Nordbrock v. U.S.

• Decision Date: 28 September 2000
• Docket Number: No. CV-99-444-TUC-JMR.,CV-99-444-TUC-JMR.
• Parties: Neil T. NORDBROCK, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — District of Arizona

173 F.Supp.2d 959

Neil T. NORDBROCK, Plaintiff, v. UNITED STATES of America, Defendant.

No. CV-99-444-TUC-JMR.

United States District Court, D. Arizona.

September 28, 2000.

Order on Reconsideration July 30, 2001.

Neil T. Nordbrock, pro se.

Robert P. McIntosh, U.S. Dept. Justice, Tax Div., Washinton, DC, for U.S.

ORDER

ROLL, District Judge.

Pending before the Court are Defendant's Motion to Dismiss for Lack of Subject Matter Jurisdiction and for Failure to State a Claim Upon Which Relief Can Be Granted, Plaintiff's Motion for Summary Judgment and Plaintiff's Writ of Mandamus in the Form of a Complaint. Although titled as a motion, Plaintiff states in his "Response to the March 6, 2000 Order of the Honorable James C. Carruth" that his motion for summary judgment is his response to Defendant's motion to dismiss.¹ Accordingly, the Court construes Plaintiff's Motion for Summary Judgment as his response to Defendant's Motion to Dismiss. Therefore, only three motions remain for the Court's consideration, Defendant's Motion to Dismiss for Lack of Subject Matter Jurisdiction, Defendant's Motion to Dismiss for Failure to State a Claim and Plaintiff's Writ of Mandamus in the Form of a Complaint. For the reasons stated below, Defendant's Motion to Dismiss for Lack of Subject Matter Jurisdiction is denied, Defendant's Motion to Dismiss for Failure to State a Claim is denied in part and granted in part and Plaintiff's Writ of Mandamus in the Form of a Complaint is denied.

BACKGROUND

In 1982, the IRS asked Plaintiff to turn over copies of tax returns he prepared from 1978-1981. Plaintiff refused. As a result, the IRS, pursuant to 26 U.S.C. § 6695(d), assessed penalties against Plaintiff in the sum of $75,000.² The IRS filed notices of federal tax liens with the Pima County Recorder against Plaintiff³ and Swan Business Organization⁴ as nominee of Plaintiff.

In August, 1983, the government filed an action in federal court seeking an injunction against Plaintiff to compel him to turn over the requested tax return information. (83-CV-553 TUC WDB). In December of 1983, after paying $250.00 towards the penalties, Plaintiff filed a separate suit in federal court seeking a refund of the $250.00 and an abatement of the remainder of the penalties. (83-CV-2398 PHX RCB). In the lawsuit initiated by Plaintiff, the government filed a counterclaim for $74,750, the balance of the assessment still owed by Plaintiff.

In the government's action for injunctive relief, the district court issued summary judgment in favor of the government. Summary judgment was also issued in favor of the government in Plaintiff's action for refund and abatement. Plaintiff appealed both decisions.

The cases were consolidated on appeal. The Ninth Circuit reversed and remanded both cases, finding that a material issue of fact existed with respect to whether Plaintiff acted wilfully in refusing to turn over the requested tax return information to the IRS. See United States v. Nordbrock, 828 F.2d 1401 (9th Cir.1987).

On remand, the cases were consolidated. (83-CV-553 TUC WDB). A bench trial was held. The district court concluded that Plaintiff had acted wilfully in refusing to turn over the requested information to the IRS. The court enjoined Plaintiff from preparing tax returns for other taxpayers and sustained the $75,000 in penalties assessed against Plaintiff. Plaintiff appealed.

On appeal, the Ninth Circuit again reversed and remanded. The Court found that Plaintiff was entitled to a trial by jury. See United States v. Nordbrock, 941 F.2d 947 (9th Cir.1991).

On remand, a jury trial was conducted. The jury found that Plaintiff had not acted in good faith and wilfully had failed to comply with the law. Pursuant to 26 U.S.C. § 7407(b), the court issued a life-time injunction against Plaintiff prohibiting him from preparing tax returns for other taxpayers. In addition, the court found that Plaintiff was not entitled to a refund or an abatement. At that time, however, the court did not enter judgment on the government's counterclaim for the unpaid balance of the penalties.⁵ Plaintiff appealed.

On October 11, 1994, the Ninth Circuit affirmed the jury's verdict, the district court's issuance of the lifetime injunction, and the penalties assessed against Plaintiff. See United States v. Nordbrock, 38 F.3d 440 (9th Cir.1994).

