2004 WL 2376607 (S.D.Fla.)

 

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

 

Motions, Pleadings and Filings

 

United States District Court, S.D. Florida.

 

Raymond GRANT and Arline Grant, Plaintiffs,

v.

UNITED STATES OF AMERICA, Defendant.

 

No. 02-61668 Civ-Jordan.

 

January 5, 2004.

 

Plaintiffs' Memorandum of Law in Opposition to Defendants' Motion for Summary

 

Judgment

 

Plaintiffs, Raymond Grant ("Grant") and Arline Grant (collectively, the "Grants"), through their undersigned counsel, and pursuant to Fed.R.Civ.P. 56, respectfully request an order denying the government's motion of summary judgment, and entry of summary judgment in their favor. In support, the Grants state:

 

I. INTRODUCTION.

 

This case involves the unauthorized collection of taxes by the government while the Grants' valid Installment Agreement had not been terminated by the IRS. As shown in this case and the companion case filed by the government against the Grants, Case No. 00-8986 ("Tax Case I"), this is not the first time the government did not follow proper procedures when attempting to collect a tax against the Grants. In Tax Case I, on February 15, 2001, the government obtained Clerk's Defaults against the Grants based on their failure to answer to the Complaint. (Tax Case I, D.E. 7,8). On February 28, 2001, the government illegally obtained a Default Judgment against the Grants in the amount of $31,527,848.7 (Tax Case I, D.E. 10). However, that Judgment was set aside on November 5, 2002 for failure of the government to prove up damages and follow the proper civil procedure in obtaining the Default Judgment with the Grants being denied due process of law (Tax Case I, D.E. 42).

 

Now the government has improperly levied on the Grants' social security benefits without terminating the Installment Agreement in violation of 26 U.S.C. §§ 6343, 6159 and 26 C.F.R. § 301.6159-1.

 

However, because the government has failed to meet its heavy burden under Fed.R.Civ.P. 56, in that there are material facts in dispute, and the law is in favor the of the Grants, summary judgment should be denied as to the government.

 

II. MATERIAL FACTS.

 

1. During the relevant time period, starting in 1977, upon the advice of accountants and attorneys, Grant and several other prominent businessmen formed what was then, totally legal limited partnerships [FN1] structured around plastics recycling equipment, which had been planned to take advantage of certain tax credits and deductions. Unfortunately for the Grants and the other investors, in 1992, about fifteen years after the fact, the U.S. Tax Court found that the partnerships did not qualify for the tax credits and deductions, and the IRS assessed tax deficiencies against the Grants and the other investors. [FN2]

 

FN1. Taxpayers are free to structure their business transactions as they wish, even if they are motivated by tax-avoidance considerations, provided a nontax or business purpose also is present. Knetsch v. United States, 364 U.S. 361, 365-366 (1960).

 

FN2. See Provisor v. Commissioner of Internal Revenue, 63 T.C.M 2531 (1992).

 

2. At all times prior thereto, as well as subsequently, aside from the challenged tax assessments, the Grants properly reported their income to the IRS and paid taxes as they became due. There are no allegations to the contrary anywhere in the IRS files or this lawsuit.

 

3. After unsuccessfully challenging the tax assessments for several years, on April 12, 1994, the Grants entered into an Installment Agreement with the IRS for the tax period covering 1977 through 1987, whereby they agreed to pay the sum of $3,000 per month by the 10th day of each month thereafter, until the total tax liability was paid in full. (Deposition of Calvin Byrd ("Byrd") dated December 13, 2002 [FN3] ("Byrd Depo.") at Ex. 3, p.47, ln. 7-19, p.49, ln. 20- 23; Affidavit of Raymond Grant attached hereto as Exhibit A ("Grant Aff.") at ¶2)).

 

FN3. A copy of the certified copy of the Byrd Depo. is being filed with the Court concurrently with this Motion. The Grants believe that Byrd is in possession of the original transcript. The certified copy was filed in Tax Case I.

 

4. The Grants negotiated the Agreement with P. Smith, a revenue officer of the IRS, and the Agreement was approved by P. Smith's supervisor, P. Martin. (Byrd Depo. atp.13, ln. 5-9. p.48, ln. 6-25; Grant Aff. at ¶2).

 

5. P. Smith died, and Byrd, another IRS revenue officer, was ultimately assigned to the Grants' file in April 1999. (Byrd Depo. at p. 11, ln. 22-25; Grant Aff. at ¶6).

