Hall v. Internal Revenue Servs. (In re Hall)
| Citation | 629 B.R. 124 |
| Decision Date | 11 May 2021 |
| Docket Number | Adv. Pro. No. 20-01010-ess,Case No. 19-47447-ess |
| Parties | IN RE: Anthony W. HALL, Debtor. Anthony W. Hall, a/k/a Anthony Winston Hall, Plaintiff, v. Internal Revenue Services, Defendant. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York |
Anthony W. Hall, 654 Macon Street, Brooklyn, NY 11233, Plaintiff, pro se.
Noah Daniel Glover-Ettrich, Esq., United States Department of Justice, Tax Division, P.O. Box 55, Ben Franklin Station, Washington, DC 20044, Marie Wicks, Esq., United States Department of Justice, Tax Division, P.O. Box 55, Ben Franklin Station, Washington, DC 20044, Attorneys for Defendant United States of America.
Plaintiff Anthony W. Hall commenced this adversary proceeding against the United States Internal Revenue Service (the "IRS") in connection with a levy action arising out of his 2014 federal tax return and liability.1 He seeks a determination of the validity, priority, and extent of any liens that are claimed by the IRS, and also seeks a declaratory judgment that the IRS does not have a valid lien or levy against him. Mr. Hall asserts that the IRS does not have a valid lien because, in substance, he did not owe any taxes for the 2014 tax year and a refund of $851,908 was due to him. And he claims that civil penalties imposed by the IRS do not constitute tax payments arising from an assessment of income tax liability.
Before the Court is a motion to dismiss this adversary proceeding filed by the United States, incorrectly named in this action as the Internal Revenue Service. The United States brings this motion to dismiss under Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), made applicable to adversary proceedings by Bankruptcy Rule 7012(b).
This Court has jurisdiction over this matter pursuant to Judiciary Code Sections 157(b)(1) and 1334(b), and the Standing Order of Reference dated August 28, 1986, as amended by the Order dated December 5, 2012, of the United States District Court for the Eastern District of New York. This is a core proceeding pursuant to 28 U.S.C. § 157(b), and venue is proper before this Court pursuant to 28 U.S.C. § 1409. "Core proceedings include, but are not limited to ... matters concerning the administration of the estate;" "allowance ... of claims against the estate," "orders to turn over property of the estate," and "determinations of the validity, extent, or priority of liens;" among other types of claims. 28 U.S.C. § 157(b)(2)(A), (B), (E), (K). And as core matters, this Court has constitutional authority to enter a final judgment, because Mr. Hall's claims stem "from the bankruptcy itself." Stern v. Marshall , 564 U.S. 462, 499, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). See Wellness Int'l Network, Ltd. v. Sharif , 575 U.S. 665, 685, 135 S.Ct. 1932, 191 L.Ed.2d 911 (2015).2
Mr. Hall's dispute with the Internal Revenue Service and the United States arising from his 2014 federal tax return has a long history leading up to the filing of this adversary proceeding, including an action in the United States District Court for the Eastern District of New York and two bankruptcy cases in this Court. In order to provide some context for Mr. Hall's claims in this action and the United States' arguments on this Motion to Dismiss, some aspects of that background are summarized here.
On April 27, 2016, Mr. Hall, acting pro se , commenced an action in the United States District Court for the Eastern District of New York against the United States, the IRS, the U.S. Department of the Treasury, and IRS employees Mary Ann Acone and Natalie Cassadine. Hall v. United States , 1:16-cv-02073-MKB-JO (E.D.N.Y.) (the "District Court Action"), ECF No. 1 ("Dist. Ct. Compl."). In that action, Mr. Hall attempts to assert claims for unconstitutional theft of proprietary interest in his private property, wrongful and unreasonable imposition of a tax jeopardy levy, unlawful declaration of his Form 1040 federal income tax return for 2014 as frivolous, unlawful declaration of his tax refund for that year as frivolous, and intentional refusal to adhere to established principles of law governing discharge of promissory notes and bonds held by a federally chartered depository institution. Dist. Ct. Compl. ¶ 1.
Mr. Hall stated his claims as claims for declaratory relief under Sections 1982 and 1983 of Title 42 of the United States Code, and sought a determination that the IRS jeopardy levy was unlawful and unreasonable and should be set aside and quashed. Dist. Ct. Compl. ¶ 2. He asserted that the defendants' determination that his December 2014 Form 1040 federal tax return and subsequent refund as frivolous was unreasonable, and further, that the defendants ignored the facts and the law that he relied upon. Dist. Ct. Compl. ¶ 3. For these reasons, he asserted, and as a consequence, the IRS's jeopardy levy and seizure of his funds should be quashed. Id . And Mr. Hall claimed that the defendants acted willfully, unlawfully, all in violation of Section 1983, and as such "exposed [him] to the suffering of incalculable losses, including but not limited to emotional stress, continuing anxiety and economic uncertainty." Dist. Ct. Compl. ¶ 11.
