Ardito v. Department of Treasury et al

Filing 16

Ch. Magistrate Judge Leo T. Sorokin: ORDER entered granting 9 Motion to Dismiss for Failure to State a Claim and for Lack of Jurisdiction. Plaintiff's Complaint is DISMISSED without prejudice to Plaintiff filing, within fourteen days, a moti on to amend the Complaint, attaching to the motion a proposed draft Complaint, which must plead, sufficiently, her exhaustion of administrative remedies as well as all other requirements for a complaint. In the event that Plaintiff does not file suc h motion within fourteen days, the Court will enter judgment of dismissal without prejudice, and close this case.The Court also grants in part and denies in part 15 Motion to Amend. Plaintiff's Motion to Amend her Complaint is ALLOWED to the extent herein described, and otherwise DENIED. (Denardo, Nancy)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
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GAIL ARDITO,
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Plaintiff,
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v.
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Civil Action No. 13-12108-LTS
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DEPARTMENT OF THE TREASURY
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Defendant.
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____________________________________)
ORDER ON DEFENDANT’S 1 MOTION TO DISMISS
January 31, 2014
SOROKIN, C.M.J.
The United States seeks dismissal of the Complaint (Doc. No. 1) filed against it by the
pro se plaintiff, Gail Ardito, for lack of subject matter jurisdiction, Fed. R. Civ. P. 12(b)(1), and
failure to state a claim, Fed. R. Civ. P. 12(b)(6). For the reasons that follow, the motion (Doc.
No. 9) is ALLOWED, and the Complaint is DISMISSED without prejudice to Ardito to amend
her Complaint by filing a motion within fourteen days.
I.

BACKGROUND
The following facts are drawn from Ardito’s Complaint. 2 The Court notes here that

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The United States, and not the Department of the Treasury, answers this complaint, correctly asserting it is the
proper defendant. Under any formulation of Ardito’s Complaint, whether a negligence action under 26 U.S.C. §
7433(a), or an action for a refund of penalties under 26 U.S.C. § 7422(a), (f)(1), or both, the appropriate defendant is
the United States. For the purposes of this Order, therefore, the Court assumes the defendant is the United States.
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“When a district court considers a Rule 12(b)(1) motion, it must credit the plaintiff’s well-pled factual allegations
and draw all reasonable inferences in the plaintiff's favor.” Merlonghi v. United States, 620 F.3d 50, 54 (1st Cir.
2010); see also Arturet-Velez v. R.J. Reynolds Tobacco Co., 429 F.3d 10, 13 (1st Cir. 2005) (factual allegations
recited as if true for purposes of Fed. R. Civ. P. 12(b)(6) motions).

Ardito’s Complaint is somewhat of a running narrative which she separates into sections labeled
as Counts. Her “ADDENDUM” to her Complaint (Doc. No. 8) and her Opposition to the United
States’ Motion to Dismiss (entitled “Objection to Defendants [(sic)] Motion to Dismiss”) (Doc.
No. 14) clarify her Complaint a bit. The Court grants Ardito some leeway in the formulation of
her Complaint, and will endeavor to interpret it, given that Ardito is a pro se plaintiff.
For the last forty years, Ardito has been the owner of a nursery and pre-school. Doc. No.
1, ¶ 1. Twenty-five years ago, she hired a CPA as her accountant. Id. at 4, Count Six.
Approximately ten years ago, this accountant “began preparing fraudulent tax returns for clients,
by fabricating tax returns to produce higher tax refunds[.]” Id. He substantially understated
Ardito’s gross receipts, thereby decreasing her claimed tax burden. Id. at 4-5, Count Six.
Ardito’s troubles began when the United States sought a preliminary injunction against her
accountant to enjoin him from further preparing fraudulent tax returns. Doc. No. 1-1 at 1. The
court granted the injunction and ordered Ardito’s accountant to provide to the United States a list
of all clients for whom he had prepared any tax-related documents, including tax returns, since
January 1, 2004. Id. at 32, ¶ 4.
Ardito, since, has struggled with the Internal Revenue Service (“IRS”), over a two-year
period, to find a solution to her underpayments. Doc. No. 1 at 5, ¶ 2. She has incurred
thousands of dollars in fees for tax and legal help in redoing her S corporation and individual tax
returns for the years 2007 through 2010 and for interest and penalties applied to her
underpayments. Id. ¶¶ 2-3. Ardito charges the IRS with negligence and failing to give her
“deserved” penalty abatements. Id. at 2-4, Count One and Two, Count Five and Six. According
to Ardito, the IRS was negligent in 1) knowing of the accountant’s fraudulent conduct without
correcting it or warning Ardito, Doc. No. 1 at 2, Count Two; 2) losing certain of Ardito’s