 

6. The IRS does not dispute nor deny that until the point where the IRS attempted to unilaterally terminate the Installment Agreement, the Grants were current in making every single installment payment on a timely basis for five years. (Byrd Depo. at p.49, ln. 24-25, p.50, ln. 1-2; Grant Aff. at ¶3).

 

7. There is no evidence in the record that at the time the Grants entered into the Installment Agreement that the information provided by the Grants to the IRS was inaccurate. (Byrd Depo. at p.51, ln. 14-19).

 

8. The IRS never made a determination that collection of the tax pursuant to the Installment Agreement was in jeopardy. (Byrd Depo. at p.52, ln. 3-8).

 

9. There is no evidence in the record that the Grants' financial condition had significantly changed after the Grants had entered into the Installment Agreement. (Byrd Depo. at p.52, ln. 9-18; Grant Aff. at ¶3).

 

10. The Grants responded to each request of the IRS to furnish updated documents with respect to their assets. (Byrd Depo. at p.57, ln. 13-24; Grant Aff. at ¶3).

 

11. There is no evidence in the record that the IRS sent written notice to the Grants stating that the Installment Agreement was being terminated, or any written notice explaining the reason for the termination. [FN4] (Byrd Depo. at p.61, ln. 13-17).

 

FN4. Byrd testified that a script from the IRS computer files showed that a Form CP-522 letter was sent to the Grants. That letter is a computer generated letter that generally requests an updated financial evaluation of the taxpayer. Byrd further testified that some 522 letters give the taxpayer notice of the intent to terminate an installment agreement, but because Byrd did not have a copy of the letter and never saw a copy of that letter, he couldn't comment on its contents or confirm that it was even sent to the Grants. That letter was not produced during this litigation and it is not part of the record. (Byrd Depo. at p.55, ln.13-22; p.56, ln. 1-25; p.60, ln. 21-25, p.61, ln. 1-12, p.62, ln.22-24, p.63, ln. 1-2). Moreover, Grant never received a written letter terminating the Installment Agreement. The only "notice" he received from the IRS came via telephone call by Byrd in December 1999, without explanation. (Grant Aff. at ¶6).

 

12. In December 1999, Byrd called Grant and informed him on the telephone that the IRS had terminated the Installment Agreement. (Byrd Depo. at p.54, ln. 19-22; p.55, ln.9-11; Grant Aff. at ¶6).

 

13. Byrd suggested that Grant terminate his two irrevocable trusts established in 1983 and 1984 when no tax assessments had been made against the Grants to pay off the unpaid balance of the taxes. [FN5] (Byrd Depo. at p.30, ln. 9- 17; p.66, ln. 18-25; Grant Aff. at ¶6). These trusts were disclosed to the government at the time of their establishment, and each transfer to the trusts was disclosed at the time they were made.

 

FN5. The two irrevocable trusts were the subject matter of the government's Motion for Entry of Order Requiring Defendants to Repatriate Their Assets in Tax Case I.

 

14. Grant advised Byrd that the trusts are irrevocable and because of the multigenerational classes of beneficiaries of the trusts, he does not have the right or ability under the terms of the trusts to terminate them. (Byrd Depo. at p.66, ln. 18-25; Grant Aff. at ¶7).

 

15. In violation of the terms of the Installment Agreement, 26 U.S.C. § 6159 and 26 C.F.R. §6159-1, and 26 U.S.C. § 6343, the government wrongfully levied on the Grants' social security benefits without properly terminating the Installment Agreement.

 

III. MEMORANDUM OF LAW.

 

A. THE STANDARD FOR SUMMARY JUDGMENT.

 

The standard to be applied in reviewing a summary judgment motion is stated unambiguously in Rule 56(c) of the Federal Rules of Civil Procedure -- The judgment sought shall be rendered forthwith 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.

 

Summary judgment may be entered only where there are no genuine issues of material fact. See Twiss v. Kury, 25 F.3d 1551, 1554 (11th Cir. 1994). The moving party has the burden of meeting this standard. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). "Unless the movant meets its burden under Rule 56, the obligation of the opposing party does not arise even if no opposing evidentiary material is presented by the party opposing the motion..." Clark v. Coats & Clark, Inc., 929 F.2d 604, 607 (11th Cir. 1991) (quoting Adickes v. S.H. Kress, 398 U.S. at 160)). See also Telephone Operating Systems, Inc. v. Peoples Telephone Co., Inc., 831 F. Supp. 840, 843 (S.D. Fla. 1993); Pilkington v. United Airlines, 921 F. Supp. at 744.

