Court con╜cludes that under the applicable law there are not any material factual disputes. Thus, this section constitutes findings of fact under Fed. R.Civ.P. 56(d).
Plaintiff, Dudley's provides commercial painting services. Prior to April 2001, a substantial portion of Dudley's business included stripping and re-coating munici╜pal water tanks and other large facilities. (Docket Entry No. 1, Complaint ╤ 5). During that time, employees of Dudley's failed to apply coatings on several large tank facilities properly and Dudley's was compelled to re-strip and re-coat the tanks at its sole cost, resulting in substantial financial losses and the inability to pay expenses that included payroll tax obli╜gations. (Docket Entry No. 1, Complaint ╤ 6).
Plaintiff asserts that in order to recover from these financial losses, Dudley's re╜structured and eliminated the municipal water and large tank facilities portion of its business. (Docket Entry No. 1, Com╜plaint ╤ 7). After restructuring, Dudley's asserts that it used contract revenue to pay delinquent payroll tax obligations at the expense of current payroll tax deposits. (Docket Entry No. 1, Complaint ╤ 8). Dudley's further asserts that IRS collec╜tion personnel failed to advise Dudley's that all current payroll deposits should be paid before devoting current revenue to the payment of accrued tax obligations. Id . Upon learning this information from counsel, Dudley's began to pay current tax obligations in April of 2001 and paid all obligations for the second, third and fourth quarters of 2001 and the first quarter of 2002. (Docket Entry No. 1, Complaint ╤ 9).
The IRS made several attempts to pro╜vide information to Dudley's and to en╜courage payment of Dudley's delinquent tax obligations. (Docket Entry No. 12. Administrative Record ("AR") at 91-112)(containing the IRS record of contacts, conversations and information given to Dudley's); see also infra, p. 988-89. On August 7, 2001, the IRS sent Dudley's a notice of intent to levy, which proposed a levy to collect federal employment taxes (Form 941) for the fourth quarter of 2000 and the first quarter of 2001 and unem╜ployment taxes (Form 940) for 1999 and 2000. (Docket Entry No. 1, Complaint ╤ 11 and Exhibit A; Docket Entry No. 12, AR at 21). The amount of the taxes at issue, including penalties and interest ac╜crued as of that date, was $43,053. (Dock╜et Entry No. 12, AR at 22).
On September 5, 2001, Dudley's filed a request for hearing under 26 U.S.C. ╖ 6330. (Docket Entry No. 13, AR Sup╜plement, Exhibit I at unnumbered page 4). Scott Biggs was the appeals officer as╜signed to conduct the hearing. Biggs had no prior involvement with the outstanding taxes that were the subject of the pro╜posed levy and collection due process hear╜ing. (Docket Entry No. 12, AR at 36). The IRS Operating Division provided the appeals officer with verification that all statutory, regulatory and administrative requirements were met before the notice of intent to levy was issued. (Docket Entry No. 12, AR at 38; Docket Entry No. 14, Biggs Declaration, Exhibit 1 at ╤ 7). The liability listed on the notice of intent to levy was properly assessed. 2 Id .
2. ═ Plaintiff does not contest the veracity of the outstanding tax liability assessed to Dudley's that is at issue in this appeal.
Prior to the due process hearing, Dud╜ley's proffered collection alternative was a suspension of all collection activity until Dudley's financial situation improved and in addition, Dudley's offered an installment agreement of $300 per month. The install╜ment agreement was first offered to the revenue officer on June 29, 2001 (Docket Entry No. 13, AR Supplement at Exhibit H) and to the appeals office prior to the hearing on October 19, 2001 in the Form 12153 request for a collection due process hearing. (Docket Entry No. 13, AR Sup╜plement, Exhibit I at unnumbered page 4). This form was submitted by certified mail on September 5, 2001 and stated:
We propose to pay installments of $300 each month which substantially exceeds our available cash flow . .. We request that enforced collection action be sus╜pended on the condition that we remain current on all accruing tax deposits, pay╜ment and filing obligations . . . We are current on all payroll tax deposits for the second and third quarters of 2001.
