Service Employees International Union v. Commissioner

125 T.C. No. 5UNITED STATES TAX COURT
SERVICE EMPLOYEES INTERNATIONAL UNION,
Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
100 OAK STREET CORPORATION, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 8398-04L, 8399-04L. Filed September 15, 2005.
Ps are qualified labor organizations under I.R.C.
sec. 501(c)(5) and are exempt from taxation under
I.R.C. sec. 501(a). Ps did not timely file annual
returns required by I.R.C. sec. 6033(a)(1). R assessed
penalties against Ps under I.R.C. sec. 6652(c)(1) for
failure to timely file those returns. Pursuant to
I.R.C. sec. 6330(a), R issued notices of determination,
attempting to collect the penalties by levy. Ps filed
petitions contesting R’s determination. R filed
motions to dismiss for lack of jurisdiction.
Held: The Tax Court does not have jurisdiction
over I.R.C. sec. 6652(c)(1) penalties for purposes of
I.R.C. sec. 6330, and R’s motions will be granted.
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William E. Taggart, Jr., for petitioners.
Michael E. Melone, for respondent.
OPINION
HAINES, Judge: The matter in these cases is before the
Court on respondent’s motions to dismiss for lack of jurisdiction
(motions). Respondent’s motions present an issue of first
impression--whether section 6330(d) vests this Court with
jurisdiction over penalties imposed under section 6652(c)(1) on a
tax-exempt organization for failure to timely file a complete
section 6033(a)(1) return.1 For the reasons discussed below, we
shall grant respondent’s motions.
Background
100 Oak Street Corporation (100 Oak Street) is a wholly
owned subsidiary of Service Employees International Union
(Service Employees) (collectively referred to as petitioners).
Petitioners share the same address, and many of the officers
serve in the same capacity for both organizations. Petitioners
are qualified labor organizations under section 501(c)(5) and are
exempt from taxation under section 501(a). Petitioners’
principal place of business is Oakland, California.
1
All section references are to the Internal Revenue Code,
as amended, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
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For its taxable year ending June 30, 1998, 100 Oak Street
did not file a timely section 6033(a)(1) return. On November 1,
1999, respondent assessed a section 6652(c)(1) penalty of $2,460
against 100 Oak Street for failure to timely file a section
6033(a)(1) return. A notice of deficiency was not issued.
Pursuant to section 6330(a), respondent issued 100 Oak
Street a Final Notice of Intent to Levy and Notice of Your Right
to a Hearing (notice of intent to levy) on December 18, 2002. A
section 6330 hearing requested by 100 Oak Street was held on
December 10, 2003.
For its taxable year ending June 30, 1999, Service Employees
did not timely file a section 6033(a)(1) return. On April 8,
2002, respondent assessed a section 6652(c)(1) penalty of $50,000
against Service Employees for failure to timely file a section
6033(a)(1) return. A notice of deficiency was not issued.
Pursuant to section 6330(a), respondent issued Service
Employees a notice of intent to levy on August 13, 2002. Service
Employees requested a section 6330 hearing, which was held on
September 10, 2003.
On April 23, 2004, respondent sent each petitioner a Notice
of Determination Concerning Collection Actions Under Section
6330, upholding the respective levies. On May 21, 2004,
petitioners filed petitions with this Court seeking review of
respondent’s determinations.
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Pursuant to Rule 53, respondent filed the motions to dismiss
for lack of jurisdiction against petitioners on July 12, 2004.
On October 14, 2004, upon order of this Court, the two cases were
consolidated for hearing on the motions to dismiss. The hearing
was held on November 29, 2004, in San Francisco, California.
Discussion
Section 6033(a)(1) requires an organization exempt from
taxation under section 501(a) to file “an annual return, stating
specifically the items of gross income, receipts, and
disbursements, and such other information * * * as the Secretary
may by forms or regulations prescribe”.2 If the organization
fails to timely file a complete section 6033(a)(1) return, the
organization is subject to a penalty under section 6652(c)(1)
(A).3 Section 6652(c)(1) penalties are paid on notice and demand
2
Sec. 6033(a)(2) exempts certain organizations, such as
churches and religious organizations, from this filing
requirement; no such exceptions are at issue in the present
cases.
3
Sec. 6652(c)(1)(A)(i) provides, in pertinent part:
(A) Penalty on organization.--In the case of--
(i) a failure to file a return required
under section 6033 * * * on the date and in
the manner prescribed therefor * * *
* * * * * * *
there shall be paid by the exempt organization $20 for
each day during which such failure continues. The
maximum penalty under this subparagraph * * * shall not
(continued...)
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of the Secretary, and in the same manner as taxes. Sec.
6652(c)(4)(A).