 

"This circuit clearly holds that summary judgment should only be entered when the moving party has sustained its burden of showing the absence of a genuine issue as to any material fact when all the evidence is viewed in the light most favorable to the nonmoving party. Gerber v. Longboat Harbour North Condominium, Inc., 757 F.Supp. 1339, 1341 (M.D. Fla. 1991) (quoting Sweat v. Miller Brewing Co., 708 F.2d 655 (11th Cir. 1983)). All doubt as to the existence of a genuine issue of material fact must be resolved against the moving party. Id. (citing Hayden v. First National Bank of Mt. Pleasant, 595 F.2d 994, 996-97 (5th Cir.1979)).

 

It is appropriate to grant summary judgment for the nonmovant even though the nonmovant has not actually filed a motion for summary judgment. Gerber, 757 F. Supp. at 1341; Goldstein v. Fidelity and Guar. Ins. Underwriters, Inc., 86 F.3d 749, 751 (7th Cir.1996).

 

Summary judgment is not appropriate in this case in favor of the government because the government failed to satisfy its burden that no material facts are in dispute and the government is entitled to judgment as a matter of law. However, summary judgment is appropriate as to the Grants.

 

B. THE INSTALLMENT AGREEMENT.

 

1. Plaintiffs' Claim is Not Barred by the Statute of Limitation.

 

The government alleges that this action is barred by the statute of limitations because the Installment Agreement was terminated during the 35th week of 1998, and the Grants learned of the termination by December 1999. The government is wrong. First, the cause of action accrued on January 2, 2001, when the government levied upon the Grants' social security benefits. Second, the Installment Agreement has not been properly terminated.

 

The statute of limitations for bringing unauthorized collection actions under § 7422 is within two years after the date that the cause of action accrues. 26 U.S.C. § 7433-1(g)(21). Ranchiato v. United States, 87 A.F.T.R. 2D 2001-947 at *3. (D. Conn. 2001) (limitations begins to run when taxpayer learns of the collection activity, i.e., when IRS served levies on the taxpayer).

 

The Grants learned of the unauthorized collection actions on January 2, 2001 when the IRS levied upon their monthly social security benefits. (Grant Aff. at ¶9). According, to the Declaration of Calvin Byrd, he issued a Notice of Levy To the Social Security Administration on November 27, 2000. As evidenced by the Docket Sheet, this action was filed on November 25, 2002, within the two year statute of limitations (D.E. 1). Accordingly, the government's motion for summary judgment should be denied.

 

Even if the government is correct (which it is not!) that the cause of action accrued in December 1999, when the IRS attempted to terminate the Installment Agreement, the statute of limitations was tolled under the "continuing wrong" doctrine, which provides the statute is tolled if the IRS continues to engage in repeated collection actions. Gottlieb v. IRS, 4 Fed. Appx. 355, 356 (9th Cir., Feb. 9, 2001) ("to toll the limitations period under the 'continuing wrong" doctrine, Gottlieb must establish that the IRS engaged in repeated collections efforts, occurring after November 7, 1995").

 

As stated above, after the IRS attempted to unilaterally terminate the Installment Agreement in December 1999, it continued to engage in unlawful collection activity by levying the social security benefits in January 2001, while the Installment Agreement was still in effect. Thus, the statute of limitations was tolled under the continuing wrong do ctrine, and the Grants timely filed this action. Accordingly, summary judgment should be denied as to the government and granted as to the Grants.

 

2. The IRS Did Not Terminate the Installment Agreement In Compliance With its Terms, 26 U.S.C. § 6159 or 26 C.F.R. § 301.6159-1.

 

On April 12, 1994, the Grants entered into a Form 433-D Installment Agreement ("Installment Agreement") with the IRS for the tax period covering 1977 through 1987, whereby they agreed to pay the sum of $3,000 per month by the 10th day of each month thereafter, until the total tax liability was paid in full. The Agreement was negotiated by IRS agent P. Smith, and was approved by his supervisor, P. Martin. (Byrd Depo. at Ex. 3).

 

Both the Installment Agreement and 26 U.S.C. § 6159(b)(1)-(4) provide that once an installment agreement is executed, the IRS is prohibited from altering, modifying or terminating the agreement during its term unless:

 

(i) the information which the taxpayer provided to the IRS before entering into the agreement was inaccurate or incomplete;

 

(ii) the IRS determines that collection of the tax is in jeopardy;

 

(iii) the taxpayer fails to pay an installment under the agreement, accrues additional tax liabilities or fails to provide the IRS with an updated statement of his financial condition when requested to do so; or

 

(iv) the IRS determines that the taxpayer's financial condition has significantly changed.

