United States District Court, N.D. New York
January 3, 2005.
WILLIAM NEGRON RAMOS, Plaintiff,
INTERNAL REVENUE SERVICE, Defendant.
The opinion of the court was delivered by: LAWRENCE KAHN, District Judge
MEMORANDUM-DECISION AND ORDER*fn1
Plaintiff William Negron Ramos ("Negron") filed this action to
dispute Defendant Internal Revenue Service's ("IRS") April 14,
2004 determination ("determination") with respect to his tax
liability. Negron seeks to have the Court overturn this
determination of the IRS Appeals Office and order in its place
Negron's Offer in Compromise ("OIC"). Negron requests damages in
the amount of $2,500 for a business investment that he made in
reliance on representations made to him by an IRS agent regarding
the amount of time it would take the IRS Appeals Office to issue
a determination of his tax liability. He also requests that his
suspension from the electronic tax filing program based upon his
outstanding tax liability be limited to the current tax year
only. Currently before the Court are the IRS' motion to affirm
its determination concerning collection action and motion to
dismiss Negron's claims for damages and alteration of his
suspension from the electronic filing program.
II. Facts The IRS assessed a trust fund recovery penalty against Negron
for the tax period ending September 30, 1995 for failure to pay
income and Federal Insurance Contribution Act (FICA) taxes owed
by a failed business for which he was a principal. Complaint
(Dkt. No. 1) at 3; IRS Motion (Dkt. No. 7) at 2. The original
debt was approximately $13,000. Complaint (Dkt. No. 1) at 3. On
April 17, 2003, the IRS sent him a Final Notice of Intent to Levy
and Notice of Your Right to a Hearing letter. Final Notice (Dkt.
No. 7, Ex. B) at 1; Complaint (Dkt. No. 1) at 7. According to
this letter, Negron owed $23,121.38, which included the
assessment of $12,899.73 plus statutory additions of $10,221.65.
Final Notice (Dkt. No. 7, Ex. B) at 2. Negron timely requested a
Collection Due Process ("CDP") hearing, seeking a reconsideration
of his last OIC because he had been unemployed for six months.
Request (Dkt. No. 7, Ex. C) at 1; Complaint (Dkt. No. 1) at 4.
The CDP hearing was held on September 9, 2003. Complaint (Dkt.
No. 1) at 3. Negron claims that at the close of this hearing, the
IRS agent said, "I will evaluate your new offer, I will at least
like to recover the original debt, but I would not be able to get
back to you probable [sic] until next month." Id.
Negron has been unemployed since November 2002, and his
employment benefits ceased in October 2003. Id. After the
termination of his unemployment benefits, he started a business
providing accounting services, including tax preparation. Id.
At the end of October, Negron called the IRS about the status of
his case, and was told by an IRS agent that "I am in the middle
of finishing another case, your case is next." Id.
Negron was previously authorized to participate in the IRS'
electronic tax filing program, but had to be readmitted into the
program. Id. He borrowed and invested approximately $2,500 and
began the process for readmission. Id. On February 2, 2004,
Negron was denied authorization to participate in the program because, although he was trying to
rectify the issue, he still had a balance due to the IRS. Program
Denial Letter (Dkt. No. 1) at 10. Negron wrote a letter to appeal
that denial, explaining that his case was still being decided by
the IRS Appeals Office. Program Appeal (Dkt. No. 1) at 12. On
February 17, 2004, his appeal of the February 2 decision was
denied because, regardless of his situation, his civil penalty
issue remained unresolved and his balance was still unpaid.
Program Appeal Denial (Dkt. No. 1) at 13. He was suspended from
participation in the program until January 1, 2006. Id. This
denial stated that Negron had a right to appeal that decision.
Id. Negron contends that between February 1 and April 15, 2004,
he had 123 inquiries regarding tax preparation services, but he
was only able to prepare seven tax returns because the other 116
people wanted electronic filing. Complaint (Dkt. No. 1) at 3.
