Vaughn v. Internal Revenue Service
MEMORANDUM AND ORDER - IT IS HEREBY ORDERED that the United States' Motion to Dismiss [ECF No. 2] is GRANTED. Plaintiffs Complaint [ECF No. 1] is DISMISSED with prejudice. IT IS FURTHER ORDERED that the United States Motion to Strike Response as Untimely Filed [ECF No. 6] is DENIED as moot. Signed by District Judge E. Richard Webber on July 29, 2013. (MCB)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
INTERNAL REVENUE SERVICE
OF THE UNITED STATES OF AMERICA,
Case No. 4:13CV00609 ERW
MEMORANDUM AND ORDER
This matter comes before the Court on Defendant Internal Revenue Service of the United
States of America’s (“United States”) Motion to Dismiss [ECF No. 2], and the United State’s
Motion to Strike Plaintiff William Vaughn’s (“Plaintiff”) Response as Untimely Filed [ECF No.
FACTUAL AND PROCEDURAL BACKGROUND
On April 12, 2013, Plaintiff filed a Complaint against the United States, asserting claims
for duress and fraud, and seeking money damages for “the illegal collection of internal-revenue
taxes, penalties, and interest charges” [ECF No. 1 at 1]. In his Complaint, Plaintff contends that
the term “income” in the Sixteenth Amendment does not pertain to wages such as those earned
by him, and that the Sixteenth Amendment does not grant Congress the power to collect taxes on
gross income. Plaintiff alleges that, because he interprets the tax law as not defining his wages as
income, he recorded total income of $0.00 on Initial Joint Returns filed on behalf of himself and
his spouse for the years 2008 through 2011. As the basis for his duress and fraud claims,
Plaintiff alleges that the United States made false statements regarding his filing status that
misrepresented Plaintiff’s wages as income, and labeled his and his spouse’s Initial Joint Returns
as frivolous; and that the United States threatened Plaintiff and his spouse with a monetary
penalty unless they corrected their joint returns. Plaintiff also alleges that he filed Corrected
Joint Returns, receiving refunds from the IRS, and that the IRS demanded additional monies as
penalties and interest, which he involuntarily paid. In addition to compensatory (seeking refund
of all taxes and penalties paid for the years 2008 and following) and punitive damages, Plaintiff
seeks prejudgment interest, an injunction against the IRS, and declaratory relief, including a
lifetime exemption from having to pay federal income taxes.
Thereafter, the United States filed a Motion to Dismiss on May 31, asserting that Plaintiff
failed to state a claim for compensatory damages under 26 U.S.C. § 7433, and contending that
the Court lacks subject matter jurisdiction [ECF No. 2]. The United States additionally claims
that the Anti-Injunction Act, 26 U.S.C. § 7421(a), and the Declaratory Judgment Act, 28 U.S.C.
§ 2201(a), bar the injunctive and declaratory relief Plaintiff seeks. As well, the United States
contends Plaintiff is making numerous tax-defier type arguments that should be summarily
dismissed as patently frivolous.
On June 17, Plaintiff filed a “Notice of Receipt,” acknowledging that he had received the
United States’ Motion to Dismiss, via United States mail, on June 6, 2013 [ECF No. 4]. Plaintiff
filed “Plaintiff’s Memorandum in Opposition to United States’ Motion to Dismiss” on July 1
[ECF No. 5]. On July 2, the United States filed its Motion to Strike Plaintiff William Vaughn’s
Response as Untimely Filed [ECF No. 6]. Plaintiff filed his Memorandum in Opposition re
Motion to Strike Response on July 16, 2013 [ECF No. 8].
A party may move under Rule 12(b)(6) to dismiss a complaint for “fail[ing] to state a
claim upon which relief may be granted.” Fed. R. Civ. P. 12(b)(6). The purpose of a motion to
dismiss is to test “the sufficiency of a complaint[.]” M.M. Silta, Inc. v. Cleveland Cliffs, Inc.,
616 F.3d 872, 876 (8th Cir. 2010).
“To survive a motion to dismiss, 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) (internal quotations and citation omitted). “A claim has facial plausibility
when the plaintiff pleads factual content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Id.
