Opinion
Case No. 1:00-CV-753
November 6, 2001
OPINION
This matter is before the Court on Defendant's Motion to Dismiss. The Court will deny Defendant's Motion.
I. Standard of Review and Applicable Federal Rules of Evidence
Defendant makes a motion to dismiss this case for failure to state a claim upon which relief can be granted, pursuant to Federal Rule of Civil Procedure 12(b)(6). Under Federal Rule of Civil Procedure 12(b)(6), a court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations. Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Hishon v. King Spalding, 467 U.S. 69, 73 (1984). The allegations of the complaint must be construed in the light most favorable to the plaintiff. Gregory v. Shelby County, Tenn., 220 F.3d 433, 446 (6th Cir. 2000) (citations omitted). The rules generally require only a "short and plain statement of the claim" and not detailed allegations. Leatherman v. Tarrant County Narcotics Intelligence Coordination Unit, 507 U.S. 163, 168 (1993). The complaint, however, "must contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory." Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir. 1988) (quotations omitted) (emphasis in original). The Court "need not accept as true legal conclusions or unwarranted factual inferences." Gregory, 220 F.3d at 446. A district court's ruling on a Rule 12(b)(6) motion is subject to de novo review. Id. at 445-46 (citations omitted).
II. Analysis
Plaintiff, the United States, has brought suit against Defendant Hillman for purposes of obtaining judgment on assessments made by the Internal Revenue Service (IRS) for unpaid federal individual income taxes and for an assessment of $500 made for Defendant's filing of a frivolous federal individual income tax return. The suit, authorized and requested by a delegate of the Secretary of the Treasury and at the direction of the United States Attorney General, was brought pursuant to 26 U.S.C. § 7401, which is part of the Internal Revenue Code of 1986. Defendant moves to dismiss because he argues that the Secretary of the Treasury and Attorney General lack authority under 26 U.S.C. § 7401 to bring this action. Defendant further argues that the only taxpayers against whom these suits may be brought are those falling under the administrative authority of the Bureau of Alcohol, Tobacco, and Firearms (ATF) by virtue of their participation in activities subject to excise taxes.
The language of 26 U.S.C. § 7401 provides that, "No civil action for the collection or recovery of taxes, or of any fine, penalty, or forfeiture, shall be commenced unless the Secretary authorizes or sanctions the proceedings and the Attorney General or his delegate directs that the action be commenced." 26 U.S.C. § 7401 (2001). For various reasons that the Court will address below, Defendant asserts that this section only authorizes suit for the collection of excise taxes, an argument that has been rejected by other courts, including in this District. See, e.g., United States v. Griffin, 1998 WL 786209, at *4 (W.D.Mich. Sept. 28, 1998) (Quist, J.) (citing 26 U.S.C. § 7401 and Treas. Reg. § 301.7401-1(a) for proposition that this statute and accompanying Treasury Regulation "clearly allow a civil action to be brought for the collection or recovery of any category of federal taxes," as long as the action is authorized by the proper government officials). Another Court in this District called the same argument made by another party that Defendant makes to this Court "convoluted" and "wholly baseless," for obvious reasons discussed below. Russell v. United States, 1994 WL 750673, at *2 (W.D.Mich. Nov. 23, 1994) (Bell, J.).
Defendant's argument is that because there is a published regulation clarifying § 7401 as it applies to taxation of ATF-regulated activities, but no other regulations have been published with respect to § 7401 as to other types of taxes, this means that the § 7401 authorization to sue taxpayers only applies to taxpayers who are deficient in payment of excise taxes and not in payment of individual income taxes. This argument stretches the bounds of logic and continues to be without merit. First, on its face § 7401 clearly provides authorization for the type of suit at issue, as it does not make any distinction for the type of taxes that the Government is suing to recover. See 26 U.S.C. § 7401.
Second, Congress gave the IRS Commissioner authority to "prescribe all needful rules and regulations for the enforcement of [the Internal Revenue Code], including all rules and regulations as may be necessary by reason of any alteration of law in relation to internal revenue." 26 U.S.C. § 7805(a) (emphasis added). Other courts have recognized that § "7805(a) is a general grant of authority by Congress to the Commissioner to promulgate as necessary `interpretative regulations' stating the agency's views of what the existing Code provisions already require. Section 7805(a) does not require the promulgation of regulations as a prerequisite to the enforcement of each and every provision of the Code." United States v. Langert, 902 F. Supp. 999, 1002-03 (D.Minn. 1995) (citing E.I. duPont de Nemours Co. v. Commissioner of Internal Revenue, 41 F.3d 130, 135 n. 20 (3d Cir. 1994)). When Congress is sufficiently clear in a Code provision that it has enacted, an interpretative regulation is not necessary. Langert, 902 F. Supp. at 1003 (citing Russell, 1994 WL 750673, at *2). Certainly, if it were true that all statutes required accompanying regulations to be enforceable, paper and ink production would be the leading industries in this nation.
Defendant cites case law purporting to stand for his asserted proposition that statutes do not have force or effect without accompanying regulations. The citations, however, are taken out of context and do not stand for this absurd result. In United States v. Mersky, for example, the United States Supreme Court there noted, while discussing whether the Criminal Appeals Act applied to an individual accused of violating a regulation promulgated under the Tariff Act of 1930, that the Criminal Appeals Act calls for direct appeals if the District Court's dismissal is based upon the invalidity or construction of a statute. This Court has always construed the Criminal Appeals Act narrowly, limiting it strictly "to the instances specified." Here the statute [meaning the Tariff Act] is not complete by itself, since it merely declares the range of its operation and leaves to its progeny the means to be utilized in the effectuation of its command. But it is the statute which creates the offense of the willful removal of the labels of origin and provides the punishment for violations. The regulations, on the other hand, prescribe the identifying language of the label itself, and assign the resulting tags to their respective geographical areas.