After considering these collection alter╜natives, the taxpayer's financial status and its history of non-compliance, the appeals officer determined that the issuance of a notice of levy balanced the need for effi╜cient tax collection action with the taxpay╜er's interest that the collection be no more intrusive than necessary. (Docket Entry No. 12, AR at 37-38). The appeals officer prepared the appeals case memorandum reflecting what occurred during the collec╜tion due process hearing on October 19, 2001, and his subsequent investigation of Dudley's financial status and history of non-compliance. Id . at 36-38. On Decem╜ber 31, 2001, the appeals office mailed Dudley's a "Notice of Determination Con╜cerning Collection Action Under Section 6320 and/or 6330." based upon and incor╜porating the appeals officer's recommenda╜tion and evaluation of the appeal hearing. Id . at 34-38. This determination rejected Dudley's installment agreement and im╜posed a levy against Dudley's receivables. Id. Dudley's now appeals the levy to this district court pursuant to 26 U.S.C. ╖ 6330.
B. Conclusions of Law
"The very reason of the summary judgment procedure is to pierce the plead╜ings and to assess the proof in order to see whether there is a genuine need for trial." Advisory Committee Notes on Rule 56, Federal Civil Judicial Procedure and Rules (West Ed.1989). Moreover, "district courts are widely acknowledged to possess the power to enter summary judgment sua sponte, so long as the opposing party was on notice that she had to come forward with all of her evidence." Celotex Corp. v. Catrett, 477 U.S. 317, 326, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Accord, Routman v. Automatic Data Processing, Inc., 873 F.2d 970, 971 (6th Cir.1989).
In Anderson. v. Liberty Lobby, Inc. , 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986), the United States Supreme Court explained the nature of a motion for sum╜mary judgment:
Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judg╜ment shall be rendered forth with if the pleadings, depositions, answers to inter╜rogatories, and admissions on file, to╜gether with the 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. By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact. As to materiality, the substantive law will identify which facts are material. Only disputes over facts that might af╜fect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unneces╜sary will not be counted.
477 U.S. at 247-48, 106 S.Ct. 2505 (empha╜sis in the original and added in part). Earlier the Supreme Court defined a ma╜terial fact for Rule 56 purposes as "[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial.' " Matsushita Electrical Indus╜trial Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986) (citations omitted).
A motion for summary judgment is to be considered after adequate time for discovery. Celotex Corp. v. Catrett, 477 U.S. 317, 326, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Where there has been a rea╜sonable opportunity for discovery, the party opposing the motion must make an affirmative showing of the need for addi╜tional discovery after the filing of a motion for summary judgment Emmons v. McLaughlin, 874 F.2d 351, 355-57 (6th Cir.1989). But see Routman v. Automat╜ic Data Processing, Inc., 873 F.2d 970, 971 (6th Cir.1989).
There is a certain framework in consid╜ering a summary judgment motion as to the required showing of the respective par╜ties as described by the Court in Celotex
Of course, a party seeking summary judgment always bears the initial re╜sponsibility of informing the district court of the basis for its motion, and identifying those portions of "the plead╜ings, depositions, answers to interroga╜tories, and admissions on file, together with the affidavits, if any," which it be╜lieves demonstrate the absence of a gen╜uine issue of material fact .... [W]e find no express or implied requirement in Rule 56 that the moving party sup╜port its motion with affidavits or other similar materials negating the oppo╜nent's claim.
Celotex, 477 U.S. at 323, 106 S.Ct. 2548 (emphasis deleted).
As the Court of Appeals explained, "[t]he moving party bears the burden of satisfying Rule 56(e) standards." Martin v. Kelley, 803 F.2d 236, 239, n. 4 (6th Cir.1986). The moving party's burden is to show "clearly and convincingly" the ab╜sence of any genuine issues of material fact. Sims v. Memphis Processors, Inc., 926 F.2d 524, 526 (6th Cir.1991) (quoting Kochins v. Linden-Alimak, Inc., 799 F.2d 1128, 1133 (6th Cir.1986)). "So long as the movant has met its initial burden of dem╜onstrating the absence of a genuine issue of material fact,' the nonmoving party then 'must set forth specific facts showing that there is a genuine issue for trial.' " Em╜mons v. McLaughlin, 874 F.2d 351, 353 (6th Cir.1989) (quoting Celotex and Rule 56(e)).
Once the moving party meets its initial burden, the Court of Appeals warned that "[t]he respondent must adduce more than a scintilla of evidence to overcome the motion [and] . . . must 'present affirmative evidence in order to defeat a properly supported motion for summary judgment.' " Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479 (6th Cir.1989) (quoting Liberty Lobby). Moreover, the Court of Appeals explained that:
The respondent must 'do more than sim╜ply show that there is some metaphysi╜cal doubt as to the material facts.' Fur╜ther, '[w]here the record taken as a whole could not lead a rational trier of fact to find' for the respondent, the mo╜tion should be granted. The trial court has at least some discretion to deter╜mine whether the respondent's claim is 'implausible.'
