UNITED STATES DISTRICT COURT FOR THE
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION

UNITED STATES OF AMERICA, )Plaintiff,)Case No.: 8:08-CV-0000-xxx-xxx)v.) MOTION TO GRANT PETITION FOR JUDICIAL) APPROVAL OF LEVY UPON A PRINCIPALJeanne Patriot ) RESIDENCE OR, IN THE ALTERNATIVE,Defendant)TO CONTINUE OCTOBER 2, 2008 HEARING_____________________________________________________________________________________________

The United States of America, by and through undersigned counsel, respectfully requests that this Court grant its petition for judicial approval of levy upon a principal residence. If the court denies this motion, the United States respectfully requests this Court reschedule the October 2, 2008 hearing on the petition due to a conflict with Revenue Officer Bryan Morris’s schedule. In support of this motion, the United States submits the following memorandum:

MEMORANDUM

Facts

On July 2, 2008, the United States filed a petition for judicial approval of levy upon defendant’s principal residence for unpaid federal income tax liabilities, interest, and penalties for 1993 and 1994. (D.E. 1.) In support of its petition, the United States filed Certified IRS Form 4340 transcripts showing that the IRS assessed federal income tax, interest, and penalties, and that notice and demand for payment were made, (D.E. 1), Exhibit 2, and a Declaration of 1The court denied this motion on September 9, 2008.

Revenue Officer Bryan Morris. (D.E. 2.)

On July 10, 2008, the Court issued a Notice and Order to Show Cause ordering defendant to file a written objection to the petition within twenty-five (25) days of service of the order. (D.E. 4.) The order specified that the defendant’s objections should demonstrate that (1) the tax liability has been satisfied, (2) that defendant possesses other assets from which the unpaid liabilities can be satisfied, or (3) that applicable laws and administrative procedures relevant to the levy were not followed by the Internal Revenue Service. Id. The order also conditionally scheduled a hearing on October 2, 2008 to consider defendant’s objection in the event that defendant filed a written objection with the Court. Id. On July 14, 2008, defendant was served in accordance with the terms of the Notice and Order to Show Cause by Revenue Officer Bryan Morris. See Return of Service (D.E. 5). On August 4, 2008, defendant filed a motion for jury trial 1 and an objection to the petition. (D.E.s 6 and 7.)

Argument

In order to be granted a hearing, defendant must rebut the United States’ prima facie case by raising a genuine issue of material fact as to whether: (1) the tax liability has been satisfied, (2) defendant possesses other assets from which the unpaid liabilities can be satisfied, or (3) applicable laws and administrative procedures relevant to the levy were not followed by the Internal Revenue Service. 26 C.F.R. § 301.6334-1(d)(2). This Court also expressly advised defendant of this burden in its July 10 order.

Defendant’s objections do not create a genuine issue of material fact on any of the above grounds. Defendant’s first objection - that the tax has been wrongfully assessed – improperly challenges the merits of the underlying taxes. Defendant’s second objection - that notices of federal tax liens were improperly filed - is irrelevant to the issue of whether the IRS followed applicable laws and administrative procedures relevant to the levy. Defendant’s final objection - that other collection alternatives exist - is without merit because defendant has failed to identify any other asset of value with which to satisfy her outstanding tax liabilities. Accordingly, defendant has not raised any genuine issue of material fact, and the Court should grant the United States’ petition and adjourn the hearing.

I. Defendant improperly challenges the merits of the underlying tax liability.

Defendant improperly objects to the merits of the underlying taxes assessed against her. (D.E. 7, pp. 1-2, ¶¶ 1-6, p 3, ¶ 1, and p. 5, ¶ 1.) “The taxpayer is not permitted to challenge the merits underlying the tax liability in the proceeding.” 26 C.F.R. § 301.6334-1(d)(2). The court in In re Lawrence explained the necessity of such a rule to protect both tax collection and judicial efficiency:

In light of the considerable procedural protections available to all taxpayers, the premise that a judge or magistrate of a District Court should serve as purveyor of tax liability determinations at a Section 6334(e)(1)(A) proceeding is misguided. Allowing any taxpayer to ignore repeated attempts by the Government to claim tax liabilities, in favor of contesting all disputes in District Court potentially years down the road and only when a levy appears imminent, would be burdensome on the Courts, would encourage individuals to ignore the assessments and allow information to grow stale, and would allow interest, where appropriate, to unnecessarily accrue. 2004 U.S. Dist. LEXIS 22228 at *6-7 (D. Ariz. Sept. 29, 2004).

In her objection, defendant alleges that she was the victim of identity theft and the IRS 2 While not relevant here, and not mentioned in defendant’s objection, the IRS abated the corresponding tax assessments and associated interest related to the purported identity theft. See Complaint, Exhibit 2, p. 5 of the 1993 transcript, p. 4 of 1994 the transcript.

