Coughlin v. Regan

• Decision Date: 11 April 1984
• Docket Number: Civ. No. 82-0308-B.
• Citation: 584 F. Supp. 697
• Parties: Richard COUGHLIN, et al., Plaintiffs, v. Donald REGAN, et al., Defendants.
• Court: U.S. District Court — District of Maine

584 F. Supp. 697

Richard COUGHLIN, et al., Plaintiffs, v. Donald REGAN, et al., Defendants.

Civ. No. 82-0308-B.

United States District Court, D. Maine.

April 11, 1984.

Frederick B. Stocking, Pine Tree Legal Assistance, Inc., Machias, Maine, Hugh Calkins, Pine Tree Legal Assistance, Inc., Bangor, Maine, Linda Christ, Lynn Dondis, Pine Tree Legal Assistance, Inc., Augusta, Maine, for plaintiffs.

Raymond E. Ritchie, Diane E. Doyen, James Eastman Smith, Asst. Attys. Gen., Dept. of Human Services, Augusta, Maine, William H. Browder, Jr., Asst. U.S. Atty., Bangor, Maine, for defendants.

MEMORANDUM DECISION ON MOTIONS TO DISMISS

CYR, Chief Judge.

STATEMENT OF THE CASE

The present class action challenges certain aspects of the federal-state "intercept" program established by the Omnibus Budget Reconciliation Act of 1981 (OBRA), Pub.L. No. 97-35, §§ 2331, 2332, 95 Stat. 860-63. OBRA empowers the United States Treasury Department (Treasury) to intercept federal income tax overpayments due child-support obligors, in order to facilitate reimbursement of the states for contributions made under the Aid to Families with Dependent Children (AFDC) program.¹ Plaintiffs challenge the Treasury practice of intercepting that portion of a tax overpayment made by a nonobligated spouse who files a joint tax return with a child-support obligor. Plaintiffs further challenge the interception and transfer of any portion of their earned income credit (EIC).

Plaintiffs seek the return of any intercepted EIC, a judicial declaration that past-due child support may not be recovered either from plaintiffs' EIC's or from any portion of a tax refund due a nonobligated spouse, and permanent injunctive relief against defendants' "unlawful" conduct.

MOTIONS TO DISMISS

Federal defendants moved to dismiss on the following grounds: (1) the action is moot as to the nonobligated plaintiffs; (2) sovereign immunity bars the action; (3) the Court lacks jurisdiction of the claims of the obligated plaintiffs by virtue of 26 U.S.C. § 6305(b); (4) the action is barred by the Anti-Injunction Act, 26 U.S.C. § 7421(a), and by the Declaratory Judgment Act, 28 U.S.C. § 2201; and (5) the complaint fails to state a claim upon which relief can be granted.²

The motion of the state defendant seeks dismissal on grounds (1), (3) and (5) advanced by the federal defendants, and on the further ground that the state defendant is not amenable to suit in this action by virtue of the Eleventh Amendment to the United States Constitution.³

FACTS

Plaintiff Richard Coughlin owes an unspecified sum to the State of Maine for past-due support.⁴ In 1981 Coughlin earned $2,431.62 and his wife, Jean, earned $2,450.16. For federal income tax purposes, $137.84 was withheld from Jean's earnings during 1981 and $39.10 was withheld from Richard's earnings. On their 1981 joint tax return the Coughlins were entitled to a $488 EIC.⁵ Since they owed no taxes for 1981 the Coughlins requested a refund of $664.94, representing their EIC of $488 and the total of their combined withheld earnings, $176.94.

On March 26, 1982 the Internal Revenue Service (IRS), through the State of Maine Department of Human Services (DHS), notified the Coughlins that their entire federal tax refund was to be applied toward Richard Coughlin's past-due support obligation. After filing an IRS Form 1040X, requesting a return of their EIC and of Jean's withheld earnings, the Coughlins received a check from the IRS, which they believe represents Jean's "share" of the EIC, plus her withheld earnings.⁶ Treasury did not explain its calculation of the amount returned.⁷

In 1982 Jean Coughlin earned $4,086.27 and Richard earned $2,854.72. The Coughlins requested a tax refund of $504.90 on their 1982 joint tax return, $384 of which represented their EIC. As of April 19, 1983 the IRS had not notified the Coughlins of any intercept of their 1982 refund, although an IRS employee informed Jean Coughlin that their refund would again be remitted to the State of Maine.⁸

Plaintiff Maurice Galen owes the State of Maine past-due support. In 1981 he earned $4,007.74, of which $483.60 was withheld for federal income tax purposes. In the same year his wife, Eleanor, earned $4,143.75, of which $422.10 was withheld for federal income tax purposes. On their 1981 joint tax return the Galens requested a tax refund of $660.70 (net after deduction of $245 for taxes due), and the return of their EIC of $228. On May 13, 1982 the IRS, through DHS, advised that the entire amount due the Galens would be applied to satisfy Maurice Galen's past-due support obligations. In July 1982 the Galens filed an IRS Form 1040X requesting the return of Eleanor's withheld earnings, plus their entire EIC. In September 1982 Eleanor received, without explanation, an IRS check in the amount of $438.13, which she believes represents her "share" of the EIC, plus her net (after-tax) earnings withheld.

