Hassen v. Gov't of the Virgin Islands & Virgin Islands Bureau of Internal Revenue

• Decision Date: 30 March 2017
• Docket Number: Civil No. 15-38
• Parties: SAID HASSEN AND KAREN HASSEN, Plaintiffs, v. GOVERNMENT OF THE VIRGIN ISLANDS AND VIRGIN ISLANDS BUREAU OF INTERNAL REVENUE Defendant.
• Court: U.S. District Court — Virgin Islands

SAID HASSEN AND KAREN HASSEN¹, Plaintiffs, v. GOVERNMENT OF THE VIRGIN ISLANDS AND VIRGIN ISLANDS BUREAU OF INTERNAL REVENUE Defendant.

Civil No. 15-38

DISTRICT COURT OF THE VIRGIN ISLANDS DIVISION OF ST. THOMAS AND ST. JOHN

March 30, 2017

APPEARANCES:

Alexander Golubitsky

St. Thomas, VI

For the Said Hassen and Karen Hassen,

Claude Walker, AAG

Hugh A. Greentree, AG

Tamika Archer, AG

Department of Justice

St. Thomas, VI

For the Government of the Virgin Islands and the Virgin Islands Bureau of Internal Revenue.

MEMORANDUM OPINION²

GÓMEZ, J.

Before the Court is the motion of the Government of the Virgin Islands and the Virgin Islands Bureau of Internal Revenue to dismiss the complaint for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted.

I. PROCEDURAL AND FACTUAL HISTORY

Said Hassen and Karen Hassen (the "Hassens") are a married couple who live in the United States Virgin Islands. The Virgin Islands Bureau of Internal Revenue ("VIBIR") is a government agency responsible for the administration and enforcement of the Internal Revenue tax laws of the United States Virgin Islands. The VIBIR determined that the Hassens owed $5,812.76 in income taxes for the 2004 tax year (the "2004 tax debt"). On or about May 31, 2012, the Hassens agreed with the VIBIR to pay $30,000 for tax debts owed to the VIBIR.³

On June 11, 2013, the Hassens asked the VIBIR to permit the Hassens to pay the 2004 tax debt in installments. The VIBIR did not respond to the request. On December 26, 2013, the Hassens renewed their request for an installment payment plan to satisfythe 2004 tax debt. The VIBIR did not respond to the second request.

On December 12, 2014, the VIBIR issued a levy against a Banco Popular bank account held by the Hassens. On March 30, 2015, the VIBIR issued a levy against Bank of New York Mellon bank accounts held by the Hassens. On April 8, 2015, the VIBIR issued a levy against a Bank of Nova Scotia bank account held by the Hassens. On April 27, 2015, the Hassens filed the instant complaint alleging wrongful levy, pursuant to 26 U.S.C. § 7433. The Complaint's prayer for relief further requests "damages from the wrongful levy demonstrated at trial, or damages not exceeding $100,000.00 if the BIR's conduct is determined to be the result of negligence[.]" Compl. at 5; Am. Compl., ECF No. 13 at 6. The VIBIR did not file an Answer to the Complaint.

On June 9, 2015, the VIBIR moved to dismiss the Complaint. The VIBIR argues that this Court lacks subject matter jurisdiction over this matter due to the Hassens' alleged failure to exhaust their administrative remedies. The VIBIR also asserts that the Hassens have failed to state a claim upon which relief can be granted.

On July 20, 2015, the Hassens filed an Amended Complaint. The Amended Complaint consisted of the same single count as the April 27, 2015, Complaint, wrongful levy. On August 12, 2015, the VIBIR renewed its motion to dismiss.

II. DISCUSSION

A. Subject-Matter Jurisdiction

Federal Rule of Civil Procedure 12(b)(1) governs motions to dismiss for lack of subject-matter jurisdiction. A Rule 12(b)(1) motion may be treated either as a facial or a factual challenge to the court's subject-matter jurisdiction. Gould Elecs. v. United States, 220 F.3d 169, 178 (3d Cir. 2000). A factual challenge may occur only after the allegations of the complaint have been controverted. Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 892 n. 17 (3d Cir. 1977). In considering a facial challenge to subject-matter jurisdiction under Rule 12(b)(1), all material allegations in the complaint are taken as true. Id. at 891-92; see also Taliaferro v. Darby Township. Zoning Bd., 458 F.3d 181, 188 (3d Cir. 2006)(summarizing the standard for facial attacks under Rule 12(b)(1) as "whether the allegations on the face of the complaint, taken as true, allege facts sufficient to invoke the jurisdiction of the district court").

