Opinion
Case No. A-03-CA-115-SS
June 24, 2003
ORDER
BE IT REMEMBERED on the 24thday of June 2003 the Court reviewed the file in the above-styled cause, specifically Federal Defendants' Motion to Dismiss or for Summary Judgment [#4], Defendants Capital Metro Transportation Authority and Star Tran, Inc.'s Motion to Dismiss [#11], and Plaintiffs' response thereto [#13]. Having considered the motions and response, the case file as a whole and the applicable law, the Court enters the following opinion and orders.
Background
The plaintiffs in this case, Russell and Tina Mortland, live in Driftwood, Texas. See Am. Compl. at ¶ 2. They sue the Internal Revenue Service ("IRS") and three of its employees: William Hsieh, Ms. Ward and Mr. Lang. Id. The plaintiffs challenge the IRS's attempts to assess and collect their income tax liabilities for the years 1996 through 2000 and the IRS's current withholding of income taxes from their pay checks. The exhibits attached to the amended complaint indicate the IRS assessed the amount owed by Russell Mortland for 1999 at $2,416.78 and for 2000 at $36,673.53, and Tina Mortland's amount due for 1999 at $766.59 and $2,859.13 for 2000 (all amounts include penalties and interest due). Id. at Ex. A-B. On March 12, 2003, the IRS sent a letter to Star Tran, Russell Mortland's employer, instructing it to ignore Mortland's Form W-4 and withhold taxes according to its instructions. Id. at Ex. F. The plaintiffs request a show cause hearing at which the IRS should produce documentation showing the IRS has authority to collect the amount sought; an injunction against the IRS's further collection activity until all claims are resolved; an injunction against Capital Metro Transit Authority and Star Tran's future withholding from Russell Mortland' s paycheck; reimbursement of funds withheld from Russell Mortland's paycheck; termination of IRS employees who have committed misconduct; punitive damages; and court costs. Id. at ¶¶ 22-28.
Analysis
The Federal Defendants (the United States and its three employees) move to dismiss the plaintiffs' claims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure or, in the alternative, for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. Defendants Capital Metro Transportation Authority ("Capital Metro") and Star Tran, Inc. ("Star Tran") move to dismiss plaintiffs' claims against them pursuant to Rule 12(b)(6). The plaintiffs have filed a response to these motions.
In deciding whether to dismiss for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, "the Court must take the factual allegations as true, resolving any ambiguities or doubts regarding the sufficiency of the claim in favor of the plaintiff." Fernandez-Montes v. Allied Pilots Ass'n, 987 F.2d 278, 284 (5th Cir. 1993). The Court should then dismiss only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 78 S.Ct. 99, 102 (1957). A court grants summary judgment if the moving party shows there is no genuine issue of material fact and it is entitled to judgment as a matter of law. See FED. R. Civ. P. 56(c). In deciding summary judgment, the Court construes all facts and inferences in the light most favorable to the nonmoving party — here, the plaintiffs. Hart v. O'Brien, 127 F.3d 424, 435 (5th Cir. 1997), cert. denied, 119 S.Ct. 868 (1999). The standard for determining whether to grant summary judgment "is not merely whether there is a sufficient factual dispute to permit the case to go forward, but whether a rational trier of fact could find for the nonmoving party based upon the record evidence before the court." James v. Sadler, 909 F.2d 834, 837 (5th Cir. 1990).
Both parties bear burdens of producing evidence in the summary judgment process. See Celotex Corp. v. Catrett, 106 S.Ct. 2548 (1986). First, "[t]he moving party must show that, if the evidentiary material of record were reduced to admissible evidence in court, it would be insufficient to permit the nonmoving party to carry its burden of proof." Hart, 127 F.3d at 435. The nonmoving party must then "set forth specific facts showing a genuine issue for trial and may not rest upon the mere allegations or denials of its pleadings." Id. However, "[n]either `conclusory allegations' nor `unsubstantiated assertions' will satisfy the non-movant's burden." Wallace v. Texas Tech Univ., 80 F.3d 1042, 1047 (5th Cir. 1996).
