Rische v. United States

JEFFREY ALAN RISCHE, Plaintiff, v. UNITED STATES OF AMERICA, Defendant.

CASE NO. 2:20-cv-00033-BAT

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE

July 8, 2021

ORDER GRANTING UNITED STATES OF AMERICA'S CROSS MOTION FOR SUMMARY JUDGMENT

Before the Court are the parties' cross motions for summary judgment on Plaintiff's remaining claims regarding § 6702 penalties assessed by the IRS on Plaintiff's 2009, 2010, and 2011 tax returns, and Plaintiff's demand for a refund of his 2017 federal income tax. Dkt. 27 and Dkt. 30. Plaintiff's claims regarding other tax years were previously dismissed for lack of jurisdiction. Dkt. 20. Based on the parties' briefs and summary judgment evidence, the Court denies Plaintiff's motion (Dkt. 27); grants the Government's motion (Dkt. 30) and dismisses Plaintiff's claims with prejudice.

UNDISPUTED FACTS

During the tax years at issue, Plaintiff worked for Lightspeed Design, Inc., a technology company in Bellevue, Washington. Dkt. 30-1, Declaration of Matthew Uhalde, Exhibit 1, Plaintiff's Response to Defendant's First Set of Interrogatories, at ¶ 3; Exhibit 2, Plaintiff's Response to Defendant's First Set of Requests for Admission, at ¶ 7. For each tax year, Lightspeed issued a Form W-2 reporting (1) Plaintiff's total wages, tips, and other compensation; and (2) the amount of federal taxes withheld from his paychecks. Id., Uhalde Decl. Exhibit 2, Plaintiff's Response to Defendant's First Set of Requests for Admission, at ¶ 9. The following table summarizes the information on Plaintiff's Forms W-2:

Tax Year

Wages, Tips,

and other

Compensation

Federal Income

Tax Withheld

Social Security

Tax Withheld

Medicare

Tax

Withheld

Total Federal

Taxes

Withheld

20091

$62,770.99

$8,420.00

$3,891.80

$910.18

$13,221.98

20102

$62,346.50

$8,615.00

$3,865.48

$904.02

$13,384.50

20113

$65,000.00

$9,477.00

$2,780.00

$942.50

$13,199.50

20174

$111,019.00

$22,855.00

$6,883.00

$1,609.00

$31,347.00

On January 10, 2013, Plaintiff mailed the IRS amended income tax returns (Forms 1040X) and substitute W-2s (Forms 4852) for tax years 2009-2011. Dkt. 30-1, Uhalde Decl. Ex. 3-5. Plaintiff admits that these exhibits are authentic copies of his W-2s. Id., Uhalde Decl. Exhibit 2, Plaintiff's Response to Defendant's First Set of Requests for Admission, at ¶¶ 1-4.

The Forms 1040X reported $0 in taxable income for all three tax years. The Forms 4852 reported $0 in wages for all three years while also reporting federal tax withholding as shown inthe table above. By reporting tax paid through withholding while allegedly earning $0, Plaintiff sought a full refund of his withheld federal taxes for those years.

Plaintiff mailed the IRS a second set of documents two months later. Dkt. 30-1, Uhalde Decl. Ex. 6. This was apparently in response to an IRS Letter 3176 warning Plaintiff that his 2011 Form 1040X asserted a frivolous tax position. Included with Plaintiff's second mailing was a letter opposing the IRS notice, along with a new Form 1040X for 2011, signed and dated March 25, 2013. This new Form 1040X again reported $0 in taxable income in 2011. The IRS processed it as purporting to be a second tax return for 2011.

On all four Forms 1040X, Plaintiff explained that the reason he had no taxable income those years was because he worked in the private sector, and he cited to the definition of "wages" in 26 U.S.C. §§ 3401(a) and 3121(a). On August 12, 2013, the IRS charged Plaintiff four $5,000 penalties under 28 U.S.C. § 6702—one for each of his 2009-2011 tax returns, including the second return for 2011. Dkt. 30-2, Tanner Decl., Ex. 1-3 (IRS Account Transcripts for 2009-2011). These $20,000 in penalties are the first of two taxes that Plaintiff wants refunded in this suit.

On April 15, 2018, Plaintiff mailed the IRS a letter with the subject "Administrative Claim for Refund." (Dkt. 15-1; Ex. 3 to Rische Declaration; Dkt. 15-1 pp. 22-30; Rische Decl. ¶ 11). The IRS has not independently located copies of Plaintiff's letters from its records. However, the Government does not dispute the authenticity of the copies that Plaintiff produced in this case. The Government also does not contest that Plaintiff mailed the letters on the dates he claims. Dkt. 30, p. 4 n.11. The purported refund claim listed the § 6702 penalties for 2009-2011. Plaintiff stated he was entitled to the refund because "The NFTL was filed prematurely or wrongfully because I am not liable for civil penalties because nothing that I submitted to the IRSis frivolous" and "the filing and recording of the documents listed above [liens and levy notices] was premature and otherwise not in accordance with administrative procedures of the Secretary or of the law." Plaintiff also alleged that the IRS double collected and denied him his collection due process ("CDP") hearing requests.

