Summary
stating that 26 C.F.R. § 301.6325-1(d) "does not permit a revenue officer to deny a written application for a certificate of subordination"
Summary of this case from Ryan v. United StatesOpinion
Civil Action No. 99-533
July 10, 2000
MEMORANDUM
I
In this civil action, plaintiff asserts a cause of action pursuant to 26 U.S.C. § 7433. Plaintiff alleges that defendant, acting through the employees and agents of the Internal Revenue Service (IRS), conducted unauthorized tax collection activities that disregarded the Internal Revenue Code, 26 U.S.C. § 1, et seq. (IRC), or regulations promulgated thereunder. Presently, before the court is the motion of defendant to dismiss plaintiff's amended complaint pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6). For reasons which follow, the court will grant defendant's motion.
Plaintiff's complaint is comprised of two counts. Count I is designated as a wrongful death action "to recover damages for the wrongful death of Ernest J. Kugler, Jr. pursuant to the provisions of 42 Pa.C.S. § 8301 . . . and to recover damages on behalf of the Estate of Ernest J. Kugler, Jr. pursuant to the provisions of 42 Pa.C.S. § 8302." (Amended Complaint ¶¶ 33-34) Count II is designed as a survival action in which plaintiff seeks "damages pursuant to the provisions of 42 Pa.C.S. § 8302." (Amended Complaint ¶ 49). However, it is clear that plaintiff's cause of action falls under Section 7433 of the IRC and not Pennsylvania's Wrongful Death and Survival statutes. (See Amended Complaint ¶ 4, stating that "[t]his is an action by the Plaintiff against the United States of America acting through the officers and employees of the Department of the Treasury, Internal Revenue Service alleging unauthorized tax collection activities pursuant to 26 U.S.C. § 7433 which resulted in the wrongful death of Ernest J. Kugler, Jr.).
II
The procedural and factual history of this case can be summarized as follows:
Plaintiff is the widow of Ernest J. Kugler, Jr. and she is the executrix of his estate. Defendant United States of America is the governmental entity responsible for the collection of individual federal income taxes. This undertaking is accomplished through the IRS.
In 1981, 1982, 1984, and 1986 through 1995, plaintiff and Mr. Kugler were unable to pay individual income taxes. In addition, Mr. Kugler incurred sole proprietorship liabilities stemming from his business.
Plaintiff and Mr. Kugler filed for Chapter 13 bankruptcy for the years 1990 and 1993. In 1993, plaintiff and Mr. Kugler, in an effort to satisfy their tax liability, agreed to make monthly payments over a five year period to the IRS. However, in 1995, Mr. Kugler suffered injuries which made him unable to work. As a result, plaintiff and Mr. Kugler defaulted on their payment plan.
The IRS subsequently began collection procedures which included, inter alia, placing liens on the Kuglers' home and seizing the settlement proceeds from a personal injury action in which Mr. Kugler had been involved. In response to the placement of the liens on their residence, the Kuglers expressed to IRS Revenue Officer John Marker their interest in obtaining a mortgage or loan, the proceeds of which would be used to partially satisfy their tax liabilities. By letter dated October 9, 1996, Mr. Marker informed the Kuglers that he would not recommend the issuance of a certificate of subordination that the lending institution would require for such a loan. Mr. Marker indicated that his "decision" was based on the deficiency of the mortgage proceeds in comparison to the Kuglers' tax liability.
By March of 1997, the Kugler's tax liability had increased to approximately $157,000.00. The majority of that liability was comprised of accrued interest and penalties. Subsequently, the IRS directed the Kuglers to sell their home by April 16, 1997 in order to pay a portion of their debt. As a result, the Kuglers filed for Chapter 11 bankruptcy on April 3, 1997.
On May 15, 1997, plaintiff attended a meeting with the IRS concerning the Chapter 11 bankruptcy. Mr. Kugler refused to attend the meeting because of his previous dealings with the IRS. Sometime later, Mr. Kugler committed suicide.
On April 6, 1999, plaintiff filed a complaint in the present case. In response to the complaint, defendant filed a motion to dismiss. On December 27, 1999, this court granted defendant's motion and dismissed plaintiff's complaint without prejudice to her right to file an amended complaint on or before January 7, 2000. Plaintiff filed her amended complaint on January 7, 2000.
III A
A motion to dismiss for lack of subject matter jurisdiction, pursuant to Fed.R.Civ.P. 12(b)(1), tests the power of a court to hear the particular type of claim asserted by a plaintiff. On a defendant's Fed.R.Civ.P. 12(b)(1) motion to dismiss, the plaintiff has the burden of showing jurisdiction exists. Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3rd Cir. 1991). In deciding a motion to dismiss for lack of subject matter jurisdiction, the court may consider the pleadings and evidence outside the pleadings. Mortensen v. First Federal Sav. Loan Ass'n, 549 F.2d 884, 891 (3rd Cir. 1977) Also, the court may "weigh the evidence and satisfy itself as to its power to hear the case."Mortensen, 549 F.2d at 891.
