McQueen v. Commissioner of the IRS et al

Filing 3

REPORT AND RECOMMENDATION that 2 Complaint filed by John McQueen be dismissed in its entirety. Objections to R&R due within fourteen (14) days. Motion granted: 1 MOTION for Leave to Proceed in forma pauperis filed by John McQueen. Signed by Magistrate Judge Terence P. Kemp on 10/22/2015. (agm)(This document has been sent by regular mail to the party(ies) listed in the NEF that did not receive electronic notification.)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
John W. McQueen,

:

Plaintiff,

:

v.

Case No. 2:15-cv-2777

:

Commissioner of IRS, et al.,

:

Defendants.

JUDGE ALGENON L. MARBLEY
Magistrate Judge Kemp

:

REPORT AND RECOMMENDATION
On September 4, 2015, Plaintiff John W. McQueen filed a
motion for leave to proceed in forma pauperis and a proposed
civil complaint seeking relief against the United States and the
Commissioner of the IRS.

For the following reasons, the Court

will grant the application to proceed in forma pauperis (Doc. 1)
and will recommend that the complaint be dismissed under 28
U.S.C. §1915(e)(2), a statute which, as the Court explains below,
requires the Court to evaluate the legal sufficiency of the
complaint filed in forma pauperis before permitting the case to
proceed.
I.

Background

In the complaint, Mr. McQueen says that he filed this case
against the United States and the Commissioner of the IRS because
“they have attempted to take [his] income tax return for an
educational loan which is over 17 years old; and therefore, is
TIMEBARRED.”

(Doc. 1, Ex. 1 at 3).

More specifically, Mr.

McQueen alleges that:
On April 8, 2014, he filed his request for a refund. On
or about June 1, 2014, he was sent a notice stating that
his return was being withheld. It wasn’t until August 1,
2014, that he was finally told his return was going
toward an outstanding educational debt.

Id.

Mr. McQueen asserts that, upon learning this information, he

wrote a letter to the IRS, explaining that “the debt was
Id.

Mr. McQueen

then wrote a letter to the Commissioner of the IRS.

That letter

TIMEBARRED” and thus “could not be collected.”

is attached to the complaint and states, in pertinent part:
On April 8, 2014, I filed a paper income tax return. On
August 1, 2014, I was informed by the irs, that my return
was being taken because of a 17 year old, time barred
educational loan. Under Ohio’s Statute of Limitation,
this debt cannot be collected; since there isn’t any
court that would hear a case so old.
My Income tax return should never have been taken.
it should be returned to the above address.
Id. at 6.

And

In sum, Mr. McQueen argues that defendants could not

legally collect money toward his student loan debt by capturing
his income tax refund, and they are liable to him on the ground
that “they knew or reasonably should have known that their
conduct ... was wrong and not supported by any law.”

Id., Ex. 1

at 3.
II. Legal Standard
28 U.S.C. §1915(e)(2) provides that in proceedings in forma
pauperis, “[t]he court shall dismiss the case if ...(B) the
action ... is frivolous or malicious [or] fails to state a claim
on which relief can be granted....”

The Court of Appeals has

held that section 1915(e)(2)’s initial screening requirement
applies to complaints filed by non-prisoners as well as
prisoners.

Baker v. Wayne County Family Independence Agency,75

F. App’x 501, 502 (6th Cir. 2003)(citation omitted).

The purpose

of this section is to prevent suits which are a waste of judicial
resources and which a paying litigant would not initiate because
of the costs involved.
(1989).

See Neitzke v. Williams, 490 U.S. 319

A complaint may be dismissed as frivolous only when the
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plaintiff fails to present a claim with an arguable or rational
basis in law or fact.

See id. at 327-28.

A complaint may not be

dismissed for failure to state a claim upon which relief can be
granted if the complaint contains “enough facts to state a claim
to relief that is plausible on its face.”
Twombly, 550 U.S. 544, 570 (2007).

Bell Atlantic Corp. v.

Pro se complaints are to be

construed liberally in favor of the pro se party.
Kerner, 404 U.S. 519, 520 (1972).

Haines v.

The complaint will be

evaluated under these standards.
III. Discussion
This case relates to the Treasury Offset Program (“TOP”),
which is governed by a number of federal laws.

The TOP is “a

centralized program administered by the Department of the
Treasury to help federal agencies collect delinquent debts owed
to the federal government.”