Street, 886 F.2d at 1480 (cites omitted). See also Hutt v. Gibson Fiber Glass Prod╜ucts, 914 F.2d 790 (6th Cir.1990) ("A court deciding a motion for summary judgment must determine whether the evidence presents a sufficient disagreement to re╜quire a submission to the jury or whether it is so one-sided that one party must prevail as a matter of law.") (quoting Lib╜erty Lobby).
If both parties make their respective showings, the Court then determines if the material factual dispute is genuine, apply╜ing the governing law.
More important for present purposes, summary judgment will not lie if the dispute about a material fact is genu╜ine' that is, if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.
* ═══ * ═══ * ═══ * ═══ * ═══ * ═══ *
Progressing to the specific issue in this ease, we are convinced that the inquiry involved in a ruling on a motion for summary judgment, or for a directed verdict necessarily implicates the substantive evidentiary standard of proof that would apply at the trial on the merits. If the defendant in a run-of-the-mill civil case moves for summary judg╜ment or for a directed verdict based on the lack of proof of a material fact, the judge must ask himself not whether he thinks the evidence unmistakably favors one side or the other but whether a fair-minded jury could return a verdict for the plaintiff on the evidence presented. The mere existence of a scintilla of evi╜dence in support of the plaintiffs posi╜tion will be insufficient; there must be evidence on which the jury could reason╜ably find for the plaintiff. The judge's inquiry, therefore, unavoidably asks whether reasonable jurors could find by a preponderance of the evidence that the plaintiff is entitled to a verdict-'whether there is [evidence] upon which a jury can properly proceed to find a perdict for the party producing it upon whom the onus of proof is imposed.'
Liberty Lobby, 477 U.S. at 248, 252, 106 S.Ct. 2505, 91 L.Ed.2d at 211-212, 214 (citation omitted and emphasis added).
It is likewise true that:
[I]n ruling on a motion for summary judgment, the court must construe the evidence in its most favorable light in favor of the party opposing the motion and against the movant. Further, the papers supporting the movant are close╜ly scrutinized, whereas the opponent's are indulgently treated. It has been stated that: 'The purpose of the hearing on the motion for such a judgment is not to resolve factual issues. It is to deter╜mine whether there is any genuine issue of material fact in dispute . . . .'
Bohn Aluminum & Brass Corp. v. Storm King Corp., 303 F.2d 425, 427 (6th Cir. 1962) (citation omitted). As the Court of Appeals stated, "[a]ll facts and inferences to be drawn therefrom must be read in a light most favorable to the party opposing the motion." Duchon v. Cajon Company, 791 F.2d 43, 46 (6th Cir.1986) app. 840 F.2d 16 (6th Cir.1988) (unpublished opin╜ion) (citation omitted).
The Court of Appeals further explained the District Court's role in evaluating the proof on a summary judgment motion
A district court is not required to specu╜late on which portion of the record the nonmoving party relies, nor is it obligat╜ed to wade through and search the en╜tire record for some specific facts that might support the nonmoving party's claim. Rule 56 contemplates a limited marshalling of evidence by the nonmov╜ing party sufficient to establishing a genuine issue of material fact for trial. This marshalling of evidence, however, does not require the nonmoving party to "designate" facts by citing specific page numbers. Designate means simply "to point out the location of." Webster's Third New Inter National Dictionary (1986).
Of course, the designated portions of the record must be presented with enough specificity that the district court can readily identify the facts upon which the nonmoving party relies; but that need for specificity must be balanced against a party's need to be fairly apprised of how much specificity the district court requires. This notice can be adequately accomplished through a local court rule or a pretrial order.
InterRoyal Corp. v. Sponseller, 889 F.2d 108, 111 (6th Cir.1989) cert. denied 494 U.S. 1091, 110 S.Ct. 1839, 108 L.Ed.2d 967 (1990). Here, the parties have given some references to the proof upon which they rely. Local Rule 8(b)(7)(A) and (C) re╜quire a shoving of undisputed and disput╜ed facts.
In Street, the Court of Appeals dis╜cussed the trilogy of leading Supreme Court decisions, and other authorities on summary judgment and synthesized ten rules in the "new era" on summary judg╜ment motions
1. Complex cases are not necessarily inappropriate for summary judgment.
2. Cases involving state of mind issues are not necessarily inappropriate for summary judgment.
3. The movant must meet the initial burden of showing 'the absence of a genuine issue of material fact' as to an essential element of the non-movant's case.