B. Failure to State a Claim

When reviewing a motion to dismiss brought pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court construes the complaint "in the light most favorable to the plaintiff." In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 314 (3d Cir. 2010). The Court must accept as true all of the factual allegations contained in the complaint and draw all reasonable inferences in favor of the non-moving party. Alston v. Parker, 363 F.3d 229, 233 (3d Cir. 2004). "In deciding a Rule 12(b)(6) motion, a court must consider only the complaint, exhibits attached to the complaint, matters of public record, as well as undisputedly authentic documents if the complainant's claims are based upon these documents." Mayer v. Belichick, 605 F.3d 223, 230 (3d Cir. 2010) cert. denied, 562 U.S. 1271.

A complaint may be dismissed for "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). "[A] plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007).

The Supreme Court in Bell Atlantic v. Twombly, 550 U.S. 544 (2007), set forth the "plausibility" standard for overcoming a motion to dismiss and refined this approach in Ashcroft v. Iqbal, 556 U.S. 662 (2009). The plausibility standard requires the complaint to allege "enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570. A complaint satisfies the plausibility standard when the factual pleadings "allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). This standard requires showing "more than a sheer possibility that a defendant has acted unlawfully." Id. A complaint which pleads facts "'merely consistent with' a defendant's liability, ... 'stops short of the line between possibility and plausibility of "entitlement of relief."'" Id. (citing Twombly, 550 U.S. at 557).

To determine the sufficiency of a complaint under the plausibility standard, the Court must take the following three steps⁴:

First, the court must "tak[e] note of the elements a plaintiff must plead to state a claim." Second, the court should identify allegations that, "because they are no more than conclusions, are not entitled to the assumption of truth." Finally, "where there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.

Santiago v. Warminster Twp., 629 F.3d 121, 130 (3d Cir. 2010) (quoting Iqbal, 556 U.S. at 674, 679).

III. ANALYSIS

A. Mirror Tax System

Before embarking on a review of the motion to dismiss, it is useful to understand the unique tax system which governs taxpayer obligations in the Virgin Islands. In the Naval Appropriations Act of July 12, 1921⁵, Congress set up a "separate taxing structure for the Virgin Islands 'mirroring' the provisions of the federal tax code[,]" HMW Indus., Inc. v. Wheatley, 504 F.2d 146, 160 (3d Cir. 1974), save those provisions of the Internal Revenue Code which conflict with the Virgin Islands distinct Tax structure. In some instances, certain provisions of the Internal Revenue Code have been incorporated into Title 33 of the Virgin Islands Code. WIT Equip. Co., Inc. v. Dir. V.I. Bureau of Internal Revenue, 185 F. Supp. 2d 500, 503 (D.V.I. 2001). Even where there has been no "codif[ication] locally . . . all provisions of the I.R.C. haveforce in the Virgin Islands unless they are 'manifestly inapplicable or incompatible with a separate territorial income tax.'" Id. (quoting Chicago Bridge & Iron Co. v. Wheatley, 430 F.2d 973, 976 (3d Cir. 1970)(citations omitted) cert. denied, 401 U.S. 910). "The result of [the Naval Appropriations Act] has been. . . a 'mirror system' of taxation under which Virgin Islands residents discharge their United States tax liability by paying all income taxes directly to the Treasury of the Virgin Islands." Abramson Enters., Inc. v. Gov't of the V.I., 994 F.2d 140, 142 (3d Cir. 1993) cert. denied, 510 U.S. 965.

B. The Effect of Non-Compliance with the Exhaustion Requirement of 26 U.S.C. § 7433 on Subject Matter Jurisdiction

The VIBIR argues that the Court is without jurisdiction to hear this matter because the Hassens failed to comply with the exhaustion requirement outlined in 26 U.S.C. § 7433 ("Section 7433"). As such, the government asserts that dismissal is required.

To assess the government's argument, it is useful to appreciate the statutory, regulatory, and jurisprudential landscape in which this case presents itself. In pertinent part, Section 7433 provides:

(a) In general.--If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of negligence, disregards any provision of this title, or any regulation promulgated under this title, such taxpayer may bring a civil action for damages against the United States in a district court of the United States. Except as provided in section 7432, such civil action shall be the exclusive remedy for recovering damages resulting from such actions.

(d) Limitations.—

(1) Requirement that administrative remedies be exhausted.-- A judgment for damages shall not be awarded under subsection (b) unless the court determines that the plaintiff has exhausted the administrative remedies available to such plaintiff within the Internal Revenue Service.

26 U.S.C. § 7433.

The procedure for filing an administrative claim is outlined at 26 C.F.R. § 301.7433-1(e). That section, in pertinent part, provides:

(e)Procedures for an administrative claim-(1) Manner. An administrative claim for the lesser of $1,000,000 ($100,000 in the case of negligence) or actual, direct economic damages as defined in paragraph (b) of this section shall be sent in

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