United States of America v. Threlkeld
Filing
28
MEMORANDUM OPINION AND ORDER overruling the 16 OBJECTIONS by John F. Threlkeld to 13 Proposed Findings and Recommendations by Magistrate Judge; adopting the 13 Proposed Findings and Recommendations by Magistrate Judge to the extent it is consi stent with this Memorandum Opinion and Order; denying the 6 N by John F. Threlkeld to Dismiss re: 1 Complaint; the Court re-refers this case to United States Magistrate Judge Dwane L. Tinsley for further pretrial management and submission of prop osed findings of fact and recommendations for disposition; denying the 21 MOTION by John F. Threlkeld (pro se) for Leave to File Further Objections in Reply to United States' Response to Magistrate Judge's Proposed Findings and Recommendations; denying the 22 MOTION by John F. Threlkeld for Sanctions. Signed by Judge Thomas E. Johnston on 9/30/2015. (cc: counsel of record; any unrepresented party) (tmh)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA
CHARLESTON DIVISION
UNITED STATES OF AMERICA,
Plaintiff,
v.
CIVIL ACTION NO. 2:14-cv-22847
JOHN F. THRELKELD,
Defendant.
MEMORANDUM OPINION AND ORDER
Pending before the Court is Defendant’s Motion to Dismiss Complaint (the “Motion”).
(ECF No. 6.) On October 7, 2014, the Court referred this action to United States Magistrate Judge
Dwane L. Tinsley for pretrial management and submission of proposed findings of fact and
recommendations for disposition. (ECF No. 4.) On April 3, 2015, Magistrate Judge Tinsley filed
a proposed findings and recommendation for disposition (the “PF&R”), in which he recommends
that the Court deny the Motion. (ECF No. 13.) Defendant filed timely objections to the PF&R (the
“Objections”) on May 4, 2015, (ECF No. 16), and Plaintiff filed a responsive briefing to the
Objections on June 4, 2015,1 (ECF No. 19).
On June 17, 2015, Defendant filed a Motion for Leave, in which he “moves for leave to file” a reply brief in support
of the Objections. (ECF No. 21.) The Court finds that the Objections and Plaintiff’s response to the Objections is
sufficient to rule on the Motion and the PF&R. Cf. In re St. Paul Travelers Sec. Litig. II, Civil No. 04-4697(JRT/FLN),
2007 WL 1424673, at *1 (D. Minn. May 10, 2007) (denying the defendants’ motion for leave to file a reply in support
of their objections to the magistrate judge’s proposed findings and recommendation because “[t]he briefing currently
before the [c]ourt [was] sufficient to assess the merits” of the issue). See generally 28 U.S.C. § 636(b)(1) (“Within
fourteen days after being served with a copy, any party may serve and file written objections to such proposed findings
and recommendations as provided by rules of court.”). Accordingly, the Court DENIES Defendant’s Motion for
Leave. (ECF No. 21.)
1
1
For the reasons provided herein, the Court OVERRULES the Objections, (ECF No. 16),
ADOPTS the PF&R, (ECF No. 13), to the extent it is consistent with this Memorandum Opinion
and Order, and DENIES the Motion, (ECF No. 6).
I. Background
This case is an action by the United States to recover allegedly delinquent taxes from
Defendant. Plaintiff filed the Complaint in this Court on July 11, 2014. (ECF No. 1.) In the
Complaint, Plaintiff alleges that it “brings this action to collect the unpaid federal income tax
liabilities” of Defendant “at the request of the Chief Counsel of the Internal Revenue Service” (the
“IRS”), “a delegate of the Secretary of the Treasury, and at the direction of the Attorney General
of the United States.” (Id. at 1.)
According to the Complaint, “[a] delegate of the Secretary of the Treasury made various
assessments against [Defendant] for unpaid federal income tax, penalties, and interest relating to
the taxable years of 1998 through 2002, and 2004 through 2006.” (Id. ¶ 6.) The Complaint further
alleges that Defendant owes “penalties assessed against [Defendant] under Section 6702 of the
Internal Revenue Code for the years 1998 through 2005 and 2007 for filing frivolous returns with
the [IRS].” (Id.) The Complaint provides the specific amount of each assessment, the assessment
date, the applicable tax year, and the “type”―“1040” or “Civil Penalty.” (Id.) The Complaint also
avers that Plaintiff owes two civil penalties for the calendar years 2004 ($500 and $5,000), 2005
($500 and $5,000), and 2007 ($5,000 and $5,000). (Id.)
