Opinion
No. C98-2096 MJM
May 24, 2001
OPINION and ORDER
Presently before the court is a motion by the United States as counterclaim-defendant to dismiss for lack of subject matter jurisdiction counts 1 and 2 of the counterclaim by which John and Maxine Engels ("the Engels") and the defendant Trusts, by and through their respective trustees, seek a refund of improperly assessed taxes under 28 U.S.C. § 1346(a) and damages for unauthorized collection activities under 26 U.S.C. § 7433. (Doc. nos. 64 and 65). The counterclaimants have filed a brief and supporting materials in resistance to the motion, (doc. nos. 72, 84 and 85), and the United States has replied. (Doc. no. 89).
Standard of Review
The government's Rule 12(b)(1) motion rests on its assertion that the counterclaimants have failed to demonstrate that the United States has waived its sovereign immunity against suit under 28 U.S.C. § 1346(a) and 26 U.S.C. § 7433. "Sovereign immunity is a jurisdictional doctrine and the terms of the United States' `consent to be sued in any court define that court's jurisdiction to entertain the suit.'" Brown v. United States, 151 F.3d 800, 803-804 (8th Cir. 1998) (quoting FDIC v. Meyer, 510 U.S. 471, 475 (1994)); see also Block v. North Dakota, 461 U.S. 273, 287 (1983) ("[W]hen Congress attaches conditions to legislation waiving the sovereign immunity of the United States, those conditions must be strictly observed, and exceptions thereto are not to be lightly implied.") (citations omitted).
"Jurisdictional issues, whether they involve questions of law or fact, are for the court to decide." Osborn v. United States, 918 F.2d 724, 729 (8th Cir. 1990), quoted in Godfrey v. Pulitzer Publ'g Co., 161 F.3d 1137,1140 (8th Cir. 1998). The burden of proving subject matter jurisdiction falls on the plaintiff. V.S. Ltd. P'Ship v. Dep't of Hous. and Urban Dev., 235 F.3d 1109, 1111 (8th Cir. 2000). In resolving a factual challenge to jurisdiction under Rule 12(b)(1) the court has the authority to look beyond the face of the complaint and consider materials outside the pleadings. See Parsons v. United States Air Force, 221 F.3d 1343, **1 (8th Cir. 2000) (citation omitted); Osborn, 918 F.2d at 728-31 n. 4 (citing Land v. Dollar, 330 U.S. 731, 735 n. 4 (1947) and Satz v. ITT Fin. Corp., 619 F.2d 738, 742 (8th Cir. 1980)). No presumptive truthfulness attaches to the plaintiff's allegations and the court is free to weigh evidence in determining the existence of its power to hear the case. Osborn, 918 F.2d at 729-30 n. 6. The motion may be supported or resisted by affidavits or other documents, and the existence of disputed material facts does not preclude the trial court from evaluating the merits of the jurisdictional claims. See id. at 730.
Discussion
In the mid-1980s, John and Maxine Engels established two trusts, Majon Enterprises ("the Majon Trust") and MJ Company ("the MJ Trust") and conveyed certain property interests to the Trusts. The Engels excluded the Trust property and income from federal tax returns filed for the years 1986 through 1989. On May 17, 1994, the Engels were assessed additional taxes for those years in conjunction with an IRS determination that the Majon and MJ Trusts were invalid for federal income tax purposes and that the Engels were thus individually liable for the taxable income and assets held by the Trusts. The additional taxes were assessed as follows: $9,186 due for 1986; $10,152 for 1987; $12,486 for 1988; and $14,279 for 1989. Penalties and interest were also assessed.
Pursuant to 26 U.S.C. § 6321 and 6322, federal tax liens arose and attached to all property and rights to property then belonging to John and/or Maxine Engels. This included numerous real properties located in Floyd County, Iowa, which were purportedly held by the Trusts (referenced as "Real Properties A through F" in the original complaint, doc. no. 1). Notices of federal tax liens were filed against the Engels as well as against the Majon and MJ Trusts as nominees or alter egos of the Engels.