On April 14, 2004, the IRS Appeals Office issued a Notice of
Determination Concerning Collection Action(s) Under Section 6320
and/or 6330, which stated that the collection action proposed by
the IRS could resume and that the OIC submitted by Negron was
denied. Determination (Dkt. No. 1) at 7-8. Negron timely
commenced this proceeding on May 13, 2004, seeking judicial
review of this determination. Complaint (Dkt. No. 1). Negron also
seeks $2,500 in damages for his business investment and for a
reduction in his suspension from the electronic tax filing
program. Id. at 4.
A. Motion to Affirm IRS Determination
This Court has jurisdiction to review an IRS determination
pursuant to 26 U.S.C. § 6330(d)(1)(B), which states in pertinent
part that a "person may, within 30 days of a determination under
this section, appeal such determination . . . (B) to a district
court of the United States" when, as in this case, the Tax Court does not have jurisdiction.
26 U.S.C. § 6330(d)(1)(B); see Pelliccio v. United States,
253 F. Supp. 2d 258, 262 (D. Conn. 2003); see also Anderson v.
Comm'r of Internal Revenue, 80 T.C.M. (CCH) 461 (2000) (Because
the Tax Court's jurisdiction is generally limited to income,
estate, gift, and certain excise taxes, it does not have
jurisdiction to review an employment tax liability determination
under § 6330.). When the underlying tax liability is not at
issue, as is true in this case, the court reviews the
determination for abuse of discretion. Pelliccio,
253 F. Supp. at 262. For judicial review of administrative appeals, a
decision "would be an abuse of discretion if it were made without a
rational explanation, inexplicably departed from established
policies, or rested on an impermissible basis, or . . . on other
considerations that Congress could not have intended to make
relevant." MCRA Info. Servs. v. United States,
145 F. Supp. 2d 194, 199 (D.Conn. 2000) (citing Wong Wing Hang v. I.N.S.,
360 F.2d 715, 719 (2d Cir. 1966)) (internal quotations omitted).
Pursuant to § 6330(c)(3), in making a determination, the IRS
officer must take into consideration (1) the verification that
"the requirements of any applicable law or administrative
procedure have been met"; (2) the issues raised by the taxpayer,
which may include spousal defenses, challenges to the
appropriateness of collection actions, and offers of collection
alternatives; and (3) "whether any proposed collection action
balances the need for efficient collection of taxes with the
legitimate concern of the person that any collection action be no
more intrusive than necessary." 26 U.S.C. § 6330(c).
The IRS officer considered each of the three criteria prior to
issuing the determination. The Summary and Recommendation
included with the Notice of Determination explains how the
requirements of applicable laws and administrative procedures
were met and how the levy balanced the need for efficient
collection with taxpayer concern that the collection action be no
more intrusive than necessary. Determination (Dkt. No. 1) at 7-8. Negron did not
raise anything relating to these issues at the hearing, nor does
he challenge these conclusions in his complaint.
At the hearing, Negron did propose an OIC to reduce his overall
liability to $8,000, the acceptance of which he also requests in
his complaint. Id.; Complaint (Dkt. No. 1) at 3-4. The IRS has
the authority to compromise any civil liability pursuant to
26 U.S.C. § 7122(a). Regulations promulgated under that section give
broad discretion to the IRS to determine whether an OIC will be
accepted. 26 C.F.R. § 301.7122-1(a)(1). There are three grounds
that make an OIC eligible for acceptance, namely (1) doubt as to
liability; (2) doubt as to collectibility; and (3) promotion of
effective tax administration ("ETA") when collection of the tax
liability would cause the taxpayer economic hardship.
26 C.F.R. § 301.7122-1(b)(1)-(3)(i).
The IRS officer determined that Negron did not question the
liability, and that he had the income and/or assets available to
pay it in full. Determination (Dkt. No. 1) at 7-8. Further, the
officer found that collection of the full liability would not
cause economic hardship. Id. The IRS officer analyzed Negron's
current financial circumstances, as well as his ability to obtain
employment based upon his education, experience, and overall good
health. Id. He concluded that his unemployment did not appear
to be permanent, and that it would not be an economic hardship
considering that his spouse was employed, his at-home adult
children assist him financially, and he can meet his basic living
expenses. Id. Further, the IRS officer noted that he had or had
access to assets sufficient to pay the entire liability. Id.
