Gentry v. U.S. Treasury Department

[2] 3 UNITED STATES DISTRICT COURT 4 DISTRICT OF NEVADA 5 * * * 6 MICHAEL EDWARD GENTRY, et al., Case No. 3:18-cv-00581-MMD-CBC 7 Plaintiffs, v. ORDER [8] U.S. TREASURY DEPARTMENT 9 (INTERNAL REVENUE SERVICE), 10 Defendant. 11 I. SUMMARY 12 Pro se Plaintiffs Michael Edward Gentry and Laurie Anne Gentry sued Defendant 13 the U.S. Treasury Department (Internal Revenue Service) (the “Government”), primarily 14 seeking the return of $16,876 Plaintiffs allegedly overpaid to the Government in taxes. 15 (ECF No. 1 at 4.) Before the Court is the Government’s motion to dismiss Plaintiffs’ 16 Complaint, partially for lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1), 17 and partially for failure to state a claim under Fed. R. Civ. P. 12(b)(6) (the “Motion”).1 18 (ECF No. 21.) Plaintiffs have filed several other motions as well. (ECF Nos. 23, 34, 41.) 19 Because the Court agrees with the Government that it lacks jurisdiction over aspects of 20 Plaintiffs’ claim, and Plaintiffs otherwise fail to state a claim—and as further explained 21 below—the Court will grant the Motion and deny Plaintiffs’ other motions as moot. 22 /// 23 /// 24 /// [26] 1Plaintiffs filed a response (ECF No. 24), and the Government filed a reply (ECF 27 No. 27). Plaintiffs also filed what appears to be a duplicate of their response the next day. (ECF No. 25.) As the later-filed document appears to be a duplicate of Plaintiffs’ 28 response, the Court will not consider it in ruling on the Motion. 1 II. BACKGROUND 2 The facts described in this paragraph are adapted from Plaintiffs’ Complaint. (ECF 3 No. 1.) Plaintiffs assert this Court has federal question jurisdiction under the 4th 4 Amendment to the U.S. Constitution (for “unlawful seizure”)2 and “IRS Pub. 1660 5 wrongful levy[.]”3 (Id. at 3.) Plaintiff Michael Edward Gentry became disabled in March 6 2013, and filed his taxes for that year as he awaited a Social Security hearing that 7 ultimately occurred in July 2016. (Id. at 4.) The IRS placed a lien on his property as if he 8 had retired early. (Id.) Mr. Gentry had to pay the lien out of his disability award 9 (presumably from Social Security), which he did on October 13, 2016. (Id.) He then filed 10 an amended tax return on August 10, 2018. (Id.) The IRS claimed Mr. Gentry’s amended 11 return was not timely, and refused to repay him the money he previously paid to satisfy 12 the IRS’s lien. (Id.) Plaintiffs seek the repayment of $16,876 (also referred to as 13 ‘overpaid tax’), with interest, and “Compensation for Costs & Damages – IE libel, & 14 notification of credit bureaus[.]” (Id.) 15 The Government fills in the gaps of the allegations in Plaintiffs’ Complaint by filing 16 an official copy of Plaintiffs’ certificate of assessments, payments, and other specified 17 matters for the tax period ending December 31, 2013 with its Motion.4 (ECF No. 21-1.) [19] 2As explained infra, the Court construes this to mean Plaintiffs are seeking a 20 refund of allegedly overpaid taxes. 21 3This appears to refer to an Internal Revenue Service (“IRS”) publication on collection appeal rights. See IRS, Collection Appeal Rights (last accessed Oct. 30, 22 2019); https://www.irs.gov/pub/irs-pdf/p1660.pdf. 23 4The Court will consider the contents of this document in ruling on the 12(b)(1) arguments presented in the Motion. Plaintiffs object to neither the admissibility of this 24 document, nor the accuracy of its contents. (ECF No. 24.) Further, this document is admissible under Fed. R. Evid. 803(8), and self-authenticating under Fed. R. Evid. 25 902(1). See Hughes v. United States, 953 F.2d 531, 539-40 (9th Cir. 1992) (rejecting evidentiary challenges to the same type of document). And the Court may consider 26 evidence in ruling on the Government’s 12(b)(1) arguments without converting the Motion into one for summary judgment. See White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 27 2000) (citation omitted) (“With a factual Rule 12(b)(1) attack, however, a court may look beyond the complaint to matters of public record without having to convert the motion 28 into one for summary judgment.”). 