 

Prior to terminating an installment agreement, pursuant to 26 U.S.C. § 6159(b)(5) and 26 C.F.R. §301.6159-1, the IRS is required to provide to the taxpayer 30 days' written notice of its intention to terminate the agreement, and that notice must include an explanation as to why the IRS intended to take such action. The government alleges that it terminated the Installment Agreement because "the Grants failed to provide a financial condition update as requested by the Secretary in "the 3 1st week of 1998. Their installment agreement was automatically terminated by this failure."

 

First, the government failed to produce any evidence that it requested updated financial information from the Grants, and that they refused to comply. Instead, Calvin Byrd testified during his deposition that the Grants never refused to disclose financial information to the IRS and that "any piece of information [the IRS] asked [Grant] to provide in terms of his financial position he always gave [to Byrd]." [Byrd Depo. at p.57, ln. 18-24].

 

Second, an installment agreement cannot automatically terminate. Even if the Grants did not provide the updated financial information (which the evidence shows they always did provide), there is no evidence that the IRS properly terminated the Installment Agreement pursuant to 26 U.S.C. § 6159.

 

i. The Government Failed to Produce Any Evidence That it Requested Updated Financial Information from the Grants, and They Refused to Comply.

 

In Byrd's Declaration attached to the government's brief, he stated:

 

6. The Grants' installment agreement was being monitored by an automated collection system. In 1998, the Grants' installment agreement came up for a mandatory periodic 3-year review. A computer-generated form, CP 522, was sent during the 31st week of 1998.

 

7. Because a Form CP 522 is computer generated, and because the Grants' installment agreement was not being manually monitored, a copy of the Form CP 522 is not retained in any hard copy. A sample Form CP 522 is attached hereto.

 

8. A 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.

 

10. The Grants' failed to respond to the CP 522 request for financial information. Their installment agreement was automatically terminated during the 35th week of 1998.

 

15. After the installment agreement was terminated, the Grants continued making voluntary payments of $3,000 per month to the IRS. The Grants stopped making those payments after December 8, 1999.

 

(D.E. 40, Byrd Declaration at ¶¶6, 7, 8, 10, 15 (emphasis added)).

 

During Byrd's deposition taken on December 13, 2002, he confirmed that he does not have concrete knowledge that the CP 522 letter was actually sent to the Grants. He was not assigned to the Grants case until April 1999 so he does not have personal knowledge of the events that transpired at that time. [Byrd Depo. at p. 11, ln. 22-24]. Second, Byrd testified that he believes the letter was sent because the unverified tax transcript merely reflected that the letter was "issued" but not sent to the Grants:

 

Q. (By Mr. Lichtman) We haven't seen that 522 letter. Do you know why?

 

A. (Byrd) Neither have I.

 

Q. So the IRS records do not reflect the existence of the 522 letter?

 

A. No. What it does reflect is that a 522 letter was issued. This letter is a computer-generated letter that's issued from the Service Center because this agreement was being systematically monitored. It was not a manually-monitored installment agreement wherein it was being maintained in the field by Mr. Smith or any other collection personnel.

 

Q. So the best hope that you have is that the computer generated some document and sent it out?

 

A. That was a requirement.

 

Q. What is the content of - Okay. It's a requirement. But you have a thick file on this, correct?

 

A. I have a file, yes.

 

Q. This case has been pending for quite some time now also, right?

 

A. Correct.

 

Q. Okay. And you've not obtained from the Service Center a copy of that document?

 

A. No, I do not have a copy of the document.

 

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

 

Q. Does the 522 letter - is that letter sent by certified mail or by regular U.S. postage?

 

A. I don't know.

 

Q. So in other words, also, you have no proof that the letter was sent out, other than the fact that the computer is supposed to generate the letter?

 

A. Well, that information should be contained on the tax transcript about the time that the letter was generated.

 

(Byrd Depo. at p.55, ln. 20-25; p.56, ln. 1-20; p.57, ln. 4-12 (emphasis added)).

 

Interestingly, Byrd further testified that the Grants always provided financial information when requested to do so by the IRS:

 

Q. Notwithstanding, Grant at some point in time, ended up meeting with you and talking to you extensively about his financial condition, correct?

 

A. There was some discussion about his financial condition.

 

Q. There was no financial information he refused to disclose to you, correct?

 

A. That's correct.

 

Q. Okay. So any piece of information you asked him to provide in terms of his financial position he always gave you, correct?

