Dzuira v. U.S.

• Decision Date: 10 June 1997
• Docket Number: Civil Action No. 96-30063-MAP.
• Citation: 966 F.Supp. 126
• Parties: Bruce and Ann DZUIRA, Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — District of Massachusetts

966 F.Supp. 126

Bruce and Ann DZUIRA, Plaintiffs, v. UNITED STATES of America, Defendant.

Civil Action No. 96-30063-MAP.

United States District Court, D. Massachusetts.

June 10, 1997.

Gerald Glasser, Kalill, Glasser & Senecal, Springfield, MA, for Plaintiff.

Karen A. Smith, George P. Eliopoulos, U.S. Dept. of Justice Tax Div., Washington, DC, for Defendant.

PONSOR, District Judge.

Upon de novo review this Report and Recommendation is hereby adopted without opposition; the motion to dismiss is ALLOWED, without prejudice to the filing of an amended complaint on or before June 27, 1997. So ordered.

REPORT AND RECOMMENDATION REGARDING THE UNITED STATES' MOTION TO DISMISS (Docket No. 12)

NEIMAN, United States Magistrate Judge.

I. INTRODUCTION

In this case, Plaintiffs Bruce and Ann Dzuira ("Plaintiffs") claim that the Internal Revenue Service ("IRS") sold one of their Andrew Wyeth watercolors — which the IRS had seized in order to satisfy a tax obligation — for far less than what the painting was worth. Plaintiffs seek to have the difference credited to their tax account. Currently pending is the IRS's motion to dismiss the complaint for lack of subject matter jurisdiction (Docket No. 12), which has been referred to this Court for a report and recommendation. See 28 U.S.C. § 636(b)(1)(B). For the reasons stated below, the Court recommends that the motion to dismiss be ALLOWED without prejudice to Plaintiffs filing an amended complaint.

II. STANDARD OF REVIEW

A motion to dismiss for lack of subject matter jurisdiction requires a court to "accept the factual averments of the complaint as true, and construe those facts in the light most congenial to the [plaintiff]'s cause." Royal v. Leading Edge Products, Inc., 833 F.2d 1 (1st Cir.1987) (citing Guessefeldt v. McGrath, 342 U.S. 308, 310, 72 S.Ct. 338, 340, 96 L.Ed. 342 (1952)). When faced with such a motion, the party asserting jurisdiction has the burden of proving that it exists. Coventry Sewage Associates v. Dworkin Realty Co., 71 F.3d 1, 4 (1st Cir.1995).

III. BACKGROUND

The facts alleged in the complaint are as follows. The IRS — having assessed a deficiency against Plaintiffs for their joint federal income tax returns for the 1989-1992 taxable years — seized from Plaintiffs a 1982 Andrew Wyeth watercolor entitled "Deer Crossing." A second Wyeth was also seized, but is not the subject of this suit.

The IRS valued "Deer Crossing" at $100,000. Based on this valuation, the IRS, in May of 1993, determined that the minimum bid price of the painting at a forced sale should be $60,000. When offered at that price, however, the painting did not sell, the IRS did not buy "Deer Crossing" itself, and the painting was not returned to Plaintiffs. Instead, the painting continued to be held by the auctioneer.

In December of 1993, the IRS redetermined the minimum bid price of "Deer Crossing" at $30,000. The IRS held a second sale in May of 1994 at which time the painting was sold for $30,000. In June of 1995, Plaintiffs filed with the IRS a request for an adjustment, seeking a $30,000 credit — the difference in the initial minimum bid price ($60,000) and the sale price ($30,000). The IRS did not take any action on Plaintiffs' request.

Plaintiffs filed this complaint on April 16, 1996, citing 28 U.S.C. § 1346 as the basis for jurisdiction. The parties' memoranda of law regarding the motion to dismiss were filed by April 4, 1997. Having heard oral argument on the motion on April 16, 1997, the Court now offers its recommendation.

IV. DISCUSSION

The IRS asserts that the complaint must be dismissed because the IRS has not waived its immunity to be sued and, as such, there can be no subject matter jurisdiction. As sovereign, the United States may not be sued without its consent. United States v. Dalm, 494 U.S. 596, 608, 110 S.Ct. 1361, 1368, 108 L.Ed.2d 548 (1990); Murphy v. United States, 45 F.3d 520, 522 (1st Cir.), cert. denied, 515 U.S. 1144, 115 S.Ct. 2581, 132 L.Ed.2d 831 (1995). The terms of the United States' consent to be sued in court define that court's jurisdiction to entertain the suit. United States v. Mitchell, 445 U.S. 535, 538, 100 S.Ct. 1349, 1351-52, 63 L.Ed.2d 607 (1980). Generally, "statutes waiving sovereign immunity should be strictly construed in favor of the United States." Murphy, 45 F.3d at 522 (citations omitted). A court may not, therefore, "enlarge beyond what the language of the statute creating the waiver requires." Id. (citations and internal quotation marks omitted).

Although the complaint does not cite a basis for the waiver of sovereign immunity, it claims jurisdiction under 28 U.S.C. § 1346. This statute will be addressed first followed by a discussion of several other statutes mentioned in the parties' submissions, namely, 26 U.S.C. §§ 6335, 7433 and 28 U.S.C. § 2410.

