2003 WL 23847254 (S.D.Fla.)

 

For opinion see 95 A.F.T.R.2d 2005-1749, 289 F.Supp.2d 1361

 

United States District Court, S.D. Florida.

 

Raymond GRANT and Arline Grant, Plaintiffs,

v.

UNITED STATES OF AMERICA, Defendant.

 

No. 02-61668-Civ-Jordan.

 

November 28, 2003.

 

Motion for Summary Judgment

 

The United States of America, by undersigned counsel, respectfully moves this Court, pursuant to Fed. R.Civ.P. 56(b) for summary judgment in its favor. In support of this motion, the United States submits the following Memorandum, including a Statement of Material Facts.

 

MEMORANDUM OF LAW

 

PRELIMINARY STATEMENT

 

The IRS terminated an installment agreement with plaintiffs, and subsequently began levying on plaintiffs' social security benefits. Two preliminary issues exist: (1) whether plaintiffs' claims regarding the termination of the installment agreement are barred by the statute of limitations; and (2) what applicable statute or regulation would have been violated by the levy even if the installment agreement remained in effect. The claim of wrongful termination is not timely, and no statute or regulation precluded the levy. Accordingly, judgment can be entered in the United States' favor without addressing any additional issues.

 

Even if consideration of other issues is required, the United States should still prevail. If plaintiffs' claim regarding the installment agreement was timely, they still must prove that an employee of the IRS negligently, recklessly, or intentionally disregarded the Internal Revenue Code or its regulations in terminating the installment agreement. If some applicable statute would preclude the levy if the installment agreement remained in effect, plaintiffs still must prove that the installment agreement remained in effect, and that an employee of the IRS negligently, recklessly, or intentionally disregarded the Internal Revenue Code or its regulations in issuing the levy. Finally, if plaintiffs could prove each of these elements, they still must prove compensable damages. The United States submits that they will be unable to establish any grounds for relief under 26 U.S.C. § 7433, and judgment should be entered in favor of the United States.

 

SUMMARY JUDGMENT STANDARD

 

Rule 56 of the Federal Rules of Civil Procedures provides that summary judgment is proper if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show there is no genuine issues as to any material fact and that the moving party is entitled to judgment as a matter of law." Summary judgment should be entered "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which the party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The plaintiffs bear the burden of proving that an officer or employee of the Internal Revenue Service negligently, recklessly or intentionally disregarded a specific provision of the Internal Revenue Code or Treasury regulations in connection with the collection of Federal taxes, and that the action proximately resulted in damages to the plaintiffs. 26 U.S.C. § 7433; Addington v. United States, 75 F.Supp.2d 520, 523 (S.D.W.V. 1999).

 

STATEMENT OF MATERIAL FACTS

 

1. In April 1994, the IRS and the plaintiffs entered into an installment agreement. Govt. Ex.1 (Installment Agreement).

 

2. The installment agreement included the tax years 1977, 1978, 1979, 1980, 1981, 1982, 1984, 1985, 1986, and 1987. Govt. Ex. 1.

 

3. The installment agreement required to plaintiffs to remit $3,000 per month to the IRS. Govt. Ex. 1.

 

4. The installment agreement provides that "[f]ailure to provide updated financial information when requested by the Service will be reason for termination of this agreement." Govt. Ex. 1.

 

5. The installment agreement also provides that "All Federal tax returns and Federal taxes that become due while this agreement is in effect must be filed and paid on time." Govt. Ex. 1.

 

6. The plaintiffs defaulted on that installment agreement in 1995 because of additional unpaid tax liabilities for the years 1988, 1989, and 1990. Assessments for those years were made on April 6, 1995. Govt. Ex. 2 (Decl. of Calvin Byrd) at ¶ 4.