The Complaint alleges that the IRS “gave [Defendant] proper notice and demand for the
payment of the aforementioned tax assessments,” but Defendant “has failed to pay the full amounts
due and owing to [Plaintiff] as a result of the tax assessments.” (Id. ¶¶ 7 & 9.) The Complaint avers
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that “[s]tatutory additions, penalties, interest, and costs have accrued and will continue to accrue
on the tax assessments according to law.” (Id. ¶ 8.) Finally, the Complaint alleges that, “[a]s of
January 13, 2014, [Defendant] was indebted to [Plaintiff] in the amount of $106,021 in connection
with the tax assessments described in [the Complaint].” (Id. ¶ 10.)
On November 19, 2014, Defendant filed the Motion. (ECF No. 6.) Plaintiff filed its
opposition to the Motion on December 3, 2014, (ECF No. 10), and Defendant filed a reply
memorandum in support of the Motion on December 15, 2014, (ECF No. 11).
On April 3, 2015, Magistrate Judge Tinsley entered his PF&R, in which he recommends
that the Court deny the Motion. (ECF No. 13.) Defendant timely filed the Objections on May 4,
2015, (ECF No. 16), and Plaintiff filed its response to the Objections on June 4, 2015, (ECF No.
19).
As such, the Motion and the PF&R are fully briefed and ready for disposition.
II. Legal Standard
A.
Review of the PF&R
The Court is required to “make a de novo determination of those portions of the report or
specified proposed findings or recommendations to which objection is made.” 28 U.S.C.
§ 636(b)(1)(C). However, the Court is not required to review, under a de novo or any other
standard, the factual or legal conclusions of the magistrate judge “when neither party objects to
those findings.” Thomas v. Arn, 474 U.S. 140, 150 (1985). In addition, the Court need not conduct
a de novo review when a party “makes general and conclusory objections that do not direct the
Court to a specific error in the magistrate’s proposed findings and recommendations.” Id. In
reviewing those portions of the PF&R to which Defendant objected, this Court will consider the
3
fact that Defendant is acting pro se, and his pleadings will be accorded liberal construction. Estelle
v. Gamble, 429 U.S. 97, 106 (1976); Loe v. Armistead, 582 F.2d 1291, 1295 (4th Cir. 1978).
B.
Motion to Dismiss Under Federal Rule of Civil Procedure 12(b)(6)
Under Federal Rule of Civil Procedure 8(a)(2), a complaint must contain “a short and plain
statement of the claim showing that the pleader is entitled to relief.” Allegations “must be simple,
concise, and direct” and “[n]o technical form is required.” Fed. R. Civ. P. 8(d)(1). A motion to
dismiss under Fed. R. Civ. P. 12(b)(6) tests the legal sufficiency of a civil complaint. See Edwards
v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999). “[I]t does not resolve contests surrounding
the facts, the merits of a claim, or the applicability of defenses.” Republican Party of N.C. v.
Martin, 980 F.2d 943, 952 (4th Cir. 1992) (citing 5A Charles Alan Wright & Arthur R. Miller,
Federal Practice and Procedure § 1356 (1990)).
“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) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A court decides
whether this standard is met by separating the legal conclusions from the factual allegations,
assuming the truth of only the factual allegations, and then determining whether those allegations
allow the court to reasonably infer that “the defendant is liable for the misconduct alleged.” Id. A
motion to dismiss will be granted if, “after accepting all well-pleaded allegations in the plaintiff’s
complaint as true and drawing all reasonable factual inferences from those facts in the plaintiff’s
favor, it appears certain that the plaintiff cannot prove any set of facts in support of his claim
entitling him to relief.” Edwards, 178 F.3d at 244.
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III. Discussion
Defendant objects to the Magistrate Judge’s recommendations in the PF&R that the Court
should find that (1) the civil penalties asserted in the Complaint are not barred by the three-year
statute of limitations in 26 U.S.C. § 6501(a); (2) the Complaint adequately pleads a claim for the
reduction of tax assessments to judgment; and (3) the Government may impose more than one civil
penalty under 26 U.S.C. § 6702(a) to a single person for returns filed for the same calendar year.