4. This burden may be met by pointing out to the court that the respondent, having had sufficient opportunity for dis╜covery, has no evidence to support an essential element of his or her case.
5. A court should apply a federal di╜rected verdict standard in ruling on a motion for summary judgment. The in╜quiry on a summary judgment motion or a directed verdict motion is the same: whether the evidence presents a suffi╜cient disagreement to require submis╜sion to a jury or whether it is so one-sided that the party must prevail as a matter of law.
6. As on federal directed verdict mo╜tions, the scintilla rule' applies, i.e. , the respondent must adduce more than a scintilla of evidence to overcome the mo╜tion.
7. The substantive law governing the case will determine what issues of fact are material and any heightened burden of proof required by the substantive law for an element of the respondent's case, such as proof by clear and convincing evidence, must be satisfied by the re╜spondent.
8. The respondent cannot rely on the hope that the trier of fact will disbelieve the movant's denial of a disputed fact, but must 'present affirmative evidence in order to defeat a properly supported motion for summary judgment.'
9. The trial court no longer has the duty to search the entire record to es╜tablish that it is bereft of a genuine issue of material fact.
10. The trial court has more discretion than in the 'old era' in evaluating the respondent's evidence. The respondent must 'do more than simply show that there is some metaphysical doubt as to the material facts.' Further, [w]here the record taken as a whole could not lead a rational trier of fact to find' for the respondent, the motion should be granted. The trial court has at least some discretion to determine whether the respondent's claim is implausible.
Street, 886 F.2d at 1479-80.
The Court has distilled from these collective holdings four issues that are to be addressed upon a motion for summary judgment: (1) has the moving party "clear╜ly and convincingly" established the ab╜sence of material facts?; (2) if so, does the plaintiff present sufficient facts to estab╜lish all the elements of the asserted claim or defense?; (3) if factual support is pre╜sented by the nonmoving party, are those facts sufficiently plausible to support a jury verdict or judgment under the appli╜cable law?; and (4) are there any genuine factual issues with respect to those materi╜al facts under the governing law?
With these legal principles in mind, the Court addresses the legal standards gov╜erning the review of the IRS collection due process hearing determination.
1. 26 U.S.C. ╖ 6330
Section [ sic ] 6330 of the Internal Reve╜nue Code ("IRC") that provides for pre╜levy notice and hearing as well as judicial review of the hearing's administrative de╜termination, was added to the IRC by section 3401 of the IRS Restructuring and Reform Act of 1998, 112 Stat. 685, 747-49. Under 26 U.S.C. ╖ 6330(a), the IRS is required to give notice before imposing a levy that includes notice of the right to request an administrative hearing within the 30-day period before the levy is im╜posed.
"If the person requests a hearing under subsection (a)(3)(B), such hearing shall be held by the Internal Revenue Service Of╜fice of Appeals." Id . at ╖ 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. Id . at ╖ 6330(b)(3). Under 26 U.S.C. ╖ 6330(c)(1), the appeals officer must obtain verification from the IRS Operating Division that all requirements of law and administrative procedure have been met.
At the hearing:
The person may raise [ ] any relevant issue relating to the unpaid tax or the proposed levy, including .. . (i) appro╜priate spousal defenses; (ii) challenges to the appropriateness of collection ac╜tions; and (iii) offers of collection alter╜natives, which may include the posting of a bond, the substitution of other as╜sets an installment agreement, or an offer-in-compromise.
26 U.S.C. ╖ 6330(c)(2)(A)(i)-(iii).
The appeals officer, in making a deter╜mination under this section:
shall take into consideration-(A) the ver╜ification presented under paragraph (1); (B) the issues raised under paragraph (2); and (C) whether any proposed col╜lection action balances the need for the efficient collection of taxes with the le╜gitimate concern of the person that any collection action be no more intrusive than necessary.
26 U.S.C. ╖ 6330(c)(3)(A)-(C).
Section ╖ 6330(d)(1)(A)-(B) also allows for judicial review of the administrative determination by a district court, when the tax court does not have jurisdiction of the underlying tax liability, if an appeal is filed within 30 days of the determination.
2. Standard of Review
Under 26 U.S.C. ╖ 6330, collection due process cases are reviewed under an abuse of discretion standard. Although 26 U.S.C. ╖ 6330(d), that provides for judicial review, does not set forth the standard of review for a federal district court, the leg╜islative 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 ap╜peal, the taxpayer may challenge the determination of the appeals officer for an abuse of discretion. In such cases, the appeal officer's determination as to the appropriateness of the collection ac╜tivity will be reviewed using an abuse of discretion standard of review.
