Couple Argues Remittance Was Cash Bond Not Payment of Taxes

COMES NOW Lori Marie Taylor and Gregory David Taylor ("Plaintiffs"/"Taxpayers") and complains of the United States of America ("Defendant") as represented by the Department of Treasury, Internal Revenue Service and the United States Attorney and for cause of action shows as follows:

1.2 Plaintiffs assert that these deposits were never intended to constitute payment of taxes, but were intended to prevent the imposition of interest and penalties should a tax liability be subsequently assessed against the Plaintiffs, as detailed in the sworn affidavit of EXHIBITS [7]-[11].

1.3 Plaintiffs have requested return of these cash bond deposits from the IRS in accordance with the provisions of IRS Revenue Procedure 84-58, 19842 C.B. 501. Deposits in the nature of a cash bond are not subject to statute of limitations recovery provisions of the Internal Revenue Code, 26 U.S.C. § 6511.

1.4 The IRS has asserted that the checks remitted by the Plaintiffs constitute payment of taxes, and are subject to the 3-year statute of limitations for recovery of refunds per 26 U.S.C. § 6511.

1.5 Accordingly, the IRS has denied the Plaintiffs' request for return of the monies remitted by the Plaintiffs to the IRS.

1.6 In summary, this litigation involves the factual dispute between the Plaintiffs and the IRS as to whether the monies totaling $62,000.00 remitted to the IRS constituted a deposit in the form of a cash bond, not subject to the statute of limitations for recovery by the Plaintiffs, or as asserted by the IRS, actual payment of taxes and therefore barred by the statute of limitations involving taxpayer refunds per 26 U.S.C. § 6511.

1.7 Having exhausted administrative appeals with the IRS, the Plaintiffs now seek resolution of this factual dispute between the Plaintiffs and the IRS and recovery of these cash bond deposits from the IRS/United States Treasury via civil petition and jury trial in federal district court.

2.2 Plaintiff Lori Marie Taylor has Social Security Number * * * and DOB 9/19/1960.

2.3 Plaintiff Gregory David Taylor has Social Security Number * * * and DOB 11/20/1966.

2.4 The Defendant is the United States of America, and is represented by the Director of Internal Revenue, Internal Revenue Service, Department of Treasury, and may be served at the following address: Special Procedures, 1100 Commerce Street, 9A20 5024 DAL, Dallas, Texas 75242-1027. Service of said Defendant Representative as described above can be effected by personal delivery or certified mail, return receipt requested.

2.5 The Internal Revenue Service is represented by the United States Attorney General John Ashcroft, Department of Justice, and may be served with a summons at the following address: Mr. John Ashcroft, U.S. Attorney General, U.S. Department of Justice, 950 Pennsylvania Avenue, NW, Washington, DC 20530. Service of said Defendant Representative as described above can be effected by personal delivery or certified mail, return receipt requested.

2.6 The Internal Revenue Service is locally represented by the United States Attorney Ms. Jane J. Boyle, Department of Justice, and may be served with a summons at the following address: Ms. Jane J. Boyle, U.S. Attorney/Department of Justice, 801 Cherry Street, Unit 4, Burnett Plaza, Ste. 1700, Ft. Worth, TX 76102-6897, tel (817) 252-5200, fax (817) 978-3094. Service of said Defendant Representative as described above can be effected by personal delivery or certified mail, return receipt requested.

(1) Except as provided in paragraph (2), in the judicial district where the plaintiff resides;

(2) In the case of a civil action by a corporation under paragraph (1) of subsection (a) of section 1346, in the judicial district in which is located the principal place of business or principal office or agency of the corporation; or if it has no principal place of business or principal office or agency in any judicial district

(A) in the judicial district in which is located the office to which was made the return of the tax in respect of which the claim is made, or

(B) if no return was made, in the judicial district in which lies the District of Columbia. Notwithstanding the foregoing provisions of this paragraph a district court, for the convenience of the parties and witnesses, in the interest of justice, may transfer any such action to any other district or division.