I. Doctrine of Sovereign Immunity
The United States contends this Court has no jurisdiction over the above-styled cause because it is immune from suit under the doctrine of sovereign immunity. The United States, along with its agents sued in their official capacity, is immune from suit unless it expressly consents to be sued by statute or otherwise. United States v. Sherwood, 312 U.S. 584, 586 (1941). Suits against federal agencies such as the IRS are construed as suits against the United States, invoking sovereign immunity. Perez v. United States, 312 F.3d 191, 194 (5th Cir. 2002). A statutory waiver "must be unequivocally expressed in statutory text" and "will be strictly construed, in terms of its scope, in favor of the sovereign." Lane v. Pena, 518 U.S. 187, 192, 116 S.Ct. 2092 (1996). Thus, the Court must dismiss for lack of subject matter jurisdiction any lawsuit that does not comply with the express requirements in the statutory waiver. See United States v. White Mountain Apache Tribe, 537 U.S. 465, 123 S.Ct. 1126, 1131-32(2003). For example, a taxpayer may sue the United States for a tax refund under 26 U.S.C. § 7422, but he must comply with the terms of the statute, including the requirement that he pay the taxes assessed and file an administrative claim for refund before filing a lawsuit. See 26 U.S.C. § 7422; Shanbaum v. United States, 32 F.3d 180, 182 (5th] Cir. 1994). The plaintiffs do not assert this statute or allege they have fulfilled the statutory prerequisites to suit. Additionally, Congress has expressly forbidden suits under the Federal Tort Claims Act arising from the assessment or collection of taxes and suits for injunctive relief restraining the assessment or collection of taxes. See 28 U.S.C. § 2860(c); 26 U.S.C. § 7421(a). In this case, the plaintiffs seek to avoid sovereign immunity by alleging the defendants committed violations of various other statutes. To determine whether the Court has subject matter jurisdiction over the plaintiffs' claims against the United States and its agents, the Court must examine whether the plaintiffs have stated a claim under each statute and complied with the procedures outlined in the statute.
The plaintiffs contend "[t]he Internal Revenue Service is not a U.S. Government agency" but is "a corporation held in trust in Puerto Rico and serves the International Monetary Fund (IMF), not the United States." Response at 2. This assertion is contrary to statutes and case law, and many a federal court has applied the doctrine of sovereign immunity to the IRS. E.g., United States v. Dalm, 494 U.S. 596, 110 S.Ct. 1361 (1990). The plaintiffs argument that "Internal Revenue Service personnel will be considered and treated as hostile agents of a foreign government" similarly fails. Response at 3.
II. Violation of 26 U.S.C. § 3412
In their first cause of action, the plaintiffs contend IRS agent Ward violated 26 U.S.C. § 3412 by evaluating plaintiffs' tax liability according to a presumed financial status audit. Ward signed the IRS Form 4549 that evaluated both plaintiffs' taxes due for 1999 and 2000. See Am. Compl. at Ex. A-B. The statute the plaintiffs assert, 26 U.S.C. § 3412, does not exist. However, because the plaintiffs are proceeding pro se, the Court construes the allegations in their complaint more permissively. See Haines v. Kerner, 404 U.S. 519, 520, 92 S.Ct. 594(1972); SEC v. AMXInt'l, Inc., 7 F.3d 71, 75 (5th Cir. 1993). Construing the complaint broadly, it seems the plaintiffs are arguing Ward presumed income that was not reported in calculating their taxes due. The Court will therefore construe this claim as a claim under 26 U.S.C. § 7602(e), which states:
The Secretary shall not use financial status or economic reality examination techniques to determine the existence of unreported income of any taxpayer unless the Secretary has a reasonable indication that there is a likelihood of such unreported income.26 U.S.C. § 7602(e). The Court can find no precedent indicating citizens can bring a cause of action against the United States to enforce this section, and the statute itself provides no waiver of sovereign immunity. Instead, the context in which this section typically arises is a suit by the IRS to enforce a summons issued under 26 U.S.C. § 7602 or a suit by a taxpayer to quash such a summons. See United States v. Moore, 970 F.2d 48 (5th Cir. 1992); Barquero v. United States, 18 F.3d 1311 (1994).
Even if the United States did waive its sovereign immunity in 26 U.S.C. § 7602(e), the plaintiffs' claim fails because they have produced no evidence in response to the United States' summary judgment motion supporting their allegation that the IRS used a presumed financial status audit in determining their unreported income. The Government has provided evidence that it discovered plaintiffs likely had unreported income through W-2 forms and correspondence from the plaintiffs. See Gov't Ex. 1-2. Thus, to the extent the Court has subject matter jurisdiction over this cause of action, which is highly unlikely, the plaintiffs have not substantiated their claim with any evidence at all and summary judgment is appropriate.
III. Violation of 15 U.S.C. § 1692
In their second and seventh causes of action, the plaintiffs contend IRS agents Ward and William Hsieh violated the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692, by failing to advise the plaintiffs of their due process rights concerning the collection of debts or their right to appeal under IRS procedures. Assuming the United States waived its sovereign immunity under the FDCPA, the plaintiffs have failed to state a claim under the FDCPA because unpaid income taxes are not considered debts for purposes of the act. See, e.g., In re Westberry, 215 F.3d 589, 591 (6th Cir. 2000); Beggs V. Rossi, 145 F.3d 511, 512 (2d Cir. 1998); Staub v. Harris, 626F.2d 275 (3d Cir. 1980). Accordingly, the second and seventh causes of action are dismissed pursuant to Rule 12(b)(6) for failure to state a claim upon which relief may be granted.
