Brooks v. Snow

• Decision Date: 13 February 2004
• Docket Number: No. CIV.A. H-03-0259.,CIV.A. H-03-0259.
• Citation: 313 F.Supp.2d 654
• Parties: George Dalton BROOKS, Corwin Henry Meyer, Richard Welsh and Monroe Ashworth III, et al., Plaintiffs, v. John SNOW, Secretary of the Treasury, and Mark W. Everson, Commissioner of the Internal Revenue Service, Defendants.<SMALL><SUP>1</SUP></SMALL>
• Court: U.S. District Court — Southern District of Texas

313 F.Supp.2d 654

George Dalton BROOKS, Corwin Henry Meyer, Richard Welsh and Monroe Ashworth III, et al., Plaintiffs, v. John SNOW, Secretary of the Treasury, and Mark W. Everson, Commissioner of the Internal Revenue Service, Defendants.¹

No. CIV.A. H-03-0259.

United States District Court, S.D. Texas, Houston Division.

February 13, 2004.

COPYRIGHT MATERIAL OMITTED

Ronald Joseph Kormanik, Sydow Kormanik et al, Thomas E. Redding, Teresa Jean Womack, Sallie W. Gladney, Redding & Associates, Houston, TX, Henry L. Klein, Attorney at Law, New Orleans, LA, for Plaintiffs.

David B. Coffin, Dept of Justice, Dallas, TX, for Defendants.

MEMORANDUM AND ORDER

WERLEIN, District Judge.

Pending are the United States's Motion to Dismiss First Amended Complaint (Document No. 10) and Defendants George Dalton Brooks, et al.'s Motion for Partial Summary Judgment (Document No. 20) and Motion for Stay of Collections and for Expedited Consideration (Document No. 47). After carefully considering the motions, responses, replies, and the applicable law, the Court concludes that the United States's motion should be granted and the case dismissed for lack of jurisdiction.

I. Background

This action arises out of a dispute over interest that accrued on taxes during an alleged delay by the Internal Revenue Service ("IRS") in assessing the taxes owed.

In the mid-1980s, Plaintiffs invested in various AMCOR partnerships as limited partners. During the late-1980s, the IRS launched criminal investigations of various AMCOR officers and civil examinations of the AMCOR Partnerships. The investigations lasted into the 1990s. Finding AMCOR to be an abusive tax shelter, the IRS disallowed certain deductions taken by the AMCOR partnerships, which created deficiencies that passed through to the partners.² Following the conclusion of Tax Court proceedings at the partnership level, Plaintiffs received notices of assessments in 2002 for increased tax and interest relating to tax years 1984, 1985, and 1986. According to Plaintiffs, the accrued interest amounted to more than five times the tax due.

In April, 2003, Plaintiffs filed this lawsuit against Defendants Kenneth Dam, then Deputy Secretary of the Treasury, and Robert Wenzel, then Acting Commissioner of the Internal Revenue Service. (The names of the current Secretary of the Treasury and Commissioner of Internal Revenue Service have been substituted in this Memorandum and Order.) Plaintiffs seek from the Court a declaration that Treasury Regulation 26 C.F.R. 301.7122-1 "is inconsistent with Congressional intent" by its failure to include authority to compromise penalties and interest that accumulate as a result of the Government's delay in determining a taxpayer's tax liability, and further seek a court order requiring Defendants to "(a) apply rules consistent with Congressional mandate to offers in compromise submitted by AMCOR partners; (b) abate not less than the interest accrued from the commencement of the criminal investigation until the promulgation of the final regulations; and (c) impose interest at a rate not greater than the standard rate of interest under Internal Revenue Code § 6221." Document No. 9, ¶ 221; Document No. 35, ¶ 492. Those of Plaintiffs who have paid the taxes, penalties, and interest, seek a refund of the interest that they paid "in excess of the amount appropriately determined if the final regulation had included the standards mandated by Congress," or alternatively, a refund of all interest paid that accrued during periods of delay caused by errors of the IRS. Document No. 9, ¶ 222; Document No. 35, ¶ 493. In effect, Plaintiffs are asking the Court to mandate the Secretary of the Treasury to write a regulation that Plaintiffs believe the Secretary should have written in order to comply with what Plaintiffs deem to have been "Congressional intent," and to relieve Plaintiffs from all liabilities for interest on their past due taxes that has accrued as a result of such regulation not having been written by the Secretary.

Without moving for leave, Plaintiffs filed a Second Amended Complaint³ reiterating the foregoing claims and (1) adding the names of another 376 taxpayers as Plaintiffs, (2) substituting John Snow as Secretary of the Treasury and Mark W. Everson as Commissioner of the IRS, and (3) adding a claim for damages under 26 U.S.C. § 7433, which allows a civil action for damages caused by the intentional, reckless, or negligent disregard of a statute or regulation by an IRS employee in connection with the collection of a federal tax. See Document No. 35, ¶ 494.

