Robert Cleveland v. CIR

In the
United States Court of Appeals
For the Seventh Circuit
No. 09-2952
R OBERT W. C LEVELAND,
Petitioner-Appellant,
v.
C OMMISSIONER OF INTERNAL R EVENUE,
Respondent-Appellee.
Appeal from the United States Tax Court.
No. 31367-08—Peter J. Panuthos, Chief Special Trial Judge.
S UBMITTED JANUARY 21, 2010—D ECIDED M ARCH 31, 2010
Before C OFFEY, F LAUM, and K ANNE, Circuit Judges.
P ER C URIAM. Robert Cleveland filed a petition in the
Tax Court with the idea of keeping the Internal Revenue
Service (“IRS”) from increasing the amount of income
tax withheld from his wages. His legal theory parrots
a claim now making the rounds in the courts. The
Tax Court dismissed the case for lack of subject-matter
jurisdiction. We affirm that decision.
After concluding that Cleveland’s employer was not
withholding enough income tax from his paychecks, the
2 No. 09-2952
IRS invalidated the Form W-4, Employee’s Withholding
Allowance Certificate, on file for Cleveland. The IRS
notified the employer, using Form Letter 2800C, to with-
hold income tax at a specified rate and to ignore any
future Form W-4s received from Cleveland. Cleveland
learned about the increase of his withholding rate when
the IRS mailed him a corresponding Form Letter 2801C,
which included instructions for averting the lock in rate
by contacting the IRS to verify or correct the infor-
mation in his invalidated Form W-4. See 26 C.F.R.
§ 31.3402(f)(2)-1(g)(2); I.R.M. ¶ 5.19.11.3.3 (2009). These
form letters, commonly called “Lock-in Letters,” are
integral to the Withholding Compliance Program as a
means to reign in those taxpayers who attempt to circum-
vent the withholding requirement, or try to evade the
proper payment of income tax, by overstating their with-
holding allowances or falsely claiming exempt status.
See I.R.M. ¶ 5.19.11.1.1 (2009); Davis v. Comm’r, 96 T.C.M.
(CCH) 269, 2008 WL 4703706, at *4 (2008); cf. United
States v. King, 126 F.3d 987, 988, 993-94 (7th Cir.
1997) (explaining that falsely claiming exempt status on
Form W-4 to impede withholding of tax can support
prosecution for attempted tax evasion).
After receiving the letter, Cleveland filed a petition in
the Tax Court to initiate a Collection Due Process
hearing contesting that the IRS improperly increased the
withholding rate on his wages. Under 26 U.S.C. § 6330(d),
a taxpayer who initiates a Collection Due Process
hearing in order that he or she might contest a proposed
levy may challenge an unfavorable decision by the IRS
Office of Appeals—the “notice of determination,” see 26
No. 09-2952 3
C.F.R. § 301.6330-1(e)(3) (A-E8)—in the Tax Court. On the
one hand Cleveland described his Lock-in Letter as the
“notice of determination” he was appealing; on the
other hand he asserted that the letter constituted a “levy”
on his wages without the statutorily mandated prior
notice and opportunity to request a Collection Due
Process hearing. See 26 U.S.C. §§ 6330(a)(1), (a)(3)(B),
6331(b), (d)(1). In his petition, Cleveland asked for an
order commanding the IRS to return the money with-
held by his employer and cease the “unlawful collection”
of income tax from his wages. The Tax Court dismissed
Cleveland’s petition for lack of subject-matter jurisdic-
tion reasoning that the Lock-in Letter he received was not
an appealable “notice of determination,” and was not
issued in conjunction with an attempt to collect by levy.
The jurisdiction of the Tax Court is limited. 26 U.S.C.
§ 7442; Comm’r v. McCoy, 484 U.S. 3, 7 (1987); Drobny v.
Comm’r, 113 F.3d 670, 677 (7th Cir. 1997). In cases where
the IRS seeks to collect unpaid tax by means of a lien or
levy, the Tax Court has jurisdiction to review an adverse
determination by the IRS Office of Appeals. 26 U.S.C.
§§ 6320(c), 6330(d); Cox v. Comm’r, 514 F.3d 1119, 1124
(10th Cir. 2008); Boyd v. Comm’r, 451 F.3d 8, 10 n.1 (1st Cir.
2006). But as Cleveland concedes, the Office of Appeals
was never involved in this matter and did not issue a
notice of determination. A Lock-in Letter, as the Tax Court
has held and we agree, is not a notice of determination.
See Davis, 2008 WL 4703706, at *6; Ballard v. Comm’r, 93
T.C.M. (CCH) 1394 (2007); see also Van Wyke v. Comm’r, 310
F. App’x 179, 180 (9th Cir. 2009) (nonprecedential disposi-
tion); Landess v. Comm’r, No. 09-9001, 2009 WL 4269682, at
4 No. 09-2952
*1 (10th Cir. Dec. 1, 2009) (nonprecedential disposition);
Ghani v. Comm’r, No. 09-9005, 2009 WL 4269679 (10th Cir.
