Shields v. Internal Revenue Service

MOTION to Dismiss for Lack of Jurisdiction and Memorandum in Support , MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM and Memorandum in Support

D. UtahAugust 12, 2016

CAROLINE D. CIRAOLO Principal Deputy Assistant Attorney General MAHANA K. WEIDLER Trial Attorney, Tax Division mahana.k.weidler@usdoj.gov western.taxcivil@usdoj.gov U.S. Department of Justice P.O. Box 683 Washington, D.C. 20044 Tel.: (202) 616-1955 Of Counsel: JOHN W. HUBER (#7226) United States Attorney Attorneys for the United States of America IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH - CENTRAL DIVISION KAREN SHIELDS, Plaintiff, v. INTERNAL REVENUE SERVICE, Defendant. Case No. 2:16-cv-00554-PMW UNITED STATES’ MOTION TO DISMISS Magistrate Judge Paul M. Warner Case 2:16-cv-00554-PMW Document 8 Filed 08/12/16 Page 1 of 15 TABLE OF CONTENTS BACKGROUND ........................................................................................................................... 1 LEGAL STANDARD ................................................................................................................... 2 ARGUMENT ................................................................................................................................. 3 I. The IRS may not be sued, and therefore, it is not the proper defendant in this case. ... 3 II. This suit should be dismissed pursuant to Fed. R. Civ. P. 12(b)(1) because the Court lacks subject-matter jurisdiction. ....................................................................................... 3 A. The Court lacks subject-matter jurisdiction because the United States has not waived sovereign immunity. ......................................................................................................... 3 B. There is no waiver of sovereign immunity for a Federal Tort Claims action based upon the assessment and collection of federal taxes, thus, dismissal is proper pursuant to Rule 12(b)(1). ........................................................................................................................... 5 C. The Court lacks subject-matter jurisdiction to consider a tax-refund claim under 28 U.S.C. § 1346(a)(1) and 26 U.S.C. § 7422. ..................................................................... 5 D. The Court lacks subject-matter jurisdiction to consider a wrongful-levy claim under 26 U.S.C. § 7426(a). ............................................................................................................. 6 E. This action is expressly barred by the Anti-Injunction Act and the Declaratory Judgment Act. .................................................................................................................. 7 III. This suit should be dismissed pursuant to Fed. R. Civ. P. 12(b)(6) because Plaintiff has failed to state a claim upon which relief may be granted. ......................................... 9 A. To the extent Plaintiff is seeking damages under 26 U.S.C. § 7433, Plaintiff’s claim fails because Plaintiff has not alleged any facts to support a valid claim for an unauthorized collection action under § 7433. ................................................................ 10 CONCLUSION ........................................................................................................................... 11 Case 2:16-cv-00554-PMW Document 8 Filed 08/12/16 Page 2 of 15 1 The United States of America, the true party in this matter1, hereby moves this Court to dismiss this case pursuant to FED. R. CIV. P. 12(b)(1) and (6), because (a) the Court lacks subject-matter jurisdiction; and (b) Plaintiff has failed to state a claim upon which relief may be granted. In support of its motion, the United States respectfully submits the following: BACKGROUND Plaintiff commenced this action on April 11, 2016, in the District Court for the Third Judicial District of the State of Utah, in and for Salt Lake County, by filing a “trespass” Complaint2, naming the Internal Revenue Service (IRS) as the defendant.3 Plaintiff alleges that “[the] IRS is administrating [her] property without any rights,” and is seeking to have her “property returned,” plus $5,000 in “damages for wasting [her] time.” Dkt. #2-1, at pp. 10-11. Although it appears that Plaintiff is requesting an injunction to prevent future IRS levies on her wages and financial accounts, and a refund of any levied funds, she makes no specific allegations, and does not cite to any statute or to any case law giving the state court or this Court jurisdiction to provide such relief. 