The United States, as the real party in interest, moves for dismissal for lack of subject matter jurisdiction based on sovereign immunity, the Anti-Injunction Act, the Declaratory Judgment Act, and Plaintiffs' failures to exhaust administrative remedies.

II. Standard of Review

Under Rule 12(b)(1), a party can seek dismissal of an action for lack of subject matter jurisdiction. FED R. CIV P. 12(b)(1). The burden of establishing subject matter jurisdiction is on the party seeking to invoke it. Ramming v. United States, 281 F.3d 158, 161 (5th Cir.2001). In evaluating a motion to dismiss pursuant to Rule 12(b)(1), a court may consider (1) the complaint alone; (2) the complaint supplemented by undisputed facts evidenced in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts. Id. (citing Barrera-Montenegro v. United States, 74 F.3d 657, 659 (5th Cir.1996)). The question of subject matter jurisdiction is for the court to decide even if the question hinges on legal or factual determinations. See id. (citing Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir.1981) (holding the existence of disputed material facts does not preclude a court from evaluating the merits of a jurisdictional challenge)). Rule 12(b)(1) challenges to subject matter jurisdiction come in two forms: "facial" attacks and "factual" attacks. See Lawrence v. Dunbar, 919 F.2d 1525, 1528-29 (11th Cir.1990); Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir.1981). A facial attack, which consists of a Rule 12(b)(1) motion unaccompanied by supporting evidence, challenges the court's jurisdiction based solely on the pleadings. See Lawrence, 919 F.2d at 1528; Paterson, 644 F.2d at 523. When presented with a facial challenge to subject matter jurisdiction, the court examines whether the allegations in the complaint are sufficient to invoke the court's subject matter jurisdiction, assuming the allegations to be true. Lawrence, 919 F.2d at 1528; Paterson, 644 F.2d at 523.

When accompanied by supporting evidence, a Rule 12(b)(1) motion challenging the court's jurisdiction is a factual attack. Paterson, 644 F.2d at 523. A plaintiff responding to a factual attack on the court's jurisdiction generally bears the burden of proving by a preponderance of the evidence that the court has subject matter jurisdiction. Id. If, however, the facts necessary to sustain jurisdiction implicate the merits of the plaintiff's cause of action, then the court must proceed as it would under Fed.R.Civ.P. 12(b)(6) or, in a proper case, Rule 56. See Xerox Corp. v. Genmoora Corp., 888 F.2d 345, 350-51 (5th Cir.1989); see also Hishon v. King & Spalding, 467 U.S. 69, 104 S.Ct. 2229, 2232 n. 2, 81 L.Ed.2d 59 (1984) (accepting allegations as true on appeal because district court's reasoning made clear that it had dismissed complaint on ground that allegations did not state Title VII claim, even though district court invoked Rule 12(b)(1) rather than Rule 12(b)(6)). The United States's Rule 12(b)(1) motion is not accompanied by supporting evidence, and the attack is therefore facial.

III. Discussion

The Secretary of the Treasury ("Secretary") is authorized by statute to compromise any civil or criminal case arising under the Internal Revenue Laws prior to its reference to the Department of Justice for prosecution or defense. See 26 U.S.C. § 7122(a). The statute conferring this authority requires the Secretary to prescribe guidelines for officers and employees of the Internal Revenue Service to determine whether an offer-in-compromise is adequate and should be accepted to resolve a dispute. Id. at § 7122(c)(1). Pursuant to this statute, the Secretary promulgated 26 C.F.R. § 301.7122-1, entitled "Compromises," which lists three grounds for compromise by the Secretary: "Doubt as to liability," "Doubt as to collectibility," and "Promote effective tax administration." 26 C.F.R. § 301.7122-1(b). According to Plaintiffs, in promulgating § 301.7122-1, the Treasury Regulation at issue, the Secretary violated the Constitution's separation of powers — by failing to list as a possible ground for compromise delays caused by the IRS in the determination of taxpayer liability. In so doing, Plaintiffs argue, the Secretary "implemented [§ 301.7122-1] in a manner inconsistent with the language and legislative history of a statutory provision it was designed to implement." Document No. 35, ¶ 485.

Plaintiffs' claims, identified as an alleged violation of the Constitution's separation of powers, concern actions taken by officers of the United States in an official capacity. Moreover, Plaintiffs seek not only declaratory and injunctive relief, but an abatement or refund of interest. This is the very kind of case that directly implicates the United States itself, which is why it is the real party in interest as Defendant. Bank One, Texas, N.A. v. Taylor, 970 F.2d 16, 33 (5th Cir.1992) is directly in point:

[Although] the United States was not named as a party in the original action, "`if the judgment sought would expend itself upon the public treasury or domain, or interfere with public administration,' or if the effect of the judgment would be `to restrain the Government from acting, or to compel it to act,'" the suit will be construed as one against the United States requiring a waiver of sovereign immunity.

(quoting Dugan v. Rank, ...