On October 15, 1998, the United States filed suit pursuant to 26 U.S.C. § 7401 and 7403 seeking reduction to judgment of unpaid federal tax assessments against the Engels and a ruling that the Majon Trust and the MJ Trust are the nominees and/or alter egos of the Engels. The government also requested that conveyances of real property to and by the Trusts be set aside as fraudulent against the United States and federal tax liens on those real properties be foreclosed. The Engels deny that the Trusts are their nominees or alter egos and that they are individually responsible for taxes which should properly be assessed against the Trusts. By counterclaim, the Engels and the Trusts seek a refund and damages in conjunction with the allegedly wrongful assessment and collection of taxes for the 1986 through 1989 tax years. The government asserts in this motion that the court lacks subject matter jurisdiction over both the refund and the damages counterclaims.
A. Count 1: Tax Refund Suit
Count 1 is brought by all of the counterclaimants: John and Maxine Engels; the Majon Trust by its trustee, Thomas Engels; and the MJ Trust by its trustee, Robert J. Engels. The Engels and the Trusts seek recovery of taxes erroneously or illegally assessed or collected. With respect to such refund suits, the United States has consented to be sued under 28 U.S.C. § 1346(a)(1). However, before a suit for refund may be brought in a district court, certain preconditions must be met including a showing by the plaintiff that the tax at issue has been paid and that all administrative remedies have been exhausted. See United States v. Dalm, 494 U.S. 596, 601 (1990) ("Despite its spacious terms, § 1346(a)(1) must be read in conformity with other statutory provisions which qualify a taxpayer's right to bring a refund suit upon compliance with certain conditions"); Hansen v. United States, 2001 WL 436064, *2 (8th Cir. 2001) (citing Dalm for proposition that "the waiver of sovereign immunity is not unconditional") ; United States v. Forma, 42 F.3d 759, 763 (7th Cir. 1994) ("[W]hile the United States has provided for suits against the Government to recover taxes alleged to have been overpaid or wrongfully assessed and collected, it has also developed a series of procedural hurdles that taxpayers must surmount in order to maintain such suits."). "`Jurisdictional limitations based on sovereign immunity apply equally to counterclaims against the Government,' and jurisdiction for a `suit against the United States . . . whether it be in the form of an original action or a set-off or a counterclaim . . . does not exist unless there is specific congressional authority for it.'" Forma, 42 F.3d at 764 (quoting United States v. Wissahickon Tool Works, Inc., 200 F.3d 936, 939 (2d Cir. 1952), and Nassau Smelting Refining Works, Ltd. v. United States, 266 U.S. 101, 106 (1924)).
Section 1346(a)(1) provides:
The district courts shall have original jurisdiction . . . of any civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws.
In United States v. Williams, 514 U.S. 527 (1995), the Supreme Court resolved a circuit split as to whether third parties (against whom no tax had been assessed) could ever have standing to bring a refund suit under 28 U.S.C. § 1346(a)(1). The Court held that the jurisdictional grant of § 1346(a)(1) was not limited to the party assessed but also encompassed a party who sought a refund after paying the tax of another in protest to remove a federal tax lien from his or her property. See id. at 529. Although, unlike the plaintiff in Williams, the Trusts have not affirmatively acted to remove the federal liens placed on their property, some of those liens have been levied against and thus the Trusts can be deemed to have involuntarily paid some of the allegedly wrongfully assessed or collected tax burden of the Engels. Accordingly, for purposes of this motion, the court will assume that the Majon and MJ Trusts, by and through their trustees, have standing under 28 U.S.C. § 1346(a)(1) to bring a refund suit if they satisfy the jurisdictional prerequisites.
Full payment of the tax:
The Supreme Court has interpreted 28 U.S.C. § 1346(a)(1) as requiring full payment of the tax before a refund suit can be maintained in a federal district court. See Flora v. United States, 357 U.S. 63 (1958), aff'd on reh'g, 362 U.S. 145 (1960); Noske v. United States, 911 F.2d 133, 136 (8th Cir. 1990). As noted above, in 1994 the IRS assessed additional taxes against the Engels for the years 1986 through 1989 in the following amounts: $9,186 due for 1986; $10,152 for 1987; $12,486 for 1988; and $14,279 for 1989. By allegedly wrongful levy against certain assets of the Engels and the Trusts, the IRS collected $17,794.39. This amount was applied against the 1986 individual income tax obligations of the Engels and covered the assessed tax ($9,186) and penalties for that year in full. Accordingly, the payment condition is satisfied as to the 1986 tax year for all counterclaimants. To the extent that count 1 seeks a refund for taxes wrongfully assessed or collected for the years 1987 through 1989, the counterclaimants have failed to demonstrate that the payment condition has been met and accordingly this court does not have jurisdiction over those claims.