In 1982 Eleanor earned $2,702.94 and Maurice had no earnings. On their 1982 joint return the Galens requested a refund of $63.60, and the return of their EIC of $273. On April 15, 1983 the IRS advised that the entire amount due the Galens would be remitted to the State of Maine.⁹

STATUTORY SCHEME

Jeopardy Assessments of Certain Liability

Section 452(b) of the Social Security Act, 42 U.S.C. § 652(b), was added by section 101(a) of Public Law No. 93-647, 88 Stat. 2351, on January 4, 1975, and, as amended by section 2332(b)(2) of OBRA, reads as follows:

(b) The Secretary shall, upon the request of any State having in effect a State plan approved under this part 42 USCA §§ 651-660, certify to the Secretary of the Treasury for collection, pursuant to the provisions of section 6305 of the Internal Revenue code of 1954 26 USCS § 6305 the amount of any child support obligation (including any support obligation with respect to the parent who is living with the child and receiving aid under the State plan approved under part A 42 USCS § 601 et seq.) which is assigned to such State or is undertaken to be collected by such State pursuant to section 454(6) 42 USCS § 654(6). No amount may be certified for collection under this subsection except the amount of the delinquency under a court or administrative order for support and upon a showing by the State that such State has made diligent and reasonable efforts to collect such amounts utilizing its own collection mechanisms, and upon an agreement that the State will reimburse the Secretary of the Treasury for any costs involved in making the collection. All reimbursements shall be credited to the appropriation accounts which bore all or part of the costs involved in making the collections. The Secretary after consultation with the Secretary of the Treasury may, by regulation, establish criteria for accepting amounts for collection and for making certification under this subsection including imposing such limitations on the frequency of making such certifications under this subsection.

Effective January 4, 1975, section 6305 of the Internal Revenue Code of 1954, as amended, (Code) was added by section 101(b)(1) of Public Law No., 93-647, 88 Stat. 2358, as follows:

§ 6305. Collection of certain liability.

(a) In general. Upon receiving a certification from the Secretary of Health, Education, and Welfare Secretary of Health and Human Services, under section 452(b) of the Social Security Act 42 USCS § 652(b) with respect to any individual, the Secretary shall assess and collect the amount certified by the Secretary of Health, Education, and Welfare Secretary of Health and Human Services, in the same manner, with the same powers, and (except as provided in this section) subject to the same limitations as if such amount were a tax imposed by subtitle C the collection of which would be jeopardized by delay, except that—

(1) no interest or penalties shall be assessed or collected,

(2) for such purposes, paragraphs (4), (6), and (8) of section 6334(a) (relating to property exempt from levy) shall not apply,

(3) there shall be exempt from levy so much of the salary, wages, or other income of an individual as is being withheld therefrom in garnishment pursuant to a judgment entered by a court of competent jurisdiction for the support of his minor children, and

(4) in the case of the first assessment against an individual for delinquency under a court order against such individual for a particular person or persons, the collection shall be stayed for a period of 60 days immediately following notice and demand as described in section 6303.

(b) Review of assessments and collections. No court of the United States, whether established under article I or article III of the Constitution, shall have jurisdiction of any action, whether legal or equitable, brought to restrain or review the assessment and collection of amounts by the Secretary under subsection (a), nor shall any such assessment and collection be subject to review by the Secretary in any proceeding. This subsection does not preclude any legal, equitable, or administrative action against the State by an individual in any State court or before any State agency to determine his liability for any amount assessed against him and collected, or to recover any such amount collected from him, under this section.

Offset Against Federal Tax Overpayments

Section 2331(a) of OBRA amended Part D of Title IV of the Social Security Act by adding section 464, 42 U.S.C. § 664:

§ 664. Collection of past-due support from Federal tax refunds

(a) Upon receiving notice from a State agency administering a plan approved under this part 42 USCS §§ 651 et seq. that a named individual owes past-due support which has been assigned to such State pursuant to section 402(a)(26) 42 USCS § 602(a)(26), the Secretary of the Treasury shall determine whether any amounts, as refunds of Federal taxes paid, are payable to such individual (regardless of whether such individual filed a tax return as a married or

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