 

A. Correct.

 

(Byrd Depo. at p.57, ln. 13-24 (emphasis added)).

 

In fact, in the affidavit filed by Grant, he testified that:

 

3. For five years, we made each and every payment due under the Installment Agreement and complied with all conditions of the Agreement. We responded to each request of the government to furnish updated documents with respect to our assets, and the updated information did not reflect a change in our ability to make the monthly payments.

 

4. Neither Mrs. Grant nor I recall receiving a Form CP 522 letter from the IRS. After a diligent search of all our files, we could not locate a copy of that letter.

 

5. Neither Mrs. Grant nor I were not notified during the 35th week of 1998 that my Installment Agreement had been terminated by the IRS.

 

6. After Mr. Smith passed away, Calvin Byrd was assigned as the new agent to our case. In December 1999, Mr. Byrd advised me by telephone that he was terminating the Installment Agreement despite our timely, continued compliance with all of its terms. Mr. Byrd did not provide an explanation of why the Installment Agreement was being terminated, did not mention a CP 522 letter, our alleged failure to respond to that letter or that we were in default under the Installment Agreement. Mr. Byrd suggested that I terminate my two irrevocable trusts and utilize those assets to pay down the tax liability.

 

7. I informed Mr. Byrd that the trusts are irrevocable and because of the multi-generational classes of beneficiaries of the trusts, I do not have the right or ability under the terms of the trust to terminate them. Notwithstanding, we continued to update the government with respect to our assets.

 

(Grant Aff. at ¶¶3-7 (emphasis added)).

 

Thus, the record evidence is clear that the Grants always provided updated financial information to the IRS when requested to do so. Byrd confirmed this fact during his deposition, and Grant confirmed that fact by affidavit. The government is stretching to find a reason why the Installment Agreement was allegedly terminated, and is relying on an unverified tax transcript, which reflects that a letter was issued to the Grants, however, no one from the IRS has confirmed if that letter was actually sent to the Grants. The IRS does not even have a copy of the document in its files! (D.E. 40, Declaration of Byrd, at ¶7).

 

The record reflects that the alleged termination of the Installment Agreement followed the death of P. Smith, the IRS agent who had been handling the Grants' file. The IRS agent who took over the file, Byrd, concluded he didn't like the deal cut by his predecessor which was honored for five years, so he simply terminated it.

 

Subsequent to the unilateral termination of the Installment Agreement by the IRS, Byrd and Grant engaged in discussions about repaying the alleged tax liability. Byrd suggested that Grant terminate the Trusts, but Grant responded that the Trustees advised because of the multi-generational classes of beneficiaries named in the Trusts, they are precluded from terminating the Trusts under the laws of their respective jurisdictions (Ex. B, Letter from Grant to Byrd dated Feb. 18, 2000).

 

Four months later, Byrd sent a self-serving letter to the Grants acknowledging that Grant does not have the power to unilaterally terminate the Trusts, but threatened that if he does not include the value of the Trusts as a basis for determining collection potential, he would bring an enforcement action to collect the alleged delinquent taxes (Ex. C, Letter from Byrd to Grant dated June 14, 2000). Grant immediately responded by letter stating "... as I have done on so many occasions to representatives of the IRS, that it is not a question of my being unwilling or refusing to include the trust assets as part of my net equity value - it is simply that I have no power or right or control over the value of the trusts. You are asking me to do the impossible and obviously I cannot accede to your request.") (Ex. D, Letter from Grant to Byrd dated June 28, 2000).

 

Based on the evidence, it is clear that the Grants did not default under the Installment Agreement in 1998, and the government improperly attempted to terminate the Agreement without just cause.

 

Interestingly, the Grants would note that the government is attempting to play a fast trick on the Court. In an almost identical declaration submitted in Tax Case I just two months ago, Byrd testified in paragraphs 10 and 15, that the "Installment Agreement was defaulted during the 35th week of 1998" and "After the Installment Agreement was defaulted the Grants continued making voluntary payments of$3,000permonthto the IRS." (Tax Case I, D.E. 85). Now Byrd changed the story and states that the Installment Agreement was terminated during the 35th week of 1998" and "After the Installment Agreement was terminated the Grants continued making voluntary payments of $3,000 per month to the IRS." (D.E. 40 at Ex. 1). As pointed out in their Post-Trial Memorandum of Law in Opposition to Motion to Repatriate, there is a big difference between a default under an agreement and termination of the agreement. The reason why the Grants kept making payments until after December 8, 1999, was because the Agreement had not been terminated by the IRS and the Grants did not know that they had defaulted under the Agreement because they never received the CP 522 letter or any other notice of a default or notice of termination. Byrd and the government need to get their facts straight -- was the Agreement in default or terminated? The government created their own disputed fact which warrants the denial of summary judgment.

