Clift v. United States Internal Revenue Service

Filing 18

ORDER by Judge Benjamin H. Settle granting 8 Motion to Dismiss and allowing amended complaint by 7/22/2016. (TG)

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT TACOMA

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7 STEVEN C. CLIFT,

Plaintiff,

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v.

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10 UNITED STATES INTERNAL
REVENUE SERVICE,
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CASE NO. C16-5116 BHS
ORDER GRANTING
DEFENDANT’S MOTION TO
DISMISS AND GRANTING
PLAINTIFF LEAVE TO AMEND

Defendant.

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This matter comes before the Court on the United States of America’s (“United

14 States”) motion to dismiss (Dkt. 11). The Court has considered the pleadings filed in
15 support of and in opposition to the motion and the remainder of the file and hereby grants
16 the motion and grants leave to amend for the reasons stated herein.
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I. PROCEDURAL HISTORY

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On February 16, 2016, Plaintiff Steven Clift (“Clift”) filed a pro se complaint

19 against the Internal Revenue Service (“IRS”), 1 alleging the IRS improperly assessed civil
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The IRS is not an entity subject to suit, and therefore the United States is the proper
defendant. See Krouse v. U.S. Gov’t Treasury Dep’t I.R.S., 380 F. Supp. 219, 221 (C.D. Cal.
22 1974) (citing Blackmar v. Guerre, 342 U.S. 512 (1952)).

ORDER - 1

1 penalties for frivolous tax submissions and issued false levies. Dkt. 1 (“Comp.”). Clift
2 asserts six claims in his complaint: (1) abuse of process; (2) breach of fiduciary duty; (3)
3 conspiracy; (4) fraud; (5) infliction of emotional distress; and (6) negligence. Id. at 3–4.
4 Liberally construed, Clift’s complaint also appears to assert a damages claim under 26
5 U.S.C. § 7433 and a refund claim under 28 U.S.C. § 1346. See Comp. at 2–5, Ex. A1.
6 Clift seeks damages, as well as an order directing the IRS to process his tax returns,
7 remove all liens and levies, and return all levied funds. Id. at 5.
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On April 18, 2016, the United States moved to dismiss. Dkt. 8. The next day, the

9 United States filed a corrected motion to dismiss. Dkt. 11. On May 10, 2016, Clift
10 responded. 2 Dkt. 14. On May 13, 2016, the United States replied. 3 Dkt. 15.
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II. DISCUSSION

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The United States moves to dismiss Clift’s claims for lack of subject matter

13 jurisdiction and for failure to state a claim. Dkt. 11-1 at 2–3.
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Legal Standards

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Rule 12(b)(1) provides for dismissal of claims if the Court lacks subject matter

16 jurisdiction. Federal courts are courts of limited jurisdiction, “possess[ing] only that
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Clift argues the United States is attempting to deprive him of due process by moving to

18 dismiss his complaint. Dkt. 14 at 3–4, 6–8. “The essential requirements of due process . . . are
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notice and an opportunity to respond.” Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 546
(1985). “The opportunity to present reasons, either in person or in writing, why [a] proposed
action should not be taken is a fundamental due process requirement.” Id. Clift has been given
an opportunity to respond to the arguments raised in the United States’ motion. Clift has
provided a response, which the Court has considered. Accordingly, Clift has not been denied
due process.
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The United States argues Clift’s response is untimely and should not be considered.
Dkt. 15 at 1. Clift is appearing pro se, and the United States has not shown any prejudice
resulting from the untimely filing. The Court declines to strike Clift’s response.

ORDER - 2

1 power authorized by Constitution and statute.” Kokkonen v. Guardian Life Ins. Co. of
2 Am., 511 U.S. 375, 377 (1994). When jurisdiction is challenged in a Rule 12(b) (1)
3 motion, “[i]t is to be presumed that a cause lies outside this limited jurisdiction, and the
4 burden of establishing the contrary rests upon the party asserting jurisdiction.” Id.
5 (internal citations omitted).
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Motions to dismiss brought under Rule 12(b)(6) may be based on either the lack of

7 a cognizable legal theory or the absence of sufficient facts alleged under such a theory.
8 Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). Material
9 allegations are taken as admitted and the complaint is construed in the plaintiff’s favor.
10 Keniston v. Roberts, 717 F.2d 1295, 1301 (9th Cir. 1983). To survive a motion to
11 dismiss, the complaint does not require detailed factual allegations but must provide the
12 grounds for entitlement to relief and not merely a “formulaic recitation” of the elements
13 of a cause of action. Twombly, 127 S. Ct. at 1965. A plaintiff must allege “enough facts
14 to state a claim to relief that is plausible on its face.” Id. at 1974.
15 B.

