MCGINLEY v. UNITED STATES OF AMERICA

Filing 11

OPINION filed. Signed by Judge Joel A. Pisano on 9/27/2013. (jjc)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

____________________________________
:
:
BETH KOPS McGINLEY,
:
:
Plaintiff,
:
:
v.
:
:
UNITED STATES OF AMERICA
:
:
:
Defendant.
:
____________________________________:

Civil Action No. 12-5471 (JAP)

OPINION

PISANO, District Judge.
This is an action seeking the recovery of income taxes, penalties and interest collected
from plaintiff Beth Kops McGinley (“Plaintiff”) for the 2000 tax year. Plaintiff seeks the
return of $102,969.68 plus interest. Presently before the Court is a motion by defendant
United States of America (the “government”) to dismiss the complaint pursuant to Federal
Rule of Civil Procedure 12(b)(1). For the reasons below, the government’s motion is granted.
I. BACKGROUND
On August 6, 2001, Plaintiff and her then husband, Kevin Kops (“Kops”), filed a joint
income tax return for the 2000 tax year with the Internal Revenue Service (“IRS”). Compl. at
¶ 6. The amount due, exclusive of penalty and interest, was $76,744. Id. at ¶ 7. Subsequently,
Plaintiff and Kops divorced, and on July 2, 2004, the Superior Court of New Jersey entered a
judgment against Kops requiring him to pay Plaintiff child support. Id. at ¶ 8. This judgment
was filed and attached as a lien against Kops’s half-interest in the former marital home (the

“Residence”), where Plaintiff resided with the couple’s children. Id. at ¶ 9. Shortly thereafter,
on August 25, 2004, the IRS filed a tax lien against Plaintiff and Kops in the amount of
$91,404.56 which attached to the Residence. Id.
In the divorce, Plaintiff was awarded the previously jointly-owned Residence and title
to it was deeded solely to Plaintiff in 2005. Id. at ¶ 10. As such, the property was no longer
held jointly by Kops.
In March of 2006, the IRS determined that Plaintiff was an “innocent” spouse and
granted relief to Plaintiff under Section 6015 of the Internal Revenue Code for the entire tax
liability for the 2000 tax year. Id. at ¶ 11. Thus, the IRS effectively determined that Plaintiff
had no responsibility for that year’s tax liability. Accordingly, in July of that same year, the
IRS released the previously filed tax lien as to Plaintiff, but did not release its lien with
respect to Kops. Id..
Plaintiff’s counsel worked on her behalf seeking relief from the tax lien as to Kops
against the Residence, as the Residence was now solely owned by Plaintiff. The IRS advised
counsel to file a request for a certificate of nonattachment, which he did on October 29, 2008.
Eagan Decl. ¶ 11. The IRS denied the request. Id. The IRS also advised counsel to file a
request for a certificate of discharge, which was done on June 22, 2009. Id. at ¶ 12. This
request was also denied. Id. According to counsel, each of these requests were prepared after
he engaged in “long conversations with multiple IRS agents” with whom counsel dealt with
on the matter as to proper IRS procedure. Id. at ¶ 13. According to his declaration, Plaintiff’s
counsel was receiving “conflicting advice” from the IRS as to how to proceed from a
procedural perspective. Id. at ¶ 14. Counsel was engaged in “protracted negotiations” with
the IRS in order to find suitable relief for Plaintiff, but such negotiations allegedly lagged