 

ii. Even If the Grants Defaulted Under The Installment Agreement, the IRS Never Properly Terminated the Agreement Pursuant to 26 U.S.C. § 6159 or 26 C.F.R. §301.6159-1.

 

The government disingenuously argues that the notice provision of 26 U.S.C. § 6159(b)(5) is not applicable to this case because the installment agreement was entered into in 1994, well before the enactment date of the statute on July 30, 1996. There is nothing in Pub.L.No. 104-168, 110 Stat. 1452 § 201(a) which states that 26 U.S.C. § 6159(b)(5) is only applicable to installment agreements entered into after July 30, 1996. To the contrary, if Congress intended that result, it would have stated so. For example, when Congress amended 26 U.S.C. § 6159 in 1988, it specifically stated that "The amendments made by this section shall apply to agreements entered into after the date of the enactment of this act [Nov. 10, 1988]. Pub.L.100-647, 1998 HR 433J. No such language appears when Congress passed 26 U.S.C. § 6159(b)(5).

 

The government further argues that 26 U.S.C. § 6159(b)(5) "does not require written notice nor does it otherwise proscribe the form of notice required." (D.E. 40 at p.8). While the term "written" notice may not appear in 26 U.S.C. § 6159(b)(5), a review of the IRS regulations, 26 C.F.R. § 301.6159- 1(c)(4) plainly states:

 

Notice. Unless the director determines that collection of the tax is in jeopardy, the director will notify the taxpayer in writing at least 30 days before altering, modifying, or terminating an installment agreement pursuant to paragraph (c)(1) or (2) of this section. A notice provided pursuant to this paragraph must briefly describe the reason for the intended alteration, modification, or termination. Upon receiving notice, the taxpayer may provide information showing that the reason for the intended alteration, modification, or termination is incorrect.

 

(Emphasis added). Accordingly, the government was required to give the Grants 30 days' written notice prior to terminating the Installment Agreement.

 

Last, there is no evidence in the record that the government properly, or for that matter, ever, terminated the Installment Agreement in writing or even gave 30 days notice with explanation of a default. Byrd testified that aside from the CP 522 letter, there is no letter in the IRS files that shows that formal notice of termination of the Installment Agreement was ever sent to the Grants. (Byrd Depo. at p.61, ln. 13-17). And the Exhibit attached to Exhibit 2 to the government's Motion, a sample CP 522 letter not addressed to the Grants, merely states that "If you don't call, we may cancel your installment agreement and take enforced collection action to collect the full amount of your tax liability." At the time of the alleged letter, there was no default by the Grants. That language does not notify the Grants that there was a default and the IRS intends to terminate the agreement based on the default within 30 days. Moreover, as stated above, there is no evidence that the CP 522 was ever sent to, or received by, the Grants, and Grant testified that he responded to every request of the IRS to furnish updated financial information.

 

Additionally, there is nothing in Exhibit 3 to the government's brief notifying the Grants that the Installment Agreement was terminated or the reasons for the termination. Exhibit 3 was dated January 27, 1999. If the Grants believed that the Installment Agreement had been terminated, why did they keep making payments for an additional eleven months?

 

Last, Byrd never informed the Grants that the Agreement was terminated for their alleged failure to provide updated financial information in response to the CP Form 522 letter. Instead, Byrd testified that the Grants never refused to disclose financial information to the IRS and that "any piece of information [the IRS] asked [Grant] to provide in terms of his financial position he always gave [to Byrd]." [Byrd Depo. atp.57, ln. 18-24].

 

Instead, the Grants endured abuse by Byrd and IRS. First, as stated above, after unilaterally and improperly attempting to terminate the Installment Agreement, Byrd threatened that if Grant does not include the value of the Trusts as a basis for determining collection potential, he would bring an enforcement action to collect the alleged delinquent taxes. Second, in violation of the Installment Agreement, and 26 U.S.C. §§ 6159, 6331, and 6343, on or about January 2, 2001, and each month thereafter, the IRS levied upon the Grants' monthly social security benefits. Third, after the hearing on the Grants' Motion for Relief From Judgment held on November 4, 2002, knowing that Grant was represented by counsel and outside the presence of Grant's counsel, Byrd, proving bad faith, said to Grant, in a tone which sounded threatening and looked threatening, "Now we met, and we will meet again and again and again and again."

