United States District Court, E.D. Pennsylvania
February 11, 2004.
STA PAINTING CO.
INTERNAL REVENUE SERVICE
The opinion of the court was delivered by: RICHARD B. SURRICK, District Judge
MEMORANDUM & ORDER
On September 4, 2002, a Complaint for Redetermination was filed by
STA Painting Co. ("STA"), pursuant to 26 U.S.C. § 6330, seeking
review of the determinations of an Internal Revenue Service ("IRS")
Appeals Officer issued on August 15, 2002, sustaining certain collection
activities by the IRS against Plaintiff for non-payment of employment
taxes. Defendant IRS has moved for summary judgment seeking affirmation
of the Appeal Officer's determinations. (Doc. No. 8.) Plaintiff has filed
a cross motion for summary judgment seeking remand alleging that the
Appeals Officer's decision rejecting an installment agreement was an
abuse of discretion. (Doc. No. 9.) For the following reasons, we will
grant Defendant's motion and deny Plaintiff's cross motion.
STA, a commercial painting contractor, filed this suit seeking review
of three determinations by James J. Polsenki ("Appeals Officer")
rejecting Plaintiff's attempt to settle its employment tax deficiency
through an installment agreement rather than through lien or levy of its
assets. Plaintiff has properly sought review of the Appeals Officer's
determinations pursuant to 26 U.S.C. § 6330(d).
In May of 2001, the IRS sent STA a notice of intent to levy for its
failure to pay employment taxes for the periods ending June 30, 2000,
September 30, 2000, and December 31, 2000. This notice informed STA of
its right to a collection due process ("CDP") hearing pursuant to
26 U.S.C. § 6330(a)(1).*fn1 On June 15, 2001, STA requested a CDP
hearing and provided the IRS with specific reasons why a levy was
inappropriate. STA requested payment through an installment plan. (Def.'s
Mot. for Summ. J. Ex. 1.) STA met with the Appeals Officer twice in
September of 2001, to discuss its liability. It proposed an installment
agreement in which it would pay $3,000 a week until the principal for
each quarter had been paid off, and a lump sum payment of $85,000 to be
paid by December 31, 2001. (Def.'s Mot. for Summ. J. Ex. 5.) STA claims
that pursuant to this installment proposal, twenty-one $3,000 payments or
$63,000 was paid to the IRS between October 5, 2001, and August 30, 2002.
STA also made lump sum payments to the IRS of $6956.64 on September 19,
2001, and $8024.30 on September 23, 2001. Despite these payments, on
August 15, 2002, the Appeals Officer advised STA that it was ineligible
for an installment agreement due to its lack of compliance and that a
levy was the appropriate collection action. (Def.'s Mot. for Summ. J. Ex.
In June of 2001, the IRS also notified Plaintiff that it was filing a
notice of a lien, pursuant to 26 U.S.C. § 6320,*fn2 for the
deficiency in employment taxes for the periods ending June 30, 2000 and
September 30, 2000. (Def.'s Mot. for Summ. J. Ex. 2.) Again, STA
requested a CDP hearing appealing the notice of the lien, arguing that
the appeal of the
aforementioned levy action (described above) prevented the IRS from
filing a "collection action," while the appeal was pending. (Def.'s Mot.
for Summ. J. Ex. 3.) After meeting with the Appeals Officer, the IRS
responded to this argument on August 15, 2002, informing STA that since
it did not meet any of the requirements for withdrawal of the notice of
lien, this lien would remain in full force and effect until the liability
was fully paid. (Def.'s Mot. for Summ. J. Ex. 7.)
In September of 2001, the IRS sent STA a notice of intent to levy for
STA's failure to pay employment taxes for the period ending March 31,
2001. STA again requested a CDP hearing, incorporating the arguments made
to the IRS in its earlier CDP requests. (Def.'s Mot. for Summ. J. Ex. 4.)
STA's proposal for an installment agreement covered this period of
delinquency as well. (Def.'s Mot. for Summ. J. Ex. 5.) In addition, STA
discussed the installment plan with the Appeal Officer on December 11,
2001. Again, the IRS denied STA's request, advising that STA was
ineligible for the installment agreement due to its lack of compliance.
(Def.'s Mot. for Summ. J. Ex. 8.)
II. Review of the IRS Determination
Summary Judgment Standard of Review
Summary judgment is appropriate "if the pleadings, depositions, answers
to interrogatories, and admissions on file, together 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 judgment as a matter of law." FED.
R. CIV. P. 56(c). The party moving for summary judgment bears the
initial burden of demonstrating that there are no facts supporting the
non-moving party's legal position. See Celotex Corp. v.
Catrett, 477 U.S. 317, 322-24 (1986).