2

allegedly “due to the IRS’s confusion and conflicting advice on how to move forward.” Id. at
¶¶ 14-15.
In June of 2010, Plaintiff entered into a contract to sell the residence. Id. at ¶ 18.
With respect to the sale, the IRS took the position that Kops still had an interest in the
property because “the August 24, 2004 tax lien was filed before the property was transferred
solely to plaintiff in June 2005.” Compl. ¶ 12. Plaintiff’s counsel contacted the IRS in an
attempt to come to a settlement on the amount owed so that amount could be escrowed at the
closing. Eagan Decl. ¶ 19. Initially, the IRS agreed to permit the escrow of an amount of just
over $162,000 so that Plaintiff could sell the residence and continue to dispute the amount
owed. Id. at 20. The parties continued to negotiate and eventually the IRS agreed that it
would release the lien in exchange for a payment of about $103,000. Id. at ¶ 24. The IRS
changed its position with respect to escrowing the funds, and advised Plaintiff on the eve of
closing that it would require payment, not escrow, of that amount in exchange for a discharge
of the lien. Id. at ¶ 23.
In August 2010, Plaintiff sold the Residence. Consequently, on or about September 2,
2010, Plaintiff paid the IRS $102,929.68, an amount which Plaintiff states she believed to be
full payment of all tax, penalty and interest owed with respect to the 2000 tax year. Compl. at
¶¶ 12-13. On November 10, 2011, the IRS issued a certificate of discharge with respect to the
entire tax lien. Eagan Decl. ¶ 24.
On January 31, 2011, Plaintiff appealed the certificate of discharge with the IRS
Appeals Office. Id. at ¶ 25. In early February 2011, Plaintiff was advised by an appeals
officer that he could not provide any relief because the tax was paid as part of the sale of real
estate, but this officer suggested that Plaintiff file a claim for refund pursuant to Form 843.

3

Id. at ¶¶ 26-27. Consequently, on August 2, 2011, Plaintiff filed a claim for a refund with the
IRS, asserting, among other things, that no monies should have been collected by the IRS
with respect to the lien because the July 2, 2004 child support judgment had priority over the
August 25, 2004 federal tax lien. The amount of child support owing by 2010 had become
$553,000. Compl. at ¶ 16.
While her claim for refund was pending, Plaintiff, believing that her claim was
covered by the two-year statute of limitations under Section 6511(b) of the Tax Code, filed
the instant lawsuit on August 30, 2012 as a protective measure. Eagan Decl. ¶ 28. Plaintiff’s
counsel continued his discussions with the IRS and, on or about October 4, 2012, reached an
agreement with a member of the IRS Taxpayer Advocate’s Office, who agreed that the full
amount of the payment would be refunded because the tax lien did not have priority over the
child support judgment lien. Id. at ¶ 29. The IRS advised Plaintiff’s counsel that New
Jersey’s probation department would have to send a letter to the IRS requesting the payment
of the funds to the department directly. Accordingly, on November 26, 2012, Superior Court
of New Jersey, Family Part, Somerset County entered an order requiring the IRS to pay the
funds into court pending a formal application by Plaintiff for release of those funds. Id. at ¶
30. The IRS has refused to pay the funds. This suit followed.
II. ANALYSIS
The government alleges that the Court lacks subject matter jurisdiction over this case
because the United States has not waived sovereign immunity. As explained below, the
government contends that the Court lacks jurisdiction if Plaintiff’s claim is considered a
refund claim under § 1346(a)(1) because plaintiff is not the “taxpayer” and the prerequisite of
the tax being fully paid has not been met. The government further contends that Plaintiff’s

4

claim is out of time if the claim is considered one under § 7426(a)(4) (providing certain
remedies for third parties) because that statute required her to file her action within 120 days
of the issuance of the certificate of discharge by the IRS.
Plaintiff responds that her claim is permitted under § 1346(a)(1) pursuant to the
doctrine set forth in United States v. Williams, 514 U.S. 527, 532-533, 115 S.Ct. 1611, 131
L.Ed.2d 608 (1995). Plaintiff also argues that the government should be equitably estopped
from raising its various procedural defenses to Plaintiff’s complaint and that the government
has waived its lack of standing argument.
A. Legal Standard
1. Rule 12(b)(1)
Under Federal Rule of Civil Procedure 12(b)(1), a case may be dismissed for “lack of
subject-matter jurisdiction.” When subject matter jurisdiction is challenged under this rule the
plaintiff bears the burden of persuasion. Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d
884, 891 (3d Cir. 1977). In evaluating a Rule 12(b)(1) motion to dismiss, the Court must
determine whether the motion attacks the complaint as deficient on its face, or whether the
motion attacks the existence of subject matter jurisdiction in fact. Id. “In reviewing a facial
attack, the court must only consider the allegations of the complaint and documents
referenced therein and attached thereto, in the light most favorable to the plaintiff. In
reviewing a factual attack, the court may consider evidence outside the pleadings.” Gould
Elecs. Inc. v. United States, 220 F.3d 169, 176 (3d Cir. 2000). Defendant in this case makes a
factual attack on subject matter jurisdiction. Accordingly, the Court has considered the
evidence submitted by both parties in deciding this motion to dismiss.