If none of the three grounds listed above are applicable, the
IRS may compromise to promote ETA where "compelling public policy
or equity considerations identified by the taxpayer provide a
sufficient basis for compromising the liability."
26 C.F.R. § 301.7122-1(b)(3)(ii). For this to apply, there must exist exceptional circumstances which would cause
public confidence in the fair administration of the tax laws to
be undermined. Id. The taxpayer has the burden of demonstrating
such circumstances. Id. The IRS found that no exceptional
circumstances existed, and Negron did not allege any in his
complaint. Determination (Dkt. No. 1) at 8.
In its determination, the IRS fully addressed all of the
factors contained in the regulations for the acceptance of an
OIC. There are no allegations by Negron that the IRS officer
failed to consider any information, or that any of the factual
findings were incorrect. Therefore, the Court finds no basis to
conclude that the IRS abused its discretion, and the motion to
affirm is granted. See, e.g., Pelliccio,
253 F. Supp. 2d at 262. Accordingly, Negron's request that his liability
be reduced to $8,000 is denied.
B. Motion to Dismiss
A motion to dismiss for failure to state a claim upon which
relief can be granted pursuant to Rule 12(b)(6) of the Federal
Rules of Civil Procedure must be denied "`unless it appears
beyond doubt that the plaintiff can prove no set of facts in
support of his claim which would entitle him to relief.'" Cohen
v. Koenig, 25 F.3d 1168, 1172 (2d Cir. 1994) (quoting Conley v.
Gibson, 355 U.S. 41, 45-46 (1957)). In assessing the sufficiency
of a pleading, the Court must "assume all well-pleaded factual
allegations to be true, and . . . view all reasonable inferences
that can be drawn from such allegations in the light most
favorable to the plaintiff." Dangler v. New York City Off Track
Betting Corp., 193 F.3d 130, 138 (2d Cir. 1999). Consideration
is limited to the complaint, written instruments that are
attached to the complaint as exhibits, statements or documents
that are incorporated in the complaint by reference, and
documents on which the complaint heavily relies. See Chambers v. Time Warner, Inc., 282 F.3d 147, 152-53 (2d
Cir. 2002) (citations omitted).
A motion to dismiss for lack of subject matter jurisdiction
pursuant to Rule 12(b)(1), however, has a different standard. The
Court "need not accept as true contested jurisdictional
allegations." Shenandoah v. Halbritter, 275 F. Supp. 2d 279,
284 (N.D.N.Y. 2003) (Mordue, J.) (citations omitted). A court
"may resolve disputed jurisdictional facts by referring to
evidence outside the pleadings." Id. (citing Zappia Middle E.
Constr. Co. v. Emirate of Abu Dhabi, 215 F.3d 247, 253 (2d Cir.
2000); Filetech S.A. v. France Telecomm. S.A., 157 F.3d 922,
932 (2d Cir. 1998). The burden is on the plaintiff to show that a
court has subject matter jurisdiction. Lunney v. United States,
319 F.3d 550, 554 (2d Cir. 2003); Shenandoah,
275 F. Supp. at 285. If at any time it comes to the court's attention,
by the parties or otherwise, that subject matter jurisdiction is
lacking, the action must be dismissed. Fed.R.Civ.P. 12(h)(3).
Negron requests damages from the IRS in the amount of $2,500
for his business investment, claiming that he spent this amount
in reliance upon an IRS officer's representation that he would
receive a determination based upon the September 9, 2003 CDP
hearing in October 2003. Complaint (Dkt. No. 1) at 3. He also
claims that the denial of authorization to participate in the
electronic tax filing program resulted from the outstanding case.
Id. The IRS contends that the Court does not have jurisdiction
to hear this claim. IRS Memo. (Dkt. No. 7) at 9.
The IRS, as part of the United States government, is immune
from suit, "except where [C]ongress, by specific statute, has
waived sovereign immunity." Liffiton v. Keuker, 850 F.2d 73, 77
(2d Cir. 1988). If Congress has not waived sovereign immunity for
this type of claim, the Court does not have subject matter
jurisdiction. Chayoon v. Chao, 355 F.3d 141, 142-43 (2d Cir.
2004). Negron does not present any basis upon which to invoke this
Court's jurisdiction in his complaint,*fn2 and a review of
the possible bases for subject matter jurisdiction demonstrates
that this Court does not have jurisdiction to hear this claim.
