Opinion
Case No. 08-30673-B-13 Adversary No. 14-2314 DC No. USA-1
03-09-2015
In re: RAYMOND MORENO, Debtor(s). RAYMOND MORENO, Plaintiff(s), v. UNITED STATES OF AMERICA, INTERNAL REVENUE SERVICE, Defendant(s).
ORDER DISMISSING AMENDED COMPLAINT WITHOUT PREJUDICE
Before the court is a Motion to Dismiss or in the Alternative for Summary Judgment and a Declaration of Trial Attorney, with attached exhibits, filed by Defendant United States of America on behalf of the Internal Revenue Service, an Opposition of Plaintiff/Debtor to Defendant's Motion to Dismiss or in the Alternative for Summary Judgment filed by Debtor/Plaintiff Raymond Moreno, and a Reply Brief in Support of Motion to Dismiss or in the Alternative for Summary Judgment filed by the United States. This matter was heard on February 11, 2015. Proper notice was given. Appearances of counsel were noted on the record.
The United States seeks dismissal of, or alternatively summary judgment on, the claims alleged in Moreno's Amended Complaint to Determine Whether Internal Revenue Service Has Violated Debtor's Discharge Pursuant to 11 U .S.C. § 1328 and Request for Attorney's Fees and Costs. The Amended Complaint alleges the IRS violated the discharge injunction of 11 U.S.C. § 524 by attempting to collect tax liabilities discharged under 11 U.S.C. § 1328(a). Specifically, Moreno alleges the IRS violated the discharge he received under 11 U.S.C. § 1328(a) and the discharge injunction of 11 U.S.C. § 524 when it sent him a notice of levy, retained and applied his 2013 tax return to satisfy tax liabilities, required him to set up an account to pay additional taxes, and generally pursued collection of discharged tax liabilities all after he completed payments under the terms of his confirmed Chapter 13 plan and received a discharge under § 1328(a). Moreno seeks declaratory relief (but not under 11 U.S.C. § 505) and damages from the United States for the IRS's alleged violations. However, because the Amended Complaint fails to demonstrate that Moreno exhausted his administrative remedies before he commenced this action and because the court cannot grant declaratory relief based on the present posture of this case, the United States' motion to dismiss will be granted, and the Amended Complaint will be dismissed without prejudice. The United States' motion for summary judgment will be denied as moot.
Section 524(a)(2) of the Bankruptcy Code operates as an injunction to enjoin creditors from collecting pre-petition debts following entry of a discharge under 11 U.S.C. § 1328(a). A creditor who knowingly violates the discharge injunction under 11 U.S.C. § 524(a)(2) can be held in contempt and liable for damages under 11 U.S.C. § 105(a). Zilog, Inc. v. Corning (In re Zilog), 450 F.3d 996, 1007 (9th Cir. 2006). However, when the creditor is the IRS, an action for violation of the discharge injunction lies not in civil contempt but, rather, exclusively under the Internal Revenue Code.
The exclusive remedy for recovering damages from the IRS for a violation of the discharge injunction is a petition under 26 U.S.C. § 7433(e). Such a petition is subject to the damages limitation in 26 U.S.C. § 7433(b) and the exhaustion requirement in 26 U.S.C. § 7433(d)(1). Section 7433(b) (the damages provision) explicitly applies to petitions under 26 U.S.C. § 7433(e), and 26 U.S.C. § 7433(d)(1) (the exhaustion provision) applies to all awards under subsection (b). Therefore, a petition brought under 26 U.S.C. § 7433(e) is subject to the provisions of 26 U.S.C. § 7433(b) (damages limitation) and 26 U.S.C. § 7433(d)(1) (exhaustion of administrative remedies provision). Kovacs v. United States, 614 F.3d 666, 673 (7th Cir. 2010); Kuhl v. United States, 467 F.3d 145, 147 (2d Cir. 2006); In re Pitts, 497 B.R. 73 (Bankr. C.D. Cal. 2013), aff'd, 515 B.R. 317 (C.D. Cal. 2014); Kight v. IRS (In re Kight), 460 B.R. 555, 565 (Bankr. M.D. Fla. 2011); In re McDonald, 2013 WL 5437344 (D. Nev. 2013); In re Parham, 2013 WL 3933938 (Bankr. E.D. Tenn. 2013).