On September 27, 2016, the defendants moved to dismiss the District Court Complaint on several grounds, including lack of subject matter jurisdiction pursuant to Federal Rule 12(b)(1), and failure to state a claim upon which relief may be granted pursuant to Federal Rule 12(b)(6).
As set forth in the declaration of Natalie Cassadine, revenue officer for the IRS, filed in support of the Motion to Dismiss here and in the District Court, on April 15, 2015, Mr. Hall filed a federal income tax return for the 2014 tax year. Cassadine Decl., ECF No. 14-2, ¶ 4. In his 2014 federal tax return, Mr. Hall reported $3,192,142 of "other income" and $2,008,142 of tax withholding, and claimed a refund of $851,908. Id .
The IRS issued Mr. Hall a refund check totaling $863,823.43, corresponding to his claimed refund plus interest in the amount of $11,915.43. Cassadine Decl. ¶ 5. Mr. Hall deposited the refund check into an account with JP Morgan Chase Bank NA ("Chase") at a branch located in Indiana, and thereafter, transferred a portion of the refund into an account in the name of the "Hall Sovereign Irrevocable Private Trust." Cassadine Decl. ¶¶ 5, 7.
One year later, the IRS determined that Mr. Hall's 2014 tax return was "frivolous," and his claimed income and withholding was false and "grossly overstated." Cassadine Decl. ¶ 6. As a consequence, on April 13, 2016, the IRS's "Frivolous Return Program made a quick assessment in the amount of $1,022,289.60, representing tax of $851,908 plus accrued interest." Cassadine Decl. ¶ 7. That is, as explained in Ms. Cassadine's declaration, the IRS determined that Mr. Hall reported income that he did not earn and withholding that he did not pay, in order to secure a large and fraudulent tax refund to which he was not entitled.
Promptly thereafter, the IRS issued a jeopardy levy and a jeopardy alter ego levy to Chase in an attempt to recover the fraudulent refund from Mr. Hall's accounts there. Cassadine Decl. ¶ 8. In response, as set forth in Ms. Cassadine's declaration, "Chase issued a letter dated April 20, 2016 to Hall advising him that holds were placed on two accounts at the bank as of April 19, 2016, in the amounts of $8,012.88 and $1,152.79, respectively." Cassadine Decl. ¶ 12. On April 14, 2016, the IRS also issued Mr. Hall a "Letter 2439, Notice of Jeopardy Levy and Right of Appeal," which explains the administrative review options under Internal Revenue Code ("IRC") Section 7429. Cassadine Decl. ¶ 9.
The District Court granted the defendants' motion to dismiss the District Court Complaint by Memorandum and Order entered on July 13, 2017. The District Court found that it lacked subject matter jurisdiction over Mr. Hall's challenge to the jeopardy levy under IRC Section 7429 because he Hall v. United States , 2017 WL 2992097, at *3 (E.D.N.Y. July 13, 2017). The District Court also found that Mr. Hall did not have a cause of action under IRC Section 7426, on grounds that relief under that Section "is limited to third parties who claim an interest in the levied property." Hall , 2017 WL 2992097, at *4. In conclusion, the District Court noted that "it is unlikely that [Mr. Hall] exhausted his administrative remedies, since [he] filed this action within days of receiving the Notice of Jeopardy Levy from the IRS," but nevertheless, granted him "leave to amend the Complaint if he filed an administrative appeal of his jeopardy levy under section 7429 and could allege sufficient facts to show that he exhausted his remedies prior to filing suit in federal court." Id .
On August 21, 2017, Mr. Hall filed an amended complaint in the United States District Court for the Eastern District of New York, seeking injunctive and declaratory relief under the Fourteenth Amendment's Due Process Clause, as well as a determination and declaration that the specific portions of Internal Revenue Code Sections 7429(a)(2) and (a)(3) constitute impermissible Article III judicial review. District Court Action, ECF No. 17 ("Dist. Ct. Am. Compl.") ¶ 4. In the District Court Amended Complaint, Mr. Hall also seeks a determination and entry of an order quashing the assertedly unlawful institution of a jeopardy levy and a release of all holds, liens, and restraints currently in place on his bank accounts.
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