Rowley v. US, Civ. A. No. 93-CV-74284 DT.

866 F. Supp. 1024

William E. ROWLEY and Ellen L. Rowley, Plaintiffs, v. UNITED STATES of America, Defendant.

Civ. A. No. 93-CV-74284 DT.

United States District Court, E.D. Michigan, Southern Division.

August 11, 1994.

Sanford N. Lakin, Southfield, MI, for plaintiffs.

Peter A. Caplan, Asst. U.S. Atty., Detroit, MI, for defendant.

MEMORANDUM AND ORDER

COHN, District Judge.

I.

This is a tax case. Plaintiffs, William and Ellen Rowley (the Rowleys), allege that the Internal Revenue Service (IRS), wrongfully disclosed their tax return information during the course of advertising a public auction of property seized from them to pay a tax obligation. The property was later returned, and the auction not held. The Rowleys seek damages under 26 U.S.C. § 7431(a), which makes the government liable for civil damages for the unauthorized disclosure of a taxpayer's return information.¹ Now before the Court is the government's motion for summary judgment. For the reasons which follow, the motion is GRANTED.

II.

In 1982, the Rowleys filed a tax return claiming deductions from the Booker Album Partnership. The IRS subsequently disallowed the deductions. A dispute arose as to how much tax was owed, and the Rowleys petitioned the Tax Court for a determination of how much tax they owed. The Tax Court entered a consent decision on December 14, 1990, settling the amount of tax due for 1982. The IRS sent Notices and Demands for Payment to the Rowleys on January 1, 1990, February 19, 1990, July 30, 1990, and December 3, 1990. A final Notice and Demand for Payment and a Notice of Intent to Levy were sent to the Rowleys on January 7, 1991. There is no proof that the Rowleys ever received the Notice of Intent to Levy.

On October 9, 1991, Revenue Officer Emily Ebaugh (Ebaugh) of the IRS post of duty at Defiance, Ohio, was assigned to collect the unpaid tax liability. At a meeting with the Rowleys on December 23, 1991, Ebaugh told the Rowleys that the IRS was considering seizing and selling their one-half interest in an unfinished cabin in Oscoda County, Michigan (the Oscoda property).

Because the Oscoda property was located within the Detroit District of the IRS, Ebaugh requested assistance from the Detroit District. In January, 1992, Revenue Officer Ernie Kozlowski (Kozlowski) of the Alpena post of duty was assigned to assist Ebaugh. Kozlowski filed a Notice of Federal Tax Lien with the Oscoda County Register of Deeds on February 7, 1992. The Notice disclosed, among other things, the names and address of the Rowleys, the kind of tax owed, the period for which the tax was owed, and the unpaid balance of the assessment. On March 6, 1992, Kozlowski seized the Rowleys' interest in the Oscoda property. On the same date, Kozlowski sent a Notice of Seizure, Levy Notice, and Notice of Administrative Appeal Rights to an IRS Seizure Action to Ebaugh for service on the Rowleys. Ebaugh personally served the Rowleys at their home on March 17, 1992.

In a letter dated March 27, 1992, William Rowley instituted an administrative appeal of the seizure under a pilot program then in place in the Detroit District of the IRS. The basis for the appeal was that the Rowleys did not receive a Notice of Intent to Levy. In response to the Rowleys' appeal, the IRS released its seizure of the Oscoda property. In its letter to the Rowleys responding to their appeal, the IRS wrote: "After a careful review of the facts you presented us, we found that you did not receive proper notice on your liability with us." The Oscoda property was released on April 9, 1992. The letter notifying the Rowleys that the property was released was dated April 27, 1992.

Prior to the IRS' decision to release the Oscoda property, Kozlowski placed an advertisement in the April 5, 1992, edition of the Sunday Detroit Free Press and Detroit News in an effort to sell the property. This advertisement did not contain the name, address, legal description of the property or any other taxpayer information. A second advertisement ran in the April 7, 1992, edition of the Oscoda County Herald. This advertisement contained the Rowleys' names, the legal description of the property, and stated that the property had been seized for non-payment of federal taxes.² The IRS office in Alpena received inquiries from interested purchasers, and sent an information package that contained the details of the property to be sold, the property's legal description, the names of the taxpayers from whom the property was seized, and indicated that the property had been seized for nonpayment of federal taxes.

III.