H.Rep. No. 105-599 at 266 (1998); MRCA Information Services v. United States, 145 F.Supp.2d 194, 199 (D.Conn.2000); Goza v. Comm'r 114 T.C. 176, 181-82, 2000 WL 283864 (2000).
Although the Sixth Circuit has not yet passed on this standard in the context of 26 U.S.C. ╖ 6330, district courts within the Sixth Circuit have adopted the abuse of discretion standard. See Geller v. Unit╜ed States, 2001-2 U.S.T.C. ╤50,703 (S.D.Ohio 2001); Berkey v. Dep't of Trea╜sury, 2001-2 U.S.T.C. ╤ 50,708, 2001 WL 1397680 (E.D.Mich.2001). This standard is also followed by courts nationwide. See Kitchen Cabinets, Inc. v. United States, 2001[-1] U.S.T.C. ╤ 50,287, 2001 WL 237384 (N.D.Tex.2001); TTK Management v. United States, 2001-1 U.S.T.C. ╤ 50,185 (C.D.Cal.2000). In its review of the agen╜cy's exercise of discretion, the Court is limited to a review of the administrative record. See Camp v. Pitts, 411 U.S. 138, 142, 93 S.Ct. 1241, 36 L.Ed.2d 106 (1973).
An abuse of discretion is an arbitrary action not justifiable in light of the facts and circumstances presented in the record. Gonzalez v. INS, 996 F.2d 804, 808 (6th Cir.1993); Balani v. INS , 669 F.2d 1157, 1161 (6th Cir.1982); NLRB v. Guernsey-Muskingum Electric Coop., Inc., 285 F.2d 8, 11 (6th Cir.1960). The Sixth Circuit has held that an agency abuses its discretion if its decision "was made without a rational explanation, inexplicably departed from established policies, or rested on an impermissible basis . . . " G onza lez , 996 F.2d at 808; Balani, 669 F.2d at 1161.
3. Plaintiffs Contention that the Appeals Officer Committed an Abuse of Discretion
Plaintiff asserts that the appeals officer abused his discretion in rejecting the Plaintiff's collection alternative in favor of a levy against Plaintiff's assets. First, Plaintiff asserts that the appeals officer incorrectly concluded that the proposed installment agreement would not pay in full the outstanding tax liability within the applicable collection statute of limitations. The appeals officer noted in his determina╜tion letter that:
IRC Section 6159(a) provides that in╜stallment agreements must fully pay taxes before the Collection Statute Expi╜ration Date (CSED). The Service may request that a taxpayer extend the stat╜utory period for collection in connection with an installment agreement, however, it is the policy of the I.R.S. to limit extensions to 5 years beyond the origi╜nal statutory period. Your proposal will not fully pay your liability within the CSED plus five years.
(Docket Entry No. 12, AR at 38).
Plaintiff asserts that although the ap╜peals officer correctly articulated the IRS policy that installment agreements must fully pay delinquent taxes before the col╜lection expiration date plus a five (5) year extension, the appeal officer misrepresen╜ted the law under IRC Section 6159(a). This statute states the following:
The Secretary is authorized to enter into written agreements with any taxpayer under which such taxpayer is allowed to satisfy liability for payment of any tax in installment payments if the Secretary determines that such agreement will fa╜cilitate collection of such liability.
26 U.S.C. ╖ 6159(a).
Although this Court agrees that 26 U.S.C. ╖ 6159(a) does not require that installment agreements must pay delin╜quent taxes in their entirety before the CSED, the Court does not believe that the appeals officer committed an abuse of dis╜cretion by requiring that Dudley's pay their full liability before the CSED in light of Dudley's enumerated tax payment histo╜ry.
The CSED is set forth in 26 U.S.C. ╖ 6502(a).
Where the assessment of any tax im╜posed by this title has been made within the period of limitation properly applica╜ble thereto, such tax may be collected by levy or by a proceeding in court, but only if the levy is made or the proceed╜ing begun-
(1) within 10 years after the assessment of the tax, or
(A) there is an installment agreement between the taxpayer and the Secretary, prior to the date which is 90 days after the expiration of any period for collec╜tion agreed upon in writing by the Sec╜retary and the taxpayer at the time the installment agreement was entered into
. . .
If a timely proceeding in court for the collection of a tax is commenced, the period during which such tax may be collected by levy shall be extended and shall not expire until the liability for the tax (or a judgment against the taxpayer arising from such liability) is satisfied or becomes unenforceable.