 

7. The IRS reinstated the plaintiffs' installment agreement on September 11, 1995. Govt. Ex. 2 at ¶ 5.

 

8. The plaintiffs were sent a Form CP 522 during the 31st week of 1998. Ex. 2 at ¶ 6.

 

9. A Form CP 522 requires taxpayers to contact the IRS and provide updated financial information. The form provides that failure to do so may result in termination of the installment agreement. Govt. Ex. 2 at ¶ 8.

 

10. The plaintiffs failed to respond to the CP 522. Their installment agreement was terminated during the 35th week of 1998. Govt. Ex. 2 at ¶ 10.

 

11. A Letter 1058, "Final Notice - Notice of Intent to Levy and Notice of Your Right to a Hearing" was sent to the Grants on January 27, 1999 by certified mail. The Grants signed for that certified mail on January 29, 1999. Govt. Ex. 3 (Letter 1058).

 

12. The plaintiffs contend that they were informed of the termination of the installment agreement in December 1999. Complaint at ¶ 19.

 

12. By letter dated December 27, 1999, Raymond Grant acknowledged that the installment agreement had been terminated. Govt. Ex. 4 (Letter from Raymond Grant).

 

13. The Grants have made no voluntary payments toward their substantial tax liability since December 8, 1999. Govt. Ex. 2 at ¶ 15.

 

14. On November 27, 2000, the IRS issued a Notice of Levy to the Social Security Administration with respect to the plaintiffs' unpaid Federal income tax liabilities. That levy remains in effect, and the IRS receives approximately $1400 per month pursuant to that levy. Govt. Ex. 2 at ¶ 16-17.

 

15. On November 25, 2002, the plaintiffs mailed an administrative claim for damages. Govt. Ex. 5 (Administrative Claim).

 

16. The administrative claim sought the following as damages: $1,000,000 for pain and suffering; $34,398 for social security benefits levied upon; and $85,000 in attorney fees. Govt. Ex. 5 at p. 4.

 

17. On November 25, 2002, the plaintiffs filed this action. DE #1.

 

ARGUMENT

 

To prevail in this action, plaintiffs must prove that (1) an officer or employee of the Internal Revenue Service negligently, recklessly or intentionally disregarded a provision of the Internal Revenue Code or its regulations, and (2) that such action by the officer or employee proximately resulted in damages to the plaintiffs. 26 U.S.C. § 7433. The plaintiffs will be unable to prove any of the elements required for recovery of damages.

 

The two actions at issue in this case are the termination of the installment agreement and the levy on the plaintiffs' Social Security benefits. Plaintiffs' claims regarding the termination of the installment agreement fail for two reasons: (1) their claim of wrongful termination is barred by the statute of limitations; and (2) the installment agreement was properly terminated. Plaintiffs' claim regarding the levy fails for two reasons: (1) no applicable statute or regulation was disregarded even if the installment agreement remained in effect at the time of the levy; and (2) the installment agreement was not in effect at the time of the levy. Plaintiffs also will be unable to prove that they suffered any compensable damages.

 

A. The Installment Agreement

 

1. Regardless of whether the installment agreement was properly terminated,

 

plaintiffs' claim is barred by the statute of limitations.

 

Section 7433 requires that actions be brought within two years after the date the right of action accrues. The regulations provide that a right of action accrues when the taxpayer has had a reasonable opportunity to discover all essential elements of a possible cause of action. Treas. Reg. § 301.7433-1(g)(2); Dziura v. United States, 168 F.3d 581 (1st Cir. 1999).

 

The termination of an installment agreement is a discrete act. In this case, the installment agreement was terminated during the 35th week of 1998 (the week beginning August 31, 1998). By their own admissions, plaintiffs had discovered the termination by December of 1999. The plaintiffs clearly knew that the installment agreement had been terminated by December 27, 1999, the date of Raymond Grant's letter to the IRS. In that letter, he refers to the fact that the installment agreement was terminated, so he certainly knew of the termination by December 27, 1999. That date is more than 2 years before the complaint was filed in this case, and plaintiffs' claims regarding termination of the installment agreement are barred by the statute of limitations.

