Patridge, Denny v. IRS , 205 F. App'x 459 ( 2006 )

UNPUBLISHED ORDER
Not to be cited per Circuit Rule 53
United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Argued October 4, 2006
Decided November 13, 2006
Before
Hon. JOHN L. COFFEY, Circuit Judge
Hon. TERENCE T. EVANS, Circuit Judge
Hon. ANN CLAIRE WILLIAMS, Circuit Judge
No. 06-1155
DENNY PATRIDGE and JUDY Appeal from the United States District
PATRIDGE, Court for the Central District of Illinois
Plaintiffs-Appellants,
No. 05 C 3249
v.
UNITED STATES INTERNAL Jeanne E. Scott,
REVENUE SERVICE, et al., Judge.
Defendants-Appellees.
ORDER
The Internal Revenue Service conducted a “collection due process” hearing for
Denny and Judy Patridge as a preface to collecting unpaid assessments for income-
tax deficiencies and related penalties. Following the hearing the IRS Office of
Appeals authorized the collection to proceed, and the Patridges sought judicial
review in the district court. The district court dismissed their petition for lack of
subject-matter jurisdiction, reasoning that the Tax Court alone had jurisdiction
because the dispute involved income taxes. We affirm.
In January 2000 the IRS sent the Patridges notices of deficiency advising
them that they or a trust that they administered owed additional income tax and
No. 06-1155 Page 2
related penalties for income that was earned by the Patridges in 1996 and 1997
from their insurance business but paid to the trust. The notices of deficiency stated
that the Patridges had until May 11, 2000, to challenge the determinations in the
Tax Court, but no challenge was made, and in August 2000 the IRS assessed the
additional tax and penalties against the Patridges personally in the amounts of
$130,736 for 1996 and $88,675 for 1997. Several notices of assessments and
demands for payment were sent, but the Patridges refused to pay, and in November
2000 the IRS sent the Patridges a “notice of intent to levy,” and further informed
them of their right to petition the IRS Office of Appeals for a “collection due process”
(CDP) hearing, which they timely did.
Several CDP hearings were scheduled for the Patridges but postponed
pending a criminal investigation of Mr. Patridge. In June 2005 a jury found
Mr. Patridge guilty of tax evasion, money laundering, and wire fraud. And on
September 25, 2006 he was sentenced to a term of 60 months’ imprisonment.
A CDP hearing was conducted before a settlement officer on August 17, 2005.
At the hearing the Patridges contested their underlying liability asserting that the
IRS employed an illegal “whipsaw” tactic by assessing the same tax liability against
them personally and against their trust. The settlement officer explained to the
Patridges that he could not address this argument because, as set forth in 26 U.S.C.
§ 6330(c)(2)(B), the existence or amount of the underlying liability can be contested
at a CDP hearing only if the taxpayer did not receive a “notice of deficiency” or did
not otherwise have the opportunity to dispute his liability. The settlement officer
found that neither exception applied to the Patridges. The Patridges then asserted
several procedural defects in the handling of their case, but the settlement officer
concluded that no such errors had occurred. Afterward the Office of Appeals issued
a notice of determination authorizing the collection action to proceed and
instructing the Patridges to seek review in the Tax Court if they were not satisfied.
The Patridges refused to comply with the law and instead went to district
court. The district court concluded that, because the case involved federal income
taxes, the Tax Court had exclusive jurisdiction over the Patridges’ claims. The
court dismissed the case for lack of subject-matter jurisdiction. The Patridges re-
filed their petition in the Tax Court and eventually lost on summary judgment, see
T.C. No. 1551-06L (Aug 28, 2006), and they also appealed the dismissal of the
petition they had filed in district court.
The CDP procedures require the IRS to give advance written notice before
levying on a taxpayer’s property. See 26 U.S.C. § 6330(a). The taxpayer may then
request a hearing before the IRS Office of Appeals. See id. § 6330(b). After the
hearing, the Office of Appeals must issue a notice of determination that responds to
the issues raised by a taxpayer during the hearing. See 26 C.F.R. § 301.6330, Q/A-
No. 06-1155 Page 3
E8. The notice of determination is subject to judicial review; that review was
presumptively in the Tax Court at the time of the events in this case, though a
taxpayer could seek review in the district court in limited circumstances. See 26
U.S.C. § 6330(d)(1)(B) (2000).