3 Defendant’s tax liability for the years at issue is based upon substitute for returns because she failed to file her federal income tax returns as required by law. See Complaint, Exhibit 2, pg. 1 of the 1993 and 1994 certified transcripts. (D.E. 2.) The United States is authorized to make substitutes for returns in the absence of a filed tax return under 26 U.S.C. § 6020(b) assessed income taxes as a consequence of the identity theft 2 . (D.E. 7, pp. 1-2, ¶¶ 1-6.) Defendant also disputes the assessments from the IRS Substitute for Returns3. Because these objections pertain to defendant’s underlying tax liability, they are not valid objections under 26 C.F.R. § 301.6334-1(d)(2).

II. Defendant’s objection that the IRS failed to follow applicable laws and administrative procedures relevant to the levy is without merit.

Defendant’s objection that the IRS (1) improperly filed notices of federal tax liens against her and (2) provided improper notice to her fails to address the issue of whether the IRS followed all applicable laws and administrative procedures relevant to the levy under 26 C.F.R. 301.6334-1(d)(2). Simply stated, a notice of federal tax lien is not a prerequisite for an IRS levy. American Acceptance Corp. v. Glendora Better Builders, Inc., 550 F.2d 1220, 1223 (9th Cir. Ariz. 1977) (“A tax lien is not required. The only prerequisites to a levy are an assessment, notice and demand to pay the tax, and a failure to pay the tax within 10 days after notice and demand.”) (citation omitted). See also United States v. First Nat'l Bank, 1983 U.S. Dist. LEXIS 14691 at *4 (S.D. Tex. 1983). In American Acceptance Corp., the court found that an IRS levy was valid even though the United States mistakenly released its notice of federal tax lien. 550 F.2d at 1223.

The applicable laws and administrative procedures relevant to the levy, as provided for by 26 C.F.R. § 301.6334-1(d)(2), contemplate notices of deficiency and opportunities for payment and are codified in 26 U.S.C. §§ 6303 and 6330-31. “Before a levy can be effective, the IRS must take certain procedural steps including: a tax assessment, a ten day notice and demand for payment under 26 U.S.C. Sections 6303 and 6331(a), expiration of the ten day period without payment by the taxpayer, a final notice before levy under 26 U.S.C. Section 6331(d), a notice of intention to levy with notification of rights to a Collection Due Process hearing under 26 U.S.C. Section 6330 and expiration of a thirty day period following the notice of intention to levy.” In re Lawrence, 2004 U.S. Dist. LEXIS 22228 at *4-5 (D. Ariz. Sept. 29, 2004). These statutes do not require notices of federal tax liens.

Defendant’s objection contends that the IRS failed to follow administrative procedures related to notices of federal tax liens, but the filing of a notice of federal tax lien has no relevance to the IRS levy at issue. Defendant’s objection confuses the federal tax lien that arises statutorily upon assessment under IRC § 6321 with the Notice of Federal Tax Lien filed in accordance with IRC § 6323 in order to gain priority over certain competing claimants. “Pursuant to 26 U.S.C. § 6321, once the IRS assesses a tax and the taxpayer refuses to pay after a demand is made, a lien arises in favor of the United States upon all property and rights to property, whether real or personal, belonging to the taxpayer. This lien is perfected against the taxpayer even without the recording of a Notice of Federal Tax Lien. Choate v. Tubbs, 2004 U.S. Dist. LEXIS 17925 at *7 (W.D. Tenn. 2004) (emphasis added); See also McGinley v. United States, 942 F. Supp. 1239, 1243 (D. Neb. 1996); United States v. Battley, 188 B.R. 615, 618 (B.A.P. 9th Cir. 1995), aff'd 121 F.3d 535 (9th Cir. 1997); Suarez v. United States, 182 B.R. 916, 919 (Bankr. S.D. Fla.

4 If defendant wants to challenge the notices of federal tax lien, then her remedy is to request a hearing under 26 U.S.C. § 6320(a)(3)(B). 1995). When there are no competing interests, the general rule is that the tax collector prevails even if he has not recorded at all. United States v. McDermott, 507 U.S. 447 (1993). However, before a tax lien will be effective against certain third parties, a Notice of Federal Tax Lien must be recorded. Suarez, 182 B.R. at 919.” For the purposes of the levy at issue, the United States’ federal tax lien against defendant’s residence arose when the IRS assessed federal income taxes against defendant for the 1993 and 1994 tax years. See 26 U.S.C. § 6321. The United States’ notices of federal tax liens serve only to establish priority against certain persons with various property interests against taxpayer and are not required in order for this levy. See 26 U.S.C. § 6323. Since the notice of federal tax lien did not establish the United States’ interest in defendant’s property and is not a prerequisite for the levy at issue, the issue of whether the IRS followed proper procedures in filing those notices of federal tax liens is irrelevant for the purposes of this levy4.