1 Plaintiff has named the IRS as a defendant, but the true defendant in this case is the United States because “Congress has not constituted the Commission a body corporate or authorized it to be sued eo nomine.” See Blackmar v. Guerre, 342 U.S. 512, 514-15 (1952). 2 Trespass is a common law tort that applies to real property. Because there are no allegations involving Plaintiff’s real property, it appears the Complaint bears incorrect terminology in describing Plaintiff’s claim. 3 While Plaintiff refers to Allison Christensen, Cheryl Cordero, and D. Lovato (identified as Internal Revenue Service employees) in the Complaint, these individuals are not listed as defendants nor have they been served with process. Moreover, the Complaint makes no allegations of any actions or inactions by these individuals. Case 2:16-cv-00554-PMW Document 8 Filed 08/12/16 Page 3 of 15 2 On June 9, 2016, the United States removed this action from the District Court for the Third Judicial District of the State of Utah, in and for Salt Lake County to this Court. LEGAL STANDARD Generally, the court should hold the pleadings of pro se parties to a less stringent standard than formal pleadings drafted by lawyers. Hall v. Bellmon, 935 F.2d 1106, 1110 (1991) (citing Haines v. Kerner, 404 U.S. 519, 520 (1972)). However, the leniency afforded to pro se parties does not relieve them of meeting fundamental jurisdictional, procedural, and factual requirements. See Ogden v. San Juan County, 32 F.3d 452, 455 (10th Cir. 1994). Thus, a Plaintiff, whether represented or appearing pro se, must articulate claims that are more than merely “conceivable.” See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007); Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949-50 (2009). A federal court’s subject-matter jurisdiction is of paramount importance in every federal case because “federal courts are courts of limited jurisdiction.” Owen Equipment & Erection Co. v. Kroger, 437 U.S. 365, 374 (1978). When a defendant brings a motion to dismiss a case pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, the court must grant that motion if the court does in fact lack subject-matter jurisdiction. Fed. R. Civ. P. 12(b)(1) and 12(h)(3). The party who seeks to invoke federal jurisdiction bears the burden of establishing such jurisdiction exists. Montoya v. Chao, 296 F.3d 952, 955 (10th Cir. 2002). When reviewing a motion to dismiss for lack of subject-matter jurisdiction, a court must accept the allegations in the complaint as true and draw all reasonable inferences in favor of the non-moving party. Holt v. United States, 46 F.3d 1000, 1002 (10th Cir. 1995) (citing Ohio Nat’l Life Ins. Co. v. United States, 922 F.2d 320, 325 (6th Cir. 1990)) (internal citations omitted). Case 2:16-cv-00554-PMW Document 8 Filed 08/12/16 Page 4 of 15 3 Another fundamental requirement of the Federal Rules of Civil Procedure is that a claimant must state a claim upon which relief may be granted, and thus a pro se claim may be properly dismissed when a court finds that the complaint fails to do so. See Fed. R. Civ. P. 12(b)(6). When considering a motion to dismiss pursuant to Rule 12(b)(6), a court must accept as true the well-pled allegations in the complaint, and must view them in the light most favorable to the non-moving party. Sutton v. Utah State Sch. for the Deaf and Blind, 173 F.3d 1226, 1236 (10th Cir. 1999). However, merely conclusory allegations are not given that deference, and can be dismissed by the court. Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008). ARGUMENT I. The IRS may not be sued, and therefore, it is not the proper defendant in this case. Plaintiff has named the IRS as the defendant in this case. However, the IRS is an agency of the United States, and Congress has not authorized lawsuits against the agency in its own name. It is well-settled that “Congress has not constituted the Commission a body corporate or authorized it to be sued eo nomine.” See Blackmar v. Guerre, 342 U.S. 512, 514-15 (1952). There is no Congressional authority to sue the Department of Treasury or the Internal Revenue Service, and therefore, the IRS is not a suable entity, and cannot be a defendant in this case. The proper defendant in this case is the United States of America. II. This suit should be dismissed pursuant to Fed. R. Civ. P. 12(b)(1) because the Court lacks subject-matter jurisdiction. A. The Court lacks subject-matter jurisdiction because the United States has not waived sovereign immunity. Case 2:16-cv-00554-PMW Document 8 Filed 08/12/16 Page 5 of 15 4 The Court should dismiss this action in its entirety for lack of subject-matter jurisdiction. The United States is a sovereign, and to establish subject-matter jurisdiction against it, there must exist an express waiver of sovereign immunity and statutory authority granting subject-matter jurisdiction. See United States v. Mitchell, 445 U.S. 535, 538 (1980); United States v. Sherwood, 312 U.S. 584, 586 (1941); Fostvedt v. United States, 978 F.2d 1201, 1203 (10th Cir. 1992). Waivers of sovereign immunity must be unequivocally expressed and cannot be implied. See Mitchell, 455 U.S. at 538; Fostvedt, 978 F.2d at 1203; United States v. Dalm, 494 U.S. 596, 608 (1990); Overton v. United States, 925 F.2d 1282, 1284 (10th Cir. 1991). A party bringing a cause of action against the federal government bears the burden of showing an unequivocal waiver of immunity. Fostvedt, 978 F.2d at 1203; Baker v. United States, 817 F.2d 560, 562 (9th Cir. 1987); Holloman v. Watt, 708 F.2d 1399, 1401 (9th Cir. 1983), cert. denied, 466 U.S. 958 (1984). Where the United States has not consented to the waiver of sovereign immunity, a court is required to dismiss the action. Atkinson v. O'Neill, 867 F.2d 589, 590 (10th Cir.1989). Statutes that are claimed to be waivers of sovereign immunity are to be strictly construed against such surrender. See Safeway Portland Employees’ Federal Credit Union v. FDIC, 506 F.2d 1213, 1216 (9th Cir. 1974). Even when a suit is brought pursuant to a statute that expressly waives the United States’ sovereign immunity, that suit is subject to dismissal unless it is brought in exact compliance with the terms of that statute. Sherwood, 312 U.S. at 590. Plaintiffs bear the burden of asserting that the United States has waived sovereign immunity. See Holloman, 708 F.2d at 1401. In this case, Plaintiff has cited to no statutes or any other authority as basis for a claim that the United States has waived its sovereign immunity, and as set forth in this Motion, there is no authority that would allow her to make such a claim. Case 2:16-cv-00554-PMW Document 8 Filed 08/12/16 Page 6 of 15 5 B. There is no waiver of sovereign immunity for a Federal Tort Claims action based upon the assessment and collection of federal taxes, thus, dismissal is proper pursuant to Rule 12(b)(1). The Federal Tort Claims Act (“FTCA”) provides a limited waiver of sovereign immunity for certain tort claims against the United States. See 28 U.S.C. § 2671 et seq. The FTCA provides the exclusive remedy for tort claims arising from negligent or wrongful conduct of employees acting within the scope of their employment. 28 U.S.C. § 2679(b)(1). Plaintiff cannot rely on the FTCA against the United States in this case, however, because tort claims arising out of tax assessments or collection are not recoverable under the FTCA. 28 U.S.C. § 2680(c); see also, Burge v. IRS, 39 F.3d 1191, *1 (10th Cir. 1994); National Commodity and Barter Ass'n, National Commodity Exchange v. Gibbs, 886 F.2d 1240, 1246 (10th Cir. 1989). Even if an action under the FTCA were available to Plaintiff, she is barred from bring a suit under the FTCA because she has failed to show that she exhausted her administrative remedies - a jurisdictional prerequisite to filing a claim under the FTCA. 28 U.S.C. § 2675(a); See McNeil v. United States, 508 U.S. 106, 112 (1993). Therefore, Plaintiff’s claim of “trespass” cannot proceed under the FTCA. C. The Court lacks subject-matter jurisdiction to consider a tax-refund claim under 28 U.S.C. § 1346(a)(1) and 26 U.S.C. § 7422. The United States has waived its sovereign immunity to allow taxpayers to file suits seeking tax refunds. 