When ruling on a motion to dismiss, a court “must liberally construe a complaint in favor
of the plaintiff[.]” Huggins v. FedEx Ground Package Sys., Inc., 592 F.3d 853, 862 (8th Cir.
2010). However, if a claim fails to allege one of the elements necessary to recovery on a legal
theory, that claim must be dismissed for failure to state a claim upon which relief can be granted.
Crest Constr. II, Inc. v. Doe, 660 F.3d 346, 355 (8th Cir. 2011).
Rule 12(b)(1) provides that a claim may be dismissed for lack of jurisdiction over the
subject matter. Fed. R. Civ. P. 12(b)(1). A Rule 12(b)(1) challenge to a Complaint can be either
to the face of the Complaint, or to the factual truthfulness of its allegations. Titus v. Sullivan, 4
F.3d 590, 593 (8th Cir. 1993). When a Complaint is facially challenged, courts presume all of
the factual allegations concerning jurisdiction are true. Id. The motion succeeds if the plaintiff
fails to allege a necessary subject-matter jurisdiction element. Id.
A. Motion to Strike Response as Untimely Filed
The United States correctly argues that Plaintiff’s Response to its Motion to Dismiss was
untimely. However, the Court has carefully reviewed Plaintiff’s Response and finds that it need
not be stricken. As explained below, none of the arguments set forth in the Response are
sufficient to overcome the Complaint’s deficiencies. Therefore, the United States’ Motion to
Strike [ECF No. 6] will be denied as moot.
B. Motion to Dismiss
In its Motion to Dismiss, the United States asserts that Plaintiff’s Complaint fails to state
a claim for compensatory damages under Fed. R. Civ. P. 12(b)(6), and that the Court lacks
subject matter jurisdiction over all of Plaintiff’s other claims, under Fed. R. Civ. P. 12(b)(1).
1. Compensatory Damages Claim
The United States argues that Plaintiff’s claim for compensatory damages is legally
insufficient, and should be dismissed pursuant to Fed. R. Civ. P. 12(b)(6) [ECF No. 3]. The
United States asserts that Plaintiff’s Complaint fails to allege that Plaintiff exhausted his
administrative remedies before he filed this suit claiming damages, and it contends the Court
should dismiss Plaintiff’s compensatory damages claim because Plaintiff has not satisfied the
exhaustion requirement of 26 C.F.R. § 301.7433-1. The United States further contends that,
even if Plaintiff had alleged he had exhausted his administrative remedies, Plaintiff’s Complaint
still fails to state a claim for damages, as his “claim that wages are not income for the purposes of
taxation is merely shopworn tax-defier rhetoric that has been consistently and soundly rejected by
the federal courts” [ECF No. 3 at 6].
An examination of Plaintiff’s Complaint reveals that, as compensatory damages, Plaintiff
is seeking the amount of all taxes paid on wages for the 2008 and following tax years, and the
amount of the penalties he “involuntarily” paid. Essentially, the prayer of Plaintiff’s Complaint
seeks a tax refund. Although 28 U.S.C. § 1346(a)(1) “operates in conjunction with 26 U.S.C. §
7422 to provide a waiver of sovereign immunity in tax refund suits . . . when the taxpayer has
fully paid the tax and filed an administrative claim for a refund[,]” Plaintiff has failed to allege to
allege that he has filed a proper administrative claim for refund with the IRS. See Williams v.
