Release of Lien Did Not Extinguish Underlying Tax Liability

Appellant failed to file a timely federal income tax return for tax period 2004. Id. ¶ 7. The Internal Revenue Service ("IRS") then investigated appellant and determined that he owed the federal government income tax for that tax period. Id. ¶ 8. On June 23, 2009, the IRS sent appellant a notice of deficiency for tax period 2004. Id. Appellant did not petition the United States Tax Court regarding this deficiency. Id. ¶ 9. On November 30, 2009, a delegate of the Secretary of the Treasury assessed the income tax for tax period 2004, along with applicable penalties and interest. Id. On July 8, 2010, the IRS filed a notice of federal tax lien for tax period 2004 against appellant. Id. ¶ 11.

On June 18, 2010, shortly before the IRS filed its notice of federal tax lien, appellant filed a Form 1040 Individual Income Tax Return for tax period 2004. Id. ¶ 12. However, this Form 1040 reported none of the income appellant received from the City, claimed no deductions related to his work for the City, and reported no income tax due. Id. After receiving this return, the IRS abated the income tax it had previously assessed against appellant for tax period 2004 and issued a signed Form 668(Z), Certificate of Release of Federal Tax Lien ("RFTL") on November 3, 2010. Id. ¶ 14. The RFTL stated: "I certify that the following-named taxpayer, under the requirements of section 6325(a) of the Internal Revenue Code has satisfied the taxes listed below and all statutory additions. Therefore, the lien provided by Code section 6321 for these taxes and additions has been released." Appellant's Designated R., Docket Entry 3-1, Ex. A. On November 15, 2010, the IRS issued appellant a refund of $3,907.59 due him for the 2004 tax period. Appellee's Designated R., Docket Entry 4-1, Stip. Facts ¶ 16. The RFTL was recorded on November 22, 2010, in the Probate Office in Montgomery, Alabama. Id. ¶ 15.

On March 31, 2011, the IRS began an examination of the Form 1040 that appellant filed on June 18, 2010, for tax period 2004. Id., Docket Entry 4-8, Account Transcript at 3. The IRS determined that this Form 1040 omitted all of appellant's income and sent him a notice of deficiency on January 5, 2012. Id., Docket Entry 4-1, Stipulated Facts ¶ 19. That notice reflected a deficiency of $160,413 in income tax, plus applicable penalties, including an accuracy-related penalty of $32,082.60 imposed pursuant to 26 U.S.C. § 6662(a). Id. Appellant, again, did not petition the United States Tax Court regarding this deficiency. Id. ¶ 20. On June 11, 2012, a delegate of the Secretary of the Treasury assessed against appellant the tax determined by the IRS in its examination of his Form 1040, plus applicable interest and penalties for tax period 2004. Id. On January 23, 2015, the IRS filed a notice of federal tax lien against appellant for tax period 2004, reflecting the June 11, 2012, assessment. Id. ¶ 21.

On March 18, 2015, appellant filed a voluntary Chapter 13 petition in the United States Bankruptcy Court for the Middle District of Alabama. The IRS filed a proof of claim and an amended proof of claim on March 23, 2015, and May 28, 2015, respectively. Appellee's Designated R., Docket Entry 4-2, Amended Proof of Claim. The amended claim stated that the IRS had a secured claim against appellant in the amount of $425,411.67. Id. Appellant objected to the IRS's claim on the grounds that the RFTL dated November 22, 2010, is conclusive proof that the tax liability for tax period 2004 is extinguished. An evidentiary hearing on the IRS's proof of claim was held on March 14, 2016. On March 30, 2016, the Bankruptcy Court overruled appellant's objections to the IRS's amended proof of claim. Appellant then initiated this appeal.

"The first rule in statutory construction is to determine whether the language at issue has a plain and unambiguous meaning with regard to the particular dispute. If the statute's meaning is plain and unambiguous, there is no need for further inquiry." United States v. Fisher, 289 F.3d 1329, 1337-38 (11th Cir. 2002) (internal quotation and citation omitted). This is because "[t]he plain language is presumed to express congressional intent and will control a court's interpretation." Id. at 1338. The Court "should not interpret a statute in a manner inconsistent with the plain language of the statute, unless doing so would lead to an absurd result." United States v. Silva, 443 F.3d 795, 798 (11th Cir. 2006) (citing United States v. Weaver, 275 F.3d 1320, 1331 (11th Cir. 2001).