Tort Claims

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Clift asserts claims for abuse of process, breach of fiduciary duty, conspiracy,

17 fraud, infliction of emotional distress, and negligence. Comp. at 3–4. The United States
18 contends it has not waived sovereign immunity to suit and thus the Court lacks
19 jurisdiction over these claims. Dkt. 11-1 at 5.
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The United States, as a sovereign, may not be sued without its consent. United

21 States v. Dalm, 494 U.S. 596, 608 (1990). “A waiver of sovereign immunity cannot be
22 implied but must be unequivocally expressed.” United States v. Mitchell, 445 U.S. 535,

ORDER - 3

1 538 (1980) (internal quotation marks omitted). “The party who sues the United States
2 bears the burden of pointing to such an unequivocal waiver of immunity.” Holloman v.
3 Watt, 708 F.2d 1399, 1401 (9th Cir. 1983). “[S]tatutes which are claimed to be waivers
4 of sovereign immunity are to be strictly construed against such surrender.” Safeway
5 Portland Emp. Fed. Credit Union v. Fed. Deposit Ins. Corp., 506 F.2d 1213, 1216 (9th
6 Cir. 1974). Absent a waiver of sovereign immunity, the Court lacks subject matter
7 jurisdiction over claims against the United States. United States v. Mitchell, 463 U.S.
8 206, 212 (1983).
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Clift first argues the United States waived its sovereign immunity under 28 U.S.C.

10 § 1331. Dkt. 14 at 8. Section 1331 is a general jurisdiction statute that provides the
11 Court with jurisdiction over all civil actions arising under federal law. “[G]eneral
12 jurisdictional statutes cannot, however, waive the government’s sovereign immunity.”
13 Hughes v. United States, 953 F.2d 531, 539 n.5 (9th Cir. 1992). Similarly, Clift cites to
14 28 U.S.C. § 1396 as a basis for jurisdiction in his complaint, Comp. at 2, but § 1396 is a
15 venue statute that does not waive sovereign immunity.
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Clift further asserts the Court has jurisdiction under the Federal Tort Claims Act

17 (“FTCA”). Comp. at 2. The FTCA “waives the sovereign immunity of the United States
18 for actions in tort” and “vests the federal district courts with exclusive jurisdiction over
19 suits arising from the negligence of Government employees.” Jerves v. United States,
20 966 F.2d 517, 518 (9th Cir. 1992). However, “the provisions of the Federal Tort Claims
21 Act specifically exclude . . . claims arising with respect to the assessment and collection
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ORDER - 4

1 of any tax.” Hutchinson v. United States, 677 F.2d 1322, 1327 (9th Cir. 1982) (citing 28
2 U.S.C. § 2680(c)).
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Clift’s complaint alleges the IRS improperly assessed civil penalties for frivolous

4 tax submissions and levied his funds. See Comp. at 2–5. Because Clift’s claims are
5 based on the IRS’ assessment and collection of taxes, the FTCA’s limited waiver of
6 sovereign immunity does not extend to the claims in this case.
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In the absence of a statutory waiver, the Court concludes that it lacks jurisdiction

8 over Clift’s claims for abuse of process, breach of fiduciary duty, conspiracy, fraud,
9 infliction of emotional distress, and negligence. Therefore, the United States’ motion to
10 dismiss is granted. Although Clift is proceeding pro se, the Court finds that granting Clift
11 leave to amend these claims would be futile based on the doctrine of sovereign immunity.
12 See Schucker v. Rockwood, 846 F.2d 1202, 1203–04 (9th Cir. 1988) (“Dismissal of a pro
13 se complaint without leave to amend is proper only if it is absolutely clear that the
14 deficiencies of the complaint could not be cured by amendment.”).
15 C.

Damages Claim

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Construing his complaint liberally, Clift appears to assert a damages claim under

17 26 U.S.C. § 7433. See Comp. at 3, 5, Ex. A1. The United States raises several
18 arguments as to why this claim should be dismissed. Dkt. 11-1 at 10–15.
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The United States first argues the Court lacks jurisdiction. Id. at 10–12. Under

20 § 7433, a taxpayer may sue the United States for damages “only for tax collection activity
21 that violates some provision of the Revenue Code or the regulations promulgated
22 thereunder.” Shwarz v. United States, 234 F.3d 428, 433 (9th Cir. 2000). “[A] taxpayer

ORDER - 5

1 cannot seek damages under § 7433 for improper assessment of taxes.” Miller v. United
2 States, 66 F.3d 220, 223 (9th Cir. 1995) (quoting Shaw v. United States, 20 F.3d 182, 184
3 (5th Cir. 1994)).
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To the extent Clift’s damages claim is based on the IRS’ alleged improper

5 assessment of civil penalties, the Court lacks jurisdiction under § 7433. Miller, 66 F.3d
6 at 223. Clift, however, also alleges that the IRS levied funds from his employers and the
7 Social Security Administration. Comp. at 3, 5. Thus, Clift’s claim could be construed as
8 being based on tax collection activity.
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The United States next contends Clift’s damages claim is barred by the statute of

10 limitations. Dkt. 11-1 at 12–13. The Court recognizes the issue raised by the United
11 States, but believes this issue is better suited for a subsequent dispositive motion that has
12 been more fully briefed.
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Finally, the United States argues Clift has failed to state a claim under § 7433.