(See ECF No. 16 at 7‒21.) The Court addresses each disputed recommendation, in turn.
A.
The Statute of Limitations Under 26 U.S.C. § 6501(a)
Defendant first objects to the Magistrate Judge’s finding that the tax assessments alleged
in the Complaint are not time barred by the three-year statute of limitations provided in 26 U.S.C.
§ 6501(a). (ECF No. 16 at 13‒19.) The Court agrees with the Magistrate Judge’s finding.
It is well-established that “an action on behalf of the United States in its governmental
capacity . . . is subject to no time limitation, in the absence of congressional enactment clearly
imposing it.” E. L. Du Pont De Nemours & Co. v. Davis, 264 U.S. 456, 462 (1924); see also Allnutt
v. Comm’r, 523 F.3d 406, 412 (4th Cir. 2008) (“It is well established that ‘a statute of limitations
runs against the United States only when [it] assent[s] and upon the conditions prescribed.’”
(quoting Lucas v. Pilliod Lumber Co., 281 U.S. 245, 249 (1930))). As such, “[s]tatutes of limitation
sought to be applied to bar rights of the Government . . . must receive a strict construction in favor
of the Government.” Badaracco v. Comm’r, 464 U.S. 386, 391 (1984) (citation omitted). This
principle is undoubtedly applicable in the context of tax assessments, as “limitations statutes
barring the collection of taxes otherwise due and unpaid are strictly construed in favor of the
Government.” Id. at 392 (citation omitted); cf. Hull v. United States, 146 F.3d 235, 238 (4th Cir.
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1998) (“Moreover, in tax cases and particularly in those involving the construction of limitations
statutes, equitable considerations are of limited consequence.” (citing Webb v. United States, 66
F.3d 691, 694 (4th Cir. 1995))).
“Section 6501(a) sets forth the general rule: a three-year period of limitations on the
assessment of tax.” Badaracco, 464 U.S. at 391; see, e.g., Williams v. Comm’r, 498 F. App’x 284,
288 n.4 (4th Cir. 2012) (“Generally, the Commissioner must assess a deficiency within three years
of the filing of the tax return from which the deficiency stems.” (citing 26 U.S.C. § 6501(a))).
Section 6501(a) provides the following, in pertinent part:
Except as otherwise provided in this section, the amount of any tax imposed by this
title shall be assessed within 3 years after the return was filed . . . and no proceeding
in court without assessment for the collection of such tax shall be begun after the
expiration of such period. For purposes of this chapter, the term “return” means the
return required to be filed by the taxpayer . . . .
However, “the three-year rule . . . explicitly [is] made inapplicable in circumstances covered by §
6501(c).” Badaracco, 464 U.S. at 392. “This subsection identifies three situations in which the
Commissioner is allowed an unlimited period within which to assess tax.” Id. These three
situations include the following: (1) “a false or fraudulent return with the intent to evade tax;” (2)
“a willful attempt in any manner to defeat or evade tax imposed by [the Tax Code];” or (3) a
“failure to file a return.” 26 U.S.C. § 6501(c)(1)‒(3).
As the Magistrate Judge notes, the Complaint alleges that Defendant filed “frivolous”
returns in the calendar years at issue. (ECF No. 1 ¶ 6.) The Magistrate Judge found that this
allegation is equivalent to an averment that Defendant failed “to file a valid tax return” during the
tax years at issue in this case and this failure constituted a “failure to file a return,” thereby
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triggering the exception to the statute of limitations in Section 6501(c)(3). (ECF No. 13 at 8‒10.)
The Court agrees.
“The bare act of filing a form 1040 does not constitute a tax ‘return.’” United States v.