Accordingly, defendant’s objection creates no genuine issue of material fact whether the IRS followed all applicable laws and administrative procedures relevant to the levy.

III. Defendant’s objection that reasonable alternatives for collection exist lacks merit.

No other reasonable alternative for collection exists. Defendant’s objection to the contrary lacks merit because it fails to identify an asset other than her residence with which to satisfy her outstanding tax liability. In In re Lawrence, the court granted approval of a levy upon a principle residence when the taxpayer’s residence was the taxpayer’s only asset of substantial worth. 2004 U.S. Dist. LEXIS 22228 at *9 (“[T]he Government demonstrated that the residence 5 For example, in a letter to Revenue Officer Bryan Morris, defendant creates fictitious instruments - including a Statement of Assignment of Account dated August 13, 2007, a Commercial Security Agreement, and a Licensing Offer, attached hereto as Exhibit A - purporting to satisfy defendant’s tax liability. Defendant attached the same Statement of Assignment of Account, this one dated October 13, 2007, to her 2006 tax return, attached hereto as Exhibit B. Defendant also sent an invoice to the IRS demanding over $500,000 in payment for assessing and collecting taxes against her. This invoice is attached hereto as Exhibit C. was Defendants’ only asset of substantial worth and that the liability would have to be paid by a second mortgage of the residence. Therefore, the Court finds that a levy on Defendants’ principal residence is the only feasible means the Government may employ to secure Defendants’ tax liability.”).

Similar to the Lawrence taxpayers, defendant has not identified any asset of substantial worth other than her residence. See (D.E. 7, p. 6, ¶¶ 4-5) (identifying only the residence). Since defendant failed to identify any other asset of substantial worth, a levy on defendant’s residence is the only feasible means the United States may employ to secure defendant’s tax liability. Moreover, due to defendant’s attempts to hamper the IRS’s collection efforts5, the IRS is not aware of any other reasonable alternatives to collect defendant’s outstanding tax liabilities. Accordingly, defendant’s objection that reasonable alternatives for collection exist lacks merit and the Court should grant the United States’ petition.

IV. Motion to reschedule the October 2, 2008 hearing

If the Court does not grant this motion, authorize the levy on defendant’s residence, and adjourn the October 2, 2008 hearing, the United States respectfully requests the Court to reschedule that hearing. Revenue Officer Bryan Morris, whose declaration was filed in support of the United States’ petition, is scheduled to be in Philadelphia, Pennsylvania attending a training class during the week of the hearing. Defendant does not oppose rescheduling the motion, and indicated that she would be unavailable on October 16, 2008. Along those lines, undersigned counsel is unavailable the week of October 6-10 for training at the National Advocacy Center in Columbia, South Carolina and has a final evidentiary hearing in Bankruptcy Court on September 20, 2008.

Conclusion

This Court should grant the United States’ petition and adjourn the hearing because defendant’s objections fail to rebut the United States’ prima facie case. Specifically, these objections fail to raise a genuine issue of material fact demonstrating (1) that the underlying tax liability has been satisfied, (2) that the taxpayer has other assets from which the liability can be satisfied, or (3) that the Service did not follow the applicable laws or procedures pertaining to the levy under 26 C.F.R. § 301.6334-1(d)(2).

Rather than attempting to show that the tax liability has been satisfied, defendant improperly objects to the underlying merits of the tax. Similarly, defendant’s objection that the IRS improperly filed notices of federal tax lien is irrelevant to the issue of whether the IRS followed all applicable laws and procedures pertaining to the levy because a notice of federal tax lien is not a prerequisite for an IRS levy. Finally, the IRS knows of no other alternative means for collection. Defendant’s lack of assets of substantial worth value leaves the IRS with no collection alternatives.

Since the defendant has not presented any objections appropriate under the regulation, she is not entitled to a hearing under the terms of the order and 26 C.F.R. § 301.6334-1. “Unless the taxpayer files a timely and appropriate objection, the court would be expected to enter an order approving the levy of the principal residence property.” 26 C.F.R. § 301.6334-1(d)(2) (emphasis added). Accordingly, the United States requests that the Court adjourn the October 2, 2008 hearing and grant the United States’ petition.

Respectfully submitted,

ROBERT E. O’NEILL
United States Attorney

/s/Stephen C. Dowdell
Stephen C. Dowdell
Trial Attorney, Tax Division
U.S. Department of Justice
P.O. Box 14198
Ben Franklin Station
Washington, D.C. 20044
Telephone: (202) 353-9175
Facsimile: (202) 514-4963
stephen.c.dowdell@usdoj.gov

CERTIFICATE OF SERVICE IT IS HEREBY CERTIFIED that a copy of the foregoing United States’ Motion to Grant Petition was electronically filed on September 12, 2008 with the Clerk of Court by using the CM/ECF system and service was made via United States mail upon:

Jeanne Patriot
Tampa, Florida 33603

/s Stephen C. Dowdell