28 U.S.C. § 1346(a)(1); see also 26 U.S.C. § 7422. But in order to invoke the court’s jurisdiction in a refund suit, the taxpayer must first file an appropriate claim for refund with the Secretary. 26 U.S.C. §§ 7422(a), 6511; Dalm, 494 U.S. at 602. The claim for refund must “set forth in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof.” Treas. Reg. § 301.6402-2(b)(1). The claim for refund must also be filed within the time limits set forth in 26 U.S.C. § 6511. If the claim is Case 2:16-cv-00554-PMW Document 8 Filed 08/12/16 Page 7 of 15 6 not acted upon, the taxpayer must wait at least six months before bringing suit, and suit must be brought not more than two years after expiration of that six-month period or rejection of the claim. 26 U.S.C. § 6532(a); Kelson v. United States, 503 F.2d 1291, 1292-1293 (10th Cir. 1974) (interpreting time restrictions in 26 U.S.C. § 6532). Plaintiff’s request for “[her] property [to be] returned immediately” may be construed as a claim for a refund. See Dkt. #2-1, at p. 11. Yet, she presents no facts or allegations which, if proven, would establish that she has met the jurisdictional prerequisites for a refund suit. Plaintiff has failed to plead sufficient facts to sustain a refund action under 26 U.S.C. § 7422. Fed. R. Civ. P. 8(1)(2); See also, Iqbal, 556 U.S. 662, Twombly, 550 U.S. 544. Therefore, to the extent Plaintiff’s claims are construed as a claim for refund, they must be dismissed under Fed. R. Civ. P. 12(b)(1) for lack of jurisdiction. D. The Court lacks subject-matter jurisdiction to consider a wrongful-levy claim under 26 U.S.C. § 7426(a). Section 7426 of the Internal Revenue Code provides the exclusive remedy for a wrongful- levy claim brought against the United States. Crow v. Wyoming Timber Products, Co., 424 F.2d 93, 96 (10th Cir. 1970); Trust Co. of Columbus v. United States, 735 F.2d 447, 448 (11th Cir. 1984). Specifically, the statute authorizes a wrongful-levy action against the United States by “any person (other than the person against whom is assessed the tax out of which [the] levy arose)” who claims an interest in a property, and claims that the property was wrongfully levied upon. 26 U.S.C. 7426(a) (emphasis added). Although Plaintiff in this case alleges that her property was levied upon, she makes no allegations suggesting that she is not the taxpayer for whose tax the levy was made, or that the levy was wrongful. Accordingly, while the United States has waived its sovereign immunity for wrongful-levy actions generally, Plaintiff is Case 2:16-cv-00554-PMW Document 8 Filed 08/12/16 Page 8 of 15 7 ineligible to file such an action. To the extent Plaintiff’s allegations are construed as a claim for a wrongful-levy action under 26 U.S.C § 7426(a), such an action is barred because Plaintiff lacks standing to bring a wrongful-levy claim under that statute, and so the Court lacks jurisdiction to consider this claim. E. This action is expressly barred by the Anti-Injunction Act and the Declaratory Judgment Act. To the extent Plaintiff’s request can be construed as a request for declaratory relief with respect to her federal taxes, the tax exception to the Declaratory Judgment Act, 28 U.S.C. § 2201, specifically bars such relief. Fostvedt, 978 F.2d at 1203. That statute provides, in pertinent part: In a case of actual controversy within its jurisdiction, except with respect to Federal taxes, . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. 28 U.S.C. § 2201(a) (emphasis added). Furthermore, to the extent Plaintiff’s suit is seeking to restrain the United States from collecting her federal tax liabilities, this suit is expressly barred by Section 7421 of the Internal Revenue Code. That statue, commonly referred to as the Anti-Injunction Act, provides, with certain exceptions not pertinent here, that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person.” See 26 U.S.C. § 7421; Wyoming Trucking Ass’n, Inc. V. Bentsen, 82 F.3d 930, 933 (10th Cir. 1996). The Anti- Injunction Act has been broadly construed to deprive the courts of jurisdiction to enjoin any aspect of activity culminating in the assessment or collection