Internal Revenue Serv., 2007 WL 1965545 at *1 (E.D. Mo. July 2, 2007). Because Plaintiff has
not stated, nor do the pleading before the Court show, that Plaintiff has satisfied the conditions
set forth in section 7422, this Court lacks subject matter over any claim asserted for recovery of
any internal-revenue tax alleged to have been erroneously or illegally assessed or collected,
regardless of how the claim may be labeled. See Hansen v. United States, 248 F.3d 761, 764 (8th
Plaintiff has asserted allegations of fraud and duress. Section 7433(a) of the Internal
Revenue Code permits taxpayers to bring civil actions for damages against the United States
‘”[i]f, in connection with the 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 the [Internal Revenue Code] or any regulation promulgated”
thereunder. 26 U.S.C. § 7433(a). The pertinent IRS regulation, 26 C.F.R. § 301.7433-1(d),
requires taxpayers to file an administrative claim with the agency before filing an action in
federal district court seeking civil damages. See also 26 U.S.C. § 7433(d)(1) (“A judgment for
damages shall not be awarded under subsection (b) unless the court determines that the plaintiff
has exhausted the administrative remedies available to such plaintiff within the Internal Revenue
Service.”). Subsection (e) of the regulation outlines the procedure taxpayers must follow in
presenting their administrative claims, and, among other things, requires taxpayers to present
their claim in writing to the Area Director, of the area in which the taxpayer resides, addressed to
the attention of the area’s Compliance Technical Support Manager. 26 C.F.R. § 301.7433-1(e).
Plaintiff’s Complaint does not allege that he filed an administrative claim in the manner
prescribed by 26 C.F.R. § 301.7433-1. Instead, Plaintiff’s Complaint avers that he sent certified
correspondence to the former IRS Commissioner, asking him “to provide authoritative law that
defined Plaintiff’s wages as income” [ECF Nos. 1 at 2, 1-4]. Plaintiff has not exhausted his
administrative remedies; in fact, his pleadings do not claim that he even minimally complied
with the exhaustion requirement. The United States timely raises failure to exhaust as a defense
in its Motion to Dismiss. The exhaustion requirement of Section 7433-1(d) is “a congressionally
established exhaustion imperative, not a judicially created one, and accordingly the courts lack
discretion to waive it.” Hoogerheide v. Internal Revenue Serv., 637 F.3d 634, 639 (6th Cir.
2011); Piciulo v. Brown, 2005 WL 1926688 at *3-4 (E.D. Mo. May 25, 2005). Therefore,
Plaintiff’s claim for compensatory damages must be dismissed for failure to exhaust his
Moreover, even if Plaintiff had complied with the exhaustion requirement, the United
States would succeed on its Motion to Dismiss as to his claim for damages, because Plaintiff’s
Complaint fails to state a claim upon which relief may be granted. Plaintiff’s entire action is
premised upon his argument that his wages are not income. As noted by another court in this
district, “[e]very court which has ever considered the issue has unequivocally rejected the
argument that wages are not income.” Kelly v. United States, 209 F.Supp.2d 981, 992 (E.D. Mo.
April 19, 2002)(internal quotation and citation omitted). The Eighth Circuit has found appeals
asserting such arguments to be meritless and frivolous, and has stated that “it is clear Congress
intended to tax income from whatever source derived.” U.S. v. Francisco, 614 F.2d 617, 619
(8th Cir. 1980). See also 26 U.S.C. § 61 (“gross income means all income from whatever source
derived, including (but not limited to) the following items: (1) Compensation for services,
including fees, commissions, fringe benefits, and similar items[.]”); Funk v. C.I.R., 687 F.2d 264,
265 (8th Cir. 1982) (“Taxpayers’ argument that wages received for services are not taxable as
income is clearly frivolous.”). “[W]ages are within the definition of income under the Internal
Revenue Code and the Sixteenth Amendment, and are subject to taxation.” United States v.
Gerads, 999 F.2d 1255, 1256 (8th Cir. 1993). The Court will dismiss Plaintiff’s compensatory
2. Plaintiff’s Claims for Prejudgment Interest, and Punitive Damages
Plaintiff’s Complaint seeks “prejudgment interest at the highest legal rate” from the date
of the each alleged incident of fraud and duress; and punitive damages in the amount of “5,000
times the combined compensatory damages and prejudgment interest” for each alleged incident
of fraud, and in the amount of “10,000 times the combined compensatory damages and
prejudgment interest” for each alleged incident of duress.