There are few provisions that allow suit to be brought in a
district court for money damages against the IRS. Section 6330,
which is the basis for this Court's review of the IRS
determination, does not authorize the Court to provide such
relief for Negron in this case. Review under § 6330(d) is limited
to issues raised in the CDP hearing. Pelliccio,
253 F. Supp. 2d at 261. As Negron's claim is for money invested after
the hearing based upon the length of time it took for a post-hearing
determination to be issued, this issue could not have been
brought up at the hearing. Therefore, this relief cannot be
awarded under § 6330.
Further, this Court cannot award money damages under the
Administrative Procedure Act ("APA"), 5 U.S.C. § 702. Congress
waived sovereign immunity under the APA for a "legal wrong
because of agency action" only when seeking relief other than
money damages. 5 U.S.C. § 702; see, e.g., Presidential
Gardens Assocs. v. United States, 175 F.3d 132, 143 (2d Cir.
1999). Because Negron is seeking monetary damages as
compensation, it cannot be allowed under the APA. Additionally,
the Federal Torts Claims Act retains sovereign immunity for
"[a]ny claim arising in respect of the assessment or collection
of any tax." 28 U.S.C. § 2680(c).
The exclusive provision for recovering monetary damages in
connection with any collection of a federal tax is
26 U.S.C. § 7433(a):
If, in connection with any collection of Federal tax
with respect to a taxpayer, any officer or employee
of the Internal Revenue Service recklessly or
intentionally, or by reason of negligence disregards
any provision of this title, or any regulation promulgated under this title, such
taxpayer may bring a civil action for damages against
the United States in a district court of the United
States. Except as provided in section 7432, such
civil action shall be the exclusive remedy for
recovering damages resulting from such actions.
26 U.S.C. § 7433(a).*fn3
However, Negron fails to state a
claim under § 7433 because he does not allege that any officer
violated any provision of the Internal Revenue Code or any
regulation promulgated thereunder. CPS Elec. Ltd. v. United
States, 200 F. Supp. 2d 120
, 128-29 (N.D.N.Y. 2002) (Scullin,
C.J.). The only allegation that Negron makes respecting his
investment of $2,500 for which he seeks compensation is the
amount of time that it took for the IRS to issue a determination
as to his liability, and that it took longer than an IRS officer
estimated. Complaint (Dkt. No. 1) at 3. However, this Court is
not aware of any statute or regulation that requires a
determination to be issued within a certain time period, and
Negron has not pointed to any. Furthermore, this section only
applies to the collection of a tax, not a determination of a tax,
which is what is at issue in this case. See Arnett v. United
States, 889 F. Supp. 1424, 1430 (D.Kan. 1995) ("Congress was
undoubtedly aware of the distinction between the `determination'
of a tax and the `collection' of a tax, and that distinction is
clearly evidenced by the language of the statute"). Therefore, §
7433 does not provide Negron with an avenue of relief.
3. Suspension from Electronic Filing Program
Negron also asks this Court to alter his suspension from the
electronic tax filing program to limit it to the current tax year
only. Complaint (Dkt. No. 1) at 4. The Court's authority to
review the decision to exclude Negron from the program would have
to come from § 704 of the APA. See, e.g., Brenner Income Tax
Ctrs. Inc. v. Dir. of Practice of the IRS, 87 F. Supp. 2d 252,
257 (S.D.N.Y. 2000). Although Negron does not phrase his complaint in APA
terms, he is proceeding pro se, and this Court will read his
complaint liberally. See, e.g., Haines v. Kerner,
404 U.S. 519, 520-21 (1972); Gill v. Pidlypchak, 389 F.3d 379, 385 (2d
Cir. 2004). For an agency decision to be reviewed under the APA,
it must be a "final agency action." 5 U.S.C. § 704. "A
preliminary, procedural, or intermediate agency action or ruling
not directly reviewable is subject to review on the review of the
final agency action." Id.