of federal taxes. Bob Jones University v. Simon, 416 U.S. 725, 738-739 (1974). A suit that falls within the Act’s proscription Case 2:16-cv-00554-PMW Document 8 Filed 08/12/16 Page 9 of 15 8 must be dismissed for lack of subject-matter jurisdiction. Alexander v. “Americans United” Inc., 416 U.S. 752, 757-58 (1974). In this action, Plaintiff’s alleges that “[the] IRS is administrating [her] property without any rights.” To the extent Plaintiff is referring to any IRS levies, and requesting relief from the alleged IRS levies, her request falls squarely within the prohibition of the Anti-Injunction Act and the Declaratory Judgment Act. This type of relief would be wholly disruptive to the Government’s efforts to assess and collect taxes, and would also threaten the voluntary compliance upon which the federal tax system depends. To avoid the bar of the Anti-Injunction Act, Plaintiff would have to show that the Government could not prevail under any circumstances, and that equity jurisdiction is otherwise present because of the existence of irreparable injury for which there is no legal remedy. Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 7 (1962). Here, Plaintiff alleges that “[the] IRS is administrating [her] property without any rights” and that “somebody moved [her] funds.” These barebones allegations may refer to Internal Revenue Service levies resulting from Plaintiff’s outstanding tax liabilities. Under 26 U.S.C. § 6331(a), in conjunction with 26 U.S.C. § 7701(a)(11) and (12), the Secretary of the Treasury, or any officer, employee, or agency of the Treasury Department is authorized to levy upon the property of a taxpayer. Plaintiff in this case may have failed to satisfy her outstanding federal income tax liabilities or post a bond. And in her Complaint, she has not made any valid claims that the IRS failed to follow the proper procedures under the Internal Revenue Code in administering the alleged levies. Plaintiff’s allegations and claim for relief are merely attempts to disrupt the collection of taxes. Plaintiff has an adequate remedy at law; she can pay the full amount of taxes owed and sue for a refund in this Case 2:16-cv-00554-PMW Document 8 Filed 08/12/16 Page 10 of 15 9 Court or in the Court of Federal Claims. A refund action is an adequate remedy at law. Wyoming Trucking Ass’n, Inc., 82 F.3d at 933. Because Plaintiff cannot demonstrate that under no set of circumstance could the United States prevail, and Plaintiff cannot demonstrate that she does not have an adequate remedy at law, Plaintiff’s action is barred by the Anti-Injunction Act and the Declaratory Judgment Act and this Court lacks jurisdiction to hear the claims. III. This suit should be dismissed pursuant to Fed. R. Civ. P. 12(b)(6) because Plaintiff has failed to state a claim upon which relief may be granted. A party fails to state a claim upon which relief may be granted when he or she fails to allege facts sufficient to show he or she is entitled to relief. Fed. R. Civ. P. 8(a)(2) & 12(b)(6). Even pro se claimants must meet this standard because a court “will not supply additional factual allegations to round out a [pro se claimant]’s complaint or construct a legal theory on a [pro se claimant]’s behalf,” and may not assume that a claimant can prove facts that have not been alleged, nor that defendants have violated laws in ways that have not been alleged. Whitney v. New Mexico, 113 F.3d 1170, 1172-74 (10th Cir. 1997) (“Mindful that pro se actions are held to a less stringent standard . . . we nonetheless allow a complaint to be dismissed . . . if the plaintiff cannot make a rational argument on the law and facts . . . .”). A pro se litigant’s “conclusory allegations without supporting factual averments are insufficient to state a claim upon which relief can be based.” Hall, 935 F.2d at 1110. The Supreme Court has indicated that litigants must not only meet the low threshold in Rule 8(a)(2) of providing a “short and plain statement of the claim showing that the pleader is entitled to relief,” but must also “nudge[] their claims across the line from conceivable to plausible” by “stat[ing] a claim to relief that is plausible on its face.” See Twombly, 550 U.S. at 570; Iqbal, 129 S. Ct. at 