Treasury regulations establish the administrative remedies that must be exhausted. See 26 C.F.R. § 301.7433-2. A debtor must send a written administrative claim for damages to the Chief, Local Insolvency Unit, for the judicial district in which the debtor filed the underlying bankruptcy case. 26 C.F.R. § 301.7433-2(e)(1). The administrative claim must include the dollar amount of the claim, a description of the injuries allegedly suffered by the taxpayer, the name, current address, current home and work telephone numbers of the taxpayer, and the location of the bankruptcy court in which the underlying bankruptcy case was filed. Id. at § 301.7433-2(e)(2)(i)-(v). With one exception not applicable to this case, no action is to be maintained in the bankruptcy court for violation of 11 U.S.C. § 524 before either a decision is rendered on the administrative claim or six months have passed since the administrative claim was filed. 26 C.F.R. § 301.7433-2(d).
The Amended Complaint and Moreno's opposition to the United States' motion fail to establish that Moreno exhausted administrative remedies. Both state that Moreno's contact with the IRS was limited to his attorney's telephone calls to the agency and his attorney's telephone conversations with an IRS revenue agent. Those verbal communications and discussions do not satisfy the exhaustion requirement of 26 U.S.C. § 7433(d)(1) because they do not comply with the administrative process in the aforementioned Treasury regulations.
Moreno offers two arguments why the exhaustion requirement should not apply: (1) the IRS submitted a proof of claim in his Chapter 13 case and thereby consented to the court's jurisdiction over his discharge violation claim; and (2) the court has jurisdiction over the IRS and the discharge violation claims under 11 U.S.C. § 106. Neither argument is persuasive.
First, the Ninth Circuit has held that a federal court cannot exercise jurisdiction over a claim against the IRS brought under 26 U.S.C. § 7433 unless administrative remedies are first exhausted. Conforte v. United States, 979 F.2d 1375, 1377 (9th Cir. 1993); see also U.S. v. Hooper, 2005 WL 5305258 (E.D. Cal. 2005) ("Nevertheless, a prerequisite to filing [an action for damages against the IRS] is exhaustion of all administrative remedies within the IRS. 26 U.S.C. § 7433(d)(1)."). Moreno cites no authority - and the court has found none - that would permit this court to deviate from Conforte.
Second, even if 11 U.S.C. §§ 106(a)(1) and (2) provide the court with authority to hear and determine claims against the IRS for alleged violations of the discharge injunction, 11 U.S.C. § 106(a)(4) requires the court to do so consistent with appropriate nonbankruptcy law applicable to the relevant government agency. The relevant government agency here is the IRS and the appropriate nonbankruptcy law is 26 U.S.C. § 74 33 which, as discussed above, requires exhaustion. See e.g., In re Pointer, 510 B.R. 433, 438 n.2 (Bankr. M.D. Ga. 2014).
In short, Moreno failed to exhaust administrative remedies before he filed this adversary proceeding, and his claims under 26 U.S.C. § 7433 must be dismissed without prejudice. The court will also dismiss Moreno's claim for declaratory relief without prejudice because the Declaratory Judgment Act, 2 8 U.S.C. § 2201(a), bars "federal courts from giving declaratory judgments in tax matters." Handeland v. Comm'r of Internal Revenue, 519 F.2d 327, 329 (9th Cir. 1975); Mitchell v. Riddell, 402 F.2d 842, 846 (9th Cir. 1968), cert. denied, 394 U.S. 456 (1969) ("This Court, and other Circuit Courts, unanimously hold that under the specific terms of § 2201 the courts have no jurisdiction to enter declaratory judgments with respect to Federal taxes.").
Therefore, in accordance with the above,
IT IS ORDERED that the United States' motion is GRANTED IN PART and DENIED IN PART.
IT IS FURTHER ORDERED that the motion to dismiss filed by the United States on behalf of the IRS is GRANTED and the Amended Complaint is DISMISSED in its entirety without prejudice.
IT IS FURTHER ORDERED that the motion for summary judgment filed by the United States on behalf of the IRS is DENIED as moot.
Dated: March 9, 2015.
/s/_________
UNITED STATES BANKRUPTCY JUDGE
INSTRUCTIONS TO CLERK OF COURT
SERVICE LIST
The Clerk of Court is instructed to send the attached document, via the BNC, to the following parties: Peter G. Macaluso
7230 South Land Park Drive #127
Sacramento CA 95831
Nithya Senra
PO Box 683
Ben Franklin Station
Washington DC 20044