Courts have disagreed as to whether a plaintiff need also pay all penalties and interest prior to filing suit. Compare, e.g., Magnone v. United States, 902 F.2d 192 (2d Cir.) (holding tax refund suit barred if all deficiencies, penalties, and interest assessed have not been paid), cert. denied, 498 U.S. 853 (1990); Schoen v. United States, 759 F.2d 614 (7th Cir. 1985) (same); and Horkey v. United States, 715 F. Supp. 259 (1989) (same) with Shore v. United States, 9 F.3d 1524 (Fed. Cir. 1993) (holding full payment rule satisfied if taxpayer pays entire amount of tax assessed exclusive of penalties and interest) and Kell-Strom Tool Co. v. United States, 205 F. Supp. 190 (D.Conn. 1962) (same). This issue need not be resolved herein, however, because even assuming that payment of penalties and interest is not required the counterclaimants have failed to show that the assessed tax principal has been paid in full for any year except 1986.
Exhaustion of administrative remedies:
With regard to the 1986 tax year for which the full payment precondition has been satisfied, the government argues that jurisdiction is lacking because the counterclaimants failed to file a refund claim with the IRS and thus have not exhausted all administrative remedies. Section 7422(a) of the Internal Revenue Code (I.R.C.) provides that:
[n]o suit or proceeding shall be maintained in any court for the recovery any internal revenue tax alleged to have been erroneously or illegally assessed or collected . . . until a claim for refund or credit has been duly filed with the Secretary, according to the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof.26 U.S.C. § 7422(a); see also Dalm, 494 U.S. 596 (holding § 7422(a) applicable to refund suits brought under 28 U.S.C. § 1346 (a)(1)). By regulation, any such claim must "set forth in detail each ground upon which a . . . refund is claimed and facts sufficient to apprise the [IRS] of the [claim's] exact basis." 26 C.F.R. § 301.6402-2(b)(1). The regulation further provides that "a claim which does not comply with this paragraph will not be considered for any purpose as a claim for refund." Id.
It is undisputed that no formal refund claim was filed with the IRS by or on behalf of any of the counterclaimants. However, courts have on occasion allowed refund suits to proceed where the plaintiff can show that an informal claim was filed which, although not in compliance with the regulation formalities, provided the IRS with substantially equivalent information. See BCS Fin. Corp. v. United States, 118 F.3d 522, 524 (7th Cir. 1997) (Posner, J.) (listing cases, including Commissioner v. Lundy, 516 U.S. 235 (1996); United States v. Kales, 314 U.S. 186, 194 (1941); and Beckwith Realty, Inc. v. United States, 896 F.2d 860, 863-64 (4th Cir. 1990)); see also 15 Mertens Law of Fed. Income Tax'n § 58:30. The scope of this "informal claim doctrine" must be considered in light of its purpose to forgive technical requirements, not substantive ones. See BCS Fin. Corp., 118 F.3d at 524 ("One office of the judge-made informal-claim doctrine is to . . . excus[e] harmless noncompliance with the formalities prescribed for refund claims by the Treasury regulation . . .") (emphasis added).
The purpose of § 7422(a)'s claim requirement is to provide the IRS with adequate notice of the nature of the claim as well as the factual basis of the claim so that the IRS can investigate and correct its error. See American Radiator Standard Sanitary Corp. v. United States, 318 F.2d 915, 920 (Ct.Cl. 1963). Thus, courts have held that for an informal claim to be deemed adequate, it must: (1) be in writing; (2) include a request for a refund for certain years; and (3) inform the IRS of the basis for the overpayment and provide sufficient information as to the tax year to allow the IRS to examine the claim. See id. (citations omitted); Fed. Tax Coordinator ¶ T-6721 (2d ed. 2001) (discussing the informal claim doctrine).