The parties in this matter have agreed that it may be disposed by cross
summary judgment and that discovery is inappropriate. The parties
agree that the only issue in this case is whether the decisions of the
Appeals Officer were correct as a matter of law. Although the parties
move for summary judgment, we shall construe the motions as motions for
judgment, seeking affirmance or reversal of the IRS's
Standard of Review for Appeal Officer Determination
This case is properly before us under 26 U.S.C. § 6330(d)(1)(B)
which provides that "the person may, within 30 days of a determination
under this section, appeal such determination if the Tax Court
does not have jurisdiction of the underlying tax liability, to a district
court of the United States."*fn4 Even though § 6330 provides for
judicial review, it is silent with respect to the standard of review to
be applied by the district court. The Third Circuit has not yet spoken to
the issue, however, district courts in this and other districts> have
applied an abuse of discretion standard. Christian v. Comm'r of
IRS, No. Civ. A. 02-9120, 2003 WL 21499013, *1 (E.D. Pa. June 5,
2003): see also Danner v. United States, 208 F. Supp.2d 1166,
1170 (E.D. Wash. 2002);
MRCA Info. Servs. v. United States, 145 F. Supp.2d 194,
199 (D. Conn. 2000) (comprehensive review of the House Report
accompanying the enactment of the IRS Restructuring and Reform Act of
1998, H.Rep. No. 105-599 at 266 (1998), concluding that an abuse of
discretion standard of review is appropriate when a district court
reviews an IRS Appeal officer's determination pursuant to
26 U.S.C. § 6330). We will also apply that standard.
The abuse of discretion standard requires a court to determine whether
the administrative decision was based on a consideration of the relevant
factors and whether or not there was a clear error of judgment.
Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416
(1971). Moreover, an agency must articulate a "rational connection
between the facts found and the choice made." Bowman Trans. v.
Arkansas-Best Freight, 419 U.S. 281, 285 (1974). `"The task of this
court, is not to determine whether in its own opinion . . . `that an
installment agreement would best serve both the interest of the IRS and
[taxpayer], `but to determine whether there is an adequate basis in law
for the officer's conclusion that it did not.'" See MRCA,
145 F. Supp.2d at 199 (quoting RCA Corp. v. United States,
664 F.2d 881, 886 (2d Cir. 1981)).
III. Discussion of Levy Actions
STA argues that the decision to impose the levy and reject the proposed
installment agreement was not a rational decision.*fn5 (Mem. in Supp. of
PL's Cross Mot. for Summ. J. at unnumbered 6 (citing
26 U.S.C. § 6330(c)(3)(C)).) Under § 6330(c)(3)(C), the determination by the
Appeals Officer must take into consideration the applicable law or
any issues raised by the taxpayer concerning the unpaid tax, the
proposed levy or offers of collection alternatives, any challenges to the
appropriateness of collection actions, and whether the proposed
collection action balances the need for the efficient collection of taxes
with the legitimate concern of the person that any collection action be
no more intrusive than necessary. 26 U.S.C. § 6330(b).
The crux of Plaintiff's argument to the Appeals Officer was that the
enforcement of the collection procedures would produce less revenue
towards paying the deficiency than would simply allowing STA to continue
paying pursuant to the proposed installment agreement. In its properly
submitted requests for hearings (Def.'s Mot. for Summ. J. Exs. 1, 3, 4),
its letter proposing an installment plan (Letter of Sept. 27, 2001), and
in the three statutorily required hearings, Plaintiff offered many
reasons why the installment plan was better for both parties than the
action to levy assets and place a lien on its property. STA told the IRS
that an installment plan would allow the IRS to collect the deficient
amount while allowing STA to continue as a viable business.*fn6 STA
advised that if the installment plan was rejected, STA would be forced
out of business and the IRS would collect less total revenue. STA
indicated that it had no real estate, only simple equipment, and no
inventory that would produce any revenue through a levy. In
addition, a levy on STA's only substantial asset its
accounts receivable would force STA out of business because it
would be unable to pay its wage labor and thus continue on as a
company.*fn7 Finally, STA pointed to 26 U.S.C. § 6330(c)(2)(A)(iii)
which permits it to offer a collection alternative and argued that its
installment plan was an acceptable alternative.*fn8 While admitting that
its compliance with the proposed installment plan had not been perfect,
STA noted that it had already paid almost $78,000 pursuant to the
installment offer, and had voluntarily assigned some of its accounts
receivable over to the IRS. (Tiedeken Decl. ¶ 9.)
Notwithstanding STA's arguments regarding the merits of an installment
plan, the Appeals Officer rejected this alternative. The IRS offered the
following reasons for this rejection:
You have been a chronic repeater in failing to
deposit and pay trust fund taxes. While you were
appealing the above tax periods, you failed to
file, pay or deposit trust fund taxes for the
period ending 6-30-2001.
On September 27, 2001, your representative
proposed that you pay $3,000.00 per week to be
applied to the September 30, 2001 quarter and
would remain current on employment tax's. You
also proposed to pay $85,000.00 by Dec. 31,
2001. Although you have made a number of
$3,000.00 payments, they have not been weekly as
proposed and you never made the $85,000.00
payment toward back taxes. Therefore, you are in
default of your own proposal.
Some of the $3,000.00 payments were erroneously
applied to quarters other than September 30,
2001 but we are now applying them per your
We have allowed you several months in which
to obtain additional financing and pay the trust
fund liabilities, but you have failed to do so.
