Lapaglia v. USA

MOTION to Dismiss for Lack of Jurisdiction

D. Conn.August 24, 2016

No Hearing Requested IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT JOHN ANGELO LAPAGLIA, ) ) Plaintiff, ) ) v. ) ) UNITED STATES OF AMERICA, ) ) Defendant. ) _______________________________________) Case No. 3:16-CV-465(AWT) DEFENDANT UNITED STATES OF AMERICA’S MOTION TO DISMISS Defendant United States of America moves to dismiss, pursuant to Fed. R. Civ. P. 12(b)(1) and Local Rule of Civil Procedure 12, Plaintiff John Angelo LaPaglia’s Complaint because the Court lacks jurisdiction. In support of this motion, the United States states and alleges as follows: 1. On Mar 21, 2016, Plaintiff, in his individual capacity, filed the Complaint that commenced this refund suit against the United States of America. The Complaint alleges that Plaintiff was the sole owner and shareholder of a corporation named Pleasure Circuit Corporation. See Complaint, pg. 3, ¶ 3. The Complaint also alleges that the Internal Revenue Service (IRS) assessed penalties, pursuant to 26 U.S.C. § 6699, against Pleasure Circuit Corporation for its failure to timely file a Form 1120S, U.S. Income Tax Return for an S Corporation, for its 2008, 2009, and 2010 tax years, and that the IRS provided notice of such assessments to Plaintiff while he was imprisoned. Id. at pg. 4, ¶ 5. The Complaint also alleges that some unspecified individual fraudulently made two checks (presumably using Pleasure Circuit Corporation’s checkbook) out to the IRS for the amounts of the three penalties and mailed them to the IRS. Id. at pg. 4, ¶ 5, pg. 6, ¶ 6, pg. 7, ¶ 6. The Complaint also alleges that these checks were negotiated without Plaintiff’s consent. Id. The Complaint also alleges that the Case 3:16-cv-00465-AWT Document 16 Filed 08/24/16 Page 1 of 3 No Hearing Requested IRS issued a refund for the 2008 and 2009 penalties, but denied Plaintiff’s request for a refund of the 2010 penalty. Id. at pgs. 4-5, ¶ 5, pg. 8, ¶ 7. The Complaint asks the Court to order that the IRS issue a refund to Plaintiff for the 2010 penalty. Id. at pgs. 11-12. The Complaint is clear that Plaintiff does not ask that the Court order the IRS to issue a refund to Pleasure Circuit Corporation for the 2010 penalty because he dissolved Pleasure Circuit Corporation in 2013. Id. at pgs. 3, ¶ 3, pg. 9, ¶ 9. 2. The United States is attaching, pursuant to Local Rule of Civil Procedure 7(a), a memorandum of law in support of this motion. For the reasons described in the memorandum of law, this Court lacks jurisdiction to adjudicate this case because Plaintiff is not the taxpayer against whom the IRS assessed the 2010 penalty and thus the Court cannot order that a refund be paid to Plaintiff. 3. A proposed order is also attached. WHEREFORE, the defendant United States prays that the Court (1) dismiss this case for lack of jurisdiction, and (2) award the United States such other and further relief that it deems just and proper. Respectfully submitted, CAROLINE D. CIRAOLO Principal Deputy Assistant Attorney General U.S. Department of Justice, Tax Division /s/ Michael P. Lobie MICHAEL P. LOBIE Trial Attorney, Tax Division U.S. Department of Justice P.O. Box 55 Washington, D.C. 20044 202-514-0600 (v) 202-514-5238 (f) Michael.P.Lobie@usdoj.gov Case 3:16-cv-00465-AWT Document 16 Filed 08/24/16 Page 2 of 3 No Hearing Requested CERTIFICATE OF SERVICE I hereby certify that on 24th day of August, 2016, a copy of foregoing Motion to Dismiss was filed electronically and served by mail on anyone unable to accept electronic filing. Notice of this filing will be sent by e-mail to all parties by operation of the Court’s electronic filing system or by mail to anyone unable to accept electronic filing as indicated on