Under 26 U.S.C. § 6321, a tax liability becomes, after the taxpayer fails to pay the demand, "a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person." Id. Such a lien can be released as follows:

Section 6325(f) is clear and unambiguous: a mere reading confirms that the RFTL is conclusive that the lien referred to in the certificate is extinguished, not the underlying tax liability. Although the statute is clear, appellant attempts to conflate sub-sections 6325(a) and (f), arguing that a RFTL would not have been issued had the liability not been fully satisfied. Thus, according to appellant, because he received a RFTL, this "stands as proof that the tax liability was fully satisfied[.]" Appellant's Br. at 9.

Appellant's circular argument ignores the plain text of § 6325(f). Nothing in § 6325(a) has any bearing on the conclusive effect of a RFTL. Section 6325(a) dictates that a RFTL must be issued within 30 days of the Secretary finding that the liability for the amount assessed has been fully satisfied -- it does not speak to the effect of the RFTL. Moreover, appellant's argument ignores that § 6325(a) is "[s]ubject to such regulations as the Secretary may prescribe[.]" Id. 26 C.F.R. § 301.6325-1(a)(1), the regulation associated with § 6325(a), states:

This Court's plain reading of the statute is in line with the decisions of other courts that have also concluded that a RFTL extinguishes only the tax lien, not any underlying tax liability. In Boyer v. Comm'r of Internal Revenue, 86 T.C.M. (CCH) 615 (T.C. 2003) (2003 WL 22725293), for example, the Tax Court squarely addressed whether a RFTL has the effect of extinguishing both the tax lien and the underlying tax liability. In that case, the Boyers filed an untimely joint federal income tax return, which resulted in the IRS assessing income tax and filing a notice of federal tax lien. Id. at *1. Years later, the IRS inadvertently issued the Boyers a RFTL, though their underlying tax liability was not fully satisfied. Id. When the IRS sent the Boyers a Notice of Intent to Levy, the Boyers argued that their RFTL stood as proof that there was no longer any underlying tax liability because the RFTL stated "the requirements of section 6325(a) . . . have been satisfied for the taxes." Id. at *2. The Tax Court disagreed, holding "[i]t is well settled that although a certificate of tax lien release is conclusive that the lien is extinguished, it is not conclusive that the tax liability is extinguished." Id. at *3 (emphasis in original). The Tax Court further stated:

A number of courts have analyzed this issue similarly. See, e.g., Comm'r of Internal Revenue v. Angier Corp., 50 F.2d 887, 892 (1st Cir. 1931) ("While this section makes the certificate conclusive that the lien is extinguished, it does not make the recital that the tax has been paid conclusive[.]")³; Baker v. Comm'r of Internal Revenue, 24 T.C. 1021, 1025 (1955) (holding that the discharge of lien did not "preclude [the IRS] from determining additional taxes and penalties" because the effect "is to extinguish the tax lien and not the tax liability, and that reliance upon the extinguishment of a lien could not result in an estoppel against the Government")⁴; Miller v. Comm'r of Internal Revenue, 23 T.C. 565, 569 (1954) ("A mere reading of that statute [ § 3675] makes it clear that the certificate is conclusive that the lien is extinguished. It is not conclusive that the tax liability has been paid."); Foulds v. Comm'r of Internal Revenue, 56 T.C.M. (CCH) 1112 (T.C. 1989) ("Section 6325 and the lien release itself clearly show that the effect of the statute and release is to extinguish the tax lien and not the tax liability."); Urwyler v. United States, No. CIV.F-93-5181, 1996 WL 87001, at *2 (E.D. Cal. Jan. 3, 1996) ("While section 6325 conclusively establishes that the certificate extinguishes the lien, it does not conclusively establish that the tax has been paid."); United States v. Smith, No. CV10-2358, 2012 WL 2317770, at *8 (D. Ariz. June 18, 2012) ("The Court agrees that a lien release is not conclusive evidence that a tax liability has been paid. . . ."); United States v. DeTar, No. 1:04-CV-749, 2009 WL 2252822, at *3 (W.D. Mich. July 28, 2009) ("Section 6325 provides that releases are conclusive with respect to release of the liens, but it does not indicate that the releases are conclusive with respect to satisfaction of the underlying tax liabilities.")⁵; United States v. Qurashi, No. 8:03-CV-1002, 2004 WL 1771071, at *1 (M.D. Fla. June 16, 2004) ("[T]he RFTL extinguished only the lien, as opposed to the underlying tax liability.").⁶