 

Because the IRS did not comply with 26 U.S.C. § 6159 by giving 30 days' written notice of a default prior to the purported termination of the Installment Agreement, or explanation of the purported termination, the Motion for Summary Judgment should be denied as to the government and granted as to the Grants.

 

C. THE GOVERNMENT VIOLATED 26 U.S.C. §§ 6159, 6343 and 26 C.F.R. 301.6159-1(c)(4).

 

26 U.S.C. § 6343(a)(1)(C) provides:

 

Under regulations prescribed by the Secretary, the Secretary shall release the levy upon all, or part of, the property or rights to property levied upon and shall promptly notify the person upon whom such levy was made (if any) that such levy has been released 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.

 

26 C.F.R. § 301.6343-1(b)(3) contains similar language.

 

The government argues that 26 U.S.C. § 6343 "does not apply where an installment agreement is in effect before a levy is made." (D.E. 40 at p.9). However, the government cites to no authority to support this proposition. Why? Because no authority exists. The statute is clear. Because the Grants had entered into an Installment Agreement with the IRS, and nothing in the Agreement gave the IRS to authority to levy on social security benefits, the IRS is required to release the levy and the levy constituted an unauthorized collection activity under 26 U.S.C. § 7433.

 

26 C.F.R. § 301.6159-1 provides what actions maybe taken by the IRS during the term of the Installment Agreement. Specifically, it states:

 

Actions by the Internal Revenue Service during the term of the installment agreement. Except as otherwise provided by the installment agreement, during the term of the agreement the director may take actions to protect the interests of the government with regard to the unpaid balance of the tax liability to which the installment agreement applies (other than actions pursuant to subchapter D of chapter 64 of subtitle F of the Internal Revenue Code against a person that is a party to the agreement), including any actions enumerated in the agreement. The actions include, for example-

 

(1) Requesting updated financial information from any party to the agreement;

 

(2) Conducting further investigations (including the issuance and enforcement of summonses) in connection with the tax liability to which the installment agreement applies;

 

(3) Filing or refiling notices of federal tax lien; and

 

(4) Taking collection action against any person who is not a party to the agreement but who is liable for the tax to which the agreement applies.

 

Moreover, Section (e) of that section provides:

 

(e) Termination. If an installment agreement is terminated by the director, the director may pursue collection of the unpaid balance of the tax liability.

 

Nothing in 26 C.F.R. § 301.6159-1 nor any other statute or regulation gives the IRS the authority to make levies during the term of the Installment Agreement. Indeed, that statute only allows the collection of the unpaid balance of the tax liability after the Agreement was properly terminated. As shown above, the record evidences that the Agreement was not properly terminated by the IRS, and is still in effect. Accordingly, the IRS violated at a minimum 26 U.S.C. § 6159, 6343 and 26 C.F.R. § 301.6159-1 with its improper levy, and summary judgment should be denied as to the government and granted as to the Grants.

 

Last, even if the Grants defaulted under the Installment Agreement after December 8, 1999, as shown by the Affidavit of Grant, at no time did the IRS provide notice of the default or notice of termination of the Installment Agreement. (Grant Aff. at ¶8). Thus, any levy made is improper under the tax laws and Treasury Regulations.

 

D. THE GRANTS ARE ABLE TO PROVE ECONOMIC DAMAGES UNDER 26 U.S.C. § 7433.

 

In their Complaint, the Grants are seeking $1,000,000 as direct economic damages sustained under 26 U.S.C. § 7433. Damages under §7433 include "actual, direct economic damages sustained by the plaintiff as a proximate result fo the reckless or intentional or negligent actions of the officer or employee, and the costs of the action." 26 C.F.R. § 301.7433-1 defines actual direct economic damages as:

 

actual pecuniary damages sustained by the taxpayer as the proximate result of the reckless or intentional, or negligent, actions of an officer or an employee of the Internal Revenue Service. Injuries such as inconvenience, emotional distress and loss of reputation are compensable only to the extent that they result in pecuniary damages.

 

Medical Damages.

 

Medical damages are considered economic damages. See i.d. Carter v. United States, 333 F/2d 791, 793 (7th Cir. 2003) ("plaintiff had sustained $3.4 million in economic damages (past and future medical expenses plus lost further earnings); Stewart v. Amusements of America, 155 F.3d 561, 1998 WL 406868 at *6 (4th Cir. 1998) ("The parties agree that under Florida law, Stewart's economic damages constitute his past medical expenses, any medical expenses that he would incur in the future, an amount equal to his lost wages from the time of the accident until the day of trial, and any loss of future wages attributable to Amusements of America's tortious conduct.").

