The opinion of the court was delivered by: LEISURE
Plaintiff, Stephen P. Ollarek, brings this action, claiming that the government erroneously and illegally collected income taxes from him. He seeks to recover $7,717.88 in federal income taxes allegedly paid. He alleges that this Court has jurisdiction pursuant to 28 U.S.C. § 1346 and 26 U.S.C. § 7422.
The government seeks an order pursuant to to Rules 12(b)(1), 12(b)(6) and 56 of the Federal Rules of Civil Procedure dismissing the complaint for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted. As more particularly described below, the government asserts that the Internal Revenue Service ("IRS"), pursuant to 26 U.S.C. § 6851 (1970), made a termination assessment against plaintiff in the amount of $22,032.02 and thereafter collected $8,064 by levy. With the addition of penalties and interest, there is a balance now due, according to the government, of $23,913.12 in unpaid assessments for the 1976 year, plus accrued interest, penalties and statutory additions. In bringing its motion to dismiss, the government relies on the teaching of Flora v. United States, 362 U.S. 145, 4 L. Ed. 2d 623, 80 S. Ct. 630 (1960), because plaintiff has not paid the entire assessment.
The parties agree that on March 31, 1976, plaintiff was arrested following a search of his apartment and the seizure as evidence of certain controlled substances and cash. On December 1, 1977, a state trial court suppressed the physical evidence seized at the time of arrest. The criminal indictment was later dismissed. As a result of the arrest and seizure of evidence, on May 4, 1976 the IRS made a termination assessment pursuant to 26 U.S.C. § 6851(a)(1) (1970) against plaintiff for the taxable period January 1, 1976 to March 31, 1976. In accordance with 26 U.S.C. § 6861 (1970 & Supp. IV 1974), a statutory notice of deficiency was issued on June 2, 1976. The notice informed plaintiff of his right to contest the deficiency in United States Tax Court within 90 days. See Laing v. United States, 423 U.S. 161, 46 L. Ed. 2d 416, 96 S. Ct. 473 (1976). Using the "income and expenditures" method, the IRS had determined that plaintiff ". . . realized taxable income in the amount of $56,021 for the taxable period January 1, 1976 to March 31, 1976 evidenced by [the] cash seizure, [in the amount of $8,064] illegal drug sales, illegal drug purchases and cost of living. . . ." Plaintiff argues that the IRS calculation had no basis in fact or law. The parties agree that on or about June 7, 1976, the IRS collected by levy $8,064 from plaintiff for the period ending March 31, 1976.
On May 3, 1977 the IRS filed a substituted tax return on plaintiff's behalf for the tax year 1976 pursuant to 26 U.SC. § 6020(b)(1). Although this was a dummy return and had no numbers filled in, such a return is "good and sufficient for all legal purposes." 26 U.S.C. § 6020(b)(2). See Hartman v. Commissioner, 65 T.C. 542. 546 (1975).
IRS records indicate that on or about November 4, 1977, it sent a letter requesting that plaintiff contact the IRS about the tax return for the year 1976. Plaintiff did not respond but it is noted in the IRS file that his counsel, a Mr. Kren, was contacted by telephone and that he indicated plaintiff intended to file a tax refund claim.
IRS records also show that on April 25, 1978, plaintiff was sent a letter indicating the results of an examination of his 1976 tax return and of his right to take an administrative appeal. This letter was addressed to plaintiff's last known address but was returned to the IRS. IRS records do not indicate that an administrative appeal was filed. On October 20, 1978, the IRS mailed to plaintiff a second statutory notice of deficiency for the 1976 tax year, showing a deficiency in taxes assessed in the amount of $29,138.57 including penalties and interest. Pursuant to 26 U.S.C. § 6212(b)91), the letter was sent to plaintiff's last known address by certified mail. It was returned with the notation that the addressee had moved without leaving a forwarding address; the letter was mailed again and returned with the same notation.