1 This document provides a timeline regarding Plaintiffs’ taxes relevant to this case. On 2 April 15, 2014, Plaintiffs filed a tax return for tax year 2013 and were assessed taxes of 3 $16,876. (Id. at 2.) That same day, the records indicate Plaintiffs had already paid 4 $4,174 in taxes through withholdings (the “First Payment”), and were assessed a failure 5 to pay tax penalty of $127.02 by the Government, along with interest of $50.21. (Id.) 6 Then there is a note dated June 4, 2014, “currently not collectable hardship status.” (Id.) 7 On July 18, 2014, the Government filed a notice of federal tax lien (the “Lien”). 8 (Id.) The Government issued a lien filing collection due process (“CDP”) notice on July 9 22, 2014. (Id.) There are notes indicating the Government received a timely request for a 10 “CDP Hearing” on July 28, 2014, and set a hearing that day. (Id.) The Government 11 assessed fees and collection costs of $30 regarding the Lien on August 11, 2014. (Id.) 12 Plaintiffs made a payment of $4000 to the Government on August 22, 2014 (the “Second 13 Payment”). (Id.) 14 In 2015, the Government issued several penalties and assessed interest against 15 Plaintiffs. (Id. at 3-4.) The CDP hearing process also occurred, and eventually resolved 16 with an issuance of a notice of determination on March 26, 2015. (Id. at 3.) 17 On August 30, 2016, Plaintiffs made a payment of $10,642.72 to the Government 18 (the “Third Payment”). (Id. at 4.) That same day, the Government assessed Plaintiffs 19 $175.36 in interest, and a failure to pay tax penalty of $347.82. (Id.) On September 30, 20 2016, Plaintiffs made another payment of $79.79. 21 There are two notes from 2018 indicating that a claim was disallowed—one on 22 October 8, 2018, and the other on December 10, 2018. (Id. at 4.) As of February 27, 23 2019, the records reflect that Plaintiffs did not owe the Government any money. (Id. at 24 5.) 25 By combining Plaintiffs’ allegations in their Complaint with the information 26 provided by the Government, the Court construes the Complaint as seeking repayment 27 of allegedly overpaid taxes. The gist of Plaintiffs’ Complaint is that they should not have 28 to pay the $16,876 in taxes they were assessed on their 2013 tax return—which led to 1 the Government imposing the Lien and related proceedings. Because they eventually 2 did pay that $16,876, Plaintiffs would like it back, along with additional damages for the 3 time and trouble they have spent on this matter over the years. (ECF Nos. 1, 24.) 4 III. DISCUSSION 5 The Government divides the Motion into a Fed. R. Civ. P. 12(b)(1) section, and a 6 12(b)(6) section. For convenience and clarity, the Court adopts the same structure here. 7 As further explained below, while the Court is sympathetic to Plaintiffs’ difficult life 8 circumstances, the Court will grant the Motion because Plaintiffs’ entire case is based on 9 a faulty premise. Plaintiffs appear to believe that because they are disabled, any early 10 distribution of their retirement funds is not taxable. That is simply incorrect. Assuming 11 Plaintiffs are disabled, the early withdrawal from Mr. Gentry’s retirement account is not 12 subject to the additional 10% early withdrawal penalty, but remains subject to taxation 13 because tax had not previously been paid on that income. See Williams v. U.S. Dep’t of 14 Treasury I.R.S., No. 07-CV-212C, 2013 WL 7121192 , at *8 (W.D.N.Y. Jan. 29, 2013) 15 (“The disability exception, if applicable, relieves the taxpayer only of the 10–percent 16 additional tax; ordinary income tax is still owed on an early distribution out of an IRA.”) 17 (citing 26 U.S.C. § 408 (d)(1)) (other citations omitted). 