In an effort to convince the Court to disregard the plain meaning of § 6325(f) and the extensive case law cited above, appellant cites to a number of IRS publications and memoranda as support for his position that a RFTL extinguishes both the tax lien and the underlying tax liability. Appellant cites to IRS Publication 1450 (Rev. 1-2016), "Instructions for Requesting a Certificate of Release of Federal Tax Lien," which states that:

Appellant also cites to IRS Program Manager Technical Advice ("PMTA") 2008-01650, which states: "[t]he release of the federal tax lien extinguishes the underlying assessment lien and underlying tax liability. The certificate of release of lien is 'conclusive that the lien referred to in such certificate is extinguished." Id. (emphasis added). The Court cannot consider this PMTA, as the document states that it "may not be used or cited as precedent" pursuant to 26 U.S.C. § 6110(k)(3).⁸ Similarly, the Court cannot consider two Chief Counsel Advice ("CCA") memoranda cited by appellant, as both CCAs state that, pursuant to § 6110(k)(3), the documents should not be cited as precedent.

² Appellant argues that Boyer is factually distinguishable from the instant case because the Boyers entered into a payment plan with the IRS, whereas appellant did not. Whether the Boyers had a payment plan with the IRS is irrelevant to determining the effect of a RFTL.

³ Appellant argues that Angier Corp. is inapplicable because it did not interpret the statute at issue in the present case. Instead, the applicable statute in Angier Corp. was § 613(d) of the Internal Revenue Code of 1928, which provided:

⁴ Appellant similarly argues that Baker is inapplicable because it did not interpret the same statute at issue in this appeal. Instead, the applicable statute in Baker was § 3675 of the Internal Revenue Code of 1939, which provided:

⁵ Appellant argues that the present case is distinguishable from Smith and DeTar. He argues that his case is different from Smith because "Mr. Smith claimed that the assessment by the government for each tax year was erroneous[ ], while [appellant] took the government's assessment at face value," and that it is different from DeTar because the RFTL in DeTar represented a judgment lien, not a statutory lien. Appellant's Br. at 16. Appellant does not explain how these factual differences change the legal analysis in determining the effect of a RFTL.

⁶ Appellant also argues that Qurashi is inapplicable because the case was decided on a motion to dismiss. The procedural posture does not change the analysis that the Qurashi court undertook to determine that a RFTL extinguishes only the tax lien, not the underlying tax liability:

⁷ The same is true of appellant's citation to Internal Revenue Manual ("IRM") 5.12.3.3 ("IRC § 6325(a) requires the issuance of a release of federal tax lien within thirty . . . days of the date on which: [1.] The liability is satisfied; [2.] The liability becomes legally unenforceable; or [3.] A bond is accepted."); IRM 5.12.3.3.1 ("Modules may be satisfied by payment or by adjustment/abatement to the taxpayer's account."); and IRM 5.12.3.4 ("Issue a certificate of release only after all modules covered by the NFTL meet the criteria for release."). These IRM provisions do not depart from the plain text of § 6325(a). But to the extent that appellant relies on any discrepancy, if it exists, between these IRM provisions and § 6325(a), "the IRM is not a source of rights enforceable by taxpayers." Brombach v. Comm'r of Internal Revenue, 2012 WL 4009431, at *10, 104 T.C.M. (CCH) 307 (T.C. 2012); see also Vallone v. Comm'r, 88 T.C. 794, 807 (1987) ("I.R.M. requirements are necessarily merely directory and not mandatory and noncompliance does not render the action of the . . . [IRS] invalid.").

⁸ Section 6110(k)(3) states: "[A] written determination may not be used or cited as precedent." A "written determination" means "a ruling, determination letter, technical advice memorandum, or Chief Counsel advice." 26 U.S.C. § 6110(b)(1)(A).