When determining whether a letter by a taxpayer meets the informal claim requirements, at a minimum it must be sufficient to be regarded as an assertion by the taxpayer of a belief that the tax has been overpaid for a certain year or years. See American Radiator, 318 F.2d at 920 (citations omitted). In other words, "it is insufficient for a taxpayer to argue that the IRS possessed information from which it could deduce that the taxpayer is entitled to or desires a refund." BCS Fin. Corp., 118 F.3d at 525 (quoting Miller v. United States, 949 F.2d 708, 712 (4th Cir. 1991)). "The Commissioner [of Internal Revenue] is not required to act as a detective and to search for clues as to whether the plaintiff might desire tax refunds." VDO-ARGO Instruments, Inc. v. United States, 3 Cl. Ct. 359, 362 (1983), aff'd. without opinion, 738 F.2d 453 (Fed. Cir. 1984); accord Angelus Milling Co. v. Commissioner, 325 U.S. 293, 299 (1945) ("[I]t is not enough that somewhere under the Commissioner's roof is the information which might enable him to pass on a claim for refund. . . . [The Commissioner] is entitled to insist that the form be observed so as to advise him expeditiously and accurately of the true nature of the claim.").
The Engels and the Trusts assert that they demanded refund of the allegedly wrongfully assessed or collected monies through three communications which constitute an informal claim for refund: (1) a letter by John Engels demanding refund of his Social Security proceeds on May 8, 1995; (2) a letter by Gary Culver as trustee of MJ Trust which was sent to various agents of the IRS on December 20, 1995; and (3) a similar letter by Gary Culver as trustee of Majon Trust dated December 18, 1995. Applying the above-discussed standards, the court shall evaluate the counterclaimants' showing to determine whether, in light of all the surrounding facts, a valid informal claim was filed. See American Radiator, 318 F.2d at 920 ("The focus is on the claim as a whole, not merely the written component.").
(1) John and Maxine Engels:
The March 8, 1995 letter by John Engels, addressed to various persons at the Social Security Administration (SSA) and the IRS, protests the allegedly wrongful levy by the IRS on John and Maxine Engels' social security benefits. In the two-page letter, Mr. Engels charged the SSA and IRS with unlawful action under 42 U.S.C. § 407 which governs the assignability of social security payments. Two demands are made: (1) a demand upon the IRS to immediately return all funds sent to them by the SSA, and (2) a demand upon the SSA to issue a check to the Engels for the total amount unlawfully sent to the IRS.
The court concludes that, under the applicable standards, Mr. Engels' letter falls far short of the informal claim bar. Nowhere in the letter does Mr. Engels make an explicit or implicit demand for a refund of taxes for any specific year or years. See BCS Fin. Corp., 118 F.3d at 524 (finding no informal claim where relevant documents did not mention the year for which a refund was sought); American Radiator, 318 F.2d at 920 (noting as "essential" element "that there be made available sufficient information as to the tax and the year to enable the [IRS] to commence, if it wishes, an examination into the claim"). Nor does the letter include any explanation by Mr. Engels that could reasonably be construed to provide the IRS with notice of the factual basis of an implicit refund demand. See Tobin v. Tomlinson, 310 F.2d 648, 652 (5th Cir. 1962) (finding letter that did not comport with substantive regulation requirements "was an informal and defective claim which `will not supply a basis for a suit against the government when there has been neither waiver by the commissioner nor amendment by the taxpayer'") (internal quotation omitted); cf. Crenshaw v. Hrcka, 237 F.2d 372 (4th Cir. 1956) (finding letter by attorney on behalf of taxpayers constituted valid informal claim where it explained in detail taxpayers' position and expressly noted taxpayers' intention to file formal claim in the future). In short, there is nothing in this letter but an accusation of unlawful conduct under the Social Security Act and a demand for return of monies thereby assigned to the IRS. The Engels have offered nothing else to bolster their claim, and even viewing the letter as generously as possible it cannot be read to adequately provide the IRS with information sufficient to permit the Service to investigate and correct any error.