IRS records do not indicate that plaintiff filed a petition in the United States Tax Court.
On April 30, 1980, the IRS received a tax return for the 1976 tax year filed by plaintiff through his attorney William Slivka, Esq. The return was accompanied by an IRS form power of attorney which, inter alia, authorized Slivka to execute waivers of notice of disallowance of a claim for credit or refund. It was claimed in the return that plaintiff had income of $3,280 from the net proceeds of miscellaneous flea market sales, a tax liability of $345.12, a total of $8,063 of federal income tax withheld and that plaintiff was entitled to a refund of $7,717.88. Pursuant to Treas. Reg. § 301.6402-3(a)(5), the IRS treated the return as a tax refund claim. On or about May 1, 1981, Anthony Amoruso, an IRS agent assigned to the case, told Slivka that he intended to disallow the refund claim. It is plaintiff's position that Amoruso told Slivka only that the claim was not timely filed. In any event, it is undisputed that, in response to Amoruso's request, Slivka signed Form 2997, Waiver of Statutory Notice of Claim Disallowance ("Waiver"). The Waiver, filed on July 1, 1981, dispensed with the IRS's obligation to provide notification of disallowance and also began the two-year period for filing suit for refund of the claims in federal court. The cover letter accompanying the Waiver requested an opportunity to appeal the disallowance.
On February 2, 1982 the appellate division within the IRS requested Amoruso to gather further information and stated that the claim was timely filed. Based upon an informal opinion of counsel that illegally seized evidence could not be used in a civil tax proceeding, Amoruso asked plaintiff to sign and return a Form 4549 reflecting a refund to plaintiff. Amoruso claims he told Slivka that the refund would not be processed until a formal written opinion was received from IRS counsel. The formal opinion, issued on December 6, 1982, concluded that suppressed evidence could be used in a civil tax proceeding, citing Guzzetta v. Commissioner, 78 T.C. 173 (1982).
Amoruso informed Slivka of this result and that his "original decision to disallow the claim would stand." The parties agree that on June 29, 1983 Amoruso placed a telephone call to Slivka and advised him that the statute of limitations for filing a lawsuit in federal court would expire on July 1, 1983. Plaintiff filed this action on June 30, 1983.
There are two jurisdictional prerequisites for a refund suit in federal district court. First, 26 U.S.C. § 7422(a) requires that plaintiff file, as he has done, an administrative refund claim for the pertinent tax period. Plaintiff alleges that the defendant disallowed the timely filed refund claim without setting forth any basis for such disallowance and has administratively failed to respond to his protest against such action. This failure of the IRS to respond administratively to plaintiff's protest, it is argued, represents a denial of due process. This position has no legal basis. The execution of the Waiver by plaintiff's attorney dispensed with any obligation on the part of the IRS to furnish notice that the claim was being disallowed. 26 U.S.C. § 6532(a)(1) and (3); Treas. Reg. § 301.6532-1(c). Plaintiff cannot therefore complain that he did not receive notice as to the disposition of his claim before the statute of limitations on filing a lawsuit in federal court expired.
The government claims that plaintiff has not satisfied the second prerequisite because he has not paid the full amount of the income tax deficiency assessed by the IRS. See Flora v. United States, 362 U.S. 145, 4 L. Ed. 2d 623, 80 S. Ct. 630 (1960). The Flora Court held that a taxpayer must pay the entire amount of an income tax deficiency assessed by the IRS before he may challenge its correctness in federal court under 28 U.S.C. § 1346(a)(1).
Plaintiff attempts to circumvent this jurisdictional prerequisite by arguing that the assessment to be paid as a condition to filing the tax refund suit is the assessment of tax as shown on plaintiff's tax return, which he claims to have overpaid. Plaintiff argues that by filing the return for the 1976 year in 1980, he exercised his right under former 26 U.S.C. § 6851(b) (1970) that a taxable period terminated thereunder could be reponed by the taxpayer on his return.
If the IRS subsequently determines there is a ...