Section 6331(a) provides that, if a person liable to pay any
tax neglects or refuses to do so within 10 days after notice and
demand, the Secretary can collect the tax by levy upon the
property belonging to the person, subject to the notice and fair
hearing requirements of sections 6330 and 6331(d). Pursuant to
section 6330(d)(1), after the administrative review process has
been completed and the Secretary has issued a notice of
determination, the person may appeal that determination within 30
days to this Court.4
3
(...continued)
exceed the lesser of $10,000 or 5 percent of the gross
receipts of the organization for the year. In the case
of an organization having gross receipts exceeding
$1,000,000 for any year * * * the first sentence of
this subparagraph shall be applied by substituting
“$100” for “$20” and, in lieu of applying the second
sentence of this subparagraph, the maximum penalty
under this subparagraph shall not exceed $50,000.
4
Sec. 6330(d)(1) provides in full:
(1) Judicial review of determination.--The person
may, within 30 days of a determination under this
section, appeal such determination–-
(A) to the Tax Court (and the Tax Court
shall have jurisdiction to such hear matter);
or
(B) if the Tax Court does not have
jurisdiction of the underlying tax liability,
to a district court of the United States.
(continued...)
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The Tax Court has jurisdiction to review lien and levy
determinations under section 6330(d)(1) if we have jurisdiction
over the underlying tax liability. Sec. 6330(d)(1)(A); Downing
v. Commissioner, 118 T.C. 22, 26 (2002); Van Es v. Commissioner,
115 T.C. 324, 327 (2000); Moore v. Commissioner, 114 T.C. 171,
175 (2000). Thus, we must determine whether this Court has
jurisdiction over section 6652(c)(1) penalties.
In his motions, respondent argues that this Court does not
have jurisdiction over section 6652(c)(1) penalties under section
6330(d)(1). Respondent states: “there has to be a specific
grant of authority for the Court to have jurisdiction over the
penalty under section 6652(c)(1) * * * . And respondent can find
no specific grant of specific authority.”
Petitioners contend that this Court does have jurisdiction
over section 6652(c)(1) penalties and advance three primary
arguments: (1) It is clear from the language of section
6330(d)(1) that Congress intended this Court to have jurisdiction
over section 6652(c)(1); (2) this Court’s analysis in Downing,
finding jurisdiction over section 6651(a)(2) additions to tax, is
equally applicable to section 6652(c)(1) penalties; and (3) this
4
(...continued)
If a court determines that the appeal was to an
incorrect court, a person shall have 30 days after the
court determination to file such appeal with the
correct court.
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Court has jurisdiction over many other aspects of petitioners’
tax status and should therefore have jurisdiction over the
section 6652(c)(1) penalties assessed against them. For purposes
of clarity and organization, we shall first address Tax Court
jurisdiction generally, followed by an analysis of petitioners’
three arguments.
1. The Tax Court Is a Court of Limited Jurisdiction
The Tax Court is a court of limited jurisdiction, and we may
exercise our jurisdiction only to the extent authorized by
Congress. Sec. 7442; Moore v. Commissioner, supra at 175; Naftel
v. Commissioner, 85 T.C. 527, 529 (1985). The Tax Court
generally has deficiency jurisdiction over income, gift, and
estate tax cases. See secs. 6211(a), 6213(a), 6214(a); Downing
v. Commissioner, supra at 27; Van Es v. Commissioner, supra at
328. For purposes of section 6330(d), the Court may have
jurisdiction over an underlying liability for income, estate, or
gift tax even when no deficiency has been determined. Montgomery
v. Commissioner, 122 T.C. 1, 7-8 (2004); Downing v. Commissioner,
supra at 27-28; Landry v. Commissioner, 116 T.C. 60, 62 (2001).
However, Congress did not intend to expand the Court’s
jurisdiction under section 6330(d)(1) beyond the types of tax
over which we normally have jurisdiction. See Van Es v.
Commissioner, supra at 328-329; Moore v. Commissioner, supra at
175.
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2. Section 6330(d)(1) Does Not Expand the Tax Court’s
Jurisdiction
Petitioners assert that section 6330(d)(1) is a new and
independent grant of jurisdiction, that Congress intended this
Court to have primary jurisdiction over section 6330 hearings,
and “If the limiting language of IRC §6330(d)(1)(B) is examined
with an [sic] view to the purpose of the language, it is obvious
[section 6652(c)(1)] is a matter over which the Tax Court should
insist it has jurisdiction.” Petitioners further argue:
“If Congress intended to narrowly conscribe the Tax Court’s
jurisdiction under IRC §6330(d)(1), it could easily have done so.
Instead, Congress used the broadest possible language to describe
the jurisdiction of the Tax Court under §6330(d)(1).” We
disagree.