14 Dkt. 11-1 at 14–15. To state a claim under § 7433, Clift must allege that the IRS
15 “recklessly or intentionally” disregarded a federal tax statute or regulation and that he
16 suffered “actual, direct economic damages” as a result. See 26 U.S.C. § 7433. Clift’s
17 complaint fails to plead sufficient facts to support each of these elements. The Court
18 therefore grants the United States’ motion. Although there are deficiencies in Clift’s
19 complaint, it is not absolutely clear that these deficiencies could not be saved by
20 amendment. Accordingly, the Court grants Clift leave to amend his damages claim.
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ORDER - 6

1 D.

Refund Claim

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Liberally construed, Clift’s complaint also appears to assert a refund claim under

3 28 U.S.C. § 1346. See Comp. at 5, Ex. A1. The United States argues the Court lacks
4 jurisdiction to consider this claim. Dkt. 11-1 at 7–8.
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“Title 28 U.S.C. § 1346(a)(1) waives the sovereign immunity of the United States

6 to permit suit in the United States District Courts for the recovery of taxes which have
7 been erroneously collected.” Imperial Plan, Inc. v. United States, 95 F.3d 25, 26 (9th
8 Cir. 1996). Before a taxpayer may bring a refund claim in federal court, he or she must
9 (1) timely file an administrative claim with the IRS, 26 U.S.C. § 7422(a), and (2) pay the
10 full amount of the contested assessment, Flora v. United States, 362 U.S. 145, 177
11 (1960). Compliance with these requirements is a prerequisite to subject matter
12 jurisdiction. Quarty v. United States, 170 F.3d 961, 972 (9th Cir. 1999); Hutchinson, 677
13 F.2d at 1325.
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With respect to the first requirement, Clift alleges that he filed an administrative

15 claim with the IRS. See Comp. at 2. The United States, in turn, argues Clift’s claim was
16 untimely. Dkt. 11-1 at 8; Dkt. 15 at 7. This issue, however, was not fully briefed by the
17 parties and the Court declines to rule on it in this order. As to the second requirement,
18 Clift does not allege that he paid the contested taxes in full. Consequently, Clift’s
19 complaint fails to allege sufficient facts to establish jurisdiction. Although the Court
20 grants the United States’ motion, it is not absolutely clear that any amendment would be
21 futile. Therefore, the Court grants Clift leave to amend his refund claim.
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ORDER - 7

1 E.

Injunctive Relief

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Finally, Clift seeks injunctive relief in his complaint. 4 Comp. at 5. The United

3 States contends such relief is barred by the Anti-Injunction Act. Dkt. 11-1 at 8–10.
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Under the Anti-Injunction Act, “courts are without jurisdiction to grant injunctions

5 restraining the assessment or collection of taxes.” Hutchinson, 677 F.2d at 1326. As
6 discussed above, Clift’s claims are based on the IRS’ assessment and collection of taxes.
7 While there are some exceptions to the Anti-Injunction Act, Clift has failed to show that
8 any of these exceptions apply. See 26 U.S.C. § 7421(a) (listing statutory exceptions);
9 Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 7 (1962) (discussing judicial
10 exception). The Court concludes it lacks jurisdiction to grant injunctive relief in this case
11 and grants the United States’ motion on this issue.
III.

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ORDER

Therefore, it is hereby ORDERED that the United States’ motion to dismiss (Dkt.

14 11) is GRANTED. Clift is GRANTED leave to amend his damages and refund claim.
15 Clift shall file an amended complaint no later than July 22, 2016.
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Dated this 5th day of July, 2016.

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A

BENJAMIN H. SETTLE
United States District Judge

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To the extent Clift seeks declaratory relief as well, the Court lacks jurisdiction to grant
such relief under the Declaratory Judgment Act. See Latch v. United States, 842 F.2d 1031,
1033 (9th Cir. 1988) (“[A] federal district court may not entertain a declaratory judgment action
22 ‘with respect to federal taxes.’” (quoting 28 U.S.C. § 2201(a))).

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ORDER - 8