the Notice of Electronic Filing. Parties may access this filing through the Court’s CM/ECF System. /s/ Michael P. Lobie MICHAEL P. LOBIE Trial Attorney United States Department of Justice, Tax Division Case 3:16-cv-00465-AWT Document 16 Filed 08/24/16 Page 3 of 3 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT JOHN ANGELO LAPAGLIA, ) ) Plaintiff, ) ) v. ) ) UNITED STATES OF AMERICA, ) ) Defendant. ) _______________________________________) Case No. 3:16-CV-465(AWT) DEFENDANT UNITED STATES OF AMERICA'S MEMORANDUM OF LAW IN SUPPORT OF ITS MOTION TO DISMISS The United States, pursuant to Local Rule of Civil Procedure (LRCP) 7(a), submits this memorandum of law in support of its Motion to Dismiss under Fed. R. Civ. P. 12(b)(1) (the Motion). Plaintiff John Angelo LaPaglia’s Complaint should be dismissed because the Court lacks jurisdiction. In support of the Motion, the United States states and alleges as follows: I. MOTION TO DISMISS STANDARD A motion to dismiss under Rule 12(b)(1) “challenges the court's statutory or constitutional power to adjudicate the case ...” and “[t]ypically ... alleges that the federal court lacks either federal question or diversity jurisdiction over the action.” 2A James W. Moore et al., Moore's Federal Practice, ¶ 12.07, at 12-49 (2d ed. 1994); see also Roddy v. Nac Re Corp., 2000 WL 1336477, at *2 (D. Conn. Aug. 11, 2000); Bleiler v. Cristwood Contracting Co., 868 F. Supp. 461, 464 (D. Conn. 1994), aff'd in part, rev'd in part sub nom. Bleiler v. Cristwood Const., Inc., 72 F.3d 13 (2d Cir. 1995). In considering a motion to dismiss under Rule 12(b)(1), the court construes the complaint broadly and liberally in conformity with the principle set out in Federal Rule of Civil Procedure 8(f). See 5A Charles A. Wright et al., Federal Practice and Procedure § 1350, at 218-19 (1960 & Supp.1991); Cavuoto v. Oxford Health Plans, Inc., 2000 Case 3:16-cv-00465-AWT Document 16-1 Filed 08/24/16 Page 1 of 6 2 WL 888263, at *2 (D. Conn. June 22, 2000). In ruling on such a motion, the court is to consider allegations of the complaint as true. Cavuoto v. Oxford Health Plans, Inc., 2000 WL 888263, at *2 (D. Conn. June 22, 2000); Zellars v. Liberty Nat. Life Ins. Co., 907 F.Supp. 355 (M.D.Ala.1995); Hart v. Mazur, 903 F.Supp. 277 (D.R.I.1995). II. PLAINTIFF IS NOT THE TAXPAYER AND SO HE DOES NOT HAVE A CAUSE OF ACTION UNDER THE APPLICABLE STATUTE TO COMMENCE A REFUND SUIT The United States, as sovereign, may not be sued without its consent, and the terms of its consent define the Court’s jurisdiction. U.S. Dept. of Energy v. Ohio, 503 U.S. 607, 615 (1992); United States v. Testan, 424 U.S. 392, 399 (1976). Where, by statute, the sovereign consents to be sued, the suit may be maintained if brought in compliance with the exact terms of the statute. United States v. Sherwood, 312 U.S. 584, 590 (1941). Any such consent must be unequivocally expressed by Congress, however, and is to be strictly and narrowly construed in favor of the United States. United States v. Idaho, 508 U.S. 1, 7 (1993); United States v. Nordic Village, Inc., 503 U.S. 30, 34 (1992). Plaintiff has the burden of establishing compliance with the waiver of sovereign immunity. Cole v. United States, 657 F.2d 107, 109 (7th Cir. 1981). “[A] plaintiff must have a cause of action under the applicable statute. This was formerly called ‘statutory standing.’ ” Am. Psychiatric Ass'n v. Anthem Health Plans, Inc., 821 F.3d 352, 359 (2d Cir. May 13, 2016). “The Supreme Court has recently clarified, however, that what has been called ‘statutory standing’ in fact is not a standing issue, but simply a question of whether the particular plaintiff ‘has a cause of action under the statute.’ ” Id. (quoting Lexmark Int'l, Inc. v. Static Control Components, Inc., 134 S.Ct. 1377, 1387 (2014)). A. 26 U.S.C. § 7422 PERMITS ONLY THE TAXPAYER TO FILE A REFUND SUIT The applicable statutory waiver of sovereign immunity that allows a taxpayer to bring a Case 3:16-cv-00465-AWT Document 16-1 Filed 08/24/16 Page 2 of 6 3 tax refund suit is 26 U.S.C. § 7422, which provides in relevant part: (a) No Suit Prior to Filing Claim for Refund.-No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority . . . 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. [emphasis supplied] 26 U.S.C. § 7422(a). The relevant legislative regulation referred to in §7422(a) regarding what constitutes a “duly filed” claim for refund is found at 26 C.F.R. §301.6402-2(a)(1). That Regulation provides that to be “duly filed,” a claim for refund must be timely filed “by the taxpayer”. See, e.g., Kuznitsky v. United States, 17 F.3d 1029, 1031 (7th Cir. 1994). In 26 U.S.C. §7701(a)(14), Congress has defined the term “taxpayer” as “any person subject to any internal revenue tax.” This definition applies in all instances where that term is used in the Internal Revenue Code except where “not otherwise distinctly expressed . . .” 26 U.S.C. §7701(a) flush language. All of the requirements of 26 U.S.C. §7422(a) must be met in order for a District Court to have jurisdiction over a refund suit. Goulding v. United States, 929 F. 2d 329, 332 (C.A. 7th 1991) (“The language of § 7422(a) requires compliance with the applicable Treasury regulations” citing to 26 C.F.R. §301.6402-2); see also United States v. Dalm, 494 U.S. 596, 602, 608-610 (1990). Thus, under 26 U.S.C. §§7422(a) & 7701(a)(14) and 26 C.F.R. §301.6402-2(a), to have a “duly filed” claim for refund that would give a District Court jurisdiction over a refund suit, the person who was liable (i.e., assessed) for the penalty must pay that penalty, file the claim for refund for that penalty, and file the refund suit. B. THE TAXPAYER IS PLEASURE CIRCUIT CORPORATION The tax sought to be refunded in this case is a penalty assessed pursuant to 26 U.S.C. § 6699 against Pleasure Circuit Corporation for its failure to timely file a Form 1120S, U.S. Case 3:16-cv-00465-AWT Document 16-1 Filed 08/24/16 Page 3 of 6 4 Income Tax Return for an S Corporation, for its 2010 tax year. 26 U.S.C. § 6699(a) provides: (a) General rule.--In addition to the penalty imposed by section 7203 (relating to willful failure to file return, supply information, or pay tax), if any S corporation required to file a return under section 6037 for any taxable year- (1) fails to file such return at the time prescribed therefor (determined with regard to any extension of time for filing), or (2) files a return which fails to show the information required under section 6037, such S corporation shall be liable for a penalty determined under subsection (b) for each month (or fraction thereof) during which such failure continues (but not to exceed 12 months), unless it is shown that such failure is due to reasonable cause. [emphasis supplied] The S corporation itself, then, is liable for the penalty. Therefore, Pleasure Circuit Corporation was liable for the penalties assessed pursuant to 26 U.S.C. § 6699 and is the “taxpayer” as defined in 26 U.S.C. §7701(a). Pleasure Circuit Corporation, then, must “duly file” the refund claim to satisfy 26 C.F.R. §301.6402-2(a)(1), and must file the refund suit to permit jurisdiction under 26 U.S.C. § 7422(a). C. PLEASURE CIRCUIT CORPORATION MUST BE NAMED AS A PLAINTIFF FOR THE COURT TO GRANT THE REQUESTED RELIEF, OTHERWISE THE COURT LACKS JURISDICTION Consistent with the language in 26 U.S.C. § 6699(a), the IRS assessed the penalties against Pleasure Circuit Corporation. See Ex. 1. Even if Plaintiff could prove that Pleasure Circuit Corporation is