 

2. The installment agreement was properly terminated.

 

Even if the plaintiffs' action had been timely, they would not be entitled to relief because the installment agreement was properly terminated. Pursuant to 26 U.S.C. § 6159, installment agreements may be terminated for a number of reasons, including failure to provide financial information upon request:

 

(4) Failure to pay an installment or any other tax liability when due or to provide requested financial information.--The Secretary may alter, modify, or terminate an agreement entered into by the Secretary under subsection (a) in the case of the failure of the taxpayer-

 

(A) to pay any installment at the time such installment payment is due under such agreement,

 

(B) to pay any other tax liability at the time such liability is due, or

 

(C) to provide a financial condition update as requested by the Secretary.

 

26 U.S.C. § 6159(b)(4). The installment agreement at issue also explicitly provides that

 

"[f]ailure to provide updated financial information when requested by the Service will be reason for termination of this agreement."

 

The termination of the installment agreement was proper because plaintiffs failed to comply with a request for updated financial information. The automated collection system issued a request for updated financial information, and the notice stated that failure to respond could result in termination of the installment agreement. The plaintiffs failed to respond to that request, and the automated system terminated the installment agreement.

 

Plaintiffs also contend that the United States did not give proper notice of the termination. Complaint at ¶ 28(i). The plaintiffs cite to 26 U.S.C. § 6159 in their allegation. Section 6159(b)(5) provides for notice prior to termination of an installment agreement:

 

The Secretary may not take action under paragraph (2), (3), or (4) unless -

 

(A) a notice of such action is provided to the taxpayer not later than the 30 days before the date of such action, and

 

(B) such notice includes an explanation why the Secretary intends to take such action.

 

This statute has no application to this case. The notice requirement was added by Pub. L. No. 104-168, 110 Stat 1452, § 201(a), which became effective six months after that law's enactment date of July 30, 1996. Pub. L. No. 104- 168, 110 Stat 1452, § 201(c). The installment agreement in this case was entered into in 1994, well before the enactment date of the statute.

 

Even if the statute did apply in this case, the notice provided to plaintiffs was sufficient to meet the requirements under § 6159(b)(5). The statute does not require written notice nor does it otherwise proscribe the form of notice required. A notice was sent to the taxpayers informing them that their agreement could be terminated if they failed to respond. When plaintiffs failed to respond, the system automatically terminated the installment agreement, but only after 30 days had passed.

 

B. The Levy

 

1. No statute or regulation was disregarded even if the installment agreement

 

was still in effect at the time of the Notice of Levy.

 

Plaintiffs allege that service of a levy on the Social Security Administration was contrary to 26 U.S.C. §§ 6159, 6331, and 6343 because the installment agreement was allegedly still in effect at the time of the levy. None of these statutes would have prevented the levy even if the installment agreement had been in effect.

 

Section 6159 addresses installment agreements, but does not contain any limitation on levies or other methods of collection. Section 6331(k) provides that a levy may not be made while an installment agreement is in effect. However, that statute was enacted on July 22, 1998, and applies only to installment agreements submitted after that the enactment date, which is years after the defendants' 1994 installment agreement. Pub. L. No. 105-206, 112 Stat 685, §§ 3462(b),(e).

 

Section 6343 provides that a pending levy will be released if the taxpayer enters into an installment agreement. It merely requires that where a levy is already pending and a taxpayer enters into an installment agreement then any currently pending levies will be released. The statute does not contain any prohibitions on making levies, and even expressly provides that it does not prohibit issuing levies:

 

(1) Under regulations prescribed by the Secretary, the Secretary shall release the levy... if...

 

(C) the taxpayer has entered into an agreement under section 6159 to satisfy such liability by means of installment payments, unless such agreement provides otherwise,

 

...