The United States contends this Court lacks subject matter jurisdiction over Vaughn’s
claims for punitive damages, because the United States has not consented to be sued for punitive
damages, and thus has not waived its sovereign immunity. The Court again agrees. Section
7433 does not provide punitive damages as a remedy for reckless or intentional disregard of any
provision of the tax code or IRS regulation. See 26 U.S.C. § 7433. Moreover, Plaintiff’s claim
for punitive damages, and for “prejudgment interest” fail for the same reasons as did his
compensatory damages claim. As discussed above, Plaintiff fails to allege that he has exhausted
his administrative remedies, and his Complaint, based in its entirety upon an argument soundly
rejected by this Circuit as meritless and frivolous, fails to state a claim upon which relief may be
granted. Therefore, the Court will dismiss Plaintiff’s claims for punitive damages and
3. Plaintiff’s Request for Declaratory and Injunctive Relief
Plaintiff’s Complaint includes a request that the Court issue an Order granting a lifetime
exemption from paying taxes on wages derived from labor, for himself, his spouse, and for all his
descendants. In its Motion to Dismiss, the United States claims that this Court lacks subject
matter jurisdiction to grant the declaratory and injunctive relief requested by Plaintiff. This
“[T]he United States, as sovereign, is immune from suit save as it consents to be sued . . .
and the terms of its consent to be sued in any court define that court’s jurisdiction to entertain the
suit.” Lehman v. Nakshian, 453 U.S. 156, 160 (1981)(internal quotations and citation omitted).
The general rule is that federal courts do not have power to issue declaratory judgments, and
Plaintiff has failed to indicate that this case involves any exception. See 26 U.S.C. § 7428
(exception for declaratory judgments relating to status and classification of organizations under
section 501(c)(3), etc.); 28 U.S.C. § 2201 (creating remedy in which federal court could declare
rights and other legal relations of interested parties in civil actions, but excepting, inter alia,
controversies respecting Federal taxes other than actions brought under section 7428 of the
Internal Revenue Code); Ginter v. United States, 815 F.Supp. 1289, 1293 (W.D. Jan. 6, 1993).
Here, Plaintiff is seeking to prohibit the IRS from collecting any future taxes from himself, his
spouse, and his descendants. Such an action is expressly prohibited by the federal AntiInjunction Act, 26 U.S.C. § 7421(a):
Except as provided in sections 6015(e), 6212(a) and (c), 6213(a), 6225(b),
6246(b), 6330(e)(1), 6331(i), 6672(c), 6694(c), 7426(a), and (b)(1), 7429(b), and
7436, no suit for the purpose of restraining the assessment or collection of any tax
shall be maintained in any court by any person, whether or not such person is the
person against whom such tax was assessed.
Plaintiff has failed to establish that any of the listed exceptions exist in this matter. The
purpose of Section 7421 is to withdraw state and federal court jurisdiction over suits seeking
injunctions barring the collection of federal taxes. J. L. Enochs v. Williams Packing &
Navigation Co., 370 U.S. 1, 5-6 (1962). Consequently, this Court lacks subject matter
jurisdiction to grant the declaratory and injunctive relief Plaintiff requests, and will dismiss
Plaintiff’s equitable claims.
IT IS HEREBY ORDERED that the United States’ Motion to Dismiss [ECF No. 2] is
GRANTED. Plaintiff’s Complaint [ECF No. 1] is DISMISSED with prejudice.
IT IS FURTHER ORDERED that the United States’ Motion to Strike Response as
Untimely Filed [ECF No. 6] is DENIED as moot.
Dated this 29th
day of July, 2013.
E. RICHARD WEBBER
SENIOR UNITED STATES DISTRICT JUDGE
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