Smith, 618 F.2d 280, 281 (5th Cir. 1980). “It is not enough for a form to contain some income
information; there must be an honest and reasonable intent to supply the information required by
the tax code.” United States v. Mosel, 738 F.2d 157, 158 (6th Cir. 1984) (citation omitted). Indeed,
“[i]n our self-reporting tax system the government should not be forced to accept as a return a
document which plainly is not intended to give the required information.” United States v. Moore,
627 F.2d 830, 835 (7th Cir. 1980). Consequently, the Fourth Circuit noted that “in order for a
document to be considered a ‘return,’ under . . . the tax laws, it must (1) purport to be a return; (2)
be executed under penalty of perjury; (3) contain sufficient data to allow calculation of a tax; and
(4) represent an honest and reasonable attempt to satisfy the requirements of the tax laws.”2 In re
Maroney, 352 F.3d 902, 905 (4th Cir. 2003) (citing In re Hindenlang, 164 F.3d 1029, 1033 (6th
Cir. 1999) and In re Hatton, 220 F.3d 1057, 1060‒61 (9th Cir. 2000)). If a taxpayer files a
“frivolous . . . return that fail[s] to provide ‘sufficient data to calculate tax liability’ or to reasonably
‘attempt to satisfy the requirements of the tax law,’” then that return is “not valid and the
limitations period [in Section 6501(a)] would not have begun to run.” Hill v. Comm’r, 108 T.C.M.
(CCH) 12, at *5 (T.C. 2014); see, e.g., Edwards v. Comm’r, 680 F.2d 1268, 1269‒70 (9th Cir.
1982) (“Tax forms that do not contain information upon which tax liability may be computed are
The Court notes that, in In re Maroney, the Fourth Circuit provided this same definition of “return” for purposes of
the bankruptcy code. As subsequently noted by many courts, Congress adjusted the definition of “return” for purposes
of the bankruptcy code when it passed the Bankruptcy Abuse Prevention and Consumer Protection Act in 2005. See,
e.g., In re Fahey, 779 F.3d 1, 4 (1st Cir. 2015).
2
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not returns within the meaning of the Internal Revenue Code . . . and do not activate the statute of
limitations.”).
In this case, the Complaint alleges that Defendant filed frivolous returns with the IRS
during the tax years at issue. (ECF No. 1 at 2.) At this early stage in the litigation and drawing all
reasonable inferences based on the Complaint’s allegations in Plaintiff’s favor, the Court finds that
the Complaint adequately pleads that Defendant’s tax returns were not “returns,” as that term is
used in the tax code. As such, the exception to the statute of limitations provided in Section
6501(c)(3) applies and Plaintiff’s claim for a reduction of tax assessments to judgment is not timebarred by Section 6501(a). See, e.g., Hill, 108 T.C.M. (CCH) 12, at *5.
Furthermore, the Court finds that Defendant’s statute of limitations argument fails because
Defendant has failed to meet his burden to show that the statute of limitations in Section
6501(a)―which the Court must strictly construe―applies here. “Ordinarily, a defense based on
the statute of limitations must be raised by the defendant through an affirmative defense and the
burden of establishing the affirmative defense rests on the defendant.” Goodman v. Praxair, Inc.,
494 F.3d 458, 464 (4th Cir. 2007) (citations omitted). “It follows, therefore, that a motion to
dismiss filed under Federal Rule of [Civil] Procedure 12(b)(6), which tests the sufficiency of the
complaint, generally cannot reach the merits of an affirmative defense, such as the defense that the
plaintiff’s claim is time-barred.” Id. “But in the relatively rare circumstance where facts sufficient
to rule on an affirmative defense are alleged in the complaint, the defense may be reached by a
motion to dismiss filed under Rule 12(b)(6).” Id. “This principle only applies, however, if all facts
necessary to the affirmative defense ‘clearly appear[] on the face of the complaint.’” Id. (alterations
8
in original) (quoting Richmond, Fredericksburg & Potomac R.R. v. Forst, 4 F.3d 244, 250 (4th
Cir. 1993)).
As discussed at length above, it is not apparent from the face of the Complaint that the
statute of limitations in Section 6501(a) precludes Plaintiff’s claim. Defendant therefore has failed
to meet his burden to show that this statute of limitations is applicable based solely on the face of
the Complaint. See, e.g., id. (citation omitted). As such, the Court finds that Defendant’s statuteof-limitations argument fails.
Accordingly, the Court OVERRULES the Objections, insofar as Defendant argues that
Plaintiff’s claim is time barred by the statute of limitations provided in 26 U.S.C. § 6501(a).3
B.
