Opinion
No. 03-1301-T-An
April 9, 2004
ORDER GRANTING MOTION TO DISMISS OF UNITED STATES OF AMERICA
Plaintiff Rick D. Lee has filed a complaint in this court seeking to challenge the propriety of an IRS assessment against him pursuant to 28 U.S.C. § 1346(a)(1). The United States has filed a motion to dismiss on the ground that the court lacks subject matter jurisdiction because Plaintiff allegedly failed to fulfill the statutory requirements necessary for court review. Plaintiff has responded to the motion, and the United States has filed a reply to the response. For the reasons set forth below, the motion to dismiss is GRANTED.
Section 1346(a)(1) of Title 28 provides that the district courts shall have original jurisdiction of "Any civil action against the United States for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected . . ."
A complaint should not be dismissed for failure to state a claim unless it is clear that the plaintiff would not be entitled to relief even if the factual allegations were proven. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). The factual allegations must be taken as true, Hammond v. Baldwin, 866 F.2d 172, 175 (6th Cir. 1989), and it must be apparent that the plaintiff "can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Hammond, 866 F.2d at 175. The complaint must be read in the light most favorable to the plaintiff. Allard v. Weitzman (In re Delorian Motor Co.), 991 F.2d 1236, 1240 (6th Cir. 1993).
Plaintiff challenges penalties assessed by the IRS for the tax periods that ended December 31, 1998, March 31, 1999, June 30, 1999, September 30, 1999, and December 31, 1999. The IRS determined that Plaintiff was a person responsible for the collection, accounting, and payment of employees' federal withholding taxes at Pacific Construction, Inc. Pursuant to 26 U.S.C. § 6672, the IRS found Plaintiff to be a person responsible for willfully failing to collect, truthfully account for, and failing to pay over these withholding taxes and was assessed $82,381.88 for the relevant tax periods.
In his complaint, Plaintiff alleges that the assessment was in error because he had resigned his position with Pacific and sold his shares in the corporation prior to the relevant tax periods. Plaintiff filed a claim for refund and request for abatement with the IRS on June 8, 2001. This request and claim was denied on November 15, 2001. The letter denying the request and claim stated, in pertinent part:
If you wish to bring suit or proceedings for the recovery of any tax, penalties, or other moneys for which this disallowance notice is issued, you may do so by filing such a suit with the United States District Court having jurisdiction, or the United States Court of Federal Claims. The law permits you to do this within two years from the mailing date of this letter.
Exhibit to Complaint. Plaintiff filed his complaint on November 14, 2003.
The United States contends that the action must be dismissed because Plaintiff has not complied with all of the jurisdictional prerequisites necessary to challenge the assessment against him in a suit before this court. According to the United States, Plaintiff did not pay the amount of tax necessary to establish jurisdiction in this court.
Pursuant to 28 U.S.C. § 1346(a) and 26 U.S.C. § 7422, the United States has waived its sovereign immunity with respect to refund suits by taxpayers to recover taxes alleged to have been erroneously or illegally collected. Abadi v. United States, 782 F. Supp. 59, 61 (E.D. Mich. 1992). Section 7422(a) provides in relevant part:
No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for a refund or credit has been duly filed with the Secretary, according to the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof.26 U.S.C. § 7422(a). Thus, a duly filed administrative claim for refund is a jurisdictional prerequisite to an action for refund of taxes in district court. Ameel v. United States, 426 F.2d 1270, 1274 (6th Cir. 1970); Bajenski v. Chivatero, 818 F. Supp. 1085 (N.D. Ohio 1993). Additionally, a taxpayer must fully pay the assessed tax before invoking the jurisdiction of the district court for the refund of any portion of federal income tax. Flora v. United States. 362 U.S. 145, 176-78 (1960). See also Schon v. United States, 759 F.2d 614 (7th 1985) (A taxpayer may not rely on § 1346(a)(1) to challenge an erroneously or illegally assessed amount without first paying the full amount of the income tax deficiency.);Brammer v. United States, 897 F. Supp. 1022 (N.D. Ohio 1995) ("Since Brammer failed to comply with the statutory prerequisites for bringing a refund suit in this court by having failed to pay the tax necessary to establish jurisdiction here, this action is hereby dismissed for lack of subject matter jurisdiction."); Leeke v. United States, 737 F. Supp. 1013 (S.D. Ohio 1990) (A taxpayer must pay the tax alleged to have been erroneously assessed and file a claim for refund before he may bring suit in federal court.)