Thus, the regulations and the courts (including this court) have uniformly
interpreted § 6330(d) as vesting exclusive jurisdiction with the Tax Court if the Tax
Court would have had jurisdiction to determine a deficiency involving the type of
tax liability at issue in the collection proceedings. See 26 C.F.R. § 301.6330-1(f)(2)
Q & A F3; Voelker v. Nolen, 365 F.3d 580, 581 (7th Cir. 2004) (per curiam);
Downing v. C.I.R., 18 T.C. 22, 26-27 (2002). It is axiomatic that the Tax Court has
jurisdiction to review federal income tax deficiencies, 26 U.S.C. §§ 6211, 6212;
Moore v. C.I.R., 114 T.C. 171, 175 (2000), and “accordingly, a [petition for review]
involving income taxes . . . must be filed in the Tax Court and the district court
lacks jurisdiction.” Voelker, 365 F.3d at 581.
The Patridges raise no legitimate argument to the contrary. It appears that
the Patridges are under the misapprehension that Voelker is distinguishable from
their case because the IRS had told Voelker that he could contest his underlying
liability in the Tax Court but told the Patridges that they are procedurally barred
from doing the same. But the fact that a taxpayer is procedurally barred from
seeking a direct liability reassessment does not affect jurisdiction to review his CDP
hearing. See Downing, 118 T.C. at 27 (explaining that even though the Tax Court
was barred from reviewing income tax assessment due to lack of deficiency, it still
had jurisdiction under § 6330(d) to review issues raised at CDP hearing concerning
those income taxes).
The Patridges also argue that, even if § 6330(d)(1) allocates jurisdiction based
on the type of tax at issue, jurisdiction over their petition still vested in the district
court because their assessment included penalties and interest but they are in
error. Not only does the Tax Court have jurisdiction to determine income tax
deficiencies, it also has jurisdiction “to determine whether any amount, or any
addition to the tax should be assessed, if claim therefor is asserted by the Secretary
at or before the hearing or rehearing.” Downing, 118 T.C. at 27 (citing 26 U.S.C. §
6214(a)). Thus, the Tax Court has concluded that it will “generally have
jurisdiction over additions to tax for failure to pay those taxes for the purposes of §
6330(d)(1)(B).” Id. The Patridges were assessed penalties that clearly constitute an
“addition to tax for failure to pay,” which the Commissioner assessed “before” any
Tax Court hearing. See 26 U.S.C. § 6214(a). As a result, the Tax Court has
jurisdiction under § 6214(a) to review the penalty, and thus also has jurisdiction
under § 6330(d)(1)(B) to review the Patridges’ petition. The law is clear that the
district court is without jurisdiction.
No. 06-1155 Page 4
The Patridges next argue that jurisdiction is proper in the district court
because they seek to raise procedural arguments not related to their underlying
income tax liabilities. The Patridges contend that they never received an
assessment or demand for payment, and that they were denied an impartial officer
at their CDP hearing. These procedural issues, they assert, belong in district court.
But in Voelker we flatly rejected the same argument, concluding that a case
involving income taxes—even where procedural defects are alleged—must be
brought in the Tax Court. See Voelker, 365 F.3d at 581. In fact, there is nothing
unique about the Patridges’ petition in this regard; CDP hearings amount in
essence to procedural safeguards, and the typical petition for review brought in the
Tax Court properly raises procedural defects with the notification and collection
processes. See, e.g., Reynolds v. C.I.R., T.C. Memo 2006-192, at *4 (taxpayer
alleged he did not receive a notice and demand for payment); Moore v. C.I.R., T.C.
Memo 2006-171, at *5 (taxpayer alleged he was denied an impartial hearing officer).
Lastly, the Patridges contend that the district court has jurisdiction because
“illegal whipsaw taxes” are not authorized by the Internal Revenue Code, and thus
they are not income taxes within the Tax Court’s jurisdiction. We find this
argument without merit. On review we have found that the IRS used no whipsaw
like tactics. And regardless, the Patridges’ characterization of the assessments
against them as “whipsaws” goes to whether the Patridges are the proper party to
hold liable for the taxes, not to the type of tax at issue. See Centel Communications
Co. v. C.I.R., 920 F.2d 1335, 1339 (7th Cir. 1990) (explaining that “whipsaw” is an
“accepted practice” in which the Commissioner “proposes his best arguments
against each taxpayer in an effort to collect additional taxes from one”).
The judgment is AFFIRMED.