5

2. Sovereign Immunity
“It is axiomatic that the United States may not be sued without its consent and that the
existence of consent is a prerequisite for jurisdiction.” United States v. Mitchell, 463 U.S.
206, 212, 103 S.Ct. 2961, 77 L.Ed.2d 580 (1983), see also Loefler v. Frank, 486 U.S. 549,
554, 108 S.Ct. 1965, 1968, 100 L.Ed.2d 549 (1988); Federal Housing Administration v. Burr,
309 U.S. 242, 244, 60 S.Ct. 488, 490, 84 L.Ed. 724 (1940). “‘[W]aivers of the Government’s
sovereign immunity, to be effective, must be unequivocally expressed,’ and any such waiver
must be construed strictly in favor of the sovereign.” United States v. Bein, 214 F.3d 408, 412
(3d Cir. 2000) (quoting United States v. Nordic Village, Inc., 503 U.S. 30, 33, 112 S.Ct. 1011,
117 L.Ed.2d 181 (1992)).
B. Plaintiff’s Motion
The government has filed the instant motion claiming that the Court lacks jurisdiction
over this suit because there has been no waiver of sovereign immunity. The government’s
argument is essentially two-fold. First, the government contends that if Plaintiff purports to
bring a refund action under 28 U.S.C. §1346(A)(1) 1 (permitting a civil action against the
United States for the recovery of any tax alleged to have been erroneously or illegally
assessed or collected) there is no jurisdiction because Plaintiff is not a proper party under 26
U.S.C. § 7422 (addressing requirements for refund actions). The government asserts that
Plaintiff is not the “taxpayer” (i.e., the person who had the tax obligation) and, further, even if

1

This section of the code waives the government’s sovereign immunity by authorizing:

(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, or any penalty claimed to have been collected without authority or
any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws[.]
28 U.S.C. §1346(A)(1).

6

she was the taxpayer, the tax liability must be paid in full prior to filing suit, and it allegedly
has not been.
Second, the government argues that to the extent Plaintiff’s action is considered one
pursuant to 26 U.S.C. § 7426 (providing certain remedies for third parties), Plaintiff’s claim is
out of time because that statute required her to file her action in district court within 120 days
from the time she made the payment to the IRS.
Turning first to the government’s “not-the-taxpayer” argument, the Court notes that
the government provides little in the way of an explanation of its argument. Rather, it simply
states that Plaintiff is “not the taxpayer” and cites to § 7422 alone. Presumably, the
government asks the Court to infer an argument that goes as follows:
Under 26 U.S.C. § 7422, a party may not bring a refund action without first
exhausting administrative remedies; under 26 U.S.C. § 6511, only a “taxpayer”
may exhaust; under 26 U.S.C. § 7701(a)(14), [Plaintiff] is not a taxpayer. 2
United States v. Williams, 514 U.S. 527, 532-533, 115 S.Ct. 1611, 131 L.Ed.2d 608 (1995).
This argument was rejected by the Supreme Court under facts similar to the present matter in
Williams; although, as discussed infra, it has been generally held that the ultimate holding in
Williams has been superseded by statute.
In response to the government’s argument, Plaintiff contends that 28 U.S.C.
§1346(A)(1) authorizes her suit under the doctrine of the Williams case. Similar to the instant
case, the plaintiff in Williams paid her ex-husband’s federal tax under protest in order to
remove a tax lien on the house formerly owned jointly by both. Rejecting the government’s
argument that no waiver of sovereign immunity existed, the Williams Court decided that §
1346(a)(1) authorized a tax-refund claim by a third party whose property was subjected to an
2

Under 26 U.S.C. § 7701(a)(14) “[t]he term ‘taxpayer’ means any person subject to any internal revenue tax.”