Failure to State a Claim
Defendant next objects to the Magistrate Judge’s recommendation that the Complaint
adequately states a claim for the reduction of tax assessments to judgment.4 (See ECF No. 16 at
8‒12.) The Court disagrees with Defendant’s position.
3
Defendant also argues that the penalties provided by 26 U.S.C. § 6702 are similarly barred by the statute of
limitations provided in Section 6501(a). (See, e.g., ECF No. 11 at 9‒10.) The Court notes that Section 6702 does not
explicitly provide for a statute of limitations. See 26 U.S.C. § 6702. The Court further notes that some courts have
declined to impose a statute of limitations on these penalties. See United States v. Wright, NO. CIV‒S‒94‒1183
EJG/GGH, 1994 WL 715870, at *3 (E.D. Cal. Oct. 25, 1994) (discussing the complaint’s allegations regarding Section
6702 penalties and stating that “[n]o statute of limitations constrains the I.R.S. to a time period in which it must assess
penalties”); cf. Mullikin v. United States, 952 F.2d 920, 929 (6th Cir. 1991) (holding that “no statute of limitations
applies” to a similar penalty provision in the Tax Code―6701); O’Brien v. Comm’r, 104 T.C.M. (CCH) 620, at *8
(T.C. 2012) (collecting cases finding that the limitations period provided in Section 6501(a) does not apply to similar
penalty provisions of the Tax Code―Sections 6700 and 6701). See generally Crites v. Comm’r, 104 T.C.M. (CCH)
316, at *5 (T.C. 2012) (“Section 6702’s purpose―evident from its text―is to deter frivolous submissions that gum
up the IRS’s work. If we held that the statute of limitations for the Commissioner to penalize frivolous amended
returns began to run with the filing of the original return, section 6702 would quickly lose its deterrent effect.”). The
Court need not reach this issue, however, as the Court finds that the statute of limitations in Section 6501(a) is
inapplicable in this case.
4
The Court notes that Defendant objects to the Magistrate Judge interpreting the Motion as arguing that the claim in
the Complaint―the reduction of tax assessments to judgment―fails to state a claim. (See ECF No. 16 at 7‒8.) Instead,
Defendant contends that the Motion asserts, in part, that “the Complaint . . . fails to allege any facts which, if true,
would support the claim of liability for penalties under §6702.” (Id. at 8.) However, the Motion requests dismissal of
the entire Complaint, which provides only the above-referenced claim and associated penalties. (See ECF No. 7; see
also ECF No. 16 at 21 (providing Defendant’s statement in the Objections that the PF&R “should have recommended
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“The Internal Revenue Code, 26 U.S.C. § 6321 provides for liens in favor of the United
States when a person fail[s] to pay their taxes.” United States v. Moyer, No. C 07‒00510 SBA,
2008 WL 3478063, at *9 (N.D. Cal. Aug. 12, 2008). Section 6321 provides the following:
If any person liable to pay any tax neglects or refuses to pay the same after
demand, the amount (including any interest, additional amount, addition to tax, or
assessable penalty, together with any costs that may accrue in addition thereto) shall
be a lien in favor of the United States upon all property and rights to property,
whether real or personal, belonging to such person.
Generally, “[t]he United States may enforce such liens by three methods: (1) an administrative
levy . . . ; (2) simply sue for the unpaid amount, and, on getting a judgment, exercise the usual
rights of a judgment creditor . . . ; or (3) proceed to enforce the lien or subject a property to the
payment of taxes owed . . . .” Moyer, 2008 WL 3478063, at *9 (citations omitted); cf. United States
v. Rodgers, 461 U.S. 677, 682 (1983) (noting that the United States has “a number of distinct
enforcement tools available . . . for the collection of delinquent taxes”). The first method is
“administrative” and, “unlike an ordinary lawsuit, . . . does not require any judicial intervention.”
