Administrative Due Process Requirements

By Dan Meador (5.25.00)

One of my more discouraging tasks is looking over "patriot" letters requesting one thing or another from the Internal Revenue Service, assorted other government and quasi-government agencies, banks, etc., then seeing refusals that leave people further in the hole than they were prior to whatever effort they made. An instance of this nature is the reason for this article.

This particular patriot has obviously been wrangling with IRS for several years. He requested an administrative due process hearing subsequent to receiving a 30-day notice of intent to levy or some such thing. In his response, he had everything right down to and including the proper form needed to request an administrative due process hearing (Form 12153). The form was accompanied by a cover letter that included about four pages of numbered "causes" to be resolved at the hearing.

The IRS officer the case was assigned to responded with a "no can do" letter alleging that the patriot failed to make a claim that could be addressed in an administrative due process hearing. The officer gave the patriot 30 days to submit an amended claim, with notice that the appeal would be dismissed and the levy executed if he didn't submit an amended claim.

Assuming IRS has collection authority in the several States, I would be in the same sad circumstance as the IRS appeals officer had I received the patriot letter. Although the patriot has made fruitless inquiries to everyone short of the President, and presented numerous conclusions of law that may or may not be true, nothing in the letter presents a matter of fact or law that can be administratively or judicially litigated. In other words, the patriot failed to prove a "case or controversy" that can be "judicially" resolved.

The IRS officer was kind enough to return a current copy of 26 CFR § 601.106(b), which addresses administrative appeals. She highlighted the sentence, "However, the appeal procedures do not extend to cases involving solely the failure or refusal to comply with the tax laws because of moral, religious, political, constitutional, conscientious, or similar grounds."

In other words, there are limits to the scope of IRS administrative due process. Consequently, whether or not Internal Revenue Service is an agency of Government of the United States, which we know it isn't, won't be addressed in an IRS administrative hearing. If the patriot wants to avail himself of administrative due process, he is going to have to limit his horizons and focus exclusively on fact and law that falls within purview of the Internal Revenue Code and attending regulations.

This is where many if not most patriots must adjust thinking.

What is law? Well, 26 U.S.C. § 6203 and 26 CFR § 301.6203-1 together constitute law. The Code section establishes the requirement for assessment of taxes and the regulation prescribes elements and procedure.

What is fact? Either an assessment officer executed a procedurally proper assessment or none exists.

Thanks to Pat Patton, we have court decisions running out of our ears that confirm the necessity for a procedurally proper assessment before there is a tax liability. Consequently, the law is beyond dispute, so we can focus on the fact: Does an assessment exist? If not, all other collection effort is illegal.

Although Patton hasn't addressed this matter, an assessment must be predicated on a return, whether the return is made by whoever the alleged liability is against or by the Secretary or his delegate. Without a properly executed return, there is no basis for an assessment.

As is the case for the assessment, either the return exists or it doesn't. If the return doesn't exist, an assessment would be void.

Thanks to Richard Cornforth, we also know that any given document or other material evidence must be entered as evidence by way of a competent witness. The witness' testimony may be by affidavit, deposition, or direct examination under oath.

Here is where the Sixth Amendment comes into play: We are respectively entitled to confront witnesses against us, and we are entitled to compulsory process for obtaining witnesses in our favor.

Whether State or Federal, virtually all tax collection process that issues against an involuntary subject is criminal in nature. Confirmation of this conclusion can be gleaned from U.S. Supreme Court and State supreme court decisions galore. Consequently, the adversarial proceeding, whether administrative or judicial, preserves the essential Sixth Amendment rights.

The next question concerns how administrative due process must be conducted. A partial answer is found in Bothke v. Fluor Engineers and Constructors, Inc. 713 F.2d 1405 (1983):

Formal administrative adjudication shares with judge-supervised trials two key qualities that diminish the need for individual suits to correct constitutional transgressions: (1) the impartiality of the decision maker and (2) the reliability of the information forming the basis of the decision. See Butz, 438 U.S. at 512-13. Safeguards inherent in both forums foster these qualities.

The first quality is fostered in formal agency adjudication by the checks and balances afforded when a different person assumes the roles comparable to those of prosecutor and judge, with the adjudicator independent of agency control. Hearing examiners are neither required to perform prosecutorial and investigative functions [**15]  inconsistent with their judicial role nor to answer to those who do. Id. at 513-14. This unbiased adjudicator provides a check on agency zeal. Id. at 515. One group of quasi-prosecutorial agency officials immunized in Butz were those who brought a proceeding to seek sanctions. Id. at 515. They did not impose the sanctions.

The second quality is fostered by having the transcript and exhibits of oral and documentary evidence constitute the exclusive record on which the decision must be based. The decision maker must explain the decision with findings and conclusions. An adversarial procedure allows cross-examination of witnesses, a challenge to the government's theories, and the sobering requirement of airing these theories in a public forum. Id.  at 512-13, 517.

The disinterested examiner may accept or reject the government's theories, after hearing both sides and all relevant evidence. Id. at 517. The other agency "prosecutorial" personnel granted absolute immunity in Butz were those who present evidence in an agency hearing, the purpose being to encourage the fullest possible presentation of evidence to the decision maker. See id.

Having learned a little about requirements of administrative due process, Patton and Cornforth recently visited IRS' Arkansas-Oklahoma district office in Oklahoma City to secure a copy of the Service's administrative due process rules. Guess what. They don't exist. The Internal Revenue Service isn't equipped to provide administrative due process in the framework of 5 U.S.C. §§ 553-557.

But maybe that isn't all bad as an IRS disclosure officer in the East recently disclosed that IRS quit making individual assessments in 1984, and a recent General Accounting Office report wrangled a confession out of IRS that they don't make legitimate returns. One can conclude from these disclosures that there aren't any legitimate 10-day notice and demand letters, either (26 CFR § 301.6303-1), so even if IRS did have legitimate collection authority in the several States, most revenue officers and other personnel involved in the collection process can be put in jeopardy by administrative or judicial due process.

We learn in Brafman v. United States 384 F.2d 863 (1967) that Treasury regulations are as binding on IRS personnel as on the people:

The Treasury Regulations are binding on the Government as well as on the taxpayer: "Tax officials and taxpayers alike are under the law, not above it." Pacific National Bank of Seattle v. Commissioner, 9 Cir. 1937, 91 F.2d 103, 105. n7 Even the instructions on the reverse side of the assessment certificate, Form 23C, specify that the original form "is to be transmitted to the District Director for signature, after which it will be returned to the Accounting [**10]  Branch for permanent filing.  * * *"

The point of this exercise is to try to focus patriots well enough to begin developing and deploying effective strategy. Even if they are operating de facto, IRS personnel must comply with essential procedural requirements such as executing proper returns, executing procedurally proper assessments, and issuing mandatory 10-day notice and demand for payment. Within this framework, the law isn't in dispute, and existence or nonexistence of the procedurally proper document establishes the fact.

More fundamental issues will have to be resolved outside the administrative forum, but in the meantime, coming to grips with the basics of procedure is essential. We have thousands of needless casualties simply because people don't understand elements of law and fact for purposes of judicial and quasi-judicial forums.

There isn't a doubt in my mind that every allegation the patriot friend made in his four-page grievance is true. At one time or another I've articulated most of the same laments. But in 1994-95, IRS ate my lunch while I was lamenting because I didn't understand essential procedural elements. In other words, the notion that what you don't know can't hurt you is folly. We at least have to know the difference between law and fact.

Dan Meador