JAMES H. CROSS and ADAH I. CROSS, Plaintiffs - Appellants, v. UNITED STATES OF AMERICA, Defendant - Appellee.
No. 96-3243
United States Court of Appeals, Tenth Circuit
MAY 19 1998
HENRY, LUCERO, Circuit Judges, and MILES-LAGRANGE, District Judge.
(District of Kansas) (D.C. No. 95-1116-MLB) PATRICK FISHER Clerk
Before HENRY, LUCERO, Circuit Judges, and MILES-LAGRANGE, District Judge.**
The plaintiffs James H. Cross and Adah I. Cross appeal the district court’s order denying their motion for permanent injunctive relief and dismissing their complaint against the defendant the United States. In the district court proceedings, the Crosses
We exercise jurisdiction under
I. BACKGROUND
In 1986, the IRS examined the Crosses’ tax returns for 1974-76 and 1979-80 and determined that they owed additional income taxes. After the examination, the Crosses and the IRS reached an agreement as to the amount of the additional assessments that the Crosses would pay. On May 2, 1986, IRS Appeals Officer R. Keith Ward sent a letter to Tom Dechant, the Crosses’ accountant, regarding the agreement to pay the additional taxes. Mr. Ward attached a Form 870-AD to his letter. He requested Mr. Dechant to obtain the required signatures and return the form within ten days.
A Form 870-AD is an IRS document that is used when the IRS and the taxpayer
On May 8, 1986, Mr. Dechant sent a letter and the Form 870-AD to Mr. Cross. Mr. Dechant explained that the Form 870-AD “sets out the tax and penalties you owe, pursuant to our settlement with Keith Ward.” Id. at 65. Mr. Dechant added that he had “reviewed the IRS calculations and found them correct.” Id. He told Mr. Cross that both he and Mrs. Cross should sign the Form 870-AD and return it to Mr. Ward.
In subsequent years, the Crosses made several additional payments to the IRS for the tax years in question. The IRS also levied on the Crosses’ property to collect some of the taxes.
In November 1994, an attorney representing the Crosses requested that the IRS produce a copy of the statutory notices of deficiency for the tax years 1974-76 and 1979-
On July 20, 1995, the district court entered an order granting the Crosses request for a preliminary injunction. The court enjoined the IRS from issuing notices of levy or from seizing or otherwise interfering with the Crosses’ property until the case was finally adjudicated. It directed the IRS to produce evidence or otherwise show cause within thirty days why the court should not grant the Crosses permanent injunctive relief. The court reasoned that it was the IRS’s burden to demonstrate that the Crosses had waived the notice of deficiency requirements for the subject tax years. “The IRS will have to produce more compelling evidence and more persuasive legal arguments if it hopes to carry that burden,” the court said. Aplts’ App. at 6 (District Court Order, filed July 20, 1995).
The IRS filed a response to the district court’s order and presented the affidavits of
After considering the IRS’s evidence and the Crosses’ response, the district court entered an order dissolving the preliminary injunction, denying the Crosses’ request for a permanent injunction, and dismissing their complaint. The court concluded that “[a]lthough the IRS has been unable to produce a signed copy of the Form 870[-]AD, it has met its burden of proof through the use of circumstantial evidence.” Aplts’ App. at 97 (District Court Order, filed Nov. 30, 1995). The court cited the affidavits of the IRS officials regarding the five levels of review and said that it was unreasonable to conclude that an unsigned Form 870-AD would have gone unnoticed.
The Crosses then filed a motion to alter or amend the district court’s judgment. Upon reviewing that motion, the court allowed the Crosses to depose William C. Reitan, the Chief of the IRS Appeals Office in Oklahoma City in 1986. After reviewing a transcript of Mr. Reitan’s deposition, the court denied the Crosses’ motion to alter or amend the judgment. It reasoned that his testimony did not rebut the circumstantial
II. DISCUSSION
On appeal, the Crosses argue that the district court erred in concluding that the evidence in the record was sufficient to establish that they executed the Form 870-AD. They also argue that the record does not establish that an IRS official executed the form. According to the Crosses, because a reasonable fact finder could draw conflicting inferences as to whether the form was executed, the case should be remanded to the district court for trial.