4.2 Venue is proper in this court because the Plaintiffs are husband and wife, citizens of the United States of America, and reside at 604 Blair Court, Southlake, Tarrant County, TX 76092-8628.

5.2 As indicated by the check cancellation mark in EXHIBIT [1], Plaintiffs' deposit check of 11/15/1997 was in fact cashed by the IRS for subsequent deposit with the U.S. Treasury.

5.3 As indicated by the IRS Accounting Report Detail for Plaintiffs dated 3/20/2003 reproduced in EXHIBITS [12]-[19], the IRS has failed in any way to credit the deposit of Plaintiffs' deposit check of 11/15/1997 to the Plaintiffs' account.

5.4 Plaintiffs' intent (as detailed in the sworn affidavit of EXHIBITS [7]-[11]) in remitting this deposit of 11/15/1997 was to prevent the imposition of interest and penalties associated with any potential tax liability that might be assessed by the IRS, and not to pay any actual or known tax liability.

5.5 On or about 4/14/1998, as reproduced in EXHIBITS [3]-[4], the Plaintiffs remitted a deposit in the nature of a cash bond ($12,000.00 via check #2577) to the IRS to prevent the imposition of interest and penalties associated with 1997 federal taxes.

5.6 As indicated by the check cancellation mark in EXHIBIT [3], Plaintiffs' deposit check of 4/14/1998 was in fact cashed by the IRS for subsequent deposit with the U.S. Treasury.

5.7 Plaintiffs' intent (as detailed in the sworn affidavit of EXHIBITS [7]-[11]) in remitting this deposit of 4/14/1998 was to prevent the imposition of interest and penalties associated with any potential tax liability that might be assessed by the IRS, and not to pay any actual or known tax liability.

5.8 On or about 6/29/1998, as reproduced in EXHIBITS [5]-[6], the Plaintiffs remitted a deposit in the nature of a cash bond ($30,000.00 via check #4051) to the IRS to prevent the imposition of interest and penalties associated with 1997 federal taxes.

5.9 As indicated by the check cancellation mark in EXHIBIT [5], Plaintiffs' deposit check of 6/29/1998 was in fact cashed by the IRS for subsequent deposit with the U.S. Treasury.

5.10 Plaintiffs' intent (as detailed in the sworn affidavit of EXHIBITS [7]-[11] in remitting this deposit of 6/29/1998 was to prevent the imposition of interest and penalties associated with any potential tax liability that might be assessed by the IRS, and not to pay any actual or known tax liability.

5.11 Plaintiffs relied on professional tax advice when remitting the cash bond deposits to the IRS. As indicated in EXHIBITS [7]-[11], the Plaintiffs relied on the advice of one Tom Ingle, a tax accountant and former IRS employee, when making these deposits to the IRS.

5.12 The arbitrary numerical value of the Plaintiffs' checks remitted to the IRS ($20,000, $12,000, and $30,000) are prima facie evidence that these payments bear no direct correlation to any existing, known, or estimated tax due at the time these checks were remitted to the IRS as cash bond deposits.

5.13 IRS Revenue Procedure 84-58, provides that deposits in the nature of a cash bond must be returned to the taxpayer upon request. The IRS has not complied with this provision of their Revenue Procedures with respect to the Plaintiffs.

5.14 Plaintiffs have retained a CPA accountant (EXHIBITS [20]-[21]) and legal counsel (EXHIBITS [22]) to prosecute this dispute with the IRS via administrative and civil litigation avenues, incurring costs and fees associated with this representation as a direct result of the failure of the IRS to return cash bond deposits to the Plaintiffs.

5.15 In April 2002, the Plaintiffs filed federal income tax returns for years 1996 (EXHIBITS [23]-[46]) and 1997 (EXHIBITS [47]-[69]).

5.16 The significant temporal delay between the time the Plaintiffs remitted the deposit checks to the IRS (11/15/1997, 4/14/1998, and 6/29/1998) and the filing of their respective tax returns (4/2002) are prima facie evidence that these payments bear no direct correlation to any existing, known, or estimated tax due at the time these checks were remitted to the IRS as cash bond deposits.