IV. Violation of 26 U.S.C. § 3432
In their third cause of action, the plaintiffs allege agent Hsieh violated 26 U.S.C. § 3432 by failing to release a notice of intent to levy against plaintiffs and failing to give them notice of their right to appeal under IRS procedures. Section 3432 does not exist. Construing the complaint in favor of the plaintiffs, the Court presumes the plaintiffs intended to refer to 26 U.S.C. § 6343(e), which states: "In the case of a levy on the salary or wages payable to or received by the taxpayer, upon agreement with the taxpayer that the tax is not collectible, the Secretary shall release such levy as soon as practicable." 26 U.S.C. § 6343(e) (emphasis added). Even assuming this statutory provision waives the Government's sovereign immunity, it applies on its face only when the taxpayer and the IRS reach an agreement that the tax is not collectible. The plaintiffs have not alleged such an agreement exists, and the record does not include any such agreement. Therefore, the plaintiffs have failed to state a claim under this provision and their third cause of action must be dismissed.
V. Violation of 26 U.S.C. § 7214(a)
In their fourth cause of action, the plaintiffs claim the IRS violated 26 U.S.C. § 7214(a) by trying to collect sums greater than appeared on the summary record of assessments for the years 1996, 1997, 1999, 2000, 2001 and 2002. See Am. Compl. at ¶ 9. Under that section, Government employees may be discharged and are criminally liable for knowingly demanding greater sums than are authorized by law or signing fraudulent statements, among other acts. See 26 U.S.C. § 7214(a). However, citizens may bring a civil suit for damages only after the IRS agent has been criminally convicted. See, e.g., Watts v. IRS, 925 F. Supp. 271, 279 (D.N.J. 1996); Brunwasser v. Jacobs, 453 F. Supp. 567, 572 (W.D. Pa. 1978), affd, 605 F.2d 1194 (3d Cir. 1979). Additionally, a court has discretion to award damages to injured citizens only after a conviction. See 26 U.S.C. § 7214(a); see also Fausner v. CIR, 47 F.3d 1175 (9th Cir. 1995) (unpublished disposition). To the extent Congress intended to waive sovereign immunity in this section, it certainly did not intend to waive immunity under these circumstances, when the plaintiffs do not even allege any IRS agent has been discharged or criminally charged with a violation of the statute. Accordingly, this claim must be dismissed.
VI. Fraud and Violation of 26 U.S.C. § 6203
In their fifth cause of action, the plaintiffs contend the IRS attempted fraud by claiming a RACS006 is a record of individual assessment of tax due by the plaintiffs. See Am. Compl. at 4-5. The plaintiffs argue the assessment process violated 26 U.S.C. § 6203 and submit a report from the General Accounting Office discussing the RACS (revenue general ledger accounting system) and stating the RACS does not contain detailed information sorted by individual or corporate tax. Id. at Ex. D, p. 2. It appears the plaintiffs argue the RACS006 form is an improper assessment form. Section 6203 states: "The assessment shall be made by recording the liability of the taxpayer in the office of the Secretary in accordance with rules and regulations prescribed by the Secretary. Upon request of the taxpayer, the Secretary shall furnish the taxpayer a copy of the record of the assessment." 26 U.S.C. § 6203. Presuming section 6203 waives the Government's immunity from suit, the record unequivocally demonstrates the IRS complied with section 6203 by making a valid assessment of both plaintiffs' tax liabilities and providing a Form 4340 (certificate of assessment). See Gov't Ex. 3; see also Perez v. United States, 2001 WL 1836185 (W.D. Tex. 2001) ("It is generally held that a Form 4340 is presumptive proof of a valid assessment and compliance with sections 6201 and 6203."). Accordingly, to the extent the Court has subject matter jurisdiction over this claim, summary judgment is appropriate.
VII. Bankruptcy Discharge
The plaintiffs' sixth cause of action alleges IRS agent Hsieh violated the Bankruptcy Code by attempting to collect a debt that was discharged by the plaintiffs' bankruptcy. The record of the plaintiffs' Chapter 7 bankruptcy case filed in October 1997 in the Western District of Texas, Cause No. 97-14125, indicates the plaintiffs were granted a discharge on March 5,1998. Under 11 U.S.C. § 523(a)(1), a bankruptcy discharge under 11 U.S.C. § 727 does not apply to income tax liability with respect to which a return was filed within three years of the filing of the bankruptcy petition; when no return was filed or a return was filed late within two years before the filing of the bankruptcy petition; or when the debtor made a fraudulent return or attempted to evade taxation. 11 U.S.C. § 523(a)(1); 507(a)(8). The discharge is not applicable to the plaintiffs' returns for 1996, 1997, 1999, 2000 and 2001, because these dates are either within three years of their filing for bankruptcy or after the discharge. Accordingly, presuming plaintiffs may sue the Government under the Bankruptcy Code, which is doubtful at best, they have not stated a Bankruptcy Code violation and this claim must be dismissed.