Omegbu v. United States Dept. of

Treasury, 2004 WL 3049825, at *1 (7th Cir. Dec. 16, 2004).
Generally, the TOP works as follows:

if an individual owes a

delinquent debt to a government agency, that agency sends
information about that debt to the database maintained by the
Bureau of the Fiscal Service of the United States Department of
the Treasury.

Before an individual receives a federal payment

such as a tax refund, the database is searched to see if the
individual owes a delinquent debt to a government agency.

When a

delinquent debt appears in the database, the Bureau of the Fiscal
Service offsets, or withholds, the federal payment to pay the
individual’s debt.

See 31 C.F.R. §285.2(c).

The Department of

the Treasury is required to perform offsets by 31 U.S.C.
§3716(c).

When a federal payment is used to offset a delinquent

debt, the United States Department of the Treasury sends the
individual a letter to notify that individual of the action

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taken.

See 31 U.S.C. §3716(c)(7)(A).

With respect to student loans, if a borrower defaults on a
student loan, the Department of Education (“DOE”) may pursue
collection of that debt through the TOP under 31 U.S.C. §3716 et
seq.

As a creditor agency, the DOE must provide the debtor due

process as required by certain federal statutes.

As one Court

explained, such due process includes “notice of the proposed
offset and an opportunity for a hearing to dispute the debt and
certification to Treasury that these steps have been completed
and that the debts qualify for collection by offset.” ChavezRomero v. United States Dept. of Educ., 2012 WL 5986535, at *1
(D.S.C. Aug. 9, 2012).

Offset of income tax refunds is

specifically authorized by 31 U.S.C. §3720A(a).
The Court’s initial inquiry is whether it possesses the
authority to hear the type of claim raised in Mr. McQueen’s
complaint.

In other words, the Court will examine whether it has

subject matter jurisdiction over this case.

Federal courts are

courts of limited jurisdiction, and they may exercise only that
jurisdiction which has been conferred upon them by Article III of
the United States Constitution and by Act of Congress.

And even

if a case appears to be the type of dispute usually heard by a
federal court – such as a case which arises under federal law –
it may be that the party being sued is immune from suit.

The

United States has sovereign immunity and cases filed against it,
its officers or its agencies often fall outside the jurisdiction
of the federal courts.

Without subject matter jurisdiction over

this dispute, the Court is without authority to hear the case and
the case must be dismissed.
In his complaint, Mr. McQueen alleges that this Court has
subject matter jurisdiction pursuant to “IRC 7433,” also referred

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to as the Taxpayers Bill of Rights, 26 U.S.C. §7433.

Section

7433 entitled “Civil damages for certain unauthorized collection
actions” provides:
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, or any regulation promulgated under this title,
such taxpayer may bring a civil action for damages
against the United States in a district court of the
United States. Except as provided in section 7432, such
civil action shall be the exclusive remedy for recovering
damages resulting from such actions.
26 U.S.C. §7433(a).

The United States and its agencies are

generally immune from suit unless the United States consents to
be sued, or waives, its sovereign immunity.
Meyer, 510 U.S. 471, 475 (1994).

See F.D.I.C. v.

However, 26 U.S.C. §7433(a)

allows a plaintiff to sue the United States for collectionrelated practices by IRS officers or employees which are in
violation of the Internal Revenue Code.

See id.

Offset under the TOP is a collection-related activity that
is actionable under the Taxpayers Bill of Rights.

See Jones v.

United States, 2012 WL 1424170, at *4 (D.C. Feb. 13, 2012).
However, the language of that statute only permits an action to
be filed if a tax collection official has violated a tax-related
statute or regulation.

Mr. McQueen appears to be claiming that

the law was violated because it was too late for the IRS to
capture his refund based on the age of his student loan.

That

claim brings into question whether the IRS did anything wrong
here, so the Court must also examine the procedure by which a
taxpayer may obtain a determination that a refund otherwise due
was improperly taken under the offset program.
Courts have held that a federal court only has jurisdiction
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to hear a claim to review the validity of an offset where the
claim is brought against the agency that requested the offset.
Jones, supra, citing 26 U.S.C. §6402(g); see also Taylor v.
United States, 2011 WL 1843286, *2 (D. Ariz. May 16, 2011)(“26
U.S.C. §6402(g) deprives the Court of jurisdiction over
Plaintiff’s claims against the Treasury and the Internal Revenue
Service challenging the interception of his income tax refunds”).
Stated differently, this Court lacks subject matter jurisdiction
to hear claims against either the United States or the IRS
arising from the offset of a tax refund under 26 U.S.C. §6402(d).
See Setlech v. United States, 816 F. Supp. 161, 166 (E.D.N.Y.
1993).

