Opinion
Civil Action No. 04-1616.
February 2, 2005
REPORT AND RECOMMENDATION
I. Recommendation:
It is respectfully recommended that the defendant's motion for judgment on the pleadings on the plaintiff's request for a declaratory judgment (Docket No. 4) be granted.
II. Report:
Presently before the Court is a motion for judgment on the pleadings on the plaintiff's request for a declaratory judgment filed by the defendant, United States of America.
The plaintiff, University of Pittsburgh (the "University"), commenced this action alleging that from 1996 through 2000, the defendant erroneously collected Federal Insurance Contribution Act ("FICA") taxes under five early retirement incentive plans it offered to its faculty members. As alleged in the complaint, the University established five early retirement plans as an incentive to tenured faculty members to retire early. Each of the five plans provided a specific term of payment to the tenured faculty member in exchange for their voluntary relinquishment of tenure rights. Between 1996 and 2000, the University made payments to faculty members under its early retirement plans and assumed the payments constituted wages, whereupon it remitted to the defendant employee and employer portions of FICA taxes.
In 2001, however, the University believed that the payments made to faculty members in connection with its early retirement plans did not constitute wages subject to FICA taxation. Thus, on November 19, 2001, the University filed claims with the Internal Revenue Service, seeking a refund of all FICA taxes paid to the defendant from 1996 through 2000, which totals more than $2 million. On October 30, 2002, the defendant disallowed the University's refund request. On November 5, 2002, the University provided notice to the defendant of its intent to appeal the disallowance of its refund request.
On October 21, 2004, the University filed a one-count complaint, asserting that the defendant "erroneously collected FICA taxes in connection with the University's early retirement plans", for which it demands judgment of $2,096,559.66 plus interest, as a refund for FICA taxes paid. In its complaint, the University also seeks a declaratory judgment pursuant to 28 U.S.C. §§ 2201- 2202, declaring that its payments made to tenured faculty members who participated in its early retirement plans since 1996 are not wages subject to FICA taxation, such that it is entitled to a refund of all FICA taxes paid between 1996 and 2000. The Court's jurisdiction is invoked pursuant to 28 U.S.C. § 1346(a)(1).
See, complaint at ¶¶ 47-51.
Id. at ¶¶ 53-57.
The defendant has moved for judgment on the pleadings on the plaintiff's request for a declaratory judgment. It argues that the Court lacks subject matter jurisdiction over this dispute, as it has not waived its sovereign immunity, and further, that the complaint fails to state a viable claim, as declaratory judgments are prohibited in controversies involving federal taxes.
A motion for judgment on the pleadings is subject to the same standard as a Rule 12(b)(6) motion to dismiss. Pellegrino Food Products v. City of Warren, 136 F.Supp.2d 391, 399 (W.D.Pa. 2000). Thus, we must view all facts presented in the complaint in a light most favorable to the non-movant. Id. A motion for judgment on the pleadings will not be granted "unless the movant clearly establishes that no material issue of fact remains to be resolved and that [it] is entitled to judgment as a matter of law."Jablonski v. Pan American World Airways, Inc., 863 F.2d 289, 290 (3d Cir. 1988).
It is well settled that the United States, as sovereign, "is immune from suit save as it consents to be sued". United States v. Testan, 424 U.S. 392, 399 (1976). To be effective, "[w]aivers of the Government's sovereign immunity . . . must be `unequivocally expressed'." United States v. Nordic Village, Inc., 503 U.S. 30, 33 (1992) (citations omitted). The defendant argues that the plaintiff's request for a declaratory judgment does not comply with terms and conditions of any known waiver of sovereign immunity. We disagree.
In 28 U.S.C. § 1346(a)(1), it is provided:
(a) The district courts shall have original jurisdiction, concurrent with the United States Court of Federal Claims, of:
(1) 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 . . .
The United States Supreme Court has held that 28 U.S.C. § 1346(a)(1) is a waiver of the Government's sovereign immunity.U.S. v. Williams, 514 U.S. 527, 530-32 (1995). In Williams, the Court opined: " 28 U.S.C. § 1346(a)(1) clearly allows one from whom taxes are erroneously or illegally collected to sue for a refund of taxes." Id. at 536. "Section 1346(a)(1) is a postdeprivation remedy, available only if the taxpayer has paid the Government in full." Id. at 538. Based on the University's pleadings, the Court has subject matter jurisdiction over this suit.
In support of its present motion, the defendant argues that the plaintiff's request for a declaratory judgment cannot lie, as it is barred by the Declaratory Judgment Act, 28 U.S.C. § 2201(a). In pertinent part, the Declaratory Judgment Act provides that any Court of the United States may grant declaratory relief "[i]n a case of actual controversy within its jurisdiction, except with respect to Federal taxes . . .". 28 U.S.C. § 2201(a) (emphasis added).
The Supreme Court has explained that "the federal tax exception to the Declaratory Judgment Act is at least as broad as the Anti-Injunction Act." Bob Jones University v. Simon, 415 U.S. 725, 732 n. 7 (1974). The Anti-Injunction Act, 26 U.S.C. § 7421, provides in pertinent part that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court . . .". Clearly, "[t]he congressional antipathy for premature interference with the assessment or collection of any federal tax also extends to declaratory judgments." Bob Jones University, 415 U.S. at 732 n7.