7

allegedly wrongful tax lien. The Court’s holding was based upon the fact that no other
remedy would have existed for the plaintiff in that case. See EC Term of Years Trust v.
United States, 550 U.S. 429, 127 S.Ct. 1763, 1765, 167 L.Ed.2d 729 (2007) (clarifying that
Williams’s holding rested “on the specific understanding that no other remedy ... was open to
the plaintiff in that case.”)
The government contends, however, that Williams is no longer applicable because
Congress has now created a remedy for parties in Plaintiff’s shoes. Unlike the plaintiff in
Williams who had no other avenue for relief, property owners like Plaintiff could challenge
the IRS’s lien under 26 U.S.C. § 7426(a)(4). Plaintiff herself acknowledges that, in response
to Williams, Congress enacted the Internal Revenue Service Restructuring & Reform Act,
which amended 26 U.S.C. § 7426 by adding subsection (a)(4) and also amended 26 U.S.C. §
6325 by adding subsection (b)(4). Under § 6325(b)(4), 3 the owner of a property subject to the
3

26 U.S.C. 6325(b) provides in the relevant part as follows:
(4) Right of substitution of value.-(A) In general.--At the request of the owner of any property subject to any lien imposed by this
chapter, the Secretary shall issue a certificate of discharge of such property if such owner-(i) deposits with the Secretary an amount of money equal to the value of the interest of the
United States (as determined by the Secretary) in the property; or
(ii) furnishes a bond acceptable to the Secretary in a like amount.
(B) Refund of deposit with interest and release of bond.--The Secretary shall refund the
amount so deposited (and shall pay interest at the overpayment rate under section 6621), and
shall release such bond, to the extent that the Secretary determines that-(i) the unsatisfied liability giving rise to the lien can be satisfied from a source other than such
property; or
(ii) the value of the interest of the United States in the property is less than the Secretary's prior
determination of such value.
(C) Use of deposit, etc., if action to contest lien not filed.--If no action is filed under section
7426(a)(4) within the period prescribed therefor, the Secretary shall, within 60 days after the
expiration of such period--

8

federal tax lien of a third party can obtain a certificate of discharge from the IRS by providing
a cash deposit or bond sufficient to protect the government’s lien interest in the property, i.e.,
a substitution of value. Section 7426(a)(4) 4 provides that if a certificate of discharge is issued
under § 6325(b)(4) and a property owner is dissatisfied the IRS’s determination of the lien
value, the property owner may bring suit within 120 days after issuance of the discharge for a
determination of whether the value of the interest of the United States (if any) in such
property is less than the value determined by the IRS. This section expressly provides that
“no other action may be brought by such person for such a determination.” 26 U.S.C. §
7426(a)(4). In the time since the enactment of the aforementioned amendments, the majority
of courts addressing the question have found that the amendments have superseded the
holding in Williams, and taxpayers in Plaintiff’s situation must utilize the procedures set forth
in 26 U.S.C. §§ 6325(b)(4) and 7426(a)(4) before filing a claim in district court. See, e.g.,
Munaco v. U.S., 522 F.3d 651 (6th Cir. 2008) (citing cases). The Court is in agreement with
the weight of the authority so holding.

(i) apply the amount deposited, or collect on such bond, to the extent necessary to satisfy the
unsatisfied liability secured by the lien; and
(ii) refund (with interest as described in subparagraph (B)) any portion of the amount deposited
which is not used to satisfy such liability.
(D) Exception.--Subparagraph (A) shall not apply if the owner of the property is the person
whose unsatisfied liability gave rise to the lien.
4

26 U.S.C. § 7426(a) provides in the relevant part as follows:
(4) Substitution of value.--If a certificate of discharge is issued to any person under section
6325(b)(4) with respect to any property, such person may, within 120 days after the day on
which such certificate is issued, bring a civil action against the United States in a district court
of the United States for a determination of whether the value of the interest of the United
States (if any) in such property is less than the value determined by the Secretary. No other
action may be brought by such person for such a determination.