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resubmitted returns and being unresponsive to her attempts to repair her accountant’s
mishandling of her taxes, Id. at 3, Count Five; and, possibly, 3) licensing and regulating
malfeasant tax professionals such as her accountant, Id. at 4, Count Six.
On August 28, 2013, Ardito filed her Complaint in this Court seeking recovery of the
expenses she has incurred in trying to rectify her tax problems, an injunction to prevent further
IRS action against her, and an abatement of her penalties. Her Complaint asserts jurisdiction of
this Court pursuant to 26 U.S.C. § 7609, though her ADDENDUM, Doc. No. 8, and her
“Opposition,” Doc. No. 14, indicate that this is a negligence action under 26 U.S.C. § 7433.
Ardito declares in her “Opposition” that this “is not a tax or penalty issue, it is negligence and
mis management [(sic)] issue,” and that the “request for penalties abated is part of the relief
asked for and part of the negligence claim.” Doc. No. 14, at 1.
On October 28, 2013, the United States filed a motion to dismiss “Counts” One through
Five of Ardito’s Complaint pursuant to Fed. R. Civ. P. 12(b)(1), on jurisdictional sufficiency
grounds, and “Count Six” pursuant to Fed. R. Civ. P. 12(b)(6), as “blatantly frivolous.” Doc.
No. 9.
II.

STANDARD OF REVIEW
A. Fed. R. Civ. P. 12(b)(1) Subject Matter Jurisdiction
“There are two types of challenges to a court’s subject matter jurisdiction: facial

challenges and factual challenges. ‘Facial attacks on a complaint require the court merely to look
and see if the plaintiff has sufficiently alleged a basis of subject matter jurisdiction, and the
allegations in [plaintiff’s] complaint are taken as true for purposes of the motion.’” TorresNegron v. J & N Records, LLC, 504 F.3d 151, 162 (1st Cir. 2007) (quoting Scarfo v. Ginsberg,
175 F.3d 957, 960 (11th Cir. 1999)) (further internal quotations omitted). Where the movant

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contests the pleader’s factual allegations of jurisdiction, “then he is deemed to be challenging the
actual existence of subject matter jurisdiction, and the allegations of the complaint are not
controlling.” Id. at 162 n.8.
B. Fed. R. Civ. P. 12(b)(6) Failure to State a Claim
To survive a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil
Procedure, a complaint must contain sufficient factual matter, accepted as true, to “state a claim
to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The Court “must take the allegations in the
complaint as true and must make all reasonable inferences in favor of the plaintiff[].” Watterson
v. Page, 987 F.2d 1, 3 (1st Cir. 1993). “[F]actual allegations” must be separated from
“conclusory statements in order to analyze whether the former, if taken as true, set forth a
plausible, not merely a conceivable, case for relief.” Juarez v. Select Portfolio Servicing, Inc.,
708 F.3d 269, 276 (1st Cir. 2013) (internal quotations omitted). This “highly deferential”
standard of review “does not mean, however, that a court must (or should) accept every
allegation made by the complainant, no matter how conclusory or generalized.” United States v.
AVX Corp., 962 F.2d 108, 115 (1st Cir. 1992). Dismissal for failure to state a claim is
appropriate when the pleadings fail to set forth “factual allegations, either direct or inferential,
respecting each material element necessary to sustain recovery under some actionable legal
theory.” Berner v. Delahanty, 129 F.3d 20, 25 (1st Cir. 1997) (quoting Gooley v. Mobil Oil
Corp., 851 F.2d 513, 515 (1st Cir. 1988)) (internal quotation marks omitted).

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III.

DISCUSSION
A. Counts One through Five
In its motion to dismiss, the United States challenges, under Fed. R. Civ. P. 12(b)(1), the

