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Magann v. United States Internal Revenue Service

United States District Court, D. Nevada
Mar 5, 2003
Case No. CV-S-02-0807-KJD (PAL) (D. Nev. Mar. 5, 2003)

Opinion

Case No. CV-S-02-0807-KJD (PAL)

March 5, 2003


ORDER


Presently, the Court has before it Defendant's Motion to Dismiss or, in the Alternative, for Summary Judgment (#10). Plaintiff filed a response in opposition (#11).

I. Background.

Plaintiff failed to file a federal income tax return for his 1987 tax year. Due to this failure, in March 1994 Defendant assessed tax, interest and a late filing penalty against the Plaintiff for his 1987 tax year. According to the attached administrative record, Defendant sent Plaintiff "Taxpayer Deliquency Notices" and "Notice of Intent to Levy." Plaintiff argues that he has never received a "Notice of Intent to Levy" from the Defendant in the last fifteen (15) years. The record does partially corroborate Plaintiff's assertion: the "Notice of Intent to Levy" that was issued December 17, 2001 was returned undeliverable on February 2, 2002. The record is silent, however, on whether the same types of notices issued in August 1994 and May 1999 were also undelivered. in May and June 2002, Defendant levied Plaintiff's Social Security pension to collect the outstanding tax liability.

In response to the levies, Plaintiff filed the instant complaint. Plaintiff bases jurisdiction on 28 U.S.C. § 1343 (a)(3), 1346(a)(2) 42 U.S.C. § 1983. Plaintiff now seeks a determination that he does not owe any federal income taxes for his 1987 tax year, a return of all money received by Defendant pursuant to the levies, a removal of all tax liens, and an award of damages in the amount of one million dollars.

II. Analysis.

A dismissal for failure to state a claim pursuant to Rule 12(b)(6) is a ruling on a question of law. See Clegg v. Cult Awareness Network, 18 F.3d 752, 754 (9th Cir. 1994). In reviewing a Rule 12(b)(6) motion, the Court "must construe the complaint in the light most favorable to the plaintiff and must accept all well-pleaded factual allegations as true."Schwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000). Review is limited to the contents of the complaint. See Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). All allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party. See id. The court is not required to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences. See Clegg, 18 F.3d at 754-55. A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claims that would entitle him to relief. See Sprewell, 266 F.3d at 988.

Here, the Court lacks jurisdiction to grant the relief Plaintiff seeks. To the extent that Plaintiff seeks declaratory relief, federal statutes clearly forbid the Court from granting such a request. Section 2201(a), which governs declaratory judgments, declares:

In a case of actual controversy within its jurisdiction, except with respect to Federal taxes other than actions brought under 7428 of the Internal Revenue Code . . . 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.

Section 2201(a) prohibits the Court from determining rights and legal relations as it governs federal taxes. The only exception to this rule concerns actions brought under 26 U.S.C. § 7428, which is not applicable here. Under § 7428, a party can seek declaratory judgment in a United States District Court relating to the status and classification of organizations under section 501(c)(3). Plaintiff, however, seeks a judgment that he does not owe any federal income tax for his 1987 tax year or that the levy conducted in 2002 was an inappropriate collection action. The Court thus lacks the jurisdiction to grant the declaratory relief Plaintiff now desires.

To the extent Plaintiff seeks injunctive relief, the Court also lacks jurisdiction. Section 7421, commonly referred to as the Anti-Injunction Act, provides

Except as provided in sections 6015(e), 6212(a) and (c), 6213(a), 6225(b), 6330(e)(1), 6331(i), 6672(c), 6694(c), 7426(a) and (b)(1), 7429(b), and 7436, no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax is assessed.

The Anti-Injunction Act sets forth specific exceptions which, if present, will support the granting of equitable relief. Plaintiff does not contend that he comes under one of these statutory exceptions, and the Court is not aware of any that apply in the instant case.

Section 6015(e) provides relief from joint and several liability on a joint return. Sections 6212(a) and (c) provide relief if the Secretary fails to send the taxpayer a notice of deficiency or if the taxpayer files a petition in Tax Court contesting the deficiency. Section 62 13(a) sets forth the time after a notice of deficiency is issued to petition the Tax Court for relief. Sections 6225(b) and 6246(b) relate to partnership proceedings. Section 6330(e)(1) provides relief by suspending specified actions during the pendency of a hearing before levy pursuant to 6330(a). Section 6331(i) provides relief by enjoining a levy during pendency of a divisible tax refund proceeding. Section 6672(c) applies only to "[a]ny person required to collect, truthfully account for, and pay over any tax imposed by this title." Thus, this section pertains to the failure to collect and pay over tax or attempt to evade or defeat tax. Section 6994(c) applies to the understatement of taxpayer's liability by an income tax return preparer. Sections 7426(a) and (b)(1) applies to civil actions brought by persons other than the taxpayer. Section 7429(b) applies to jeopardy levy or assessment proceedings. Finally, section 7436 applies to proceedings for determination of employment status. Plaintiff fails to argue under which of these statutory exceptions, if any, he can seek injunctive relief. By asserting that he failed to receive his "Notice of Intent to Levy," Plaintiff's assertion colorably comes under § 6330(a). However, this exception applies only when an hearing has been requested, which understandably Plaintiff has not because he claims not to have received such notice. Even assuming that Plaintiffs situation comes under § 6330(a), it is unclear that this Court would have jurisdiction to grant an injunction. Because the IRS's proposed levy involves an underlying tax liability, judicial review of a determination made in a § 6330(a) hearing, or a redetermination of the tax deficiencies, lies in the Tax Court, not the district court. See Krugman v. Comm'r, 112 T.C. 230, 236 n. 6 (1999); see also McCandless v. United States, No. C-02-2573-EDL, 2002 WL 31487885, *1, *4 (N.D. Cal. Nov. 1, 2002).