In cases like this, where the DOE was the agency

responsible for requesting the offset, that agency must be named
as the defendant in any action challenging the offset.

Jones,

2012 WL 142410, at *4 (“As DOE was the agency that requested the
set-off, DOE must be named as the defendant for any claims
challenging the set-off”); see also Ibrahim v. United States, 112
Fed. Cl. 33, n.3 (2013)(“while plaintiff cannot challenge the tax
refund offset by bringing a claim against the Treasury, plaintiff
can challenge the offset by bringing a claim against the ED
because the agency received the offset of plaintiff’s tax
refund”).

Although that is a fairly technical problem which

could be solved by permitting Mr. McQueen to amend his complaint
to name the DOE as a defendant, as the Court explains below, his
complaint would still be subject to dismissal.
One question which would have to be addressed, even if the
DOE were a party to this case, is whether Mr. McQueen first
presented his claim to the United States in the proper
administrative fashion.

That is because 26 U.S.C. §7433 only

allows for a waiver of sovereign immunity if a taxpayer first

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exhausts the administrative remedies within the Internal Revenue
Service before filing the lawsuit.

See Taylor, 2011 WL 1843286,

at *4; see also Tenpenny v. United States, 490 F. Supp.2d 852,
857 (N.D. Ohio 2007)(“before a plaintiff can file a federal §7433
action in court, she must ‘exhaust’ certain administrative
remedies”).

As one Court observed:

The exhaustion requirement is designed to protect
administrative agency authority and promote judicial
efficiency. The rationale of the doctrine is that an
administrative agency should have the opportunity to
apply its expertise, exercise the discretion delegated to
it by Congress, and correct its own alleged errors in the
first instance, with the possibility of avoiding resort
to the courts altogether.
The exhaustion requirement
also improves the possibility that a fully-developed
factual record will be produced, facilitating judicial
review and aiding the court in its evaluation and
analysis of often technical matters.
Mathis v. United States, 2003 WL 1950071, at *2 (D.S.D. Mar. 19,
2003) (internal quotations and citations omitted).

The

exhaustion requirements for a “civil cause of action for certain
unauthorized collection actions” are set forth in 26 C.F.R.
§§301.7433-1(d)-(e), and they require, inter alia, a plaintiff to
file an administrative claim prior to bringing a lawsuit.
Mr. McQueen does not directly allege that he filed an
administrative claim and otherwise exhausted his administrative
remedies prior to filing suit under 26 U.S.C. §7433.

He does,

however, say that he tried to bring the matter to the IRS’
attention by writing letters.

At the pleading stage, the Court

might allow him to proceed, subject to the defendants’ ability to
raise failure to exhaust administrative remedies as a defense.
And the Court might take that same approach if it found that this
is more properly viewed as a suit for a tax refund under 28
U.S.C. §1346(a), which also requires exhaustion of administrative
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remedies.

But there is a more fundamental problem here.

Even if the Court were able to consider Mr. McQueen’s claim
on the merits, his claim would still be subject to dismissal.
That is because the Higher Education Technical Amendments of 1991
eliminated time limitations on lawsuits to collect student loans.
See 20 U.S.C. §1091a(a)(2)(D).

Although there was a time that

the statute of limitations for collecting defaulted student loans
was six years, the Higher Education Technical Amendments of 1991
abrogated that limitation.

See Hamilton v. United States, 2005

WL 2671373, at *4 (S.D. Ohio Oct. 19, 2005); see also United
States v. Brown, 2001 WL 303362, at *1 (6th Cir. Mar. 19, 2001)
(noting that the Higher Education Technical Amendments of 1991
eliminated the existing statute of limitations on the recovery of
defaulted student loans); United States v. Motley, 2000 WL
1871732, at *2 (6th Cir. Dec. 12, 2000) (“the Higher Education
Technical Amendments of 1991 retroactively abrogated all statutes
of limitations on actions to collect defaulted federallyguaranteed student loans and revived stale actions”).

Further,

although Mr. McQueen argues that the Ohio statute of limitations
(and there are many of them, with various time limits) bars the
IRS’ action here, the issue of payment of debts owed to the
federal government is an issue of federal law, not state law.
There is simply no federal statute of limitations which precludes
an action to collect Mr. McQueen’s student loan debt, even if
that debt is seventeen years old.
This rule – that there is no time limit applicable to the
government’s effort to collect on a student loan – might seem
absolute, but at least one court has held otherwise.