26 USC ╖ 6502(a). Here, Dudley's CSED would be ten (10) years after the taxes were assessed. The taxes that are the subject of this appeal were assessed be╜tween 1999 and the first quarter of 2001.
Plaintiff asserts that the appeals officer incorrectly concluded that Dudley's pro╜posed installment agreement would not pay off the outstanding liability within the ten (10) year CSED. Plaintiff in essence, argues that the appeals officer should have separated the account balances and accept╜ed the installment agreement for three of the account balances that totaled $18,487.26. 3 Plaintiff asserts that at 9% per annum (6% interest plus 3% penalty) these three account balances would be paid in full under the proposed installment agreement in 83 month or less than seven (7) years. 4 No where in the briefs or in the record does Plaintiff assert that Dud╜ley's would be able to pay their entire outstanding liability before the CSED un╜der their proposed installment agreement. 5
3. ═ The three account balances referred to are Form 940 taxes from 1999 ($1,883.32). Form 940 taxes from 2000 ($1,554.38) and Form 941 taxes from the first quarter of 2001 ($15,049.56). (Docket Entry No. 12, AR at 40).
4. ═ The CSED of the earliest account would expire in 2010, therefore there are approximately eight (8) years remaining before the CSED.
5. ═ According to this Court's calculations, even without interest or penalties, Dudley's could not pay their entire outstanding obligation within the CSED under their proposed install╜ment agreement.
When viewing 26 U.S.C. ╖ 6159 in light of the implementing regulations set forth in 26 C.F.R. ╖ 301.6159-1, the IRS has broad discretion to accept or reject an installment agreement. The implementing regulation states that:
A district director, a director of a ser╜vice center, or a director of a compliance center (the director) is authorized to en╜ter into a written agreement with a tax╜payer that allows the taxpayer to satisfy a tax liability by making scheduled peri╜odic payments until the liability is fully paid if the director determines that such an installment agreement will facilitate the collection of the tax liability . . . The director has the discretion to accept or reject. any proposed installment agree╜ment. As a condition to entering into an installment agreement with a taxpayer, the director may require that-
(A) The taxpayer agree to a reasonable extension of the period of limitations on collection
26 CFR ╖╖ 301.6159-1(a)-(b) (emphasis added).
First, the Court notes that 26 C.F.R. ╖ 301.6159-1 clearly states that the liabili╜ty should be "fully paid" under any in╜stallment agreement entered into by the director. Plaintiff argues that the IRS Service Manual at Part 5 Chapter 14 ╖ 1(7) has been modified to permit partial payment where the installment agreement would fully pay one or more tax period liabilities.
In considering this assertion, the Court initially notes that the IRS Ser╜vice Manual is not binding authority on the Court or the IRS. As the Sixth Circuit has noted, the IRS Service Manual is an inter╜nal IRS document issued to instruct per╜sonnel in performing their duties, and thus, does not create any enforceable rights for taxpayers and does not have the force or effect of law. United States v. McKee 192 F.3d 535, 540 (6th Cir.1999); U.S. v. Barter Systems of Grand Rapids, 557 F.Supp. 698 (D.C.Mich.1982). Fur╜ther,
It is only when a violation of the Manual reaches the level of a constitutional -vio╜lation will any action by the IRS be set aside. See [United States v. McKee 192 F.3d] at 541. In this case, although Defendant claims that the IRS violated its internal procedures as outlined in the Manual, he does not claim that any con╜stitutional violation resulted therefrom.
U.S. v. Forrester 2001 WL 1203288, *1 (S.D.Ohio 2001).
In the IRS Manual provision cited by Plaintiff, the IRS instructs employees that:
(2) Taxpayers sometimes have the abili╜ty to make payments that satisfy some balance due accounts, but not all balance due accounts, prior to the Collection Statute Expiration Date plus five years. For these agreements, taxpayers must exhaust their ability to make full or partial payments on bal[ance][sic] due accounts before an agreement can be approved. It is not in the Service's interest to grant these installment agreements unless taxpayers are unable to fully or partially pay bal[ance][sic] due accounts.
(3) In determining whether taxpayers should be considered for one of these agreements consider:
(a) the governments potential for eventually collecting more than would be collected if the taxpayer was granted an offer in compromise . . .
(b) that an installment agreement is more flexible tool for collection than is an offer in compromise. Revisions in installment agreement monthly payment amounts are allowable and easily accom╜plished . . .