Dec. 1, 2009) (nonprecedential disposition); Tuka v. Comm’r,
No. 09-1598, 2009 WL 3236066, at *1 (3d Cir. Oct. 9, 2009)
(nonprecedential disposition). It follows that, even if we
could accept Cleveland’s theory that the underlying
dispute concerned a collection action within the ambit of
§ 6330, the Tax Court would not have subject-matter
jurisdiction because there was no issuance of a notice
of determination. See Boyd, 451 F.3d at 10 n.1; Offiler v.
Comm’r, 114 T.C. 492, 498 (2000) (explaining that Tax
Court jurisdiction in cases arising from challenges to liens
and levies is “dependent on the issuance of a valid notice
of determination” from Office of Appeals); 14 JACOB
M ERTENS, JR., T HE L AW OF F EDERAL I NCOME T AXATION
§ 50.22 (2009) (explaining that a notice of determination
from Office of Appeals “is a taxpayer’s ‘ticket’ to the Tax
Court” in cases arising from liens and levies).
Furthermore, we wish to make clear that we do not
agree with Cleveland’s premise. A Collection Due
Process hearing is available to taxpayers when the IRS
attempts to collect a tax liability by levy, 26 U.S.C.
§ 6330(a), (b)(1), but the withholding of tax from a pay-
check is not a “levy” as that term is understood in
26 U.S.C. § 6331(b). A levy, Cleveland believes, includes
“the power of distraint and seizure by any means,” id.,and withholding, according to him, is a coercive taking
of his wages. As the Commissioner points out, Cleveland
conflates two distinct statutory mechanisms: one for
withholding tax before the filing of a return has fixed
the taxpayer’s liability, and the other for seizing a tax-
No. 09-2952 5
payer’s property to satisfy an already determined but
unpaid tax liability. Cleveland’s displeasure with the pay-
as-you-go nature of withholding does not make the
deductions from his paycheck the type of “forcible means
of extracting taxes from a recalcitrant taxpayer” that
qualifies as a levy. See Interfirst Bank Dallas, N.A. v. United
States, 769 F.2d 299, 304-05 (5th Cir. 1985) (defining “levy,”
as used in § 6331(b), to mean compulsion beyond the
“implicit threat of audits, tax liens, and other legal sanc-
tions” that prompts taxpayers to pay tax, since “few
taxpayers pay taxes purely as an act of free choice”); see
also Andrew Crispo Gallery, Inc. v. Comm’r, 86 F.3d 42, 45
(2d Cir. 1996) (explaining that the statutory definition
connotes compulsion); United States v. Barbier, 896 F.2d
377, 379 (9th Cir. 1990) (“A levy forces debtors to relin-
quish their property. It operates as a seizure by the IRS
to collect delinquent income taxes.”). Instead, a levy is
“the IRS’s administrative authority to seize a taxpayer’s
property to pay the taxpayers tax liability.” H.R. R EP.
N O . 105-599, at 263 (1998) (Conf. Rep.); S. R EP. N O . 105-174,
at 67 (1998). Withholding, in contrast, occurs throughout
the tax year while the tax liability is inchoate. See 26
U.S.C. § 3402. The legislative history indicates that the
purpose of withholding taxes was in part to reduce the
likelihood that the IRS will need to resort to levy. United
States v. Am. Friends Serv. Comm., 419 U.S. 7, 10 n.6 (1974).
At its core, Cleveland’s action fails to fall within the
ambit of the process for Tax Court review of a proposed
collection by levy. What Cleveland really argues—quoting
his brief—is that a lock-in without “at least some sort of
administrative hearing or substantial due process” is
6 No. 09-2952
unfair, and what he really seeks from the Tax Court is
an injunction commanding the IRS to stop invalidating
his Form W-4s and cease efforts to withhold tax from
his pay. But that relief is forbidden by the Anti-Injunction
Act, see 26 U.S.C. § 7421(a); Am. Friends Serv. Comm., 419
U.S. at 10; Bright v. Bechtel Petroleum, Inc., 780 F.2d 766, 770
(9th Cir. 1986); Stonecipher v. Bray, 653 F.2d 398, 400-01
(9th Cir. 1981), and because the Tax Court does not have
equitable jurisdiction to entertain Cleveland’s theory
that withholding in his situation is unfair. See Boyd, 451
F.3d at 11; see also Kelley v. Comm’r, 45 F.3d 348, 351 (9th
Cir. 1995). Furthermore, Cleveland is mistaken when
he asserts that a lock-in comes without a remedy for
the taxpayer who disagrees with it. The taxpayer may
substantiate the withholding status he claimed on his
Form W-4, see 26 C.F.R. § 31.3402(f)(2)-1(g)(2)(ii); I.R.M.
¶ 5.19.11.3.5 (2009), and if he still is not satisfied with the
IRS’s decision, he may file a return, claim the amount
withheld as a credit against his tax liability, and request
a refund, see Bennett v. United States, 361 F. Supp. 2d
510, 517 (W.D. Va. 2005); M ICHAEL I. S ALTZMAN & L ESLIE
B OOK, IRS P RACTICE AND P ROCEDURE ¶ 11.01 (2009). The
IRS is not required, as a matter of due process, to give
an aggrieved taxpayer “a hearing before determining
that he was not entitled to claim exemption from federal
income tax.” Stonecipher, 653 F.2d at 403; see Campbell
v. Amax Coal Co., 610 F.2d 701, 702 (10th Cir. 1979).
A FFIRMED.
3-31-10