1949-50; Fed. R. Civ. P. 8(a)(2); see also Case 2:16-cv-00554-PMW Document 8 Filed 08/12/16 Page 11 of 15 10 Robbins, 519 F.3d at 1247. The Complaint in this case fails to meet the Twombly/Iqbal standard of plausibility on its face. A. To the extent Plaintiff is seeking damages under 26 U.S.C. § 7433, Plaintiff’s claim fails because Plaintiff has not alleged any facts to support a valid claim for an unauthorized collection action under § 7433. Title 26 U.S.C. § 7433 is the exclusive remedy for recovering damages resulting from unauthorized collection actions. Rosson v. United States, 127 Fed. App’x. 398 (10th Cir. 2005); 26 U.S.C. 7433(a). Specifically, the statute allows taxpayers to bring a claim for damages if, “in the collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of negligence, disregards any provision of this title, or any regulation promulgated under this title.” 26 U.S.C. 7433(a). While Congress has waived the United States’ sovereign immunity for cases brought under § 7433, that waiver is conditioned upon the plaintiff’s exhaustion of “the administrative remedies available to such plaintiff within the Internal Revenue Service” prior to initiating suit. See Gray v. United States, 723 F.3d 795, 798 (7th Cir. 2013). Aside from the requirement to exhaust administrating remedies before bringing a suit, “[a] plaintiff may not pursue a § 7433 action for violation of anything but statutes or regulations.” Id. (citing Schwarz v. United State, 234 F.3d 428, 433-34 (9th Cir. 2000)); Gonsalves v. Comm’r, 975F.2d 13, 16 (1st Cir. 1992); O’Brien v. United States, No. 97-0256, 2002 WL 1987413, at *3-4 (D. Nev. July 9, 2002) (because plaintiff failed to refer to a specific tax statute or regulation, or to allege facts in support of the statutes he has cited, plaintiff failed to state a claim under § 7433), reversed on other grounds, 2003 WL 21995344 (9th Cir. 2003); Ludtke v. United States, 84 F. Supp. 2d 294, 302 (D. Conn. 1999) (recognizing that several courts have granted a motion to dismiss where plaintiff failed to allege how the IRS Case 2:16-cv-00554-PMW Document 8 Filed 08/12/16 Page 12 of 15 11 recklessly or intentionally disregarded the Internal Revenue Code by referring to a specific statute or regulation). Plaintiff here is seeking to have “[her] property returned,” “accounts to be restored,” and “five thousand dollars remedy for damages for wasting [her] time for filing a lawsuit.” Dkt. #2-1, at p. 11. The relief Plaintiff is seeking may be construed as a claim for damages for unlawful collection activity under 26 U.S.C. § 7433. But Plaintiff does not make even a single allegation as to whether or not she has satisfied § 7433’s precondition to suit requirement of exhausting all administrative remedies. Furthermore, Plaintiff also fails to allege any reckless, intentional, or negligent conduct by an officer or employee of the Internal Revenue Service. In fact, Plaintiff makes no specific allegations as to any specific action or inaction by an IRS employee or officer. CONCLUSION This action should be dismissed in its entirety because this court lacks subject-matter jurisdiction, Plaintiff has failed to state plausible facts sufficient to show she is entitled to relief, and for failure to properly serve the United. // Case 2:16-cv-00554-PMW Document 8 Filed 08/12/16 Page 13 of 15 12 WHEREFORE, the United States respectfully requests that the Court dismiss this action. Respectfully submitted this 12th day of August, 2016. CAROLINE D. CIRAOLO Principal Deputy Assistant Attorney General /s/ Mahana K. Weidler MAHANA K. WEIDLER Trial Attorney, Tax Division U.S. Department of Justice Of Counsel: JOHN W. HUBER United States Attorney Counsel for the United States Case 2:16-cv-00554-PMW Document 8 Filed 08/12/16 Page 14 of 15 1 CERTIFICATE OF SERVICE I hereby certify that on this August 12, 2016, a copy of the foregoing Motion to Dismiss was served by mailing a copy of that document and its attachments, by first-class mail, postage prepaid, to the following: KAREN SHIELDS 15605 Rose Canyon Road Herriman, Utah 84096 Plaintiff /s/ Mahana K. Weidler MAHANA K. WEIDLER Trial Attorney, Tax Division U.S. Department of Justice Case 2:16-cv-00554-PMW Document 8 Filed 08/12/16 Page 15 of 15