Rodgers, 461 U.S. at 682‒83. “In contrast, the second and third methods require the United States
to file an action in court.” United States v. Maassen, No. 04‒CV‒4112‒DEO, 2009 WL 3459202,
at *1 (N.D. Iowa Oct. 27, 2009) (citation omitted). “These three methods of enforcing liens for
unpaid taxes are independent and distinct.” Moyer, 2008 WL 3478063, at *9 (citing Rodgers, 461
U.S. at 680‒83). “The common purpose of this formidable arsenal of collection tools is to ensure
dismissal of the Complaint for failure to state a claim”).) Thus, the Court finds that the Magistrate Judge was correct
in liberally construing the Motion as alleging that the claim in the Complaint―not only the penalties―fails to state a
claim under Rule 12(b)(6). See, e.g., Wassil v. Casto, Civil Action No. 3:13‒06020, 2014 WL 988479, at *2 (S.D. W.
Va. Mar. 12, 2014) (stating that a “court must construe pro se filings liberally”). The Court shall correspondingly
interpret the Objections―which request dismissal of the Complaint, (see ECF No. 16 at 2 (arguing that the Magistrate
Judge’s recommendations in the PF&R have “nothing whatever to do with the legal sufficiency of the
Complaint”))―as arguing that the claim in the Complaint fails to state a claim.
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the prompt and certain enforcement of the tax laws in a system relying primarily on self-reporting.”
Rodgers, 461 U.S. at 683 (citation omitted).
In this case, the Government elected the second method―suing to reduce tax assessments
to judgment. (See ECF No. 1.) See generally Rodgers, 461 U.S. at 682 (“The Government may . .
. simply sue for the unpaid amount, and, on getting a judgment, exercise the usual rights of a
judgment creditor.” (citing 26 U.S.C. §§ 6502(a), 7401, 7402(a))). The Complaint (1) alleges that
the Secretary of Treasury “made various assessments” against Defendant; (2) identifies that these
assessments are “for unpaid federal income tax, penalties, and interest;” (3) identifies the “taxable
years” at issue; (4) provides allegations regarding the specific assessment dates for each
assessment; (5) avers the amount of each assessment; and (6) alleges the total amount Defendant
“was indebted to the United States” as “of January 13, 2014.” (ECF No. 1 at 2‒3.) Courts have
found that virtually identical allegations are sufficient to state a claim to reduce tax assessments to
judgment. See, e.g., United States v. Dininio, Civil No. 13‒5296 (RBK/JS), 2015 WL 4475916, at
*3 (D.N.J. July 21, 2015) (denying the defendant taxpayers motion to dismiss and finding that the
complaint stated “a plausible claim for relief” for a reduction of tax assessments to judgment where
“it provide[d] [the defendant] with the type of tax assessed against him, the tax periods from which
the assessments came, the specific date of each assessment, the amount of each tax assessment,
and the [total] amount due”); United States v. Barringer, No. 14‒3132, 2014 WL 4290335, at *1
& 4 (C.D. Ill. Aug. 28, 2014) (denying the defendant taxpayer’s motion to dismiss the plaintiff’s
claim “to reduce to judgment the outstanding liability for internal revenue taxes . . . and to enforce
the associated tax liens” where the complaint “alleged that an assessment for deficiencies in taxes
was made, notice and demand was sent, the [defendants] failed to pay the deficiencies, and a tax
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lien attached to the properties”); cf. United States v. Estate of Sabel, No. C 08‒05580 SI, 2009 WL
1636131, at *2 (N.D. Cal. June 9, 2009) (denying the defendant taxpayer’s motion to dismiss
because, at the motion to dismiss “stage of the proceedings, [the] [c]ourt must accept as true the
United States’ contention that there is a valid tax assessment against the [defendant] for the years
[alleged]”). Accepting Plaintiff’s allegations in the Complaint as true, the Court similarly finds
that the Complaint states a claim for reduction of tax assessments to judgment sufficient to
overcome a motion to dismiss. Cf. United States v. Fior D’Italia, Inc., 536 U.S. 238, 242 (2002)
(“It is well established in the tax law that an assessment is entitled to a legal presumption of
correctness-a presumption that can help the Government prove its case against a taxpayer in court.”
(citations omitted)). Of course, “[w]hether the United States is able to prove its claim with
competent evidence is a question for later stages of this case.” United States v. Wesselman, No.
05-cv-4152-JPG, 2007 WL 627469, at *3 (S.D. Ill. Feb. 26, 2007).