VII. Notices of Deficiency
In their eighth cause of action, the plaintiffs contend the IRS has attempted fraud against them by demanding payments of income taxes without issuing Notice of Deficiencies for the years 1996 and 1997. The Fifth Circuit held the Government waived its immunity to procedural challenges to the validity of its tax liens under 28 U.S.C. § 2410(a), including a challenge to its assessment of taxes due. See McCarty v. United States, 929 F.2d 1085, 1087 (5th Cir. 1991). However, that holding and the statute it was based on apply only to situations where the IRS has a lien on a taxpayer's personal or real property, which is not the case here. See 28 U.S.C. § 2410(a). Therefore, the United States has not waived its sovereign immunity with respect to the plaintiffs' challenge. Nonetheless, the record is clear that the IRS mailed the plaintiffs Notices of Deficiency for 1996 and 1997 on November 30, 2000 by certified mail. See Gov't Ex. 4-8. Thus, even if the Court had subject matter jurisdiction over this claim, summary judgment would be appropriate.
VIII. Withholding under 26 U.S.C. § 3402
The plaintiffs' ninth cause of action claims the IRS and Lang wrongfully ordered Star Tran and Capital Metro to ignore Russell Mortland's W-2 forms and withhold taxes from his paycheck according to the IRS's instructions. The plaintiffs provide no authority waiving the Government's immunity to such a suit, and they provide no authority supporting their claims that they should not be subject to withholding under 26 U.S.C. § 3402. While the plaintiffs do argue there is no constitutional foundation supporting the Government's authority to collect income tax, this argument flies in the face of the Sixteenth Amendment to the United States Constitution, which states: "The Congress shall have the power to lay and collect taxes on incomes, from whatever source derived." U.S. CONST. amend. XVI. The plaintiffs also contend the Government cannot compel private employers to withhold taxes from their employees, because such compulsion is involuntary servitude. However, the withholding statute has been found constitutional time and again, and the plaintiffs provide no support for their imaginative involuntary servitude argument. See, e.g., Campbell v. Amax Coal Co., 610 F.2d 701 (10th Cir. 1979). Accordingly, this claim is dismissed.
IX. Unlawful Withholding
Finally, in their tenth cause of action, the plaintiffs challenge Capital Metro's unlawful withholding of funds from Russell Mortland's paycheck without due process of law. Under 26 U.S.C. § 3402, employers are required to withhold taxes from their employees' paychecks in accordance with the statute and regulations. Additionally, courts have held the withholding statute does not violate due process. Campbell, 610 F.2d 701. Accordingly, the plaintiffs have failed to state a claim against Capital Metro and Star Tran.
Conclusion
As discussed above, the plaintiffs have provided no authority demonstrating the Government waives its sovereign immunity to suit on the plaintiffs' claims. Additionally, construing plaintiffs' claims as broadly as possible, their claims would fail on the merits even if they could surpass the jurisdictional barriers. If the plaintiffs were to pay the taxes due, they could seek a refund under the statutory scheme established for taxpayers to do so. It appears the plaintiffs are unwilling to pay the taxes assessed, however, and would prefer to continue to argue their income is not taxable and assume a "status as a stranger foreign to the public trust [who has] voluntarily cancelled, severed, waived, rejected, forfeited, rescinded, and refused to accept any and all franchised and co-franchised benefits" offered by the Government (except, apparently, unemployment benefits and bankruptcy protection). Because such absurd arguments have no place in this Court, this case is dismissed.
In accordance with the foregoing:
IT IS ORDERED that Federal Defendants' Motion to Dismiss [#4] is GRANTED as to plaintiffs' first through fourth causes of action and sixth through ninth causes of action, and Federal Defendants' Alternative Motion for Summary Judgment [#4] is GRANTED as to plaintiffs' fifth cause of action;
IT IS FURTHER ORDERED that Defendants Capital Metro Transportation Authority and Star Tran, Inc.'s Motion to Dismiss [#11] is GRANTED, and the plaintiffs claims against these defendants are DISMISSED pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted;
IT IS FINALLY ORDERED that Defendants' Motion to Strike Order Entered May 22, 2003 and to Stay Disclosures [#12] is DISMISSED AS MOOT.