The opinion of the court was delivered by: GEORGE H. REVERCOMB
This is an action challenging a jeopardy assessment made against a nonresident alien by the Internal Revenue Service.
On June 1, 1992, the Internal Revenue Service (IRS) made a jeopardy assessment against the plaintiff, a citizen of Sweden and a resident of the United Kingdom, pursuant to 26 U.S.C. § 6861. On September 18, 1992, the plaintiff filed this action under 26 U.S.C. § 7429(b), which provides for expedited judicial review of jeopardy assessments. The Court's task in reviewing a jeopardy assessment is limited to determining whether "the making of the assessment . . . is reasonable under the circumstances," and whether "the amount so assessed . . . is appropriate." § 7429(b)(3)(A). For the reasons explained herein, the Court concludes that the jeopardy assessment made against the plaintiff is unreasonable and should be abated.
Under 26 U.S.C. § 6861, the IRS may immediately collect any alleged tax deficiency if it believes that delay would jeopardize the assessment or collection of such deficiency, not withstanding applicable due process procedures for the making of tax assessments. See 26 U.S.C. § 6213(a). A jeopardy assessment is an extraordinary measure, contemplated to be "used sparingly."
George F. Harding Museum v. United States, 674 F. Supp. 1323, 1326 (N.D. Ill. 1987) (quoting Internal Revenue Manual § 4584.2(2)). Underlying the present action, the IRS has challenged plaintiff's tax returns, or lack thereof, for the 1985, 1986, and 1987 tax years. The IRS claims that the plaintiff was then a resident of the United States and failed to report income, including income from the sale of certain bond options. It has assessed taxes, interest, and penalties against the plaintiff totalling more than $ 72 million. Alleging that the plaintiff could or appears to be placing his assets beyond the reach of the government, the IRS seeks to collect the taxes assessed against the plaintiff immediately. For his part, the plaintiff argues that he has never been a resident of the United States, that even if he was a resident during the years in question he is not liable for the taxes assessed, and that, in any event, he does not pose a risk to the collection of any taxes that may ultimately be assessed. The burden of proving the reasonableness of the jeopardy assessment rests with the IRS while the burden of proving the appropriateness of the amount assessed rests with the taxpayer. 26 U.S.C. § 7429(g).
The Eleventh Circuit was recently confronted with a situation almost identical to the situation of the plaintiff--namely, a nonresident alien attempting to challenge a jeopardy assessment pursuant to 26 U.S.C. § 7429. See Alegria v. United States, 945 F.2d 1523 (11th Cir. 1991). In Alegria, the Eleventh Circuit held, and this Court agrees, that barring nonresident aliens from challenging jeopardy assessments pursuant to 26 U.S.C. § 7429 constitutes a deprivation of property without due process in violation of the Fifth Amendment. Id. at 1527-28.
Beyond constitutional requirements, equitable factors weigh in favor of finding venue proper in this case. The IRS has promulgated policy guidelines that direct nonresident aliens to bring actions challenging jeopardy assessments in the District of Columbia. Internal Revenue Manual (CCH) § 4584.8(10). Pursuant to these guidelines the IRS, in two separate communications to the plaintiff, told plaintiff that a jeopardy assessment challenge should be brought in the District of Columbia if he lacked residency in the United States. See Plaintiff's Memorandum in Opposition to Motion of United States to Dismiss or Transfer at 2.
The IRS takes the position that the Internal Revenue Manual is not binding upon it and in support of its position cites the decision in Luhring v. Glotzbach, 304 F.2d 560 (4th Cir. 1962) (holding that procedural rules promulgated by the Commissioner of Internal Revenue are "directory and not mandatory in legal effect" upon the IRS; thus, failure by the IRS to provide informal opportunity for taxpayer to challenge assessment as required by the procedural rules did not provide basis upon which to challenge the assessment itself); see Defendants' Motion for Summary Determination [hereinafter "Defendants' Motion"] at 9 n.4. Recently, the Fourth Circuit confirmed the position it took in Luhring. See Kenlin Indus. Inc. v. United States, 927 F.2d 782 (1991). Kenlin Industries held that procedural Treasury regulations are not binding upon the IRS, so that a corporate taxpayer who was not informed of its appeal rights, as mandated by regulation, was nevertheless required to abide by established appeal procedures. Id. at 789.
Luhring and Kenlin Industries are both factually distinguishable from the present case. In both of those cases, the IRS was held to be within its authority to take action against a taxpayer even though not fully complying with its own regulations. In this case, however, the IRS did comply with its regulations by twice advising plaintiff to bring his action in this Court. Now the IRS wishes to change directions midstream. Having explicitly stated in the Internal Revenue Manual that complaints in actions such as this one should be filed in the District of Columbia, and after twice advising the plaintiff of this position, it is patently unfair for the IRS to challenge venue now. Regardless of whether the IRS must obey the dictates of the Internal Revenue Manual, the Court, in this case, will not allow the IRS to change its position after repeatedly advising the plaintiff in accordance with the Manual.
Reasonableness of the Jeopardy Assessment
A jeopardy assessment is reasonably taken against a taxpayer whom the IRS has determined to be deficient in payment of taxes if:
(a) the taxpayer is or appears to be designing quickly to depart from the United States or to ...