Because the district court reviewed the documentary evidence submitted by the IRS but did not conduct an evidentiary hearing or a trial, we treat its ruling as a grant of summary judgment to the IRS. See M.S. News Co. v. Casado, 721 F.2d 1281, 1285 n.3 (10th Cir. 1983) (reviewing district court’s dismissal of a claim for injunctive relief that relied on affidavits as an order granting summary judgment to the defendant). We review the grant of summary judgment de novo, applying the same standard as the district court. J. B. v. Washington County, 127 F.3d 919, 923 (10th Cir. 1997). Summary judgment is appropriate only “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any
A. Notice of Deficiency and Waiver
When the IRS determines that a taxpayer owes additional taxes, it is authorized to send a notice of deficiency to the taxpayer. See
Within ninety days of receiving the notice, a taxpayer may file a petition in the United States Tax Court challenging the deficiency determination. See
Nevertheless, the taxpayer may waive the notice of deficiency requirement. See
Importantly, the Internal Revenue Code provides taxpayers with a means of enforcing the notice of deficiency requirement. Section 6213(a) authorizes the proper court to issue an injunction prohibiting an assessment or levy if the taxpayer has not received a notice. Guthrie, 970 F.2d at 735. Section 6213(a) thus establishes an exception to the Anti-Injunction Act,
In the instant case, the parties agree that the IRS has not issued notices of deficiency to the Crosses’ for the disputed tax years. As a result, the validity of the
B. Admission of Circumstantial Evidence Under Fed. R. Evid. 1004
As the district court and the parties have noted, the evidence regarding the execution of the Form 870-AD was entirely circumstantial. However, under Rule 1004 of the Federal Rules of Evidence, “[t]he original is not required, and other evidence of the contents of a writing, recording, or photograph is admissible if--(1) . . . all originals are lost or have been destroyed, unless the proponent lost or destroyed them in bad faith.”
As to the first inquiry, we note that “‘[b]y far the most common means of prov[ing] loss or destruction is the use of circumstantial evidence showing a diligent but
As to the second inquiry, courts have concluded that the mere possibility that someone has tampered with the proffered secondary evidence is insufficient to establish the proponent’s bad faith. See United States v. Balzano, 687 F.2d 6, 8 (1st Cir. 1982). Similarly, the negligent destruction of documents has been held to be insufficient to establish bad faith. See Estate of Gryder v. Commissioner, 705 F.2d 336, 338 (8th Cir. 1983). In contrast, the purposeful destruction or withholding of original documents and the fabrication of secondary evidence will support a finding of bad faith under
In the instant case, both inquiries under
C. The Weight of Circumstantial Evidence Presented by the IRS
We must now consider whether the district court afforded the IRS’s secondary evidence the proper weight in reaching its decision. On this issue, the Crosses contend that the district court erred. They argue that, although the secondary evidence may have supported a reasonable inference that the form was executed, the record also supports the contrary inference: that the form was not executed by either the Crosses or a representative of the IRS. Thus, they contend, the district court should have conducted a trial.
We agree with the Crosses that the burden of proving the existence and validity of a signed Form 870-AD is on the IRS. See McGaughey, 977 F.2d at 1071; United States v. Conry, 631 F.2d 599, 600 (9th Cir. 1980). However, as explained below, in light of
In support of this conclusion, we first note that courts have granted summary judgment regarding the existence and the terms of documents on the basis of secondary evidence. See e.g, McGaughey, 977 F.2d at 1071-72 (granting summary judgment to the IRS on the basis of secondary evidence that the taxpayers waived the statute of limitations period even though the IRS could not produce the original waiver form); State Mut. Life Assurance Co. v. Lumbermens Mut. Cas. Co., 874 F. Supp. 451, 455-56 (D. Mass. 1995) (granting summary judgment to insured regarding the terms of an insurance policy even though the original policy could not be located because “a cornucopia of circumstantial evidence [] all point[ed] in the same direction“); New York v. Blank, 820 F. Supp. 697, 704-05 (N.D.N.Y. 1993) (concluding that the terms of an insurance policy had been established by circumstantial evidence presented on summary judgment), vacated on other grounds, 27 F.3d 753 (2d Cir. 1994).
For example, in McGaughey, the IRS filed a complaint against a taxpayer in the Tax Court seeking a judgment on a deficiency. The IRS’s claim was based in part on an offer of compromise suspending the statute of limitations. According to the IRS, the offer of compromise had been recorded on a standard form. However, in accordance with
The Tax Court granted summary judgment to the IRS, and the Seventh Circuit affirmed. The court relied primarily on the evidence of IRS procedures offered in its summary judgment motion:
The secondary evidence offered by the government to prove that [the taxpayer] executed the waiver contained in the Form 656 included a detailed description of the procedures involved in processing an offer of compromise and the control cards and memoranda associated with this offer. These materials identified the steps of the process [the taxpayer’s] offer underwent, and further indicated that the offer could not have reached those steps in the process if his offer was not on a Form 656 and if the waiver on the form was not validly executed. [The taxpayer] argues the government’s showing was insufficient because nobody specifically recalled the presence of the waiver on his offer of compromise. However, the Rules of Evidence do not establish a hierarchy of secondary evidence; anything that tends to demonstrate the writing’s contents may constitute secondary evidence.
