United States District Court, D. New Mexico
R. BRYAN HINKLE AND MATILDA GARCIA, et al., Plaintiffs,
UNITED STATES OF AMERICA, Defendant.
MEMORANDUM OPINION AND ORDER
matter comes before the Court on Defendant “United
States' Motion for Summary Judgment, ” filed
October 26, 2017. (Doc. 33). Plaintiffs responded on November
9, 2017, and Defendant replied on November 29, 2017. (Docs.
37 and 40). Having considered the parties' briefs and
proffered exhibits, the Court grants Defendant's Motion.
Plaintiffs filed their
complaints in this Court seeking a refund of
penalties imposed under 26 U.S.C. § 6707A by the IRS for
tax years 2007 and 2008. In April and May 2009, Plaintiffs
were notified by Internal Revenue Agent (“IRA”)
Russell Gadway, on behalf of the IRS, that their 2007 tax
return had been selected for examination. (Doc. 34-1) at
1-2, 23-24, and 44-45. On June 14, 2010, each set of
Plaintiffs received a letter from IRA Gadway referencing tax
years 2007 and 2008, stating, in pertinent part:
“[t]his correspondence is to see if I can convince you
to agree to the enclosed examination change report. This
report is different from previous ones in that the penalties
have been waved (sic) if you agree at my level when you
relied on your preparer for taking the deduction.”
Id. at 3, 25, and 46. Each letter was accompanied
with a Form 4549 document titled “Income Tax
Examination Changes, ” and this form assessed an
accuracy-related penalty under 26 U.S.C. § 6662.
Id. at 4-5, 26-27, and 47-48. On July 7, 2010,
William D. Hinkle signed a Form 4549 document which assessed
neither a § 6662 penalty nor any other penalty.
Id. at 49-50. On July 11, 2010, Gene E. and Betty L.
Hinkle also signed a Form 4549 document which assessed
neither a § 6662 penalty nor any other penalty; and, R.
Bryan Hinkle and Matilda Garcia signed their Form 4549
document which assessed neither a § 6662 penalty nor any
other penalty on July 12, 2010, and July 13, 2010,
respectively. Id. at 6-7, and 28-29.
19, 2010, the IRS notified R. Bryan Hinkle and Matilda
Garcia, and William D. Hinkle, that it was considering
assessing penalties under 26 U.S.C. § 6707A for failure
to disclose a listed transaction under 26 C.F.R. §
301.6011-4(b)(2) and 26 U.S.C. § 6111 and § 6112.
(Doc. 34-1) at 31, 51. On September 4, 2010, Gene E. and
Betty L. Hinkle received a letter from Deborah M. Daub on
behalf of William P. Marshall, North Atlantic Area Director
of the IRS, stating “[w]e've reviewed and accepted
the examination report that we previously gave to you
regarding the examination of your tax return for [2007 and
2008]. We do not plan to make any additional changes to your
return(s) unless we change a partnership, S-Corporation,
trust, or estate tax return in which you have an
interest.” Id. at 8.
March 2011, each Plaintiff received a Form 4549-A titled
“Income Tax Discrepancy Adjustments” assessing a
civil penalty under § 6707A. (Doc. 34-1) at 9-10, 32-33,
and 52-54. On April 10, 2011, Robert E. Bivins, the
Plaintiffs' accountant, sent a letter to IRA Gadway
protesting the § 6707A penalty in the March 2011 Form
4549-A documents. Id. at 11-12, 34-35, and 55-56.
Mr. Bivins notes “[t]he taxpayer was further assured no
penalties would be assessed through acceptance and payment of
taxes alleged to be due, which assurance has apparently been
broken.” Id. at 12, 35, and 56.
year later, on September 3, 2012, the Plaintiffs received
“Notice of Penalty Charge” from the IRS for tax
years 2007 and 2008. Id. at 13-16, 36-39, and 57-60.
A week later, Mr. Bivins responded with a letter protesting
the assessment of § 6707A penalties against Plaintiffs
in the Notice of Penalty Charges. Id. at 17, 40, and
61. On September 19, 2013, Mr. Bivins completed and submitted
Form 843 documents for the Plaintiffs for tax years 2007 and
2008, requesting an abatement of the § 6707A penalty.