not liable for the 2010 penalty, any refund paid by the IRS would need to be paid to the taxpayer, Pleasure Circuit Corporation, so the IRS could make the appropriate adjustments to Pleasure Circuit Corporation’s tax accounts. Moreover, Connecticut law provides that a corporation continues its existence after its dissolution so that the corporation itself (albeit through a properly-designated agent) collects its debts and pays its liabilities. Under Conn. Gen. Stat. Ann. § 33-884(a) “[a] dissolved corporation continues its corporate existence but may not Case 3:16-cv-00465-AWT Document 16-1 Filed 08/24/16 Page 4 of 6 5 carry on any business except that appropriate to wind up and liquidate its business and affairs, including: (1) Collecting its assets…(3) discharging or making provision for discharging its liabilities…and (5) doing every other act necessary to wind up and liquidate its business and affairs.” Therefore, any suit to collect an asset of Pleasure Circuit Corporation, including a refund due to it, must be brought on the Corporation’s behalf and should be captioned in its name, not the name of its former shareholder(s). In addition, the Corporation must be represented in the litigation by an attorney. See Jacobs v. Patent Enf't Fund, Inc., 230 F.3d 565, 568 (2d Cir. 2000); Triton Associates v. Six New Corp., 14 Conn. App. 172, 175, cert. denied, 208 Conn. 806 (1988). Plaintiff has filed this suit in his individual capacity, not on behalf of Pleasure Circuit Corporation, and so the Court lacks jurisdiction to order the IRS to issue a refund to Plaintiff. III. CONCLUSION The penalty pursuant to 26 U.S.C. § 6699 referenced in the Complaint was assessed against Pleasure Circuit Corporation, not Plaintiff, and so Plaintiff is not the taxpayer as defined in 26 U.S.C. §7701(a). Plaintiff, then, does not have a cause of action under 26 U.S.C. § 7422(a) and the Court lacks jurisdiction to grant him the relief he seeks. The Court could only have jurisdiction over the requested refund if the taxpayer, Pleasure Circuit Corporation, were to bring the action through an attorney. Respectfully submitted, CAROLINE D. CIRAOLO Principal Deputy Assistant Attorney General U.S. Department of Justice, Tax Division /s/ Michael P. Lobie MICHAEL P. LOBIE Trial Attorney, Tax Division U.S. Department of Justice Case 3:16-cv-00465-AWT Document 16-1 Filed 08/24/16 Page 5 of 6 6 P.O. Box 55 Washington, D.C. 20044 202-514-0600 (v) 202-514-5238 (f) Michael.P.Lobie@usdoj.gov Case 3:16-cv-00465-AWT Document 16-1 Filed 08/24/16 Page 6 of 6 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF CONNECTICUT JOHN ANGELO LAPAGLIA, ) ) Plaintiff, ) ) v. ) ) UNITED STATES OF AMERICA, ) ) Defendant. ) _______________________________________) Case No. 3:16-CV-465(AWT) Order After consideration, Defendant United States of America’s Motion to Dismiss for lack of jurisdiction is GRANTED. This case is dismissed. SO ORDERED: ____________________ ________________________________ Date Case 3:16-cv-00465-AWT Document 16-2 Filed 08/24/16 Page 1 of 1 Exhibit 1Case 3:16-cv-00465-AWT Document 16-3 Filed 08/24/16 Page 1 of 3 Case 3:16-cv-00465-AWT Document 16-3 Filed 08/24/16 Page 2 of 3 Case 3:16-cv-00465-AWT Document 16-3 Filed 08/24/16 Page 3 of 3 Case 3:16-cv-00465-AWT Document 16-4 Filed 08/24/16 Page 1 of 8 Case 3:16-cv-00465-AWT Document 16-4 Filed 08/24/16 Page 2 of 8 Case 3:16-cv-00465-AWT Document 16-4 Filed 08/24/16 Page 3 of 8 Case 3:16-cv-00465-AWT Document 16-4 Filed 08/24/16 Page 4 of 8 Case 3:16-cv-00465-AWT Document 16-4 Filed 08/24/16 Page 5 of 8 Case 3:16-cv-00465-AWT Document 16-4 Filed 08/24/16 Page 6 of 8 Case 3:16-cv-00465-AWT Document 16-4 Filed 08/24/16 Page 7 of 8 Case 3:16-cv-00465-AWT Document 16-4 Filed 08/24/16 Page 8 of 8