Defendant Ignores Taxes, Assessment, and Administrative Appeals Process Then Argues He Shouldn’t Have to Pay

August 31, 2012 | Erika Eckley

When an administrative appeals process is outlined in a statute, a party is required to exhaust his administrative appeals before seeking judicial review of the matter. Failing to exhaust administrative appeals before filing suit in court almost always means the party has waived his right to appeal administrative decisions to a trial judge.

The defendant in this case received notice from Iowa’s Department of Revenue that an assessment of $38,547.80 was being issued due to the defendant’s failure to file income tax returns or pay taxes in Iowa in 2005 and 2006. The notice advised the defendant that the assessment would become final unless he filed an appeal of the assessment to the department within 60 days. The defendant did nothing. After the time period for appeal expired, the Department began court proceedings to collect the taxes due from the defendant. The Department gave the defendant notice that the Department intended to garnish farm rental payments owed to the defendant.

Finally, the defendant took action. The defendant, representing himself, filed a motion to quash the garnishment in district court and challenged the legality of the tax assessment. A hearing was held. At the hearing, the defendant appeared pro se, continuing to represent himself. He filed a request for a trial by jury and sought recusal of the judge because the defendant had appeared before the judge on another case.

After a hearing, the judge denied the defendant’s request for a jury trial and did not recuse himself. The judge said he did not recall the defendant or anything about the previous case, so there was no bias. The Department presented evidence that it had collected some of the amount owed, which was held by the county sheriff who would not return the garnishment until the entire amount was received. The court denied the defendant’s motion as frivolous and stated he would issue an order condemning the funds after the garnishment was complete.

The defendant appealed. The first issue was whether the trial court erred in denying the motion to quash the garnishment. The defendant argued the tax assessment was fraudulent and unenforceable. The court held, however, that Iowa Code § 422.28 provided an administrative remedy to the defendant for challenging the tax assessment. Because of this, a party receiving notice of an assessment may seek judicial review of the agency’s decision only after administrative appeal and review failed to resolve the issue. The defendant in this case, however, failed to challenge the assessment through the administrative procedure. In order to challenge the assessment in the courts, the defendant was required to exhaust his appeals through the administrative process first. The courts will not consider issues raised for the first time when adequate administrative remedies have not been exhausted first. Because of this well-established rule, the appellate court held that the trial court did not err by failing to address the validity of the defendant’s tax assessment.

The appellate court also held that the judge did not abuse his discretion by failing to recuse himself. The defendant failed to show any personal bias or prejudice against him by the judge. The defendant’s recusal demand relied on mere speculation that the judge was biased against him because he had appeared before the judge in the past. In Iowa, past judicial encounters--without more--do not provide a basis for recusal.

The final issue addressed by the appellate court was whether the defendant was entitled to a jury trial on his motion to quash the garnishment.  The court held that the only procedure available to challenge a garnishment is to seek discharge of the garnishee under Iowa Code § 642.15. Under this provision, the defendant could seek to claim the garnished property is exempt from collection. But, this procedure was not utilized by the defendant. Furthermore, the defendant filed a motion to quash, but the motion did not allege grounds identified under Iowa Code § 642.15 that could be tried to a jury. Instead, the motion was to be treated like most as was to be decided by a judge rather than a jury, so there was no error in denying the defendant’s request for a jury trial on his motion to quash.

The case demonstrates why it is vital that any tax assessment a person believes is inaccurate be appealed through the administrative process before seeking judicial review. In this case, the defendant sat on his rights and allowed the assessment to become a final assessment. After a judgment becomes final and unappealable, there is nothing legally that can be done to correct it. Iowa Dept. of Revenue v. Yuska, No. 2-622/11-0291, 2012 Iowa App. LEXIS 684 (Iowa Ct. App. Aug. 22, 2012).