5.17 Subsequent to filing their 1996 and 1997 tax returns in April, 2002, the Plaintiffs engaged in a dialog with the IRS, including a request from the IRS for Payment on or about 7/1/2002 (EXHIBITS [70]-[72]), a response by the Plaintiffs on or about 8/20/2002 (EXHIBITS [73]), a request from the Plaintiffs for Administrative Appeal on or about 10/9/2002 (EXHIBITS [74]-[75]), the IRS's disallowance of the Plaintiff's claim on or about 7/27/2002 (EXHIBITS [76]-[78]), an IRS Appeals Request Confirmation dates 11/14/2002 (EXHIBITS [79]-[83]), an IRS Appeals Assignment Confirmation dated 1/7/2003 (EXHIBITS [84]-[86]), an IRS Appeals Determination Letter (EXHIBITS [87]-[89]). In all of these communications with the IRS, the IRS consistently denied the Plaintiffs' claim for their deposited funds, instead insisting that these funds constituted payment of taxes and were therefore barred from recovery due to statute of limitations restrictions on claims for taxpayer refunds.

5.18 On or about 2/19/2003, as reproduced in EXHIBITS [90]-[95], the Plaintiffs responded to the appeal denial by Ms. Sue Cody, IRS Appeal Officer.

5.19 On or about 3/18/2003, as reproduced in EXHIBITS [96]-[103], the IRS via Appeals Officer Sue D. Cody issued a preliminary denial of the Plaintiffs' claim for return of remitted cash bond deposits.

5.20 In the Appeals Denial reproduced in EXHIBITS [96]-[103], the Ms. Cody cites Thomas v. Mercantile National Bank of Dallas, 204 F.2d 943 (5th Cir. 1953) in which Ms. Cody states the "court found for the taxpayer and ruled that the payment could not be considered made until the deficiency was assessed."

5.21 The facts proffered by Ms. Cody in the Mercantile case mimic those of the Plaintiffs in that the Plaintiffs made their cash bond deposits prior to the assessment of any tax or deficiency by the IRS. Tax returns associated with the years in question were filed years after these cash bond deposits were remitted by the Plaintiffs to the IRS.

5.22 Therefore, by the judicial rule imposed by Mercantile, the Plaintiffs' deposits to the IRS cannot be considered payment of taxes for the purposes of imposition of refund recovery statute of limitations.

5.23 Clearly, Ms. Cody's recitation of the facts surrounding Mercantile indicates that the IRS has actual knowledge that facts surrounding the Plaintiffs' circumstances dictate that the IRS's position with respect to return of cash bond deposits by the Plaintiffs is not supportable via current case law.

5.24 In the Appeals Denial reproduced in EXHIBITS [96]-[103], the Ms. Cody cites Riseman v. Commissioner, 100 T.C. 1991 in which the "Taxpayer claimed [a payment of $25,000.00] was arbitrarily determined and was remitted to [the IRS] to prevent penalties and interest from accruing on any tax liability eventually determined." While the court in this case ruled for the Taxpayer, Ms. Cody indicates that despite this judicial determination and the identical nature of the factual circumstances to the Plaintiffs' claim, "The Service does not acquiesce to Riseman."

5.25 Clearly, Ms. Cody's recitation of the facts surrounding Riseman indicates that the IRS has actual knowledge that facts surrounding the Plaintiffs' circumstances dictate that the IRS's position with respect to return of cash bond deposits by the Plaintiffs is not supportable via current case law.