 

(3) The release of levy on any property under paragraph (1) shall not prevent any subsequent levy on such property.

 

26 U.S.C. § 6343(a)(1),(3). Section 6343 does not apply where an installment agreement is in effect before a levy is made.

 

The facts of this case, as alleged by plaintiffs, would fall within § 6331(k) which addresses levies where installment agreements remain in effect. Congress chose not to make § 6331(k) retroactive when it enacted that section in 1998. No applicable statute exists that would have prevented levies on the plaintiffs' Social Security benefits even if the installment agreement had remained in effect.

 

2. The installment agreement was not in effect at the time of the levy.

 

Plaintiffs contend that the installment agreement was not terminated. As set forth in the declaration of Calvin Byrd, the records of the Internal Revenue Service reflect that the installment agreement was terminated during the 35th week of 1998. No factual basis exists for plaintiffs' contention.

 

Even if the installment agreement had not been previously terminated, the plaintiffs' subsequent conduct would have been grounds for termination. The plaintiffs stopped making any payments after December 8, 1999. If the installment agreement remained in effect as plaintiffs contend, they breached that agreement by failing to make the payments. The plaintiffs complain of the levy on Social Security benefits that was issued on November 27, 2000. At the time of the levy, the plaintiffs had not made any payments to the IRS for approximately one year. Plaintiffs' assertion that the IRS could not issue levies at that time is simply without merit.

 

C. Lack of Damages

 

Pursuant to § 7433(b), the amount of damages that can be recovered by a plaintiff is limited to $1,000,000 in the case of reckless or intentional disregard and to $100,000 in the case of negligent disregard. The type of damages compensable are limited to "actual, direct economic damages sustained by the plaintiff as a proximate result" of the IRS employee's actions and the costs of the action. 26 U.S.C. § 7433(b)(1)-(2). The amount of damages must be reduced to the extent that such damage could have been mitigated. 26 U.S.C. § 7433(d)(2).

 

In this case, the United States submits that plaintiffs will be unable to establish that the they have suffered any compensable damages. In their administrative claim for refund, plaintiffs claimed that their damages consisted of pain and suffering and legal fees. Damages for pain and suffering cannot be recovered in a § 7433 action. Harriman v. Internal Revenue Service, 233 F.Supp.2d 451, 461 (E.D.N.Y. 2002).

 

Plaintiffs also seek attorney fees as a form of damages. Attorney fees are not direct, economic damages and are not compensable under § 7433. 26 C.F.R. § 301.7433-1(b)(2). Finally, plaintiffs seek amounts paid over to the IRS pursuant to a levy by the Social Security Administration as damages. These amounts were credited toward plaintiffs' tax liabilities, and do not constitute damages. This Court has already ruled that plaintiffs may not seek recovery of these funds because they have not fully paid their tax liability. See Order on Motion to Dismiss; Flora v. United States, 357 U.S. 145 (1960).

 

In their complaint, plaintiffs claim that they have incurred actual, direct economic damages of $1,000,000 but have provided no factual basis for that claim. Even if plaintiffs could establish that they suffered some compensable damage, they must also establish that they attempted to mitigate that damage. 26 U.S.C. § 7433(d)(2).

 

CONCLUSION

 

The plaintiffs' claim for wrongful termination of their installment agreement is barred by the statute of limitations. Their claim for wrongful levy fails as a matter of law because no applicable statute or regulation precluded the levy, even if the installment agreement remained in effect. Even beyond these preliminary issues, plaintiffs are not entitled to any relief. They will be unable to prove that any provision of the Internal Revenue Code or its regulations has been disregarded, much less prove that an employee of the IRS negligently, recklessly, or intentionally disregarded some provision. Even if some provision had been disregarded, the plaintiffs would be unable to prove any compensable damages. Accordingly, judgment for the United States is appropriate.

 

WHEREFORE the United States requests that the Court grant this motion, and enter judgment in its favor.

 

Appendix not available.