During the pendency of these lawsuits, in October 1992, the IRS seized the Swan Road Property. A notice of seizure was sent to Swan Business Organization as nominee of Plaintiff on October 9, 1992. The IRS also began proceedings to sell the Swan Road Property, preparing a minimum bid worksheet on October 16, 1992. However, these proceedings were stayed due to Swan Business Organization and Plaintiff filing for bankruptcy on October 13, 1992 and July 27, 1994, respectively. Swan Business Organization's bankruptcy petition was dismissed on August 2, 1994 and Plaintiff's personal bankruptcy was dismissed on December 4, 1995.

Once the bankruptcy actions were dismissed, the IRS proceeded to sell the Swan Road Property pursuant to a sealed bid sale on April 12, 1996. The property was sold on April 25, 1996 for $62,501.10.

On September 7, 1999, Plaintiff filed the instant case. Plaintiff seeks a refund of $62,501.10, the amount realized from the sale of the Swan Road Property, reasonable attorneys' fees and costs and whatever further relief the Court deems justified.

On December 15, 1999, Defendant filed a motion to dismiss for lack of subject matter jurisdiction and for failure to state a claim upon which relief can be granted. On December 20, 1999, Plaintiff filed a Writ of Mandamus in the Form of a Complaint. Because a lack of subject matter jurisdiction would preclude the Court from deciding this case, the Court will address Defendant's motion to dismiss based on lack of subject matter jurisdiction first.

A. Defendant's Motion to Dismiss for Lack of Subject Matter Jurisdiction

Defendant argues that this Court lacks subject matter jurisdiction for two reasons. First, Defendant contends that because this lawsuit is a claim for a refund of taxes, jurisdiction of the court is governed by 28 U.S.C. § 1346. Although the government has waived its sovereign immunity for such suits, 26 U.S.C. § 7422, Defendant argues that in order for jurisdiction to exist under these sections, there must have been an overpayment of the tax. Defendant contends that there has been no overpayment in this case. Although the Ninth Circuit has recognized a limited exception to the overpayment jurisdictional requirement where a taxpayer never receives notice of assessment and demand for payment prior to having his property levied, Martinez v. United States, 669 F.2d 568, 569 (9th Cir. 1982), Defendant argues that Plaintiff does not fall within this exception because he received notice and demand for payment of the assessed penalties prior to the seizure and sale of the Swan Road Property.

Second, Defendant argues that the Court lacks jurisdiction due to Plaintiff's failure to timely file an administrative claim for refund within two years from the time the tax was paid, a jurisdictional prerequisite.⁶

Plaintiff alleges in his complaint that this Court has jurisdiction of this case pursuant to 28 U.S.C. § 1346(a)(1). In response to Defendant's motion to dismiss for lack of subject matter jurisdiction, Plaintiff argues that there was an overpayment of tax because Defendant did not levy on the Swan Lake Property within the six year statute of limitations. In addition, Plaintiff claims that he submitted a timely administrative claim for refund because he filed a Form 6118 with the IRS within three years from the date of the sale of the property.

1. 28 U.S.C. § 1346(a)(1)

Plaintiff alleges that the Court has jurisdiction pursuant to 28 U.S.C. 1346(a)(1). This section provides:

(a) The district courts shall have jurisdiction ...of:

(1) Any civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any matter wrongfully collected under the internal-revenue laws.

The Supreme Court has interpreted § 1346(a)(1) as requiring full payment of the assessed tax or penalty before an income tax refund suit can be maintained. Flora v. United States, 362 U.S. 145, 177, 80 S.Ct. 630, 4 L.Ed.2d 623 (1960). See also Boynton v. United States, 566 F.2d 50, 52 (9th Cir.1977) ("It has long been established that partial payment of assessed taxes or a proposed deficiency is insufficient to support jurisdiction in the [d]istrict [c]ourt of a refund suit under 28 U.S.C. § 1346."). Here, Plaintiff has paid only $250.00 of the penalties assessed against him. However, as Plaintiff correctly points out, there is an exception to the full payment requirement with respect to divisible tax assessments.⁷

Under the divisible tax exception, a taxpayer need only pay the divisible amount of the penalty assessment before instituting a refund action. Boynton, 566 F.2d at 52. According to the Federal Tax Coordinator ¶ T-9007, divisible taxes include manufacturer's excise tax; highway use tax; wagering tax; FICA and FUTA taxes; income withholding tax on wages; the 100% penalty under 26 U.S.C. § 6672 for failure to collect and pay over various taxes; the excise tax on transfers to foreign trusts; and excise taxes imposed on prohibited acts of private foundations, black lung benefit trusts, charitable organizations, 26 U.S.C. § 501(c)(4) social welfare organizations, and qualified pension plans.

The penalties assessed against Plaintiff were assessed pursuant to 26 U.S.C. § 6695(d). This section allows the IRS to assess a penalty of $50.00 for each violation, the total penalty not to exceed $25,000. Because the penalties assessed against Plaintiff are divisible by $50.00, Plaintiff did pay a...