9

In finding that the holding in Williams does not apply here to save Plaintiff’s claim,
the Court rejects Plaintiff’s argument that her situation is identical to that of the Williams
plaintiff in that she is without a remedy. It appears that Plaintiff could have but failed to seek
the relief under §§ 6325(b)(4) and 7426(a)(4), as she has presented no evidence that she
sought to challenge the IRS’s determination under that statutory procedure. While Plaintiff
argues that she her ability to enter into a “substitution of value” arrangement required by the
above statutes was foreclosed by the IRS’s eleventh hour rejection of an escrow agreement,
there is no claim by Plaintiff that she sought a discharge under § 6325(b)(4). Indeed,
documentary evidence predating the IRS’s last minute payment demand shows that Plaintiff,
through counsel, sought a certificate of discharge expressly under § 6325(b)(2)(A), 5 not §
6325(b)(4). Eagan Decl. Ex. B (letter requesting certificate of discharge). Both conditional
commitments to discharge from the IRS reference Plaintiff’s “application … under the
provisions of section 6325(b)(2)(A).” Consistent with Plaintiff’s initial request, the certificate
of discharge, on its face, states that it is issued pursuant to § 6325(b)(2)(A). See Eagan Decl.,
Ex. E (Certificate of Discharge dated 9/23/10). In addition to explicitly referencing §
6325(b)(2)(A), the certificate of discharge was issued on Form 669-B, which, according to the
Internal Revenue Manual, is used when the discharge is pursuant to § 6325(b)(2)(A). See
Internal Revenue Manual Part 5, Chapter 12, § 3.12(3)(B)

5

Section 6325(b)(2)(A) provides that “the Secretary may issue a certificate of discharge of any part of the
property subject to the lien if--(A) there is paid over to the Secretary in partial satisfaction of the liability secured
by the lien an amount determined by the Secretary, which shall not be less than the value, as determined by the
Secretary, of the interest of the United States in the part to be so discharged…”

10

(http://www.irs.gov/irm/part5/irm_05-012-003.html) (last visited Sept. 20, 2013). Nothing in
the record before the Court indicates that Plaintiff sought a discharge under § 6325(b)(4). 6
“If a third party obtains the discharge of a tax lien pursuant to § 6325(b)(2)(A), the tax
code provides for no judicial review of the collection by the IRS in exchange for the
certificate of discharge.” Four Rivers Investments, Inc. v. U.S., 77 Fed. Cl. 592, 603-04 (Fed.
Cl. 2007); see also Crytser v. U.S., 2006 WL 3203585 (E.D. Wash. November 02, 2006)
(“Persons who request a certificate of discharge under section 6325(b)(2)(A) may not seek
judicial review of the IRS’s valuation determination through a refund action under 28 U.S.C.
§ 1346(a)(1).”); Rev. Rul.2005-50, 2005-30 I.R.B. 124, 2005 WL 1710987 (IRS RRU) (third
party who seeks discharge of a federal tax lien under § 6325(b)(2) cannot maintain a refund
action under 28 U.S.C. § 1346(a) or an action for substitution of value under section
7426(a)(4).). Section 7426(a)(4) by its terms waives sovereign immunity and permits a suit
by a third party such as Plaintiff only in situations where the certificate issued under §
6325(b)(4). Thus, if, as the documents submitted appear to show, Plaintiff pursued and was
issued a certificate of discharge under § 6325(b)(2)(A), there has been no waiver of sovereign
immunity and the Court has no jurisdiction to hear this matter.
However, despite the express reference to § 6325(b)(2)(A) in the operative documents,
including the certificate of discharge itself, the government has provided the Court with a
declaration from a Technical Services Advisor with the IRS, who states that the certificate of
discharge with respect to the subject property was issued pursuant to § 6325(b)(4).

6

As discussed infra, under Treasury regulation 26 C.F.R. 301.6325-1(b)(5), absent a written waiver, Plaintiff’s
request would have been treated as one under § 6325(b)(4) and any funds paid would have been treated as a
deposit. However, the issue of the existence of a waiver or the lack thereof was not raised by the parties.

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Supplemental Decl. of Joseph Martone (“Supp. Martone Decl.”) ¶ 6. Specifically, Mr.
Martone states that
In 2010, the IRS issued a certificate of discharge, pursuant to 26 U.S.C. §
6325(b)(4), releasing the property from the federal lien against Kevin Kops. In
return, Beth McGinley agreed to pay $102,929.68 to the IRS.
Id. Nevertheless, even if the certificate issued pursuant to §6325(b)(4), 7 Plaintiff’s claim
would not be timely. Under § 7426(a)(4), Plaintiff would have had 120 days from the date of
the certificate of discharge to initiate this civil action, and she did not do so. This action was
filed nearly two years after the certificate issued.
Plaintiff further argues that the government should be equitably estopped “from
raising its various procedural defenses” to Plaintiff’s claim. Her argument is quite
nonspecific, and does not indicate exactly the manner in which Plaintiff is asserting that the
government should be estopped. While accurately stating the elements for equitable estoppel,
Plaintiff fails to address each element individually. Rather, Plaintiff makes a broad argument
that the government should be estopped from “advancing its current procedural-based
arguments for dismissal” because “the IRS provided conflicting advice” and “could not
7