In Moore v. Commissioner, supra at 175, this Court stated:
While Congress clearly intended for section 6330 to
provide an opportunity for judicial review of
collection matters, we interpret section 6330(d)(1)(A)
and (B) together to mean that Congress did not intend
to expand the Court’s jurisdiction beyond the types of
taxes that the Court may normally consider. Thus,
section 6330(d)(1)(A) and (B) provides for Tax Court
jurisdiction except where the Court does not normally
have jurisdiction over the underlying liability.
See also Van Es v. Commissioner, supra at 328 (holding that
section 6330(d)(1) does not expand the Court’s jurisdiction to
cover section 6702 frivolous return penalties). Petitioners
assert that Congress did not intend such a narrow reading but
cite no authority.
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Petitioners’ assertion that Congress used the broadest
possible language to describe this Court’s jurisdiction under
section 6330(d)(1) is contradicted by the language of the section
itself. Section 6330(d)(1)(B) provides that when the Tax Court
does not have jurisdiction over the underlying tax liability, the
District Courts will instead have jurisdiction. See also sec.
301.6330-1(f)(1), Q&A-F3, Proced. & Admin. Regs.
Therefore, section 6330(d)(1) does not expand this Court’s
jurisdiction beyond the types of tax we may normally consider.
See Van Es v. Commissioner, supra at 328-329; Moore v.
Commissioner, supra at 175.
3. The Court’s Analysis in Downing v. Commissioner Does Not
Control the Present Cases
Petitioners next argue that this Court’s analysis in Downing
v. Commissioner, supra, is equally applicable to the present
cases, and using the same rationale, the Court should have
jurisdiction over section 6652(c)(1) penalties.
In Downing, this Court considered whether we have
jurisdiction over section 6651(a)(2) additions to tax for failure
to timely pay the amount shown on a tax return. Downing v.
Commissioner, 118 T.C. at 26. The Court stated:
The Tax Court generally has jurisdiction over income,
gift, and estate tax cases for purposes of section
6330(d)(1)(A) because we have deficiency jurisdiction
relating to those taxes. * * * Thus, just as we
generally have jurisdiction to decide income, gift, and
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estate tax cases, we generally have jurisdiction over
additions to tax for failure to pay those taxes for
purposes of section 6330(d)(1)(A). [Emphasis added.]
Id. at 27.
Petitioners argue that the Court’s statements in Downing, as
quoted above, “could be construed as anticipatory of the precise
issue before the [Court].” Because the penalties involved in the
present cases are readily distinguishable from the additions to
tax involved in Downing, we disagree.
In Downing, as emphasized above, the Court held that we have
jurisdiction over additions to tax for failure to pay income,
gift, or estate taxes for purposes of section 6330(d)(1)(A). Id.
at 27-28. Because section 6651(a)(2) imposes additions to tax
for a failure to pay taxes shown on a return, this Court has
jurisdiction over those additions. See id. However, unlike the
additions to tax at issue in Downing, section 6652(c)(1)
penalties are not imposed for failure to pay income, gift, or
estate taxes, but are instead imposed for the failure to file a
section 6033(a)(1) return.5 The language in Downing limits the
Court’s analysis to additions to tax and penalties for failure to
pay income, gift, or estate taxes. Because section 6652(c)(1)
does not impose such a penalty, the analysis in Downing does not
apply to the present cases.
5
This is not to suggest that under sec. 6330(d) we would
lack jurisdiction over a sec. 6651(a)(1) addition to tax for
failure to file.
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Petitioners further argue that section 6652(c)(1) penalties
are analogous to 6651(a)(2) additions to tax because “There is a
scaling of the penalty * * * that is tied to gross revenue--a
more appropriate measure of size for an exempt organization than
tax liability.” The section 6651(a)(2) addition to tax is
calculated as follows: “there shall be added to the amount shown
as tax on such return 0.5 percent of the amount of such tax if
the failure is for not more than 1 month, with an additional 0.5
percent for each additional month.” (Emphasis added.) The
section 6652(c)(1) penalty is calculated as follows:
$20 for each day during which [failure to file] * * *
continues. The maximum penalty under this subparagraph
* * * shall not exceed the lesser of $10,000 or 5
percent of the gross receipts of the organization for
the year. In the case of an organization having gross
receipts exceeding $1,000,000 for any year * * * the
first sentence of this subparagraph shall be applied by
substituting “$100” for “$20” and, in lieu of applying
the second sentence of this subparagraph, the
maximum penalty under this subparagraph shall not
exceed $50,000. [Emphasis added.]
As is clear from the above-emphasized language, a section
6651(a)(2) addition to tax is directly tied to the amount of tax
due. On the other hand, a section 6652(c)(1) penalty is not tied
to the amount of tax due, but instead it is a flat daily rate of
accumulation. While the flat daily rate and the cap on the
penalty are scaled depending on the gross revenue of the
organization, they are not directly tied to the amount of tax
due. Thus, the manner in which the section 6652(c)(1) penalty
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and the section 6651(a)(2) addition to tax are calculated is
distinguishable.6
For the above stated reasons, we conclude that a section
6652(c)(1) penalty for failure to timely file a section
6033(a)(1) return is not analogous to a section 6651(a)(2)
addition to tax for failure to pay the amount shown. Because
sections 6651(a)(2) and 6652(c)(1) are distinguishable, the
Court’s analysis in Downing does not control the present cases.