 

As shown by the Affidavit of Grant, as a direct result of the improper collection activities of the IRS, he sustained so much emotional stress that he recently undergone double by-pass surgery. This surgery resulted in a heart murmur, for which he is currently receiving medical treatments. As of December 29, 2003, Grant learned that he has Lymphodema and has suffered damage to his heart since the surgery. Unfortunately, due to Grant's illness and condition, he could not compute the amount of his medical damages to date. The numbers will be provided to the Court when Grant is in a position to compute them. The medical damages are compensable under 26 U.S.C. § 7433.

 

Moreover, prior to December 1999, Grant acted as an arbitrator for securities matters. After the IRS improperly attempted to terminate the Installment Agreement, the panel for which Grant served did not call Grant to hear additional arbitrations. Thus, as a direct result of the IRS improper actions, Grant suffered lost wages in an amount to be disclosed to the Court when Grant is well enough to compute them. The lost wages are compensable under Section 7433.

 

Litigation Costs.

 

The government disingenuously argues that attorneys fees are not direct economic damages and are not compensable under § 7433, and cites to 26 C.F.R. § 301.7433.1(b)(2). (D.E. 40 at p.11). However, that section continues to state that "Litigation costs maybe recoverable under section 7430 (see paragraph (h) of this section) or, solely to the extent described in paragraph (c) of this section, as costs of the action. Paragraph (h) provides:

 

Recovery of costs under section 7430. Reasonable litigation costs, including attorney's fees, not recoverable under this section may be recoverable under section 7430. If following the Internal Revenue Service's denial of an administrative claim on the grounds that the Internal Revenue Service did not violate section 7433(a), a taxpayer brings a civil action for damages in a district court of the United States, and establishes entitlement to damages under this section, substantially prevails with respect to the amount of damages in controversy and meets the requirements of section 7430(c)(4)(A)(iii) (relating to notice and net worth requirements), the taxpayer will be considered a "prevailing party" for purposes of section 7430. Such taxpayer, therefore, will generally be entitled to attorney's fees and other reasonable litigation costs not recoverable under this section. For purposes of this paragraph, if the Internal Revenue Service does not respond on the merits to an administrative claim for damages within six months after the claim is filed, the Internal Revenue Service's failure to respond shall be considered a denial of the claim on the grounds that the Internal Revenue Service did not violate section 7433(a). Administrative costs, including attorney's fees incurred pursuing an administrative claim under paragraph (e) of this section, are not recoverable under section 7430.

 

As shown by the Affidavit of Grant, by the direct and proximate improper tax collection activities of the IRS, he sustained litigation costs of approximately $142,000, which includes both Tax Case I and this case. These fees are compensable.

 

Social Security Payments.

 

The Government argues that this Court has already ruled that "plaintiffs may not seek recovery [amounts paid over to the IRS pursuant to a levy by the Social Security Damages] because they have not fully paid their tax liability." (D.E. 40 at p.11). In ruling, the Court stated that in a suit for return of the refund under §7422, the court has jurisdiction only if the full assessment for the period has been paid. (D.E. at p.9). Count I of the Complaint is not a suit for a refund under §7422, but damages under §7433. During the first five years of the Installment Agreement, the Grants were receiving their full social security benefits. As a result of the improper levy, their social security benefits stopped. This constitutes damages under 26 U.S.C. § 7433.

 

Accordingly, because the Grants have established compensable damages, and there is no evidence in the record to refute these damages, the Motion for Summary Judgment should be denied as to the government and granted as to the Grants.

 

CONCLUSION

 

As shown above, the Grants always worked with the IRS to pay back their debt. Through no fault of the Grants, the IRS improperly attempted to terminate their Installment Agreement, even though they were in full compliance with all terms thereof. The IRS improper actions caused the Grants to lose their social security benefits, and the stress was too much for Grant to bear. As a result he sustained medical damages and unnecessary legal fees, and lost future wages that are all compensable under 26 U.S.C. § 7433. Grant is now 80 years old, and very ill. The government needs to leave this man alone and allow him to recuperate, and give the Grants back their sole income.

 

As shown throughout, the government did not meet its burden for summary judgment under Rule 56. Accordingly, the Motion for Summary Judgment should be denied as to the government, and granted as to the Grants.

 

Appendix not available.