Accordingly, the Court OVERRULES the Objections, insofar as they argue that the
Magistrate Judge erred in finding that the Complaint states a viable claim for reduction of tax
assessments to judgment.5
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The Court notes that Defendant also argues that the Complaint fails to adequately plead that Defendant owes
penalties under 26 U.S.C. § 6702. (See, e.g., ECF No. 7 at 4‒5; ECF No. 16 at 8.) The Court finds that this argument
is completely without merit. The Complaint alleges that “[a] delegate of the Secretary of the Treasury made various
assessments against [Defendant],” including specifically identifying Section 6702. (ECF No. 1 ¶ 6.) The Complaint
then provides allegations regarding the relevant tax years, the assessment dates for each penalty, the amounts of each
penalty, and that the IRS “gave [Defendant] proper notice and demand for the payment” of the fees. (Id. ¶¶ 6‒7.) For
purposes of the present Motion, the Court finds that these allegations are sufficient to plead that the claim in the
Complaint―reducing tax assessments to judgment―includes Section 6702 penalties. See, e.g., Johnson v. City of
Shelby, 135 S. Ct. 346, 347 (2014) (“A plaintiff . . . must plead facts sufficient to show that her claim has substantive
plausibility.”).
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C.
Multiple Penalties Pursuant to 28 U.S.C. § 6702 for the Same Calendar Year
Defendant’s final objection is to the Magistrate Judge’s finding that Plaintiff may assess
two penalties against Defendant pursuant to 28 U.S.C. § 6702 for the tax years 2004, 2005, and
2007.6 (ECF No. 16 at 19‒20.) The Court again disagrees with Defendant’s position.
“Pursuant to 26 U.S.C. § 6702, the IRS, through the authority delegated to that agency by
the Secretary, is authorized to assess and collect penalties against a taxpayer who files a frivolous
income tax return.” Gass v. United States, No. 99‒B‒930, 2000 WL 1204575, at *2 (D. Colo. Mar.
28, 2000); cf. Ryskamp v. Comm’r, No. 14‒1042, 2015 WL 4772534, at *6 (D.C. Cir. Aug. 14,
2015) (“[T]he Code grants the IRS authority to impose civil penalties on taxpayers who submit
frivolous requests and contemplates judicial review of those penalties.” (citations omitted)).
Section 6702 provides the following, in pertinent part:
A person shall pay a penalty of $5,000 if-(1) Such person files what purports to be a return of a tax imposed by [Title 26] but
which-(A) does not contain information on which the substantial correctness of the
self-assessment may be judged, or
(B) contains information that on its face indicates that the self-assessment is
substantially incorrect, and
(2) the conduct referred to in paragraph (1)-(A) is based on a position which the Secretary has identified as frivolous . . . ,
or
(B) reflects a desire to delay or impede the administration of Federal tax laws.
The Court notes that, in the PF&R, the Magistrate Judge discusses the parties’ positions regarding the multiple
Section 6702 penalties, but does not provide a formal finding on this issue. (See ECF No. 13 at 10‒11.) Nonetheless,
the Magistrate Judge recommends denying the Motion, in its entirety, including Defendant’s arguments regarding the
Section 6702 penalties. (Id. at 11.)
6
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26 U.S.C. § 6702(a).7 “In any proceeding involving the issue of whether or not any person is liable
for a penalty under section . . . 6702, the burden of proof with respect to such issue shall be on the
Secretary.” Id. § 6703(a).
Defendant argues that “the IRS may only assess one civil penalty [under Section 6702] on
each person who files a frivolous return in any given year.” (ECF No. 7 at 6 (citation omitted).)
The Court finds that the plain language of Section 6702 forecloses Defendant’s argument. Section
6702 provides for a penalty if a “person files what purports to be a return.” 26 U.S.C. § 6702(a).
Courts have interpreted this language as meaning that the basis for the Section 6702 penalty
attaches upon the filing of a frivolous return. See, e.g., In re Roberts, 906 F.2d 1440, 1444 n.6
(10th Cir. 1990) (noting that Section 6702 provides for a penalty “per return”); Ganz v. United
States, No. 85 C 04819, 1985 WL 3618, at *4 (N.D. Ill. Oct. 31, 1985) (“[T]he imposition of a §
6702 penalty against an original return for one [calendar] year does not preclude the imposition of
a second § 6702 penalty assessed against the second amended return for that same year.”). The
Court agrees with this interpretation of the plain language of Section 6702 and finds that if an
individual files multiple frivolous tax returns for the same calendar year, they may be assessed a
penalty for each frivolous return under Section 6702. Cf. Hillman v. I.R.S., 263 F.3d 338, 342 (4th
Cir. 2001) (analyzing a statute in the Tax Code and noting that “[t]he general rule is that unless
there is some ambiguity in the language of a statute, a court’s analysis must end with the statute’s
plain language (the Plain Meaning Rule)” (citations omitted)).