4. The Tax Court Cannot Extend Its Jurisdiction Based on Policy
Arguments
Petitioners finally argue that because this Court has
jurisdiction over many other aspects of petitioners’ tax status,
it should also have jurisdiction over section 6652(c)(1) for
purposes of section 6330(d)(1):
This [Court] has jurisdiction to adjudicate
whether a tax exempt organization has unrelated
business taxable income pursuant to IRC §512, as well
as to determine any penalties in connection with such
an assertion, Arkansas State Police Association v.
Commissioner, T.C. Memo. 2001-38 * * * as well as any
penalties imposed with respect to the return on which
the exempt organization either failed to report, or
under-reported, its unrelated business income. State
Police Association of Massachusetts v. Commissioner,
T.C. Memo. 1996-407 * * *
This [Court] has jurisdiction to adjudicate
whether an organization such as Petitioner is entitled
to exemption from income tax under IRC §501. If this
[Court] concludes that an organization such as
6
Although not argued by the parties, the sec. 6651(a)(1)
addition to tax for failure to file a return is distinguishable
for the same reason.
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Petitioner is not entitled to exemption from income tax
pursuant to IRC §501, this [Court] has jurisdiction to
determine the amount of income tax to which the
organization is subject, including the imposition of
penalties. Florida Hospital Trust Fund v.
Commissioner, * * * 103 T.C. 140 (1994).
The issue in the present cases is not whether this Court has
jurisdiction over different aspects of petitioners’ tax status,
but whether we have jurisdiction over the section 6652(c)(1)
penalty. None of the above-listed instances of jurisdiction
relates to the penalty at issue.
In Henry Randolph Consulting v. Commissioner, 112 T.C. 1(1999), the taxpayer made an argument similar to petitioners’.
In that case, the Commissioner determined that the taxpayer’s
workers were classified as employees for the purposes of Federal
employment taxes under section 7436 and assessed employment taxes
against the taxpayer. Id. at 2-3. The taxpayer filed a petition
with the Tax Court contesting the employment taxes as assessed,
and the Commissioner filed a motion to dismiss for lack of
jurisdiction. Id. at 1-3. The Tax Court is expressly given
jurisdiction to review the classification of workers as employees
under section 7436(a), but at the time the case was filed, the
Court did not have jurisdiction over employment taxes.7 See id.
at 13-14. The taxpayer argued that, on grounds of judicial
7
Sec. 7436(a) has since been amended by the Consolidated
Appropriations Act, 2001, Pub. L. 106-554, sec. 314(f), 114 Stat.
2763A-643 (2000) to confer jurisdiction to determine “the proper
amount of employment tax.”
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economy and convenience to the parties, it was illogical for the
Tax Court to have jurisdiction over worker classification but not
over employment taxes assessed as a result of that
classification. Id. at 12. The Court held that “we do not
acquire jurisdiction from theories based on public policy,
convenience of the parties, or judicial economy”, and granted the
Commissioner’s motion to dismiss. Id. at 12-14.
In the present cases, petitioners argue that if the Court
has jurisdiction over many other aspects of petitioners’ tax
status, then for convenience to the parties and judicial economy,
the Court should also have jurisdiction over any penalties
assessed against petitioners. However, as noted above, we may
exercise our jurisdiction only to the extent authorized by
Congress. Moore v. Commissioner, 115 T.C. at 175; Naftel v.
Commissioner, 85 T.C. at 529. We do not acquire jurisdiction
from theories based on public policy. See Henry Randolph
Consulting v. Commissioner, supra at 12; see also Trost v.
Commissioner, 95 T.C. 560, 565 (1990). Therefore, petitioners’
public policy arguments are insufficient to allow this Court to
exercise jurisdiction over the section 6652(c)(1) penalties.
Conclusion
Petitioners have not pointed to any specific grant of
jurisdiction over section 6652(c)(1) penalties, and we can find
none. Instead, petitioners’ assertion that this Court has
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jurisdiction is based on the above-stated arguments, all of which
we find unpersuasive. We agree with respondent that this Court
does not have jurisdiction over section 6652(c)(1) penalties for
purposes of section 6330(d)(1). For this and all other reasons
stated herein, we shall grant respondent’s motions to dismiss for
lack of jurisdiction.
We have considered all of petitioners’ arguments, and to the
extent they are not discussed herein, we conclude that they are
without merit or irrelevant.
To reflect the foregoing,
Appropriate orders
of dismissal for lack of
jurisdiction will be
entered.