On May 1, 2018, Plaintiff sent another letter to the IRS requesting expedited service for his April 5, 2018 "Administrative Claim for Refund." Dkt. 15-1; Ex. 4 to Rische Declaration, Dkt. 15-1 pp. 32-34. This letter discussed economic hardship caused by IRS levies but added no new claims. On August 26, 2019, Plaintiff sent a letter to the IRS with the subject "Administrative Claim for Refund." Dkt. 15-1; Ex. 12 to Rische Declaration, Dkt. 15-1, pp. 53-57. In this letter, Plaintiff challenged the § 6702 penalties for 2009-2011, stating: "[t]he law does not allow for double penalties," and the "law does not allow continued collection after full satisfaction of a liability, or collection after the request for a Collection Due Process ["CDP"] hearing." Id. at 53. Plaintiff also stated, "I deny liability for each and every asserted civil penalty." The IRS has not issued refunds to Plaintiff for the $20,000 in § 6702 penalties for 2009-2011. Dkt. 30-2, Tanner Decl., Ex. 1-3.

The second sum Plaintiff wants refunded is the $22,855 in federal income taxes withheld from his paychecks in 2017.⁵ As reflected in the table above, Plaintiff admits to receiving $111,019 as compensation from Lightspeed Design for this year. However, Plaintiff filed a 2017 federal income tax return (Form 1040EZ) reporting $0 in wages, salaries, and tips and $0 in taxable income. Dkt. 30-1, Uhalde Decl., Ex. 9. He also listed his occupation as "Private sectorworker," and attached a Form 4852 to "correct" his W-2, citing the definitions from §§ 3121 and 3401. Id. The IRS did not refund Plaintiff's income tax withholdings. Id., Tanner Decl. Ex. 4.

SUMMARY JUDGMENT STANDARD

A party is entitled to summary judgment if it shows "that there is no genuine dispute as to any material fact" and that it "is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). As a moving party, the Government bears the initial responsibility of informing the Court of the basis for the motion and identifying the evidence that demonstrates the absence of a genuine dispute as to any material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has met this initial responsibility, the burden shifts to the party opposing summary judgment to establish that there is a genuine dispute over a material fact. See, e.g., Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-87 (1986); US Local 343 United Ass'n of Journeyman Apprentices of Plumbing & Pipefitting Indus. of U.S. & Canada, AFL-CIO v. Nor-Cal Plumbing Inc., 48 F.3d 1465, 1471 (9th Cir. 1994).

The opposing party cannot meet its burden simply by offering conclusory statements unsupported by factual data or by showing that there is some metaphysical doubt as to the material facts. See, Matsushita, 475 U.S. at 586-87. The opposing party also may not rely on the allegations or denials in pleadings to establish a genuine issue of fact but must come forward with an affirmative showing of evidence. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986).

If the opposing party cannot produce sufficient evidence to demonstrate that a triable issue of fact exists, and the moving party is entitled to judgment as a matter of law, summary judgment is appropriate. Id.

DISCUSSION

Plaintiff does not deny that he worked at Lightspeed during 2009, 2010, 2011, and 2017, and that Lightspeed paid him the amount of money reported on his Forms W-2 for those years "for his work that he did for the company." Plaintiff also does not deny that he submitted the returns to the IRS that reported $0 in taxable income while showing federal income tax withholding based on his contention that he did not earn taxable income because he is a private-sector worker. Plaintiff contends however, that the IRS wrongfully assessed the § 6702 penalties because it did not satisfy the statutory elements; the second document he submitted for the 2011 tax year was a duplicate and not subject to penalty; he is not a "person" subject to taxation; the IRS garnished his wages without providing a CDP hearing; and the IRS failed to comply with 26 U.S.C. § 6751(b)(1) by making assessments without proof of approval. As to his demand for a refund of his 2017 federal income tax, Plaintiff contends the Government has the burden of proof and the IRS was required to have previously challenged his tax returns before collecting tax.

A. Demand for Refund of § 6702 Penalties

1. Legal Standard

"A person shall pay a penalty of $5,000" if three elements are satisfied: (1) the person filed a document that purports to be a tax return, (2) the document either contains information that on its face indicates the self-assessment is substantially incorrect or omits information on which the substantial correctness of the self-assessment may be judged, and (3) the document takes a position that the IRS has identified as frivolous or reflects a desire to delay or impede tax administration. 26 U.S.C. § 6702(a).

In a tax refund suit, the burden is generally on the taxpayer to show entitlement to a refund. Washington Mut., Inc. v. United States, 856 F.3d 711, 721 (9th Cir. 2017). Section67...