Because Mr. Engels' letter is completely lacking in factual indicia which would connect it to the Majon and MJ Trusts, the court did not consider the December 1995 letters by those trusts in determining whether the Engels individually have established an informal claim. Moreover, given the allegations underlying the Engels' refund suit — that the trusts are not their nominees or alter egos — it would be inappropriate to allow the Engels to piggyback their evidence onto that submitted on behalf of the Trusts for purposes of establishing an informal claim.
(2) The Majon and MJ Trusts:
With regard to the December 1995 letters by Gary Culver as trustee of both the MJ and Majon Trusts, the court concludes that Mr. Culver's appeals to the IRS to issue a certificate releasing federal tax liens from certain property did not constitute an informal refund claim by the Trusts so as to fulfill the filing requirement of 26 U.S.C. § 7422(a). There is no question but that the letters were written pursuant to 26 U.S.C. § 6325 and 6326 and accompanying regulations which govern administrative appeal of liens. As instructed in the regulations, the letters are addressed to the IRS "district director (marked for the attention of the Chief, Special Procedures Function)." See 26 C.F.R. § 301.6326-1(d)(1). Moreover, Mr. Culver explicitly relies upon the regulations in stating the basis of the Trusts' appeal. See pp. 3 and 5 of the MJ and Majon letters respectively ("M and J [or Majon] . . . hereby appeals to your office pursuant to C.F.R. § 301.6325 and 301.6326-1 to interdict to remove the above said Notices of Federal Tax Liens from the Real Property [and Financial Accounts] owned . . . by M and J [or Majon] . . . and issue a Certificate of Nonattachment of Lien and Certificate of Release of Lien).
That an administrative appeal letter in and of itself is insufficient to establish a refund claim is clear from the language of the governing regulation which states that "[s]uch appeal may be used only for the purpose of correcting the erroneous filing of a notice of lien, not to challenge the underlying deficiency that led to the imposition of a lien." 26 C.F.R. § 301.6326-1(a). This language makes clear that receipt of a lien appeal would not reasonably put the IRS on notice that the letter was meant to trigger the type of examination that would be undertaken pursuant to a refund claim nor should the party filing the appeal reasonably expect that it will be taken as such. The Trusts have offered nothing else in support of their informal claim showing and, in light of the clear regulatory language to the contrary, the court cannot find the Trust letters alone sufficient to satisfy the administrative filing requirement of 26 U.S.C. § 7422(a).
Because neither the Engels nor the Trusts have established the administrative filing prerequisite to jurisdiction under 26 U.S.C. § 7422(a), they have failed to show that the United States waived sovereign immunity under 28 U.S.C. § 1346(a). Accordingly, the government's motion to dismiss count 1 of the counterclaim shall be granted.
B. Count 2: Damages for Unauthorized Collection Actions
Count 2 of the counterclaim, brought by John and Maxine Engels, seeks damages pursuant to 26 U.S.C. § 7433 for certain unauthorized collection actions. That section, as relevant to this proceeding, provides in general:
To the extent that the counterclaimants' brief in resistance to the United States' motion appears to be arguing the validity of the § 7433 claim on behalf of the Trusts as well, those claims have not been properly pled since the counterclaim does not name the Trusts as parties to count 2. Further, unlike count 1 which was premised on 28 U.S.C. § 1346(a), the explicit inclusion of "taxpayer" in 26 U.S.C. § 7433(a) has been uniformly interpreted to confer standing only on the delinquent taxpayer alone — here, the Engels — and not on third parties, such as the Trusts, who are incidentally injured. See, e.g., Allied/Royal Parking, L.P. v. United States, 166 F.3d 1000 (9th Cir. 1999); Ferrel v. Brown, 847 F. Supp. 1524 (W.D.Wash. 1993), aff'd, 40 F.3d 1049 (9th Cir. 1994); Matrix Dev. Corp. v. United States, 815 F. Supp. 297 (E.D. Wisc. 1993).
If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service recklessly or intentionally disregards any provision of this title, or any regulation promulgated under this title, such taxpayer may bring a civil action for damages against the United States in a district court of the United States.26 U.S.C. § 7433(a). While § 7433 also includes a requirement that administrative remedies be exhausted, the government does not challenge the Engels' claim on that ground. Rather, the government asserts that because the Engels' claim is predicated only on the erroneous assessment of taxes it is not covered by the sovereign immunity waiver of § 7433 which is a wrongful collection statute.