18 A. Jurisdictional Issues 19 The Government first argues the Court lacks subject matter jurisdiction over 20 Plaintiff’s Complaint to the extent it is based on the First Payment or the Second 21 Payment because they filed an amended return after the statute of limitations applicable 22 to these payments allows. (ECF No. 21 at 4-7.) Plaintiffs appear to respond that the 23 statute of limitations should be tolled because of disability, citing 26 U.S.C. § 6511 , and 24 that their amended return was timely because of a date indicated in column e of Form 25 668(z). (ECF No. 24 at 2, 3.) The Court agrees with the Government. The Court lacks 26 subject matter jurisdiction over Plaintiffs’ claim to the extent it is based on the First 27 Payment or the Second Payment. 28 /// 1 1. Legal Standard 2 Rule 12(b)(1) of the Federal Rules of Civil Procedure allows defendants to seek 3 dismissal of a claim or action for a lack of subject matter jurisdiction. Although the 4 defendant is the moving party in a motion to dismiss brought under Rule 12(b)(1), the 5 plaintiff is the party invoking the court’s jurisdiction. As a result, the plaintiff bears the 6 burden of proving that the case is properly in federal court. See McCauley v. Ford Motor 7 Co., 264 F.3d 952, 957 (9th Cir. 2001) (citing McNutt v. General Motors Acceptance 8 Corp., 298 U.S. 178, 189 (1936)). Plaintiff’s burden is subject to a preponderance of the 9 evidence standard. See Leite v. Crane Co., 749 F.3d 1117, 1121 (9th Cir. 2014). 10 Federal courts are courts of limited jurisdiction. See Owen Equip. & Erection Co. 11 v. Kroger, 437 U.S. 365, 374 (1978). A federal court is presumed to lack jurisdiction in a 12 particular case unless the contrary affirmatively appears. See Stock West, Inc. v. 13 Confederated Tribes of the Colville Reservation, 873 F.2d 1221, 1225 (9th Cir. 1989). 14 “Because subject matter jurisdiction goes to the power of the court to hear a case, it is a 15 threshold issue and may be raised at any time and by any party.” Mallard Auto. Grp., Ltd. 16 v. United States, 343 F. Supp. 2d 949, 952 (D. Nev. 2004) (citing Fed. R. Civ. P. 17 12(b)(1)). 18 Here, the Government brings a factual attack on the Court’s jurisdiction over 19 portions of Plaintiffs’ claim. (ECF No. 21 at 5-7.) In a factual attack, the challenger 20 disputes the truth of the allegations that, by themselves, would otherwise invoke federal 21 jurisdiction. See Safe Air for Everyone v. Myer, 373 F.3d 1035 , 1039 (9th Cir. 2004). 22 Once a moving party has converted a motion to dismiss into a factual motion by 23 presenting affidavits or other evidence properly brought before the court, the party 24 opposing the motion must furnish affidavits or other evidence necessary to satisfy its 25 burden of establishing subject matter jurisdiction. See Savage v. Glendale Union High 26 School, 343 F.3d 1036 , 1039 n. 2 (9th Cir. 2003) (citing St. Clair v. City of Chico, 880 27 F.2d 199, 201 (9th Cir. 1989)); see also Trentacosta v Front. Pac. Aircraft Indus., 813 28 F.2d 1553 , 1559 (9th Cir. 1987) (stating that on a factually attacked 12(b)(1) motion to 1 dismiss, the nonmoving party’s burden is that of Rule 56(e)). However, on a factual 2 attack, the court may not “resolve genuinely disputed facts where the question of 3 jurisdiction is dependent on the resolution of factual issues going to the merits.” Kohler v. 4 CJP, Ltd., 818 F. Supp. 2d 1169, 1172 (C.D. Cal. 2011) (citations and quotation marks 5 omitted). 