5.26 Appeals Officer Cody's recitation of Mercantile, Riseman, and Ford in the Appeals Denial reproduced in EXHIBITS [96]-[103], clearly indicates that based on the factual circumstances surrounding the Plaintiffs' remittances of cash bonds to the IRS that the position of the IRS regarding the recovery of these monies is contrary to current case law. The IRS can posit no rational basis for a Taxpayer remitting $62,000 in monies to the U.S. Treasury with no known tax liability. This, coupled with significant delays in the filing of tax returns for the years involved points to one conclusion: the Plaintiffs had no intent to pay tax with these deposits, as their tax liability was unknown at this time. As such, the IRS has no reasonable basis for their denial of the cash bond deposits of the Plaintiffs.

5.27 On or about 4/4/2003, as reproduced in EXHIBIT [104], the IRS via Team Manager J.T. Benton issued a final denial of the Plaintiffs' claim for return of remitted cash bond deposits.

5.28 The final administrative appeal denial detailed in EXHIBIT [104], contains no statutory or case law in support of the position taken by the IRS via Team Manager J.T. Benton.

5.29 Plaintiffs' administrative remedies with the IRS are exhausted, and as detailed by the IRS letter in EXHIBIT [104] the remaining remedy for recovery of these claimed cash bond deposits is via civil petition to this Honorable Court.

7.2 Specifically, the Plaintiffs assert that the IRS's position that "The Service does not acquiesce to Riseman" places the burden on the IRS to show that the facts in this case do not support summary judgment for the Plaintiffs and awards of attorney fees and costs associated with this litigation.

8.2 Plaintiffs are entitled to recover any and all cash bond deposits remitted to the IRS.

8.3 Specifically, Plaintiffs are entitled to recover cash bond deposits of $20,000.00, $12,000.00, and $30,000.00 remitted to the IRS.

8.4 The IRS has erroneously characterized the cash bond deposits remitted by the Plaintiffs as payment of taxes. Given that no tax returns were filed in conjunction with these deposits and the fact that the IRS has never posted a notice of deficiency with the Plaintiffs, the case law presumption is that the payments made by the Plaintiffs are cash bond deposits, and not subject to the statute of limitations relating to recovery of refunds.

8.5 Plaintiffs affidavit indicates that their intent in remitting these deposits was to prevent the imposition of tax penalties and interest, and was never to pay any tax due, as there was no known tax liability at the time the deposits were forwarded to the IRS.

8.6 WHEREFORE, Plaintiffs request recovery of cash bond deposits remitted to the IRS in the amount of $62,000.00.

9.2 The position of the IRS in denying the Plaintiffs recovery of their cash bond deposits is contrary to current case law directly on point with this subject. As such, the position taken by the IRS has no substantial basis in law, and thus entitles the Plaintiffs to recovery of attorney fees and costs in litigating this matter.

9.3 WHEREFORE, Plaintiffs request recovery of attorney fees, and court costs.

10.2 The position of the IRS in denying the Plaintiffs recovery of their cash bond deposits is contrary to current case law directly on point with this subject.

10.3 WHEREFORE, Given that the position taken by the IRS has no substantial basis in law, the Plaintiffs request interest on the cash bond deposits remitted by the Plaintiffs from the time the Plaintiffs' 1996 and 1997 tax returns were actually filed with the IRS.

11.2 Plaintiffs request that this Honorable Court award Plaintiffs recovery of cash bond deposits of $20,000.00, $12,000.00, and $30,000.00, totaling $62,000.00

12.2 Plaintiffs assert that the position taken by the IRS in refusing return of cash bond deposits by the Plaintiffs is not reasonably supportable given current case law on this subject. As such, Plaintiffs are entitled to recovery of attorney fees and costs associated with prosecuting this litigation to final judgment, and any further appeals therefrom.

12.3 Plaintiffs request costs, tax professional fees, and attorney fees pursuant to 26 U.S.C. § 7430 associated with prosecuting any and all related IRS administrative actions and appeals therefrom.

13.2 Plaintiffs assert that the position taken by the IRS in refusing return of cash bond deposits by the Plaintiffs is not reasonably supportable given current case law on this subject. As such, Plaintiffs are entitled to recovery of interest on these cash bond deposits from the time their 1996/1997 tax returns were actually filed through final judgment, and any further appeals therefrom.