Id. at 19-20, 42-43, and 63-64. On December 26,
2013, Gene E. and Betty L. Hinkle received a letter from
Jeffrey E. Barrett, Operations Manager, AM Operations 1, on
behalf of the IRS, referencing correspondence on September
19, 2013. Id. at 21. This letter states, in
pertinent part: “Dear Taxpayer: Thank you for your
correspondence dated 09/09/13. In reviewing your account, our
records show that all penalties have been waived for the tax
years listed above, as agreed by Internal Revenue Agent Mr.
Russell Gadway.” Id.
to the instant matter, the Court construes Plaintiffs'
complaints as asserting breach of contract and,
alternatively, equitable estoppel against the United States.
Defendant moves for summary judgment on both claims.
Judgment is appropriate if there is no genuine dispute as to
a material fact and the moving party is entitled to judgment
as a matter of law. Fed.R.Civ.P. 56(a). When applying this
standard, the Court examines the factual record and
reasonable inferences therefrom in the light most favorable
to the party opposing summary judgment. Applied Genetics
Intl, Inc. v. First Affiliated Securities, Inc., 912
F.2d 1238, 1241 (10th Cir. 1990). The moving party bears the
initial burden of showing there is no genuine issue of
material fact. Celotex Corp. v. Catrett, 477 U.S.
317, 325 (1986). The burden then shifts to the non-movant to
come forward with evidence showing a genuine issue of
material fact. Bacchus Indus., Inc. v. Arvin Indus.,
Inc., 939 F.2d 887, 891 (10th Cir. 1991). An issue of
material fact is genuine if a reasonable jury could return a
verdict for the non-movant. Kaul v. Stephan, 83 F.3d
1208, 1212 (10th Cir. 1996) (citation omitted). The
non-moving party may not avoid summary judgment by resting
upon mere allegations or denials of his or her pleadings.
Bacchus, Indus., Inc., 939 F.2d at 891.
IRS's authority to settle disputed tax liabilities
(including refund claims) is described in Tax Code [26 U.S.C.
§§ 7121 and 7122] and in the Treasury
regulations.” Brach v. United States, 443
Fed.Appx. 543, 548 (Fed. Cir. 2011). “Purported
agreements that do not meet these requirements are not
enforceable as contracts binding the IRS.” Id.
(citing Botany Worsted Mills v. United States, 278
U.S. 282, 288-289 (1929)).
§ 7121(a), “[t]he Secretary is authorized to enter
into an agreement in writing with any person relating to the
liability of such person (or of the person or estate for whom
he acts) in respect of any internal revenue tax for any
taxable period.” Further, “[a]ll closing
agreements shall be executed on forms prescribed by the
Internal Revenue Service.” 26 C.F.R. §
301.7121-1(d)(1). The appropriate forms are Form 866 or Form
906. Rev. Proc. 68-16, Sec. 6. Generally, Form 4549 documents
do not create closing agreements settling disputed tax
liability. Brach, 443 Fed.Appx. at 548 (“But
these [Form 4549] documents do not satisfy the regulations
under which the IRS may settle a disputed tax liability. To
begin with, they are not on the forms identified for such
agreements….[n]either do the Form 4549 documents
include the formal legal language indicating the IRS's
intent to settle that the IRS has prescribed for use in such
agreements.”); see also Shrader v. Tomecek,
1980 WL 1766, at *2 (S.D. Ohio) (“Form 4549 does not
constitute a formal closing agreement pursuant to 26 U.S.C.
the evidence in the record before the Court construed in the
light most favorable to Plaintiffs would not allow a
reasonable jury to find that there was a binding contract on
the IRS precluding it from assessing the § 6707A
penalty. There is no evidence of a closing agreement in a
Form 866 document or a Form 906 document between the IRS and
Plaintiffs. Nonetheless, Plaintiffs argue that an enforceable
settlement agreement exists between the IRS and Plaintiffs.
Plaintiffs point to the December 26, 2013, letter from the
IRS as evidence of an offer, specifically that part stating,
“all penalties have been waived for the tax years [2007
and 2008].” (Doc. 34-1) at 21. Plaintiffs then assert
they accepted this offer by signing the ...