6 2. Discussion 7 “Although the doctrine of sovereign immunity would ordinarily bar” suits like this 8 one, “the United States has waived its immunity from suit by allowing a taxpayer to file a 9 civil action to recover ‘any internal-revenue tax alleged to have been erroneously or 10 illegally assessed or collected.’” Baldwin v. United States, 921 F.3d 836, 839 (9th Cir. 11 2019) (citing 28 U.S.C. § 1346 (a)(1)) (currently on appeal). But “[u]nless a taxpayer has 12 duly filed a claim for refund of federal taxes with the IRS, a district court is without 13 jurisdiction to entertain a suit for refund[,] and a claim is not duly filed unless it is timely.” 14 Yuen v. United States, 825 F.2d 244, 245 (9th Cir. 1987) (citations omitted). “A claim for 15 a refund must be filed within three years of the time the return was filed or two years of 16 the time the tax was paid, whichever is later.” Id. (citing 26 U.S.C. § 6511 (a)). 17 Plaintiffs filed the tax return at issue here by April 15, 2014. (ECF No. 21-1 at 2.) 18 Plaintiffs filed their amended tax return on August 10, 2018. (ECF No. 1-5.) This is more 19 than three years from the date they filed their original return. However, as described 20 supra, Plaintiffs made several payments towards the $16,876 in taxes assessed on April 21 15, 2014. (ECF No. 21-1.) Plaintiffs’ claim could therefore be based on those 22 payments—and not time-barred—if they were made less than two years before August 23 10, 2018. See 26 U.S.C. § 6511 (a). 24 The applicable statute of limitations bars Plaintiffs’ claim as to the First Payment 25 and the Second Payment, but not as to the Third Payment—because only the Third 26 Payment was made less than two years before August 10, 2018. See 26 U.S.C. § 27 6511(a). Plaintiffs made the First Payment of $4,174 through withholdings by April 15, 28 2014, the Second Payment of $4,000 on August 22, 2014, and the Third Payment of 1 $10, 642.72 on August 30, 2016. (ECF No. 21-1.) The Court therefore lacks jurisdiction 2 over Plaintiffs’ claims to the extent they are based on either the First Payment or the 3 Second Payment, as they were made more than two years before August 10, 2018. See [4] 26 U.S.C. § 6511 (a); see also Dunn & Black, P.S. v. United States, 492 F.3d 1084 , 1089 5 (9th Cir. 2007) (stating that failure to timely file an administrative claim with the IRS 6 divests the district court of jurisdiction over the claim). 7 Further, the Court is not persuaded by the two arguments Plaintiffs make in an 8 attempt to resist this conclusion. Plaintiffs specifically argue the statute of limitations 9 should be tolled because of disability, citing 26 U.S.C. § 6511 , and that their amended 10 return was timely because of a date indicated in column e of Form 668(z). (ECF No. 24 11 at 2, 3.) First, just because Plaintiffs may be disabled under the criteria set forth by other 12 agencies, they are not necessarily economically disabled within the meaning of 26 13 U.S.C. § 6511 (h). Indeed, 26 U.S.C. § 6511 (h)(2)(A) more specifically provides that “[a]n 14 individual shall not be considered to have such an impairment unless proof of the 15 existence thereof is furnished in such form and manner as the Secretary may require.” 16 Plaintiffs have not proffered any evidence or argument to the effect that the IRS declared 17 them financially disabled, or that they presented sufficient evidence to establish their 18 disability under 26 U.S.C. § 6511 (h) to the IRS’ satisfaction. Second, the Court agrees 19 with the Government (ECF Nos. 21 at 6, 27 at 4) that the reference Plaintiffs point to in 20 Form 668(z)—July 2, 2024—indicates the Government’s deadline for refiling a tax lien, 21 not the latest date that Plaintiffs could file an amended tax return for tax year 2013— 22 again, the statute of limitations is found in 26 U.S.C. § 6511 . 