In addition, during the period of the appeal,
you have incurred additional liabilities.
You agreed to deposit trust fund taxes as
required by law. You failed to take these
actions and incurred another trust fund
You raised no other issues relating to the
unpaid taxes and made no other proposals
regarding collection alternatives. It appears
that you are appealing for purposes of delay.
Balancing Efficient Collection and
A levy on your bank account(s) or a seizure of
your assets would probably yield some revenue in
relation to the amount owed. Further delay would
only result in increasing the liabilities as you
have done during the appeal. You are not eligible
for an installment agreement or offer in
compromise due to your lack of compliance.
(Def.'s Motion For Summary J. Ex. 6.)
The IRS argues that these reasons adequately support the Appeals
Officer's decision. It cites MRCA in support of its position.
In MCRA the court found no abuse of discretion where an appeals
officer rejected an installment agreement because plaintiff failed to pay
an agreed upon lump sum payment, plaintiff defaulted on prior installment
agreements, and there was a continued escalation of plaintiff's tax
liability during the appeals process. 145 F. Supp.2d at 200. Our
research reveals other courts that have similarly concluded that the
decision to levy and reject an installment agreement is not an abuse of
discretion where the taxpayer had incurred additional deficiencies and
has already failed to comply with an installment agreement. See PCT
Servs., Inc. v. United States, No. Civ. A. 02-2085, 2003 WL
21541283, * 5 (N.D. Ga. May 19, 2003); Stop 26 Riverbend,
Inc. v. United States, No. C2-02-0285, 2003 WL 1908747, * 3 (S.D.
Ohio March 12, 2003) (holding that where taxpayer provided no
information to show that payments could be made and that it was
continuing to accrue unpaid tax liabilities the decision by appeals
officer to deny installment agreement was not an abuse of discretion);
Kitchen Cabinets. Inc. v. United States, No. Civ. A.
OO-cv-0599, 2001 WL 237384, * 3 (N.D. Tex. March 6, 2001) (same);
Jon H. Berkey, P.C. v. Dep't of the Treasury, No. OO-cv-75149,
2001 WL 1397680, * 5 (E.D. Mich. Sept. 20, 2001) (finding that appeals
officer's decision was not abuse of discretion where plaintiff "continues
to fail to make scheduled payments, and continued to be in non-compliance
with federal tax laws").
Notwithstanding the explanations offered by STA as to why it was unable
to comply with the installment plan and stay current in its payment of
taxes, it is apparent that the IRS had sufficient reason to believe that
despite Plaintiff's good intentions an installment plan would not solve
STA's deficiency problem.
IV. Discussion of Notice of Lien
STA argues that the filing of a lien by the IRS was inappropriate while
it was contesting the levy action for the same deficiency period. On May
20, 2001, the IRS filed its intent to levy notice for the periods ending
June 30, 2000, September 30, 2000 and December 31, 2000. STA filed a
timely appeal on June 15, 2001. The IRS then filed a notice of lien for
the June and September periods on June 20, 2001. Section 6330(e)(1)
provides that during the time a levy action is under review, the levy
action for that time period is suspended. Significantly, § 6330(e)(1)
makes no reference to the filing of liens. It states only that "the levy
actions which are the subject of the requested hearing . . . shall be
suspended for the period during which such hearing, and appeals therein,
are pending." Id. STA argues that the filing of a lien was
inappropriate because § 6330(e)(1) requires the suspension of
the collection activity pending appeal of a levy action. The IRS defends
arguing that a lien is not a collection action but a preservation of the
status quo pending a decision on the levy action. It points out that
"unless the service is permitted to preserve the position of the United
States' revenue relative to other creditors of the taxpayer, by filing a
notice of Federal tax lien, the taxpayer would be free to commit its
assets to pay other creditors during the time the services' ability to
levy is suspended by § 6330(e)(1)." This places the United States at
a significant disadvantage.
As noted above, § 6330(e)(1) suspends only "levy actions which are
the subject of the requested hearing." It says nothing about liens. We
also note that § 6320 dealing with liens provides in subsection (c)
that "to the extent practicable, a hearing under this section shall be
held in conjunction with a hearing under § 6330." Perhaps the IRS had
this in mind when it filed the notice of lien. We agree with the IRS that
the filing of the lien under these circumstances was not prohibited by
§ 6330(e)(1). Any other conclusion would make little sense.
Based upon the foregoing we conclude that the Appeals Officer did not
abuse his discretion in rejecting STA's proposal of an installment
agreement and that the determinations of the Internal Revenue Service
An appropriate Order follows.
AND NOW on this ___ day of February, 2004, upon review of the motion
filed by Defendant Internal Revenue Service (Docket No. 8), and the cross
motion filed by Plaintiff STA Painting Co. (Docket No. 9), and all papers
filed in support thereof and in opposition thereto, it is ORDERED that
Defendant's motion is GRANTED, and the Plaintiff's cross motion is
DENIED. The determinations of the Internal Revenue Service are AFFIRMED.
IT IS SO ORDERED.