A 1998 amendment expanding § 7433(a)'s jurisdictional grant to negligence actions is not applicable to this action since the challenged conduct occurred prior to 1998.
Under § 7433(d)(1), "[a] judgment for damages shall not be awarded . . . unless the court determines that the plaintiff has exhausted the administrative remedies available to such plaintiff within the Internal Revenue Service."
The government is correct in its assertion that § 7433 does not authorize suit for improper assessment of tax liability. See Shaw v. United States, 20 F.3d 182 (5th Cir. 1994) (finding that although IRS improperly assessed tax liability against taxpayer, it did not engage in improper collection procedures, and thus taxpayer could not seek damages under § 7433); Gonsalves v. I.R.S., 975 F.2d 13 (1st Cir. 1992) (holding § 7433 inapplicable in suit for damages resulting from refusal of refund, based on claim of incorrect determination of amount of tax liability, and noting that § 7433 was not intended to allow taxpayer to circumvent procedures of filing either petition for redetermination or refund action) ; Ihasz v. United States, 997 F. Supp. 547 (D.Vt. 1997) (holding that § 7433 applied only to improper collection practices and did not bestow federal district court with jurisdiction over taxpayers' claims for abatement of interest assessed by IRS); Arnett v. United States, 889 F. Supp. 1424 (D.Kan. 1995) (holding that § 7433 does not allow suit for damages based on IRS determination of taxes); Miller v. United States, 763 F. Supp. 1534 (N.D.Cal. 1991) (holding that mere assessment is not collection action for purposes of § 7433).
That said, however, the Engels' counterclaim, on its face, alleges both improper assessment and collection. Paragraph 14 of the counterclaim states that "[t]he revenue officer . . . improperly assessed the tax against the taxpayers, John J. and Maxine V. Engels and then improperly levied on personal property owned by John J. and Maxine V. Engels, Majon Enterprises and M J Company for the collection of those taxes." (Emphasis added). Paragraph 15 alleges that "[t]he revenue agent, willfully and intentionally disregarded the provisions of the Internal Revenue Code and its regulations in pursuing these actions." Paragraphs 8 and 9 list at least seven levies against personal property which underlie the Engels' allegations in paragraphs 14 and 15.
Paragraph 8 reads as follows:
The Internal Revenue Service erroneously and improperly levied on assets owned by Maxine V. and John J. Engels for taxes which were not appropriately assessed or collected against the Engels, including but not limited to the following: On December 2, 1994[,] it levied on Natures' wages owed to John J. Engels; on December 2, 1995, it levied on the Social Security accounts of the Engels; on December 2, 1995[,] it levied on the bank account owned by the Engels at First Security Bank and Trust; on January 5, 1995[,] and February 6, 1996[,] it levied on the Knights of Columbus insurance policy owned by John J. Engels; on April 11, 1995, it levied on the Social Security account of the Engels; on May 10, 1995, it levied on the Social Security account of the Engels. The Internal Revenue Service made further levies in 1996, 1997, 1998 and 1999, against the Social Security accounts of the Engels.
Paragraph 9 avers that "[a]ll of these levies were improper and the sums levied upon were not owed by the taxpayers, John J. and Maxine V. Engels to the Internal Revenue Service."
Thus, to the extent that the Engels asserted improper levy on personal property owned by them, they stated a cause of action under § 7433, see Miller, 763 F. Supp. at 1543 (holding that notice and demand for payment and filing of notice of tax lien are "collection actions" for purposes of § 7433); Snyder v. United States, 1998 WL 796768, *1 (D.D.C. 1998); Caparaso v. C.I.R., 907 F. Supp. 1235, 1240 (N.D.Ind. 1995), and were this court addressing a motion to dismiss for failure to state a claim under Rule 12(b)(6), the motion would likely be denied. However, the government's motion to dismiss is not predicated on the Engels' failure to state a claim but rather asserts a jurisdictional challenge under Rule 12(b)(1). Thus, under the standard of review discussed earlier, the court must look beyond the face of the complaint to determine its power to hear the case. See Osborn, 918 F.2d at 729-30.