23 B. Third Payment 24 That leaves the Third Payment. The Court has jurisdiction to consider the merits 25 of Plaintiff’s refund request as to that payment. The Government argues the Court 26 should dismiss this claim for failure to state a claim because, even accepting Plaintiffs’ 27 allegations as true, Plaintiffs have not alleged they overpaid their taxes. (ECF No. 21 at 28 7-9.) Plaintiffs effectively respond that they did—that they should not owe any taxes on 1 the early retirement distribution Mr. Gentry took in 2013 because the Social Security 2 Administration later found him disabled. (ECF No. 24 at 1-2.) The Court again agrees 3 with the Government. 4 1. Legal Standard 5 A court may dismiss a plaintiff’s complaint for “failure to state a claim upon which 6 relief can be granted.” Fed. R. Civ. P. 12(b)(6). A properly pled complaint must provide 7 “a short and plain statement of the claim showing that the pleader is entitled to relief.” 8 Fed. R. Civ. P. 8(a)(2); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). Pro se 9 pleadings, however, must be liberally construed. See Balistreri v. Pacifica Police Dep’t, [10] 901 F.2d 696, 699 (9th Cir. 1990). Nonetheless, while Rule 8 does not require detailed 11 factual allegations, it demands more than “labels and conclusions” or a “formulaic 12 recitation of the elements of a cause of action.” Ashcroft v. Iqbal, 556 U.S. 662 , 678 13 (2009) (citing Twombly, 550 U.S. at 555 .) “Factual allegations must be enough to rise 14 above the speculative level.” Twombly, 550 U.S. at 555 . Thus, to survive a motion to 15 dismiss, a complaint must contain sufficient factual matter to “state a claim to relief that 16 is plausible on its face.” Iqbal, 556 U.S. at 678 (internal citation omitted). 17 In Iqbal, the Supreme Court clarified the two-step approach district courts are to 18 apply when considering motions to dismiss. First, a district court must accept as true all 19 well-pled factual allegations in the complaint; however, legal conclusions are not entitled 20 to the assumption of truth. See id. at 678-79 . Mere recitals of the elements of a cause of 21 action, supported only by conclusory statements, do not suffice. See id. at 678 . Second, 22 a district court must consider whether the factual allegations in the complaint allege a 23 plausible claim for relief. See Id. at 679 . A claim is facially plausible when the plaintiff’s 24 complaint alleges facts that allow a court to draw a reasonable inference that the 25 defendant is liable for the alleged misconduct. See id. at 678 . Where the complaint does 26 not permit the court to infer more than the mere possibility of misconduct, the complaint 27 has “alleged—but it has not show[n]—that the pleader is entitled to relief.” Id. at 679 28 (internal quotation marks omitted). That is insufficient. A complaint must contain either 1 direct or inferential allegations concerning “all the material elements necessary to sustain 2 recovery under some viable legal theory.” Twombly, 550 U.S. at 562 (quoting Car 3 Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir. 1989) (emphasis in 4 original)). When the claims in a complaint have not crossed the line from conceivable to 5 plausible, the complaint must be dismissed. See Twombly, 550 U.S. at 570 . 6 2. Discussion 7 The Court will dismiss Plaintiffs’ Complaint to the extent it is based on the Third 8 Payment because Plaintiffs’ allegations do not support their claim that they overpaid their 9 taxes. Plaintiffs have merely taken an incorrect legal position in bringing this case. 10 Specifically, they are mistaken in arguing that they do not have to pay any tax on the 11 early retirement distribution Mr. Gentry took in 2013 because they are disabled. They do. 12 At most, they were not required to pay the additional 10% early withdrawal penalty. See [13] 26 U.S.C. § 408 (d)(1) (providing that “any amount paid or distributed out of an individual 14 retirement plan shall be included in gross income by the payee or distributee, as the 15 case may be, in the manner provided under section 72”); 26 U.S.C. § 72 (t)(1) (“If any 16 taxpayer receives any amount from a qualified retirement plan (as defined in section 17 4974(c)), the taxpayer’s tax under this chapter for the taxable year in which such amount 18 is received shall be increased by an amount equal to 10 percent of the portion of such 19 amount which is includible in gross income.”); 26 U.S.C. § 72 (t)(2)(iii) (providing an 20 exception for employees with a qualifying disability only from 26 U.S.C. § 72 (t)(1)). 