(4) Considering the above factors, base the final decision ... on determining which repayment vehicle is likely to result in the collection of the most revenue over its term . . .
(5) Only those agreements that include a balance due account that will be fully paid prior to the CSED may be ap╜proved.
(6) Consideration must be given to ex╜tending the CSED. If extending the CSED will result in greater collectabili╜ty, the CSED must be extended with these agreements.
(Docket Entry No. 19, Exhibit C at 2.2(2)-(6)).
The policy enumerated in the IRS Man╜ual does not state that the director is required to accept an installment agree╜ment proposal if the taxpayer can satisfy some of the balance due accounts. In╜stead, the Manual discusses the factors to consider in determining whether to use installment agreements or offers in com╜promise and allows for the use of these collection methods at the discretion of the employee, but in making the decision the Manual instructs the employee to base their decision on a "determin[ation of] which repayment vehicle is likely to result in the collection of the most revenue over its term."
Here, the IRS employee conclud╜ed that because of Dudley's history of non╜compliance and its poor financial situation that an installment agreement would not "facilitate the collection of tax liability." 26 C.F.R. ╖ 301.6159-1(a); see also Docket Entry No. 12, AR at 37-38. It was the employees discretion to accept or reject an installment agreement based on what was in the best interest of the IRS as well as to decide to extend the CSED if an install╜ment agreement was to be used as the preferred collection method. An IRS em╜ployee, as well as an appeals officer, is not required to ignore the collection statute of limitations just because they have the dis╜cretion to accept an installment agreement and "may require that [t]he taxpayer agree to a reasonable extension of the period of limitations on collection." 26 C.F.R. ╖ 301.6159-1(b). Here the Court concludes that the appeals officer reason╜ably exercised his discretion under IRS policy in light of the facts contained in the record and appropriately considered the issues required in the due process hearing as proscribed under 26 U.S.C. ╖ 6330(c)(3)(A)-(C).
Plaintiff's second argument is that the proposed monthly payment represent╜ed a reasonable collection alternative and that the appeals officer's rejection of the installment agreement was an abuse of discretion. As discussed above, it is the IRS employee's discretion to accept or re╜ject an installment agreement based on the best interests of the IRS in the collection of tax liability. When Dudley's submitted its installment agreement proposal, Dud╜ley's stated that the $300 monthly install╜ment payment "substantially exceeds our available cash flow." (Docket Entry No. 13, AR Supplement, Exhibit I at unnum╜bered page 4). It was reasonable for the appeals officer to conclude that if Dudley's could not pay the installment due to lack of cash flow, that the installment agreement was not in the IRS's best interest to facili╜tate collection. Therefore, the Court con╜cludes that this argument is without merit and there was no abuse of discretion.
Third, the Plaintiff asserts that the appeals officer incorrectly concluded that Plaintiff was unable to pay its current operating expenses and current taxes. As stated supra, Dudley's admitted that the installments substantially exceeded their cash flow. Plaintiff argues that in making this determination, the appeals officer did not rely on Dudley's 2001 tax return, but instead used Dudley's 2000, return that showed $20,000 in losses that were accrued before the company's reorganization. Al╜though there is no evidence that the ap╜peals officer failed to consider Dudley's 2001 tax return submissions, the Court's review of the 2001 submissions concludes that it was reasonable and not an abuse of discretion for the appeals officer to con╜clude that Dudley's was struggling to even pay current expenses and current taxes.
Finally, Plaintiff asserts that the appeals officer abused its discretion by rejecting the proposed installment agree╜ment on the basis of Plaintiffs prior non╜compliance. Plaintiff had a long history of non-compliance and not keeping commit╜ments to resolve tax problems or submit the proper paperwork. When Plaintiff's account was originally assigned to the rev╜enue officer on October 25, 2000, Plaintiff had outstanding employment tax liabilities for the second and fourth quarters of 1998, the third quarter of 1999 and the second quarter of 2000. Plaintiff had also failed to file employment tax returns not the fourth quarter of 1999 and the first quar╜ter of 2000 and unemployment tax returns for 1999. In addition to these delinquen╜cies, Plaintiff also was not current on its federal tax deposits.
On November 7, 2000, Kevin Smith, the revenue officer assigned to the case, con╜tacted Dudley's by telephone. (Docket Entry No. 12, AR at 93-94). Dudley's claimed that all payments were current and all returns had been filed. Id. The revenue officer requested copies of all re╜turns and payments at issue by November 13, 2000. Id . Dudley's failed to provide these documents. Id . at 95.