The Rowleys assert that the IRS wrongfully disclosed their tax return information in violation of 26 U.S.C. § 6103. Twenty-six U.S.C. § 6103 titled "Confidentiality and disclosure of returns and return information" provides that as a general rule "returns and return information shall be confidential, and except as authorized by this title," no officer or employee of the United States "shall disclose any return or return information obtained by him in any manner in connection with his service as such as an officer or an employee or otherwise." An exception to the general rule of confidentiality is that IRS officers or employees may disclose return information as necessary in connection with collection activity. 26 U.S.C. § 6103(k)(6).³ Another exception to the rule of confidentiality in place in some circuits is that tax information that has been lawfully disclosed may subsequently be disclosed without violating the Internal Revenue Code (IRC). See discussion below. The Rowleys argue that because the collection activity of the IRS here was improper, the disclosure of their return information in the course of that activity was also improper. The Rowleys say their return information was disclosed in both the newspaper advertisement placed by Kozlowski in the Oscoda County Herald, in conversations with and information packages mailed to prospective buyers, and in notices of sale posted at the property.

The government moves for summary judgment on four grounds: (1) that the IRS' collection activity was proper and complied with all relevant statutory notice provisions; (2) that the disclosures that were made were authorized by the IRC in the course of legitimate collection activity; (3) that the information that was disclosed was already a matter of public record, so the IRS cannot be liable for wrongfully disclosing the information; and (4) even if the disclosures were not authorized, they were made in good faith.

IV.

A.

The government argues that even though the Oscoda property was ultimately released to the Rowleys, the collection activity was proper. The government says that the ultimate release of the property was based on a failure to comply with internal guidelines, not statutory requirements. The government argues that this does not make the seizure improper.

The IRC requires that notice be given before property is seized. The relevant statutory section requires that notice be given no less than thirty days before the day of the levy. 26 U.S.C. § 6331(d).⁴ Notice may be given in person, left at the dwelling or place of business of the taxpayer, or sent by registered or certified mail to the taxpayers's last known address, no less than thirty days before the day of the levy. Id. Under Section 56(12)1.1 of the Internal Revenue Manual,⁵ notice must also be received within 180 days prior to a seizure. Because the Rowleys were not given notice within 180 days of the seizure,⁶ the IRS says, it decided to release the Oscoda property.

The Internal Revenue Manual's provision that a taxpayer must be given a Notice of Intent to Levy within 180 days prior to a seizure is an internal guideline for IRS agents; it does not create or confer any rights upon a taxpayer. United States v. Will, 671 F.2d 963, 967 (6th Cir.1987). If an action of the IRS meets the requirements of the IRC, failure to observe an internal IRS guideline does not give rise to a cause of action by a taxpayer.

Here, the government says the IRS mailed a Notice of Intent to Levy on January 7, 1991. If properly sent, this notice would comply with the statutory thirty day requirement. The affidavit of William Rowley asserts the Rowleys never received the Notice of Intent to Levy. The government has submitted the Declaration of Louise J. Dorothy, a Revenue Officer Advisor in the Special Procedures Branch, Collection Division, in the Detroit Division of the IRS. Her declaration states that the IRS's computer records show that "On January 7, 1991, a Final Notice and Demand for Payment and Notice of Intent to Levy was generated by the Cincinnati Service Center and sent to the Rowleys." Declaration of Louise J. Dorothy (Dorothy). Although the IRC requires that a notice sent by mail be registered or certified, 26 U.S.C. § 6331(d), the IRS has not provided any registered or certified mail receipt. And although Dorothy's declaration is undisputed, it only indicates that notice was "sent" by some means on January 7, 1991; it does not establish that it was sent via registered or certified mail. It is also undisputed on the current state of the record that the Rowleys did not receive the January 7, 1991, notice. As a result, whether or not the Rowleys were given proper notice under 26 U.S.C. § 6331(d) implicates a question of material fact.

B.

The government argues that because the IRS collection activity met all the statutory requirements, the collection action was proper. See discussion above. Therefore, the government argues, any taxpayer information disclosed during the collection action was authorized under 26 U.S.C. § 6335(b),⁷ because the IRS may disclose return information as necessary in connection with collection activity. 26 U.S.C. § 6103(k)(6).

Whether or not the IRS provided the Rowleys with proper notice before seizing the Oscoda property is an issue of material fact. See discussion above. Accordingly, the government's argument...