Opinion
No. 3:04-cv-16-RLY-WGH.
January 7, 2005
Entry Discussing Motion to Dismiss
For the reasons explained in this Entry, the United States is substituted as the defendant in this action in place of the Commissioner of the Internal Revenue Service and the United States' motion to dismiss must be granted.
I.
The plaintiffs challenge a federal income tax deficiency made by the Internal Revenue Service relating to the plaintiffs' tax liability for the taxable year ending December 31, 1994. On January 15, 1999, the additional income tax liability was assessed against them. The plaintiffs have not fully paid the tax liability which has been assessed against them. Contending that the assessment was improper and was not timely documented, and that improper collection methods have been used, the plaintiffs seek a declaration that they are not liable for the taxes and interest assessed against them for the taxable year ending December 31, 1994, and compensatory damages for what they characterize as the Internal Revenue Service's wrongful conduct.The plaintiffs named the Commissioner of the Internal Revenue Service as the defendant in this action, but all the statutes and rules involved in their claim are linked to the rights and responsibilities of the United States, so the United States is substituted as the defendant.
The United States has filed a motion to dismiss the complaint. The plaintiffs have responded. On a motion to dismiss for lack of subject-matter jurisdiction pursuant to Rule 12(b)(1), the plaintiff bears the burden of establishing that the court has subject-matter jurisdiction. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992). If a defendant goes beyond the allegations contained in the complaint and challenges the facts upon which subject matter jurisdiction depends, the court will not presume the truthfulness of the plaintiff's allegations and may properly consider whatever evidence is submitted to resolve the jurisdictional question. Johnson v. Apna Ghar, Inc., 330 F.3d 999, 1001 (7th Cir. 2003).
II.
The Internal Revenue Code provides a remedy for refund of taxes improperly collected. 26 U.S.C. § 7422. The Internal Revenue Code also provides a damages remedy for unauthorized collection activities. 26 U.S.C. § 7433. There is a specific statute, 28 U.S.C. § 1346(a)1), through which Congress has provided for suit in the federal district courts against the United States in any action for recovery of any internal revenue tax that is claimed to have been illegally or erroneously assessed or collected. See United States v. Forma, 42 F.3d 759, 763 (2d Cir. 1994). Other statutory provisions and case law construing those statutes require, however, that as a condition of the waiver of sovereign immunity by the United States, a person seeking to recover taxes alleged to have been erroneously assessed and collected must satisfy certain procedural requirements, such as timely filing an administrative claim for a refund with the Internal Revenue Service. See 26 U.S.C. § 7422(a) ("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 . . . until a claim for refund has been duly filed with the Secretary."). The same is true of a claim pursuant to § 7433. See 26 U.S.C. § 7433(d)(1); 26 C.F.R. § 301.7433(d)(1); Connor v. Matthews, 134 F.Supp.2d 797, 800 (N.D.Texas 2001). In addition, in general, a taxpayer challenging a tax assessment in federal district court must first pay the full amount of the tax assessed and then pursue a refund. Flora v. United States, 357 U.S. 63 (1958); Curry v. United States, 774 F.2d 852 (7th Cir. 1985). The circumstances of this case do not trigger an exception to the general rule, and it is undisputed that the plaintiffs did not pay their tax liability for the year 1994, as determined by the IRS, before filing this action. If the taxpayers choose not to pay, they must sue in Tax Court after receiving a notice of deficiency. 26 U.S.C. § 6213(a); Flora, 362 U.S. at 163 (recognizing that "there is one tribunal for prepayment litigation and another for post-payment litigation"). With respect to their claim for damages under § 7433, the plaintiffs do not allege that they complied with the requirement that they file a claim with the District Director as directed to do in 26 C.F.R. § 301.7433-1(e)(1) before filing this action, and no other waiver of the United States' sovereign immunity for this purpose has been identified. The requirement that administrative remedies be exhausted before filing suit is a prerequisite to the United States' waiver of sovereign immunity, and, absent exhaustion, a claim for damages against the United States must be dismissed for lack of jurisdiction. See Muegge v. United States, 1997 WL 834805 *2 (S.D.Ind. September 23, 1997) (citing Conforte v. United States, 979 F.2d 1375, 1376 (9th Cir. 1993)).The plaintiffs resist the United States' motion to dismiss with the argument that "[a]ny provision which requires payment of a tax and penalty before a taxpayer can object to said tax and penalty is a violation of the due process section of the fourteenth amendment." This argument is unpersuasive, because the Supreme Court has repeatedly held that it is not a due process violation to postpone judicial inquiry until after tax collection has occurred. See Phillips v. Comm'r, 283 U.S. 589 (1931); United States v. Nat'l Bank of Commerce, 472 U.S. 713, 720 (1985). Additionally, no feature of the plaintiffs' contact with the Internal Revenue Service's representative could alter their obligation to proceed in the manner which Congress had structured, because a party cannot be estopped from contesting subject-matter jurisdiction. Estate of Kunze v. Commissioner, 233 F.3d 948, 952 (7th Cir. 2000) (concluding that plaintiff could not "manufacture subject matter jurisdiction based solely on a government agent's misinterpretation of tax statutes").
III.
A district court possesses only the jurisdiction conferred by Congress. See South Carolina v. Katzenbach, 383 U.S. 301 (1966). "A federal court may exercise jurisdiction where: 1) the requirements for diversity jurisdiction set forth in 28 U.S.C. § 1332 are met; or 2) the matter arises under the Constitution, laws, or treaties of the United States as provided in 28 U.S.C. § 1331." Barringer-Willis v. Healthsource North Carolina, 14 F.Supp.2d 780, 781 (E.D.N.C. 1998). The plaintiffs' claims lie outside the jurisdiction of this court under the circumstances of this case.An action over which the court lacks jurisdiction must be dismissed. Steel Co. v. Citizens for a Better Environment, 118 S.Ct. 1003, 1012 (1998). Accordingly, the United States' motion to dismiss for lack of jurisdiction must be granted.
Judgment consistent with this Entry shall now issue.
The settlement conference set for January 26, 2005, is vacated.
IT IS SO ORDERED.