B
A motion to dismiss for failure to state a claim, pursuant to Fed.R.Civ.P. 12(b)(6), tests the sufficiency of a complaint. See Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993). In deciding a motion to dismiss under Fed.R.Civ.P. 12(b)(6), the court accepts as true the facts pleaded in the complaint and any reasonable inferences derived from those facts. Unger v. Nat'l Residents Matching Program, 928 F.2d 1392, 1400 (3d Cir. 1991) Additionally, the court is to construe the complaint in the light most favorable to the plaintiff. Colburn v. Upper Darby Twp., 838 F.2d 663, 665 (3d Cir. 1988), cert. denied, 489 U.S. 1065 (1989). However, the court is not required to accept as true legal conclusions or unwarranted factual inferences. Resolution Trust Corp. v. Farmer, 823 F. Supp. 302, 305 (E.D.Pa. 1993) (citation omitted).
IV
An analysis of plaintiff's claims begins with consideration of Title 26, United States Code, Section 7433. Section 7433 provides in pertinent part as follows:
§ 7433. Civil damages for certain unauthorized collection actions
(a) In general. — If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service recklessly or intentionally disregards any provision of this title, or any regulation promulgated under this title, such taxpayer may bring a civil action for damages against the United States in a district court of the United States. Except as provided in section 7432, such civil action shall be the exclusive remedy for recovering damages resulting from such actions.26 U.S.C. § 7433(a). Plaintiff's amended complaint refers to the conduct of Revenue Officer John Marker, conduct allegedly evincing a reckless or intentional disregard of Treasury Regulation 301.6325-1(d), as the primary basis for her cause of action under 26 U.S.C. § 7433.
In support of its motion to dismiss, defendant presents two arguments. First, defendant argues that the cited regulation contains no procedural framework that would include recommendations from a Revenue Officer. Second, defendant argues that any action taken by a district officer with respect to issuing a certificate of subordination is discretionary in nature, precluding a finding of reckless or intentional disregard of the IRC or Treasury Regulations.
In response, plaintiff argues that Mr. Marker's October 9, 1996 letter to the Kuglers' attorney, in which Mr. Marker stated that he would not recommend the issuance of a certificate of subordination, is evidence of Mr. Marker's reckless disregard of Treasury Regulation 301.6325-1(d). Plaintiff's argument is without merit.
Treasury Regulation 301.6325-1(d) sets forth the procedure for applying for a certificate of subordination.
§ 301.6325-1 Release of lien or discharge of property.
(d) Subordination of lien
(4) Application for certificate of subordination. Any person desiring a certificate of subordination under this paragraph shall submit an application therefor in writing to the district director responsible for the collection of the tax. The application shall contain such information as the district director may require.
Treas. Reg. § 301.6325-1(d)(4).
Plaintiff concedes that neither she nor Mr. Kugler submitted a written application to the district director as required by the regulation. (Amended Complaint ¶ 41(f)); (Br. at 7). However, plaintiff argues as follows:
. . . based upon the Treasury Regulation and the related Revenue Procedure, the District Director has the discretionary authority to grant or issue a certificate of subordination. It is also apparent that a Revenue Officer does not have discretionary authority to recommend or deny the issuing of a certificate of subordination. This is the gist of Plaintiff's Amended Complaint.
(Br. at 6)
The court agrees with plaintiff's argument that the regulation does not permit a revenue officer to deny a written application for a certificate of subordination. However, it does not follow that plaintiff has stated a claim upon which relief can be granted.
The district director cannot exercise her discretionary authority to issue a certificate of subordination unless an applicant submits a written application to her. It is not possible to conceive how Mr. Marker usurped the district director's discretionary authority when the district director had no authority to issue a certificate in plaintiff's case because plaintiff never submitted a written application to her.
Moreover, plaintiff's "request" for a certificate of subordination, a request made to Mr. Marker, was either oral or written. If oral, Mr. Marker could not have usurped the district director's discretionary authority to issue a certificate of subordination because that authority extends only to written applications.
A similar result obtains from a written application improperly filed with Mr. Marker. Setting aside that the fact that any written application was improperly filed with the revenue officer, the court observes that plaintiff's amended complaint accurately alleges that Mr. Marker indicated in his letter dated October 9, 1996 that he was not going to recommend the issuance of a certificate of subordination. Mr. Marker's language is clear: although he refuses to recommend the issuance of a certificate of subordination, he nowhere indicates that he is rejecting the Kuglers' request. The court is unable to ascertain how a mere refusal to recommend amounts to usurpation of the district director's discretionary authority to issue a certificate of subordination.
To the extent that plaintiff complains of Mr. Marker's failure to forward the Kuglers' request to the district director, plaintiff's claim is not one upon which relief can be granted.
Plaintiff has cited no clause of Treasury Regulation 301.6325-1(d) or any other Treasury Regulation that requires revenue officers to forward improperly-filed written applications to the district director. Thus, even if plaintiff submitted a written application, Mr. Marker's failure to forward that application is not actionable conduct.
It is clear from the foregoing that Mr. Marker did not act in reckless or intentional disregard to any provision of the IRC or the regulations promulgated thereunder. Accordingly, the court will grant defendant's motion to dismiss.
In addition to her claim based upon Mr. Marker's alleged usurpation of the district director's discretionary authority to issue a certificate of subordination, plaintiff asserts a claim based upon the Kuglers' inability to submit an offer in compromise to the IRS due to Mr. Marker's alleged usurpation. Because the court has concluded that Mr. Marker did not usurp the district director's discretionary authority, this claim must fail as a matter of course.
An order follows.
ORDER
AND NOW, this 10th day of July, 2000, in accordance with the foregoing memorandum, it is hereby ORDERED as follows:
1. The motion of defendant to dismiss the amended complaint of plaintiff, pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6), is granted.
2. The Clerk shall mark the case closed.