Despite the contrary information on the face of the September 23, 2010 certificate of discharge, if the IRS
issued (or intended to issue) the certificate pursuant to § 6325(b)(4) when it appears that Plaintiff applied for a
certificate under § 6325(b)(2)(A), it is possible that the IRS was complying (or attempting to comply) with 26
C.F.R. 301.6325-1(b)(5) which provides as follows:
Any person desiring a certificate of discharge under this paragraph (b) shall submit an
application in writing to the appropriate official. The application shall contain the information
required by the appropriate IRS Publication. For purposes of this paragraph (b), any
application for certificate of discharge made by a property owner who is not the taxpayer,
and any amount submitted pursuant to the application, will be treated as an application for
discharge and a deposit under section 6325(b)(4) unless the owner of the property submits a
statement, in writing, that the application is being submitted under another paragraph of
section 6325 and not under section 6325(b)(4), and the owner in writing waives the rights
afforded under paragraph (b)(4), including the right to seek judicial review.
26 C.F.R. 301.6325-1(b)(5) (emphasis supplied). No argument as Plaintiff’s entitlement to relief based upon the
procedures set forth in this regulation and/or based upon either the presence or absence of a waiver relief has
been raised by either party, and no information is in the record before the Court with respect to a waiver.

12

decide on a mechanism for removing the Tax Lien” and it was the IRS’s “bureaucratic
missteps and bumbling approach” that caused Plaintiff’s “procedural issues in this case.”
While the Supreme Court has never adopted a general rule that estoppel may never run
against the government in any circumstances, it has warned that courts should be cautious
when evaluating estoppel claims against the government. See Office of Pers. Mgmt. v.
Richmond, 496 U.S. 414, 422, 110 S.Ct. 2465, 110 L.Ed.2d 387 (1990) (“Courts of Appeals
have taken our statements as an invitation to search for an appropriate case in which to apply
estoppel against the Government, yet we have reversed every finding of estoppel that we have
reviewed.”); see also Bachner v. Comm’r, 81 F.3d 1274, 1282 (3d Cir. 1996) (“Estoppel
claims have traditionally been put to especial rigor in the taxation context.”). Between private
parties, a party asserting estoppel against another “must establish that [1] they relied to their
detriment on [2] their adversary’s misrepresentation and that [3] such reliance was reasonable
because they neither knew nor should have known the adversary’s conduct was misleading.”
Fredericks v. Comm’r, 126 F.3d 433, 438 (3d Cir. 1997). To assert estoppel against the
government, the Third Circuit imposes an additional burden in addition to these traditional
elements; the court requires claimants to establish some “affirmative misconduct on the part
of the government officials.” Id. But “[n]ot every form of official misinformation will be
considered sufficient to estop the government,” and erroneous oral advice, mere negligence,
mistakes of law, and simple omissions by government officials do not qualify as affirmative
misconduct. See, e.g., id.; Bachner, 81 F.3d at 1282.
There are two main issues in this case: (1) Plaintiff’s lack of standing to bring a refund
claim under § 7422/§ 1346(a)(1); and (2) the expiration of the limitations period for a claim
under § 7426(a)(4). As discussed below, Plaintiff here has not carried her burden to show that