It is the University's position that the Declaratory Judgment Act is inapplicable here, as its suit for a refund of FICA taxes does not seek to restrain the assessment or collection of any tax. According to the University, since the defendant has already assessed and collected taxes from it, there is no governmental purpose related to taxes that would be served by barring its request for declaratory relief.
Court's hold that if a taxpayer's request for declaratory relief "call[s] in question a specific provision of the Internal Revenue Code, or to a ruling or regulation issued under the Code", it falls within the ambit of the Declaratory Judgment Act and is barred. McCarthy v. Marshall, 723 F.2d 1034, 1037 (1st Cir. 1983), citing State of California v. Regan, 641 F.2d 721, 722 (9th Cir. 1981); accord, Stephenson v. Brady, 927 F.2d 596 [Table], 1991 WL 22835, * 4 (4th Cir., Feb. 26, 1991) ("A controversy is `with respect to' federal taxes if it calls into question a specific provision of the Internal Revenue Code . . ."). "Conversely, if jurisdiction were otherwise established and the controversy concerned essentially nontax matters, there would be no question of dismissing the case merely because a decision on the merits might have some collateral tax repercussions." McCarthy, supra, 723 F.2d at 1037. Where as here, jurisdiction is established, but a demand for declaratory judgment is "with respect to federal taxes", the Court cannot declare such relief. Carmichael v. U.S., 245 F.2d 676, 677-78 (5th Cir. 1957); O'Connor v. U.S., 669 F.Supp. 317, 321 (D.Nev. 1987), aff'd., 935 F.2d 275 (9th Cir. 1991), cert. denied, 502 U.S. 1104 (1992); Kline v. U.S., 1998 WL 776843 (S.D.Ind., Aug. 25, 1998).
Here, in its "request for declaratory judgment", the University seeks a declaration "that the payments made by the University to tenured faculty members who participated in each plan since 1996 are not wages that are subject to federal Social Security and Medicare taxes", and it requests such declarations as:
* The payments made by the University to tenured faculty members who participated in Plans II through V are not wages as defined by 26 U.S.C. § 3121(a);
* The payments made by the University to tenured faculty members who participated in Plans II through V are not subject to FICA; and
* The University is entitled to a refund in the sum of $2,096,559.66, together with interest thereon, which represents the amount of FICA taxes paid between January 1, 1996 and December 31, 2000".
See, "wherefore" clause in the University's request for declaratory judgment.
Needless to say, the plaintiff's request for declaratory relief challenges the defendant's assessment of federal taxes and calls into question a specific provision or ruling under the Internal Revenue Code in connection therewith. Such a determination falls within the ambit of 28 U.S.C. § 2201(a), and hence, the plaintiff's request for a declaratory judgment is barred. Notwithstanding a ruling that its claim for declaratory relief is prohibited, the University's suit for a refund may provide it with the relief it seeks.
The University cites Nelson v. Regan, 560 F.Supp. 1101 (D.Conn. 1983), aff'd., 731 F.2d 105 (2d Cir. 1984), cert. denied, 469 U.S. 853 (1984), in support of its position that the Declaratory Judgment Act does not bar its request for declaratory relief. Nelson is inapposite, however, as it involved the "tax intercept" program. As the Court of Appeals inNelson stated, under the "tax intercept" program, "federal tax refunds due to persons who have failed to make support payments, the rights to which have been assigned to a state that has provided aid to those to whom support is due, are `intercepted' by the Internal Revenue Service on the state's behalf. Accordingly, the tax refunds which would ordinarily go to the non-support paying taxpayer are instead paid to the state which, under the aid-to-needy-families-with-children program, has in effect met the individual's obligations." 731 F.2d at 107. Unlike the University's suit, "the intercept program does not involve a claim that a tax has been `erroneously or illegally assessed or collected'". Nelson, 731 F.2d at 109. As explained in Nelson, "[t]here is no dispute as to the amount of the taxpayers' federal tax liability, nor as to the amount of refund to which they are entitled." Id. Rather, in Nelson, "[w]hat the taxpayers seek is not a refund, . . . but notice and an opportunity to contest the State's offset rights at the state level before the IRS pays their tax refunds to the State." Id. at 110. Since the dispute in Nelson did not involve the Government's assessment and collection of federal taxes, the Court found that the plaintiffs' request for declaratory relief was not barred by the Declaratory Judgment Act. Id. at 109-110. Here, in contrast to Nelson, there is a dispute as to University's federal tax liability, and its request for a declaratory judgment directly challenges the Government's assessment of its federal taxes. We note that other cases cited by the University in opposing the defendants' current motion: Colunga v. Young, 914 F.2d 255 [Table], 1990 WL 126884 (6th Cir., Aug. 31, 1990), Barmes v. IRS, 2004 WL 1005493 (S.D.Ind., Mar. 29, 2004), and Bell v. Hettleman, 558 F.Supp. 386 (D.Md. 1983), do not discuss the Declaratory Judgment Act.
Therefore, it is recommended that the defendant's motion for judgment on the pleadings on the plaintiff's request for a declaratory judgment be granted.
Within ten (10) days after being served with a copy, any party may serve and file written objections to this Report and Recommendation. Any party opposing the objections shall have seven (7) days from the date of service of objections to respond thereto. Failure to file timely objections may constitute a waiver of any appellate rights.