Having not received any documentation from Dudley's, on November 22, 2000, the revenue officer requested a meeting on December 8, 2000. Id. After receiving meeting notification, Dudley's provided the revenue officer copies of its delinquent forms and copies of three payment checks. Id . at 9 7. The payments had been proper╜ly credited, and were accounted for in the calculation of the Dudley's outstanding lia╜bilities. Id . Dudley's did not appear at the meeting, nor did it request that the reve╜nue officer reschedule the meeting. Id . The IRS subsequently issued a summons for financial information on December 12, 2000. Id . at 98.
Ultimately it took another six months of IRS administrative actions before Dudley's became current on its returns and tax deposits. Dudley's did not file all its out╜standing and overdue tax returns until February 13, 2001. Plaintiff did not be╜come current on its tax deposits until June, 2001, after the IRS began to levy on the outstanding liabilities.
In its determination, the appeals officer must take into consideration the verifica╜tion that the requirements of any applica╜ble law or administrative procedure have been met, the issues raised by the taxpay╜er and whether any proposed collection action balances the need for the efficient collection of taxes with the legitimate con╜cern of the person that any collection ac╜tion be no more intrusive than necessary. 26 U.S.C. ╖ 6330(c)(3)(A)-(C). The Court concludes that the appeals officer took these issues into consideration in light of Dudley's prior history as contained in the record. The appeal officer stated:
The proposed levy actions balances the need for the efficient collection of taxes with your legitimate concern that any collection action be no more intrusive than necessary, because you do not have the ability to meet current taxes and obligations while also paying delinquent taxes within a reasonable amount of time. Furthermore, you have a poor compliance record and have been un╜cooperative not keeping commitments to pay taxes and file returns in the past. You have not demonstrated the inclina╜tion or ability to meet your tax obli╜gations.
(Docket Entry No. 12, AR at 38).
Thus, the court concludes that the ap╜peals officer did not abuse his discretion and properly considered all relevant is╜sues.
4. Plaintiff's Contention that the Abuse of Discretion Standard Ren╜ders the District Court's Review Un╜der 26 U.S.C. ╖ 6330(d), An Empty Appeal.
In asserting this argument Plaintiff cites Defendant's memorandum stating that:
The director has the discretion to accept or reject any proposed installment agreement. 26 C.F.R. ╖ 301.6159-1(b) (emphasis added).
. ════ . ════ . ════ . ════ . ════ .
There is no requirement that the Service had to accept Plaintiffs proffered in╜stallment agreement. If the Service could determine that the agreement would not facilitate collection, the Ser╜vice had every right to reject the install╜ment plan.
(Docket Entry No. 15, Defendant's Memo╜randum in Support of Summary Judgment at 10).
Plaintiff then states that:
If the IRS has the unbridled and unlim╜ited authority to reject "any installment agreement" proposed by the taxpayer then 26 U.S.C. Section 6330(d) permit╜ting judicial appeal is an empty promise. Dudley's submits that this case repre╜sents precisely the type of arbitrary and unreasonable action by the Internal Revenue Service which the judicial ap╜peal rights of 26 U.S.C. Section 6330 are intended to remedy.
(Docket Entry No. 19, Plaintiffs Memo╜randum in Support of Summary Judgment at 9).
This Court does not agree. !fin abuse of discretion is an arbitrary action not justifi╜able in light of the facts and circumstances presented in the record. Gonzalez, 996 F.2d at 808; Balani, 669 F.2d at 1161. The Sixth Circuit has held that an agency abuses its discretion if its decision "was made without a rational explanation, inex╜plicably departed from established policies, or rested on an impermissible basis ..." Gonzalez, 996 F.2d at 808; Balani, 669 F.2d at 1161.
Here, this Court has determined, by a review of the record, that the appeals offi╜cer had several rational explanations for his determination to reject the proposed installment agreement that do not consti╜tute 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 Dudley's poor financial situation, lack of compliance and lack of cooperation. Therefore, the appeal officer's action was justifiable.
Although, the IRS standard per╜mits the rejection of "any proposed Install╜ment agreement" at the discretion of the IRS officer, a district court will not uphold the IRS's discretion without "a rational explanation" based on a permissible and justifiable basis. Therefore, this Court concludes that the abuse of discretion stan╜dard provides for an adequate appeal as contemplated under 26 U.S.C. ╖ 6330(d).
For the reasons set forth above, the Court concludes that Defendant's motion for summary judgement (Docket Entry No. 14) should be granted and Plaintiffs motion for summary judgment (Docket Entry No. 18) should be denied.