Flora held that § 1346(a)(1) requires full payment of the assessment before an income tax refund suit can be maintained in a federal district court. However, when there is a claim for refund for taxes assessed under § 6672, the full payment requirement of Flora is met when the tax assessed is paid in full for one employee. Steele v. United States. 280 F.2d 89, 90-91 (8th Cir. 1960).
Here, Plaintiff does not contend that he paid the requisite amount to the IRS. Instead, he argues that he relied to his detriment on the November 15, 2001, letter that was sent to him and, thus, the United States is equitably estopped from claiming that he has not complied with the jurisdictional requirements for filing suit. Plaintiff asserts that, based on the information contained in the letter, he has expended considerable time and resources in trying to resolve this matter and that he filed this lawsuit in reliance on the two year deadline stated in the letter.
Title 26 U.S.C. § 6511(a) provides in part that a
[c]laim for credit or refund of an overpayment of any tax imposed by this title in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid.
Thus, under § 6511(a), a taxpayer must file an administrative claim for a refund within three years of the time that the return on which the claim is based was filed, or within two years of the time the taxes in question were paid, whichever is later. Title 26 U.S.C. § 6532(a), which imposes a period of limitations on suits for refunds in court states that
[n]o suit or proceeding under section 7422(a) . . . shall be begun before the expiration of 6 months from the date of filing the claim required under such section . . ., nor after the expiration of 2 years from the date of mailing by certified mail or registered mail by the Secretary to the taxpayer of a notice of the disallowance.
In Thomas v. United States. 166 F.3d 825, 828 (6th Cir. 1999), the Sixth Circuit Court of Appeals set out "the steps a taxpayer must take before he can maintain a suit in federal court."
Initially, the taxpayer must file a sufficient administrative claim with the IRS. The administrative claim must be filed before the later of two years from the time the tax was paid or three years from the time the tax return was filed. After filing a sufficient and timely administrative claim, the taxpayer may file an action in federal court if he is dissatisfied with the IRS' determination. However, the action must be filed within two years of the IRS' rejection of the claim.Id. at 828-29 (citations omitted). "Unless these steps are taken, a federal court does not have jurisdiction to consider the merits of the taxpayer's claim against the IRS." Id. at 828,
Accordingly, because Plaintiff has not paid the requisite tax, the two year limitations period has not yet begun to run. Because Plaintiff may file another lawsuit after he has exhausted his administrative remedies if he is not satisfied with the outcome, Plaintiff cannot show detrimental reliance on the letter.
Even if Plaintiff relied on the letter to his detriment, Plaintiff's estoppel argument is without merit. In Palmer v. Commissioner of Internal Revenue, 2003 WL 1796024 (7th Cir.), the district court dismissed the action, holding that it lacked subject matter jurisdiction because the plaintiffs did not comply with the conditions required to waive the sovereign immunity of the United States. On appeal, the plaintiffs argued that the IRS had waived any jurisdictional defect because, in their correspondence with the IRS, they had been instructed that they could file suit in the district court. Id. at *2. The appellate court rejected their argument. "even assuming that the IRS made such a representation, because a party cannot be estopped from contesting subject-matter jurisdiction." Id. (citing Estate of Kunze v. Commissioner, 233 F.3d 948, 952 (7th Cir. 2000) (concluding that the plaintiff could not "manufacture subject matter jurisdiction based solely on a government agent's misinterpretation of tax statutes")). Likewise, here, the United States is not estopped from contesting this court's subject matter jurisdiction.
Because Plaintiff has not met the statutory requirements for filing suit in this court, the court lacks subject matter jurisdiction. Consequently, the motion to dismiss of the United States is GRANTED. The clerk is directed to enter judgment accordingly.
IT IS SO ORDERED.