21 The tax return Plaintiffs attached to their Complaint indicates they already claimed 22 they were not required to pay the additional 10% penalty. (ECF No. 1-4.) That tax return 23 appears correct. Plaintiffs were required to pay the $16,876 they indicated they were 24 required to pay on their 2013 tax return. (Id. at 2.) They did not overpay their taxes. 25 In sum, the Court will dismiss Plaintiffs’ Complaint in its entirety because the 26 Court lacks jurisdiction over the Complaint to the extent it is based on the First Payment 27 or Second Payment, and Plaintiffs fail to state a claim as to the Third Payment. Plaintiffs [28] 1 were—and are—required to pay ordinary income tax on the early distribution from Mr. 2 Gentry’s retirement account he made in 2013. See Williams, 2013 WL 7121192 , at *8. 3 C. Leave to Amend 4 When, as here, the Court grants a motion to dismiss, it must then decide whether 5 to grant leave to amend. The Court should “freely give” leave to amend when there is no 6 “undue delay, bad faith[,] dilatory motive on the part of the movant, repeated failure to 7 cure deficiencies by amendments previously allowed, undue prejudice to the opposing 8 party by virtue of ... the amendment, [or] futility of the amendment.” Fed. R. Civ. P. 15(a); 9 Foman v. Davis, 371 U.S. 178, 182 (1962). Generally, leave to amend is only denied 10 when it is clear that the deficiencies of the complaint cannot be cured by amendment. 11 See DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992). This is such 12 a case. The deficiencies in Plaintiffs’ complaint cannot be cured through amendment 13 because they arise from the very nature of their lawsuit. Plaintiffs cannot establish they 14 overpaid their taxes under these facts, or any consistent facts. Thus, amendment would 15 be futile. The Court will dismiss Plaintiffs’ case with prejudice. 16 D. Other Motions 17 There are several motions pending before the Court beyond the Motion. The 18 Court addresses those motions here. More specifically, since the Government filed its 19 Motion, Plaintiffs have filed: (1) a motion for summary/default judgment (ECF No. 23); (2) 20 a ‘new’ motion regarding denial of due process wrongful levy during judicial review (ECF 21 No. 34); and (3) a motion for default judgment (ECF No. 41). Because the Court is 22 granting the Government’s Motion and dismissing Plaintiffs’ Complaint, the Court will 23 deny these three other motions as moot. 24 IV. CONCLUSION 25 The Court notes that the parties made several arguments and cited to several 26 cases not discussed above. The Court has reviewed these arguments and cases and 27 determines they do not warrant discussion as they do not affect the Court’s decision. [28] 1 It is therefore ordered that the Government’s motion to dismiss (ECF No. 21) is 2 granted. Plaintiffs’ Complaint is dismissed with prejudice because amendment would be 3 futile. 4 It is further ordered that Plaintiffs’ motion for summary/default judgment (ECF No. 5 23) is denied as moot. 6 It is further ordered that Plaintiffs’ ‘new’ motion regarding denial of due process 7 wrongful levy during judicial review (ECF No. 34) is denied as moot. 8 It is further ordered that Plaintiff’s motion for default judgment (ECF No. 41) is 9 denied as moot. 10 The Clerk of Court is directed to enter judgment accordingly and close this case. 11 DATED THIS 7th day of November 2019. [13] 14 MIRANDA M. DU CHIEF UNITED STATES DISTRICT JUDGE