The IRS contends that Negron is not the subject of a final
agency decision, and thus, this Court does not have the authority
to review the decision under the APA. IRS Memo. (Dkt. No. 7) at
10. Negron alleges that his appeal of the IRS' initial decision
to suspend him was denied and that he has been suspended from the
program. Complaint (Dkt. No. 1) at 3. In this letter denying his
first appeal, he was informed of his right to a second appeal.
Appeal Denial (Dkt. No. 1) at 13. Negron did not appeal again,
and therefore, as of March 2004, the sanction should have been
imposed. Id. However, the failure to take advantage of the
opportunity to appeal does not necessarily deprive this Court of
jurisdiction. Under the APA, "if Congress has not enacted an
explicit exhaustion requirement, courts may not exercise their
judicial discretion to impose one." Bastek v. Fed. Crop Ins.
Corp., 145 F.3d 90, 94 (2d Cir. 1998) (quoting Darby v.
Cisneros, 509 U.S. 137, 153-54 (1993)). The Court is not aware
of any provision that requires Negron to exhaust all of his
administrative remedies before filing suit in district court. It
appears that Negron has been subjected to a final agency action,
considering that he has no further recourse with the IRS and his
suspension should be in effect as of March 2004. Appeal Denial
(Dkt. No. 1) at 13. Therefore, the Court will not dismiss this
action for a lack of final agency action.
The IRS also contends that Negron fails to state a claim under
the APA. IRS Memo. (Dkt. No. 7) at 11. In relevant part, the APA states that agency action,
findings, and conclusions can only be set aside when they are
"arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law." 5 U.S.C. § 706(2)(a). "An agency rule
may be deemed arbitrary, capricious, or an abuse of discretion
`if the agency has relied on factors which Congress has not
intended it to consider, entirely failed to consider an important
aspect of the problem, offered an explanation for its decision
that runs counter to the evidence before the agency, or is so
implausible that it could not be ascribed to a difference in view
or the product of agency expertise.'" Henley v. Food & Drug
Admin., 77 F.3d 616, 620 (2d Cir. 1996) (quoting Motor Vehicle
Mfrs. Assoc. of the United States, Inc. v. State Farm Mut. Auto.
Ins. Co., 463 U.S. 29, 43 (1983)).
The IRS has the authority to develop guidelines and procedures
for participation in the electronic tax filing program. Rev.
Proc. 2000-31. Authorized electronic filers must adhere to all
revenue procedures and publications related to the program, and
sanctions for violations include suspension. Id. at § 4.04,
7.02. The IRS may suspend an electronic filer for, inter
alia, failure to pay any tax liability or assessment of
penalties. IRS, Pub. No. 3112, IRS e-file Application and
Participation, 15, 25 (2004). This rule is rationally related "to
the IRS' mission of assuring taxpayers that paid preparers
understand and will abide by all relevant rules." Brenner,
87 F. Supp. 2d at 257.
In this case, the IRS suspended Negron from the program because
he had a balance due based upon the assessment that is the
subject of the instant action. Program Denial Letter (Dkt. No. 1)
at 10. On appeal, the IRS considered the issues he raised, but as
he still had a balance due, his request for authorization was
denied. Appeal Denial (Dkt. No. 1) at 13. Negron does not dispute
that he owed money to the IRS or that penalties were assessed
against him. Complaint (Dkt. No. 1) at 3. He does not assert any wrongdoing on the part of the IRS
officials that made the determination to suspend him from the
program. Id. Negron offers no reason for this Court to award
him this relief under the APA, other than his desire to make
money by preparing and electronically filing tax returns and his
understandable frustration with the length of time it took the
IRS Appeals Office to make a determination. Id. As Negron does
not allege any wrongful action on the part of the IRS
specifically respecting the decision to suspend him from the
electronic tax filing program, the IRS' motion to dismiss is
Based on the foregoing discussion, it is hereby
ORDERED, that the IRS' motion to affirm is GRANTED; and it is
ORDERED, that the IRS' motion to dismiss Negron's claim for
$2,500 in damages is GRANTED; and it is further
ORDERED, that the IRS' motion to dismiss Negron's claim for an
alteration to his suspension from the electronic tax filing
program is GRANTED; and it is further
ORDERED, that Negron's complaint is DISMISSED in its entirety;
and it is further
ORDERED, that the Clerk serve a copy of this order on all