McGaughey, 977 F.2d at 1071-72.
In this case, as in McGaughey, the record contains persuasive evidence that the document at issue was signed by the taxpayers as well as IRS officials. As noted above, a letter to the Crosses from their own accountant indicates that he sent a Form 870-AD to them and told them that it was an accurate statement of their agreement with the IRS.
Significantly, Ms. Fisher’s testimony also indicates that IRS officials signed the Form 870-AD after the Crosses did. She stated that an IRS Form 5403, an “Appeals Closing Record” listed an “agreement date” of June 22, 1986. See Aplt’s App. at 57, 69; Aple’s Supp. App. at 15. According to Ms. Fisher, that was “the date that the chief of the office signed the Form 8[]70-AD, accepting it for the [C]ommissioner.” See Aple’s Supp. App. at 15.
The IRS also submitted an affidavit from William Reitan, the former Chief of the IRS Appeals Office in Oklahoma City, which handled the Crosses’ case. See Aplts’ App. at 59-60. Mr. Reitan explained that under established IRS practices, the settlement of a case proceeded through five steps, each of which required the responsible official to review settlement documents, including the Form 870-AD: (a) commencement of the case closing process, which began only after the signed form was received from the taxpayers;
In light of these established administrative procedures, a presumption of regularity attaches to the IRS’s settlement of the dispute with the Crosses. See Bar MK Ranches v. Yuetter, 994 F.2d 735, 740 (10th Cir. 1993); Wilson v. Hodel, 758 F.2d 1369, 1374 (10th Cir. 1985). “[A]ll necessary prerequisites to the validity of official action are presumed to have been complied with, and . . . where the contrary is asserted it must be affirmatively shown.” United States v. Ahrens, 530 F. 2d 781, 785 (8th Cir. 1976) (quoting Lewis v. United States, 279 U.S. 63, 73 (1929)).
The Crosses first point to their own response to the IRS’s interrogatories indicating that “[they] can’t say whether [they] did or . . . didn’t” execute the Form 870-AD. See Aplts’ App. at 148. We agree that the Crosses’ failure to remember whether they signed the form is entirely understandable: there is no indication that they had any familiarity with the methods used to settle cases with the IRS; the events in question occurred nine years earlier; and the signing of one particular tax form among many is certainly a forgettable experience. However, in light these very circumstances, the Crosses’ lack of memory about the form is entitled to little weight in determining whether they actually signed it. See McGaughey, 977 F.2d at 1070, 1072-73 (affirming the grant of summary judgment to the to IRS in spite of the fact that the taxpayer stated that he did not remember signing a waiver form). This would be a closer case if the Crosses had stated under oath that they did not sign the Form 870-AD, but they did not so state. Cf. Godfrey v. United States, 997 F.2d 335, 339-40 (7th Cir. 1993) (relying on taxpayers’ affidavit regarding the date that they received a refund check in concluding that the taxpayers’ were entitled to summary judgment).
The Crosses also point to two statements in Mr. Reitan’s deposition: that he had
It should also be noted that the Crosses’ own conduct supports the IRS’s contention that they signed the Form 870-AD. Although the IRS issued the challenged assessments in July 1986, it was not until 1995, when the IRS could not produce the Form 870-AD in response to a record request, that the Crosses began to contest the validity of the waiver of the notice of deficiency requirement. The Crosses thus appear to have acted for approximately nine years as though the waiver were valid. See Aplts’ App. at 57 (affidavit of Brenda Fisher) (“To my knowledge, no question was ever raised by the taxpayers as to the validity of the [Form 870-AD] or the assessment of the tax liability. The first time I heard of any disagreement was . . . on June 2, 1995.“).
Finally, we are unpersuaded by the Crosses’ argument that they are entitled to a
In support of this conclusion, we note that the Crosses have not cited, nor have we found, any authority indicating that a court is required to conduct a trial if the proponent of secondary evidence is unable to offer a definitive explanation of the fate of the original document. Indeed, such a principle is not supported by
Here, the IRS offered unrebutted evidence that it had conducted a diligent search for the Form 870-AD. In light of the IRS’s diligent but ultimately unsuccessful search, it was proper for the district court to consider the secondary evidence offered by the parties. In light of the weight of that secondary evidence, no rational fact-finder could conclude that the Crosses failed to execute the Form 870-AD. Accordingly, it was proper for the district court to enter judgment for the IRS without proceeding to trial.
III. CONCLUSION
For the reasons set forth above, the decision of the district court is affirmed.
ENTERED FOR THIS COURT
Robert H. Henry
Circuit Judge