Milton v. United States Internal Revenue Service

Filing 19

ORDER denying defendant's 12 Motion to Dismiss; plaintiff to amend complaint within 10 days by Judge Richard A Jones.(RS)

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HONORABLE RICHARD A. JONES

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

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ANDREW MILTON,

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Plaintiff,
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v.
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UNITED STATES INTERNAL REVENUE )
SERVICE,
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Defendant.
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____________________________________)

Case No. 2:16-cv-00554-RAJ
ORDER

This matter comes before the Court on the Government’s Motion to Dismiss. Dkt.
# 12. Plaintiff opposes the motion. Dkt. ## 16, 17. For the reasons that follow, the
Court DENIES the motion.
I.

BACKGROUND

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Plaintiff failed to file his income tax return in 2000. After assuming power of
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attorney in 2013, Plaintiff’s wife filed a late tax return in 2014 to account for Plaintiff’s
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income tax liabilities from 2000. Dkt. # 1 (Complaint) at 2-3. The return claimed a
refund for $585,559.46. Id. The Internal Revenue Service (“IRS”) denied the refund,

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ORDER - 1

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stating it was outside the statute of limitations. Id. Plaintiff then sued the IRS for this

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refund.

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Defendant argues that Plaintiff filed his late return and refund claim in violation of
26 U.S.C. § 6511(b)(2)(A) and therefore this Court lacks subject-matter jurisdiction over
the claims. Dkt. # 12. Defendant moves the Court to dismiss Plaintiff’s claims under

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Federal Rule of Civil Procedure 12(b)(1).
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II.

LEGAL STANDARD

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Federal courts are tribunals of limited jurisdiction and may only hear cases
authorized by the Constitution or a statutory grant. Kokkonen v. Guardian Life Ins. Co.

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of Am., 511 U.S. 375, 377 (1994). The burden of establishing subject-matter jurisdiction

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rests upon the party seeking to invoke federal jurisdiction. Id. Once it is determined that

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a federal court lacks subject-matter jurisdiction, the court has no choice but to dismiss the

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suit. Arbaugh v. Y & H Corp., 546 U.S. 500, 514 (2006); Fed. R. Civ. P. 12(h)(3) (“If the

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court determines at any time that it lacks subject-matter jurisdiction, the court must

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dismiss the action.”).

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A party may bring a factual challenge to subject-matter jurisdiction, and in such
cases the court may consider materials beyond the complaint. PW Arms, Inc. v. U.S., 186

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F. Supp. 3d 1137, 1142 (W.D. Wash. 2016) (citing Savage v. Glendale Union High Sch.,
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343 F.3d 1036, 1039 n. 2 (9th Cir. 2003); see also McCarthy v. U.S., 850 F.2d 558, 560
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(9th Cir. 1988) (“Moreover, when considering a motion to dismiss pursuant to Rule
12(b)(1) the district court is not restricted to the face of the pleadings, but may review

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any evidence, such as affidavits and testimony, to resolve factual disputes concerning the

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existence of jurisdiction.”).

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III.

DISCUSSION

Plaintiff may not maintain a suit against the United States unless sovereign
immunity has been waived. Gilbert v. DaGrossa, 756 F.2d 1455, 1458 (9th Cir. 1985).

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The United States has waived sovereign immunity in lawsuits where the plaintiff seeks to
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recover “any internal-revenue tax alleged to have been erroneously or illegally assessed
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or collected . . . or any sum alleged to have been excessive or in any manner wrongfully
collected under the internal-revenue laws.” 28 U.S.C. § 1343(a)(1). However, the

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Internal Revenue Code limits the ability of a taxpayer to file suit to recover a tax refund.

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26 U.S.C. § 7422(a). Specifically, § 7422 requires taxpayers to “duly file” their claims

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for refunds or credits prior to seeking resolution in a federal district court. Id. Failure to

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“duly file” such claims divests the federal courts of jurisdiction over these lawsuits. Yuen

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v. U.S., 825 F.2d 244, 245 (9th Cir. 1987); see also N. Life Ins. Co. v. U.S., 685 F.2d 277,

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279 (9th Cir. 1982). A claim is timely if it is filed within three years of the time the

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return was filed or within two years of when the tax was paid, whichever is later. 26
U.S.C. § 6511(a).

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Plaintiff waited until January 2014 to file his tax return for his income tax
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liabilities from 2000. Dkt. # 12-3. Plaintiff asserts that he filed a subsequent late return
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in May 2014 for the same tax liabilities from 2000. Dkt. ## 16 at 2, 12-2 at 6. Defendant
concedes that the late return filed in 2014 constitutes both a return and a refund claim.
Dkt. # 12 at 2-3. Accordingly, Defendant appears to concede that Plaintiff meets the

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requirements of § 6511(a) because Plaintiff “duly filed” his refund claim within three

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years of his tax return. Because Plaintiff meets § 6511(a)’s time limitation, this Court

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may exercise jurisdiction over the lawsuit. This interpretation is supported by case law,

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legislative history, and IRS guidance. See Omohundro v. U.S., 300 F.3d 1065 (9th Cir.
2002) (finding that the district court had jurisdiction over plaintiff’s claim even though

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she filed her 1993 tax return in 1997); see also Rev. Rul. 76-511, 1976-2 C.B. 428
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(1976).
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Defendant offers no authority to prove that § 6511(b)(2)(A)—the “lookback”
period—has any bearing on subject-matter jurisdiction. The remaining arguments in

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Defendant’s brief are more appropriately analyzed in a motion for summary judgment.

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Federal Rule of Civil Procedure 12(d) grants the Court discretion to read a motion to

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dismiss for failure to state a claim as a motion for summary judgment, but does not grant

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this discretion with regard to a motion to dismiss for lack of subject-matter jurisdiction.

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See Fed. R. Civ. P. 12(d). Accordingly, the Court expresses no view on the merits of the

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remaining arguments, as they are not properly before the Court. Defendant, however, is

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free to raise them in the appropriate motion.
Finally, Defendant suggests that Plaintiff incorporate his second claim into his first

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claim. Dkt. # 12 at 12. Plaintiff agrees. Dkt. # 16 at 2. The Court therefore grants
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Plaintiff leave to amend his complaint to incorporate his second claim into his first claim.
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Plaintiff must do so within ten (10) days from the date of this Order.

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IV.

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Based on the foregoing, the Court DENIES Defendant’s motion to dismiss under

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CONCLUSION

Federal Rule of Civil Procedure 12(b)(1). Dkt. # 12. Plaintiff has ten (10) days from
the date of this Order to amend his complaint as described above.

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Dated this 8th day of May, 2017.

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A

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The Honorable Richard A. Jones
United States District Judge

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ORDER - 5