A. 28 U.S.C. § 1346

Section 1346 of Title 28 waives, in subsection (a)(1), the United States' sovereign immunity for tax refund suits.¹ This statutory waiver of sovereign immunity has been construed to require a taxpayer to pay the entire tax deficiency assessed by the IRS before he may sue for a refund. See, e.g., Flora v. United States, 357 U.S. 63, 78 S.Ct. 1079, 2 L.Ed.2d 1165 (1958), aff'd on reh'g, 362 U.S. 145, 80 S.Ct. 630, 4 L.Ed.2d 623 (1960); Conway v. United States, 168 F.Supp. 656, 660 (D.Mass.1958), aff'd, 278 F.2d 710 (1st Cir. 1960). The rule that a refund claim must be filed prior to filing suit derives from 26 U.S.C. § 7422(a).²

Here, Plaintiffs acknowledge that they did not make such payment before suit was filed, although they have since paid their taxes in full. Plaintiffs are thus not eligible for a waiver of sovereign immunity under section 1346. Plaintiffs concede as much. Accordingly, as it presently reads and without more, the complaint should be dismissed for lack of subject matter jurisdiction.

B. 26 U.S.C. § 6335 and 28 U.S.C. § 2410

Plaintiffs' opposition to the motion to dismiss, however, seeks relief in 26 U.S.C. § 6335, which in subsection (e) outlines the manner and conditions of an IRS sale of seized property.³ Plaintiffs also rely, in part, on corresponding Treasury regulations, 26 C.F.R. § 301.6335-1, and applicable provisions of the Internal Revenue Manual ("IRM"). Indeed, the crux of Plaintiffs' claim is that certain procedures set forth in section 6335(e), together with corresponding parts of the regulations and the IRM, were not followed. Most specifically, Plaintiffs claim, the IRS, having effectively decided not to purchase "Deer Crossing" itself at auction, failed to return the painting to Plaintiffs once the first sale was unable to produce a buyer.

While the IRS acknowledges for purposes here that it violated the technical requirements of section 6335 when it failed to return the painting to Plaintiffs, it counters by stating that section 6335, by its own terms, does not provide a waiver of sovereign immunity. Although caselaw on this issue is sparse, the IRS's position is supported by several unreported district court opinions, see, e.g., Nonnenmacher v. United States, No. 91-6312-HO, 1992 WL 551486 (D.Or. May 7, 1992); Lafazan v. United States, No. 78-327, 1979 WL 1496, at *2 (D.N.J. Oct.29, 1979), as well as the lack of a waiver in the statute itself.

In contrast, Plaintiffs' reliance on Anderson v. United States, 44 F.3d 795 (9th Cir.1995), is somewhat misplaced. Granted, the court in Anderson, without discussing the waiver of sovereign immunity, simply assumed jurisdiction over a taxpayer's suit grounded in section 6335. Anderson, however, dealt with a taxpayer's attempt to enjoin a sale that had not yet occurred. Accordingly, although the Ninth Circuit itself was silent on the matter, a waiver of sovereign immunity. could have been found in 28 U.S.C. § 2410 which allows taxpayers to quiet title to property on which the United States has a claim. See Arford v. United States, 934 F.2d 229, 232-33 (9th Cir.1991) (in quiet title action, section 2410 may waive immunity for section 6335 claim); Aqua Bar & Lounge, Inc. v. United States, 539 F.2d 935, 939-40 (3d Cir.1976) (similar).

Dissimilarly, Plaintiffs are attempting to obtain a waiver of sovereign immunity regarding a sale to a third party that is a fait accompli. This distinction makes all the difference. After a sale, the IRS is no longer claiming any interest in the seized property and there is no need to quiet its title. See Nonnenmacher, 1992 WL 551486 (section 2410 does not confer jurisdiction over section 6335 claim). See also Lafazan, 1979 WL 1496, at *2 (section 2410 "provides for a waiver of sovereign immunity only with respect to five enumerated actions; it does not authorize a [section] 6335 suit for damages").⁴ In short, section 6335, even in connection with section 2410, does not waive the IRS's sovereign immunity for purposes here.⁵

C. 26 U.S.C. § 7433

Plaintiffs are not, however, without recourse. In fact, Plaintiffs' opposition to the IRS's motion to dismiss cites section 7433 of the Tax Code as a possible basis for the waiver of sovereign immunity. Section 7433 provides that a taxpayer may bring an action for damages when, in the collection of a tax, the IRS "recklessly or intentionally disregards" the Tax Code or Treasury regulations.⁶ As the First Circuit recently explained, "Congress enacted § 7433 to give taxpayers `a specific right to bring an action against the Government for damages sustained due to unreasonable actions taken by an IRS employee.'" Murphy, 45 F.3d at 524 (quoting legislative history) (other quotations omitted).

The IRS essentially makes three arguments why Plaintiffs' reliance on section 7433 is inappropriate. First, the IRS claims that Plaintiffs have not alleged an "intentional" or "reckless" disregard of the Tax Code or regulations.⁷ Second, the IRS asserts that Plaintiffs cannot utilize section 7433 since they have not been damaged. Indeed, the IRS claims that, because of certain waivers of fees by the...