Moreover, the judicial exception to the Anti-Injunction Act also appears to be inapplicable. To prevail under the judicial exception, the party must prove both that (1) it is clear that under no circumstances could the government ultimately prevail; and (2) equity jurisdiction otherwise exists, i.e., the taxpayer shows that he would otherwise suffer irreparable harm. See Church of Scientology of Cal. v. United States, 920 F.2d 1481, 1485 (9th Cir. 1990) (quoting Comm'r v. Shapiro, 424 U.S. 614, 627 (1976)). "The burden is on the taxpayer to establish both prongs of the test and, unless both prongs are meet, a suit for injunctive relief must be dismissed." Cal. ex rel. Ervin v. Dist. Dir., 170 F. Supp.2d 1040, 1047 (E.D. Cal. 2001). Plaintiff makes no mention of the required showing for the judicial exception to the Anti-Injunction Act, despite his burden to do so. Moreover, even if Plaintiff could met the first prong of the test, he fails on the second. Plaintiff does have a legal remedy: challenge the validity of his tax liability by way of a tax refund suit. See March v. Harper, No. 02-12 00119 HG-BMK, 2002 WL 1396510, *7 (D. Haw. May 14, 2002). Because Plaintiff does not fall within any of statutory or judicial exceptions to the Anti-Injunction Act, the Court must dismiss the complaint to the extent it seeks injunctive relief. See Sokolow v. United States, 169 F.3d 663, 665 (9th Cir. 1999).

To the extent Plaintiff seeks a return of the money levied, the Court lacks jurisdiction to grant such relief. A taxpayer may file a suit in a district court to recover any internal revenue tax alleged to have been excessive or in any manner wrongfully collected under internal revenue laws. See 28 U.S.C. § 1346 (a)(1). Before a taxpayer may file in federal district court, he must satisfy the jurisdictional prerequisites of making a full payment of the tax deficiency and exhausting his administrative remedies by filing a refund claim with the IRS. See Flora v. United States, 362 U.S. 145, 146 (1960) (holding that a federal district court has no jurisdiction under 28 U.S.C. § 1346 (a)(1) over a suit by a taxpayer for the refund of income tax payments which did not discharge the entire amount of his assessment). Plaintiff has failed to meet his burden as to this relief. Plaintiff does not claim that he has made full payment, only that he does not owe any taxes so the amount levied should be refunded to him. Moreover, Plaintiff does not claim to have filed an administrative claim with the IRS seeking a refund. Absent full payment and exhaustion of his administrative remedies, Plaintiff's remedy lies in Tax Court.

A taxpayer may, however, challenge a tax liability before paying the deficiency by filing a timely petition with the Tax Court. See Scar v. Comm'r, 814 F.2d 1363, 1366 (9th Cir. 1987).

Finally, to the extent Plaintiff seeks damages of $1,000,000, the Court lacks jurisdiction. In his opposition, Plaintiff for the first time states that damages are predicated on 26 U.S.C. § 7426 (h), 7433(b). These sections provide for damages against the United States where an officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of negligence, disregards any provision of the tax code. See 26 U.S.C. § 7426 (h)(1), 7433(a). A prerequisite for filing a suit under §§ 7426 and 7433 is the filing of an administrative claim for damages with the IRS. See id. §§ 7426(h)(2), 7433(d)(1). In the instant case, Plaintiff has not alleged or established that he has exhausted his administrative remedies as required by §§ 7426(h)(2) and 7433(d)(1). The requirement that administrative remedies be exhausted prior to filing suit is a prerequisite to the United States' waiver of sovereign immunity under these sections and, absent exhaustion, a claim for damages against the United States must be dismissed for lack of subject matter jurisdiction. See Conforte v. United States, 979 F.2d 1375, 1376 (9th Cir. 1993).

In conclusion, the Court lacks jurisdiction to grant the relief Plaintiff now seeks be it a declaratory judgment, an injunction, a refund, or monetary damages. Accordingly,

IT IS HEREBY ORDERED that Defendant's Motion to Dismiss or, in the Alternative, for Summary Judgment (#10) is GRANTED. Plaintiffs complaint (#1) is hereby DISMISSED.


Summaries of

Magann v. United States Internal Revenue Service

United States District Court, D. Nevada
Mar 5, 2003
Case No. CV-S-02-0807-KJD (PAL) (D. Nev. Mar. 5, 2003)
Case details for

Magann v. United States Internal Revenue Service

Case Details

Full title:WILLIAM F. MAGANN, Plaintiff, v. UNITED STATES INTERNAL REVENUE SERVICE…

Court:United States District Court, D. Nevada

Date published: Mar 5, 2003

Citations

Case No. CV-S-02-0807-KJD (PAL) (D. Nev. Mar. 5, 2003)