facial sufficiency of Ardito’s Complaint as to this Court’s subject matter jurisdiction. 3 It argues
correctly that Ardito’s claim of jurisdiction under 26 U.S.C. § 7609, is faulty. Section 7609
governs special procedures for third-party summonses. 26 U.S.C. § 7609 (setting forth notice
requirements and other provisions pertaining to Secretary’s authority to summon production of
documents and appearance of persons to determine correctness of tax returns and tax liabilities).
It does not provide a basis for subject matter jurisdiction in the initiation of a cause of action
against the Government. Moreover, Ardito’s Complaint pleads no facts relating to a third-party
summons or any reason to invoke § 7609.
Nonetheless, for the purposes of this Order, the Court accepts Ardito’s supplementation
in her ADDENDUM, Doc. No. 8, and her “Opposition,” Doc. No. 14, declaring that her
Complaint distills down to a single count of negligence pursuant to 26 U.S.C. § 7433. 4
Section 7433 provides a cause of action as follows:
If, in connection with any collection of Federal tax with respect to a taxpayer, any officer
or employee of the Internal Revenue Service recklessly or intentionally, or by reason of
negligence, disregards any provision of this title, . . . such taxpayer may bring a civil
action for damages against the United States in a district court of the United States.
Ardito’s Complaint alleges, inter alia, that “[t]he [I]nternal Revenue Service gross nonfeasance
has caused the plaintiff immeasurable psychological harm with possible physical manifestations.
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The United States also argues that Ardito’s Complaint fails under Fed. R. Civ. P. 12(b)(6) because Fed. R. Civ. P.
8(a)(1) requires that “[a] pleading that states a claim for relief must contain: (1) a short and plain statement of the
grounds for the court’s jurisdiction[.]” Fed. R. Civ. P. 8(a)(1). This, however, is properly articulated as a facial
challenge to subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1). See Torres-Negron, 504 F.3d at 162 n.8.
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Insofar as the Complaint is more properly construed as a claim for a “deserved Penalty abatement,” or a refund of
any alleged excessive portion of the penalties assessed against Ardito, and already paid by her, the Court lacks
subject matter jurisdiction due to Ardito’s failure to exhaust her administrative remedies. See 26 U.S.C. §§ 6532,
7422(a); 28 U.S.C. § 1346(a)(1); Francis P. Harvey & Sons, Inc. v. I.R.S., No. 03-40097-FDS, 2004 WL 2915309,
at *5 (D. Mass. Dec. 2, 2004).
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The IRS full well knew of the fraudulent activity and fabrication of tax returns being done by her
accountant . . . over a period beginning [in] 2004, possibly as early as 1999.” Doc. No. 1 at 2.
“The defendant IRS on two occasions made claims th[at] a tax return was not filed and because
of that, the Plaintiff was not in Compliance and could not be put on a payment plan. . . . The
Plaintiff[’]s tax return was filed during the fall of a particular year and acknowledged in writing
by the IRS the following January[.] [B]y March the IRS said they had no record o[f] the tax
return and that they were filing a substitute tax return.” Doc. No. 1 at 3.
While Ardito’s Complaint appears to sound in negligence, “[a] judgment for damages
shall not be awarded under [§ 7433](b) unless the court determines that the plaintiff has
exhausted the administrative remedies available to such plaintiff within the Internal Revenue
Service.” 26 U.S.C. § 7433(d)(1). The corresponding regulations at 26 C.F.R. § 301.7433-1,
prohibit a civil action under § 7433 in a federal district court prior to filing an administrative
claim. 26 C.F.R. § 301.7433-1(d). Subsection (e) sets forth the procedure and requirements for
submitting an administrative claim; what information the claim must include and that it must be
sent in writing to the Area Director. 26 C.F.R. § 301.7433-1(e). The regulations prescribe
additional limitations, in concert with § 7433, such as a cap on claimed damages and a two-year
period of limitations after a cause of action accrues within which a party must bring a civil action
in federal court. 26 C.F.R. § 301.7433-1(e)(1) and (g).
Ardito’s Complaint does not allege that she followed the administrative procedures. She
does not state that she submitted a claim to the Area Director or took any of the steps listed in 26
C.F.R. § 301.7433-1. Furthermore, she provides very few dates with which a court could
determine when her cause of action, if any, accrued. Ardito’s Complaint states only that she
“[has] been trying and corresponding over a two year period to resolve this matter. The matter

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currently is being considered under appeal[.]” Doc. No. 1 at 2, Count One. First, it is unclear
whether Ardito has brought her Complaint in this Court within the two-year statute of
limitations. Second, Ardito does not explain in what manner, or in what venue, this matter “is
being considered under appeal.” Id. Because Ardito does not show that she exhausted her
administrative remedies prior to filing her Complaint, this Court has no jurisdiction over the
matter. See Richman v. United States, 709 F.2d 122, 124 (1st Cir. 1983); Strategic Energy, LLC
v. W. Mass. Elec. Co., 529 F. Supp. 2d 226, 232 (D. Mass. 2008). Therefore, Counts One
through Five are DISMISSED without prejudice.
B. Count Six
The United States argues that Count Six of Ardito’s Complaint fails to state a claim for
relief under Fed. R. Civ. P. 12(b)(6), because it does nothing more than “blame[] the United
States for her misfortunes of hiring a ‘shady’ accountant[,]” and alleges no wrongdoing on the
part of the IRS. The Court agrees, and construes Ardito’s “Count Six” as furthering her narrative
in support of her negligence claim under 26 U.S.C. § 7433. At most, Ardito hints at a reliance on
her malfeasant accountant based on his licensure and regulation by the Government. Doc. No. 1
at 4, Count Six. However, she provides no facts in Count Six that could serve as the basis for a
separate cause of action. Because Count Six fails to meet the threshold under Fed. R. Civ. P.
12(b)(6) to state a claim for relief, it is DISMISSED without prejudice.
IV.

CONCLUSION
For the foregoing reasons, the United States’ Motion to Dismiss (Doc. No. 9) is

ALLOWED. Ardito’s Complaint is DISMISSED without prejudice to Ardito filing, within
fourteen days, a motion to amend the Complaint, attaching to the motion a proposed draft
Complaint, which must plead, sufficiently, her exhaustion of administrative remedies as well as

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all other requirements for a complaint. In the event that Ardito does not file such motion within
fourteen days, the Court will enter judgment of dismissal without prejudice, and close this case.
Finally, Ardito’s Motion to Amend her Complaint (Doc. No. 15) is ALLOWED to the extent
herein described, and otherwise DENIED.

SO ORDERED.

/s / Leo T. Sorokin
Leo T. Sorokin
Chief United States Magistrate Judge

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