See United

States v. Rhodes, 788 F. Supp. 339 (E.D. Mich. 1992) (holding
that even though the statute of limitations did not bar the

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government’s effort to collect a 17-year-old student loan, the
government waited too long to do so, based on the somewhat
unusual circumstances present in that case).

This represents the

use of a legal doctrine called “laches” which allows a court to
find a lawsuit untimely even if it was filed within the
limitations period.

However, this Court considered the Rhodes

decision previously and found it to be an “anomaly,” noting that
“the vast majority of courts have held that the doctrine of
laches does not bar the Government’s efforts to collect on
defaulted student loans.”

Hamilton v. United States, 2005 WL

2671373, at *4 (S.D. Ohio Oct. 19, 2005)(Holschuh, J.).

Thus,

even if Mr. McQueen had argued that laches barred the offset of
his student loan, this Court would not accept that argument, nor
would most other courts which considered the issue.

As this

Court stated, “to recognize a doctrine of laches defense in cases
of student loan defaults would ‘undermine Congress’s intent in
eliminating the statute of limitations.’”

Id., quoting United

States v. Davis, 817 F. Supp. 926, 929 (M.D. Ala. 1993); see also
United States v. Robbins, 819 F. Supp. 672, 678 (E.D. Mich.
1993)(disagreeing with Rhodes); United States v. Hargrove, 2007
WL 2811832, at *5, n. 4 (W.D. Pa. Sept. 24, 2007)(noting that
Rhodes is the only case “since 1991 where laches has been
successfully applied against the Government to bar a claim to
recover an outstanding student loan” and “the Court in Rhodes did
not consider the effects of the then-recent amendments to Section
1091a to any laches defense in a student loan collection case”);
United States v. Hennigan, 2015 WL 2084729, at *2 (M.D. Fla. Apr.
30, 2015)(“the Rhodes decision has been roundly criticized, and
appears to conflict directly with 20 U.S.C. §1091a”).
Consequently, there is no legal barrier to the IRS’ actions which
affected Mr. McQueen’s tax refund.

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IV. Recommended Disposition
Certainly, anyone who learns that a tax refund has been
captured by the government and used as a payment on a 17-year-old
debt might question how that happened.

As this Report and

Recommendation reflects, getting to court in such a case is a
fairly complicated process, mainly because the United States
cannot be sued without its consent, and in tax matters it has
conditioned its consent on a number of procedural steps that have
to take place before a suit is filed.

Some of the tax laws, such

as the ones relating to offsets, also require that a specific
government agency other than the IRS be named as a defendant,
even if the IRS was the agency which kept the tax refund.

Given

that Mr. McQueen is not an attorney, the Court is willing to
interpret his complaint liberally, and if the only issues were
his failure to name the right agency as a defendant and whether
he did enough to bring the matter to the IRS’ attention before he
filed suit, the Court would be inclined to let him amend his
complaint and to allow the case to go forward.

But, as the Court

understands the law, Mr. McQueen is mistaken about it being too
late for the IRS, or the DOE, to collect on his loan.

That is

the reason that dismissal is being recommended.
For these reasons, it is recommended that this case be
dismissed in its entirety.

Should this recommendation be

adopted, the Court should mail a copy of the complaint, this
Report and Recommendation, and the Court’s order of dismissal to
the defendants.
V. Procedure on Objections
If any party objects to this Report and Recommendation, that
party may, within fourteen days of the date of this Report, file
and serve on all parties written objections to those specific
proposed findings or recommendations to which objection is made,
together with supporting authority for the objection(s).
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A judge

of this Court shall make a de novo determination of those
portions of the report or specified proposed findings or
recommendations to which objection is made.

Upon proper

objections, a judge of this Court may accept, reject, or modify,
in whole or in part, the findings or recommendations made herein,
may receive further evidence or may recommit this matter to the
magistrate judge with instructions.

28 U.S.C. §636(b)(1).

The parties are specifically advised that failure to object
to the Report and Recommendation will result in a waiver of the
right to have a district judge review the Report and
Recommendation de novo, and also operates as a waiver of the
right to appeal the decision of the District Court adopting the
Report and Recommendation.

See Thomas v. Arn, 474 U.S. 140

(1985); United States v. Walters, 638 F.2d 947 (6th Cir. 1981).

/s/ Terence P Kemp
United States Magistrate Judge

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