13

the necessary elements for estoppel against the government with regard to either of these
issues have been met (assuming, without deciding, that estoppel would be a remedy available
here). At the threshold, Plaintiff must show detrimental reliance. However, her broad
argument here fails to specify how any alleged misrepresentation on the part of the IRS
misled her to believe that she would have standing to bring a refund claim under § 7422/§
1346(a)(1). Plaintiff also fails to specify how any alleged misrepresentation prevented her
from utilizing the procedures of §§ 6325(b)(4) and 7426(a)(4) and then bringing an action
under § 7426(a)(4) prior to the expiration of the 120-day limitations period.
Further, the Court finds that the reasonableness requirement of the reliance element
has not been met. Reliance can only be reasonable when the party asserting estoppel did not
know and should not have known that it was being misled. Heckler v. Community Health
Services of Crawford County, Inc., 467 U.S. 51, 59, 104 S.Ct. 2218, 81 L.Ed.2d 42 (1984).
Here, Plaintiff was represented by counsel throughout her dealings with the IRS on this issue.
As represented in the record, counsel appeared to be relying exclusively on the advice of the
IRS on how to proceed. There is nothing in the record that supports an inference that but for
any alleged misinformation given by the IRS, Plaintiff’s counsel would have proceeded under
a procedure set forth in the tax code that would have preserved Plaintiff’s right to judicial
review (e.g., §§ 6325(b)(4) and 7426(a)(4)). It is a longstanding general rule that “those who
deal with the Government are expected to know the law and may not rely on the conduct of
Government agents contrary to law.” Heckler v. Community Health Services of Crawford
County, Inc., 467 U.S. at 63.
Also undermining Plaintiff’s argument is the fact that much, if not all, of the alleged
misinformation from the IRS was oral. Plaintiff does not point to any reliance on any written

14

communications or IRS documents, publications or forms. Rather, counsel states in his
declaration that after “long conversations with multiple IRS agents” he filed a request for a
certificate of nonattachment and then a request for a certificate of discharge under §
6325(b)(2)(A), both of which were denied by the IRS. Courts have found reliance on oral
advice to be problematic for litigants seeking to estop the government. As the Third Circuit
has noted,
The Supreme Court stated in Heckler that “[t]he necessity for ensuring that
governmental agents stay within the lawful scope of their authority, and that
those who seek public funds act with scrupulous exactitude, argues strongly for
the conclusion that an estoppel cannot be erected on the basis of the oral
advice.” 467 U.S. at 65, 104 S.Ct. 2218. Several courts of appeals have cited
Heckler in support of their holdings that oral representations can never estop
the government, regardless of the circumstances. See, e.g., United States v.
Vanhorn, 20 F.3d 104, 112 n. 19 (4th Cir.1994); FDIC v. Royal Park No. 14, 2
F.3d 637, 641 (5th Cir.1993); United States v. Boccanfuso, 882 F.2d 666, 670
(2d Cir.1989); Falcone v. Pierce, 864 F.2d 226, 230 (1st Cir.1988). Similarly
in Fredericks, we stated that “Fredericks’ reliance would have been
unreasonable had it been based solely on the initial oral misrepresentation.”
126 F.3d at 442.
Crisci v. U.S., 407 Fed. Appx. 573, 577-78 (3d Cir. 2010) (finding reliance on oral
representations by the IRS officers to be unreasonable, particularly where oral representations
were inconsistent with written notice).
Finally, Plaintiff argues that the government “waived its lack of standing argument”
because at no point during the negotiation process did the IRS contend that she lacked
standing to bring a refund suit, nor did the IRS ever dispute her entitlement to a refund.
However, the issue in the present case is one of subject matter jurisdiction. It is well-settled
that a party cannot waive the defense of subject matter jurisdiction. The Supreme Court has
noted that

15

Subject-matter jurisdiction, then, is an Art. III as well as a statutory
requirement; it functions as a restriction on federal power, and contributes to
the characterization of the federal sovereign. Certain legal consequences
directly follow from this. For example, no action of the parties can confer
subject-matter jurisdiction upon a federal court. Thus, the consent of the parties
is irrelevant, principles of estoppel do not apply, and a party does not waive the
requirement by failing to challenge jurisdiction early in the proceedings.
Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702,
102 S.Ct. 2099, 72 L.Ed.2d 492 (1982) (internal citations omitted). Thus, the Court cannot
find that the government has waived its lack of subject matter jurisdiction argument.
III. CONCLUSION
While the Court is not unsympathetic to Plaintiff’s situation, the Court may only act
within the jurisdiction it has been granted. Furthermore, in deciding this (or any) motion, the
Court is constrained by the arguments and evidence presented, as well as, of course, the
applicable law. Plaintiff simply has not carried her burden here. For the reasons above, the
Court finds that it lacks subject matter jurisdiction over this case. Accordingly, the
government’s motion to dismiss is granted. An appropriate Order accompanies this Opinion.

/s/ Joel A. Pisano
Joel A. Pisano, U.S.D.J.
Dated: September 27, 2013

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