7
The Court notes that the current language of Section 6702 became effective on December 20, 2006. See 26 U.S.C.
§ 6702 (providing an effective date of December 20, 2006). Prior to this date, Section 6702 provided “a penalty of
$500” if an “individual files what purports to be a” frivolous tax return. Act effective September 3, 1982, sec. 326, 96
Stat. 324 (current version at 26 U.S.C. § 6702).
14
In this case, the Complaint alleges that Defendant owes two penalties pursuant to Section
6702 for each of the calendar years 2004, 2005, and 2007. (See ECF No. 1 ¶ 6.) This allegation is
permissible under Section 6702. Of course, Plaintiff bears the burden of proving that Defendant is
liable for each of these penalties. 26 U.S.C. § 6703(a). However, that is not a question presently
before the Court at the motion to dismiss stage.
Accordingly, the Court OVERRULES the Objections, insofar as Defendant argues that
the Complaint includes impermissible allegations of multiple Section 6702 penalties for the same
calendar year.
IV. Conclusion
For the reasons provided above, the Court OVERRULES the Objections, (ECF No. 16),
ADOPTS the PF&R, (ECF No. 13), to the extent it is consistent with this Memorandum Opinion
and Order, and DENIES the Motion, (ECF No. 6).8 The Court RE-REFERS this case to United
8
On July 7, 2015, Defendant filed a Motion for Sanctions against Plaintiff, in which he asserts that sanctions are
appropriate under Federal Rule of Civil Procedure 11 due to Plaintiff’s action in filing the Complaint and statements
Plaintiff made in the briefing regarding the Motion and the PF&R. (ECF No. 22.) “Federal Rule of Civil Procedure
11(b) provides that in making a submission to the court, a lawyer certifies, inter alia, that the submission is not being
presented for an improper purpose and that the legal contentions therein are warranted by existing law or by
nonfrivolous argument.” Liberty Ins. Underwriters, Inc. v. Camden Clark Mem’l Hosp. Corp., Civil Action No. 6:08‒
cv‒01219, 2009 WL 4825199, at *9 (S.D. W. Va. Dec. 8, 2009). Rule 11(c), in turn, “provides that if a court
determines that Rule 11(b) has been violated, the court may impose an appropriate sanction on any attorney, law firm,
or party that violated the rule or is responsible for the violation.” Id.
The Court finds that Defendant’s Motion for Sanctions is wholly without merit. As noted above, the Court
denies Defendant’s Motion to Dismiss. Further, there is no evidence in the record that Plaintiff brought this suit―or
made arguments in its briefing―for an improper purpose or otherwise acted in an impermissible manner. As such, the
Court DENIES Defendant’s Motion for Sanctions. (ECF No. 22.)
The Court strongly cautions Defendant that he too must abide by the requirements of Federal Rule of Civil
Procedure 11 and should remain mindful of the filings that rule proscribes. See, e.g., Fed. R. Civ. P. 11(b) (“By
presenting to the court a . . . written motion [] or other paper . . . an attorney or unrepresented party certifies that to
the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the
circumstances . . . it is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or
needlessly increase the cost of litigation . . . .” (emphasis added)); Field v. GMAC LLC, Civil Action No. 2:08cv294,
2009 WL 6560222, at *2 (E.D. Va. Jan. 30, 2009) (“Rule 11 applies both to pro se parties and parties represented by
counsel.” (citation omitted)).
15
States Magistrate Judge Dwane L. Tinsley for further pretrial management and submission of
proposed findings of fact and recommendations for disposition.
IT IS SO ORDERED.
The Court DIRECTS the Clerk to send a copy of this Order to counsel of record and any
unrepresented party.
ENTER:
16
September 30, 2015
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