Even under Rule 12(b)(6), however, the Engels' claim for damages for collection activities taken against the Majon and MJ Trusts — as opposed to against the Engels personally — would fail. Because a § 7433 claim is taxpayer-specific, see note 4, supra, the Engels cannot base their claim on damages allegedly incurred by the Trusts unless they are conceding that they and the Trusts are one and the same.
After thoroughly reviewing the complaint and the supplemental materials submitted by the Engels, the court agrees with the government that the Engels have failed to demonstrate that the IRS engaged in conduct that would be actionable under 26 U.S.C. § 7433. Turning first to the complaint itself, there is not a single factual allegation that would support the Engels' conclusory assertion that the government engaged in improper collection activities. See Shaw, 20 F.3d at 184 ("[T]o prove a claim for improper assessment, a taxpayer must demonstrate why no taxes are owed, but to prove a claim for improper collection practices, the taxpayer must demonstrate that the IRS did not follow the prescribed methods of acquiring assets.") (Emphasis added). There are no facts that would support a conclusion that notice or attachment of the liens was in any way procedurally flawed nor are there any facts by which the court could conclude that the government disregarded any provisions or regulations in levying on the property referenced in paragraph 8. See Snyder, 1998 WL 796768 at *2 (granting motion to dismiss where complaint "does not identify a specific statute or regulation that the IRS disregarded, nor does it provide any details as to what particular acts [P]laintiffs wish to challenge . . . [or] state exactly how [unauthorized liens and levies] were deficient"). Rather, the claim evinces that the Engels' improper collection allegations derive directly and solely from their allegation that the IRS erroneously determined that the Engels were liable for the assets and income of the Trusts and carried out collection activities accordingly.
The briefs, affidavit and supporting materials submitted by the Engels are similarly unavailing. In stating the applicable law, the Engels concede that § 7433 permits suit for "complaints about misconduct in connection with the collection of taxes but not exclusively for improper assessment of the taxes." (Doc. no. 84: Engels brief, at p. 8). However, as evidenced by the court's discussion, the only complaint made by the Engels is that the taxes should never have been collected because they were improperly assessed. As is clear from the case law cited above, an improper assessment claim is not actionable under § 7433 merely because it results in collection activity. See Shaw, 20 F.3d 182; Gonsalves, 975 F.2d 13; Ihasz, 997 F. Supp. 547; Arnett, 889 F. Supp. 1424; Miller, 763 F. Supp. 1534. The collection activity itself must be conducted improperly. See Shaw, 20 F.3d at 184 ("The fact that . . . separate [assessment and collection] claims can develop with respect to the same taxpayer does not affect the separate and distinctive nature of each claim."). Because the Engels have not shown how any IRS agent disregarded a statute or regulation in connection with the collection of their taxes, this court has no jurisdiction over this matter.
In fact, the only damage mentioned in the brief is that incurred by the Trusts which is not recoverable by the Engels under § 7433 in any effect. See note 4 and 6, supra.
Conclusion
For the reasons discussed herein, the court concludes that the United States' motion to dismiss shall be granted. With regard to count 1, all counterclaimants have failed in their burden to establish the prerequisites to the United States' waiver of sovereign immunity under 28 U.S.C. § 1346(a). Accordingly, this court lacks jurisdiction over the refund claim asserted in count 1. With regard to count 2, the Engels have failed to present any evidence by which the court could find that the their claim falls within the ambit of 26 U.S.C. § 7433. Accordingly, this court lacks jurisdiction over the damages claim asserted in count 2.
ORDER
In accordance with the opinion filed herewith, it is ORDERED:
(1) As to count 1 of the counterclaim, brought by John and Maxine Engels, Majon Enterprises by and through its trustee Thomas J. Engels, and the MJ Company by and through its trustee Robert E. Engels, the United States' motion to dismiss is GRANTED.
(2) As to count 2 of the counterclaim, brought by John and Maxine Engels only, the United States' motion to dismiss is GRANTED.
Done and so ordered this 24th of May, 2001.