Mersky, 361 U.S. 431, 438 (1960) (citations omitted). In other words, the Mersky Court is explaining why the regulations promulgated pursuant to the Tariff Act must be considered when interpreting the statute, because Congress chose to leave to regulators to decide "the means to be utilized in the effectuation of its command," but never holds that the Tariff Act would be without any force in the absence of the regulations.
Then the Court goes on to say that because the regulations were authorized by the Tariff Act, a violation of the regulation has the same effect as a violation of the law. This is, of course, why the Tariff Act statute and the regulations must be read together, because merely examining the statute will not inform the reader as to the universe of conduct proscribed by the statute. The continuation of this quote is only the portion cited by Defendant:
Once promulgated, these regulations, called for by the statute itself, have the force of law, and violations thereof incur criminal prosecutions, just as if all the details had been incorporated into the congressional language. The result is that neither the statute nor the regulations are complete without the other, and only together do they have any force. In effect, therefore, the construction of one necessarily involves the construction of the other.
Id. at 438-39. Clearly, with respect to the Tariff Act, the regulations complete the statute and the statute has no "force" without them because the language of the statute itself does not prohibit the actions it seeks to prohibit. It leaves that to the regulations. The Tariff Act is not, however, dependent on the regulations for its very life as an enforceable statute; the statute is only dependent on the regulations for its meaning. This description by the Mersky Court is completely congruent with the enforceability of 26 U.S.C. § 7401. Section 7401 has meaning with its very language, since it authorizes certain government officials to commence suit against allegedly delinquent taxpayers. This statute does not require further regulation to give it meaning, and it certainly does not require further regulation to give it enforceability.
The same situation arises in the Supreme Court's discussion in California Bankers Ass'n v. Shultz, 416 U.S. 21, 26 (1974), also cited by Defendant. There, the complete quote, encompassing the portion cited to this Court by Defendant, is:
These appeals present questions concerning the constitutionality of the so-called Bank Secrecy Act of 1970 (Act), and the implementing regulations promulgated thereunder by the Secretary of the Treasury. The Act, Pub.L. 91-508, 84 Stat. 1114, 12 U.S.C. § 1730d, 1829b, 1951-1959, and 31 U.S.C. § 1051-1062, 1081-1083, 1101-1105, 1121-1122, was enacted by Congress in 1970 following extensive hearings concerning the unavailability of foreign and domestic bank records of customers thought to be engaged in activities entailing criminal or civil liability. Under the Act, the Secretary of the Treasury is authorized to prescribe by regulation certain recordkeeping and reporting requirements for banks and other financial institutions in this country. Because it has a bearing on our treatment of some of the issues raised by the parties, we think it important to note that the Act's civil and criminal penalties attach only upon violation of regulations promulgated by the Secretary; if the Secretary were to do nothing, the Act itself would impose no penalties on anyone.
California Bankers Ass'n, 416 U.S. at 25-26. Here again, the Supreme Court is referring to a statute that itself prescribes nothing, so if the Secretary does not promulgate regulations, the statute continues to prescribe nothing. But the statute does not need regulations to be enforceable. There is simply nothing to enforce without regulations. Once again, the statute does not depend on regulations for its life as an enforceable statute, but only depends on the regulations for its meaning.
Finally, Defendant cites case law noting that executive branch agencies must follow properly promulgated regulations. It clearly does not follow from this proposition, however, that regulations must exist in order to make a statute enforceable. If regulations are properly promulgated under a statute, they must be followed just as the statute must be, but if there are no regulations, that has no bearing whatsoever on the enforceability of the statute absent some other unusual direction from Congress to the contrary contained in the statute. Defendant here can point to no such direction in this statute, and in fact, the direction from Congress on this subject found in § 7805(a) points to the firm conclusion that while regulations are authorized, they are not required.
In his redundant Defendant's Response to United States Opposition to Defendant's Motion to Dismiss (Dkt. No. 26), Defendant continues his argument by citing regulations that require publishing of regulations by naming what agencies "shall" do and asserting that this means that regulations are required for a statute's enforceability. Defendant also asserts that the word "shall" means that agencies must publish regulations because "shall" indicates Congressional intent for mandatory action. Defendant is correct that Congress intended that their publishing requirements for regulations are mandatory if regulations exist, but his argument of course fails as to his ultimate proposition that regulations must exist.
In addition, Defendant asserts that 26 U.S.C. § 6201, 6702, and 6212 are not valid for the same reasons he asserts that § 7401 is invalid. As discussed above, this argument is without any merit.
III. Conclusion
Since Defendant's entire Motion to Dismiss is based on this absurd interpretation of the authorizing statute and other statutes at issue, the Court finds that Plaintiff has stated a claim upon which relief may be granted. Therefore, for the reasons stated, the Court will deny Defendant's Motion. An order consistent with this opinion will be entered.
ORDER
In accordance with an Opinion filed this day, IT IS HEREBY ORDERED that Defendant's Motion to Dismiss (Dkt. No. 20) is DENIED.