Peretz v. United States

• Decision Date: 31 May 2020
• Docket Number: No. 18-1699T,18-1699T
• Parties: MEIR PERETZ, Plaintiff, v. UNITED STATES, Defendant.
• Court: U.S. Claims Court

MEIR PERETZ, Plaintiff, v. UNITED STATES, Defendant.

No. 18-1699T

United States Court of Federal Claims

May 31, 2020

Tax Refund; 26 U.S.C. § 6532 Statute of Limitations; 26 U.S.C. § 7433; Motion to Dismiss; Subject-Matter Jurisdiction; Failure to State a Claim.

Lawrence R. Kulak, Law Office of Lawrence R. Kulak, New York, NY, for plaintiff.

Karen E. Servidea, Trial Attorney, Court of Federal Claims Section, Tax Division, United States Department of Justice, Washington, D.C., for defendant. With her was Mary M. Abate, Assistant Chief, Court of Federal Claims Section, David I. Pincus, Chief, Court of Federal Claims Section, and Richard E. Zuckerman, Principal Deputy Assistant Attorney General, Tax Division, Department of Justice.

OPINION

HORN, J.

On October 26, 2018, plaintiff, Meir Peretz, filed a complaint in the United States Court of Federal Claims against the United States.¹ Plaintiff's complaint alleged entitlement to a tax refund of $121,288.00 from the Internal Revenue Service (IRS), the majority of which was withheld from the proceeds of two stock sales in 2005 as backup withholding tax, due to the fact that plaintiff is a nonresident alien. The balance of the monies were withheld due to stock dividends paid on plaintiff's stocks. Plaintiff alleges that such funds were wrongfully withheld because the stock transactions resulted in a net loss, and that, in any event, he is not subject to backup withholding, because he is a nonresident alien, who is "not required to file any income tax return." According to plaintiff, in order to recover the amount withheld, the IRS "demanded" that plaintiff file a tax return and Form W-7, titled: "Application for IRS Individual Taxpayer Identification Number."Plaintiff ultimately submitted multiple versions of his 2005 Form 1040 tax return on separate dates, all of which stated that the withholdings resulted in an alleged $121,288.00 overpayment of his tax liability, which liability plaintiff stated was zero. Plaintiff states that he first submitted a 2005 Form 1040 in 2009 and that it was "timely filed on April 14, 2009." Plaintiff also refers to his tax return as a claim for refund. Plaintiff further argues that the IRS wrongfully remains in possession of the funds because the "IRS did not process the 2005 1040 return timely filed on April 14, 2009," and that, instead, the IRS considered "only the untimely" returns that plaintiff had sent to the IRS in later correspondences with the IRS. Plaintiff requests that the court "should direct Defendant to return the $121,288 deposited with the IRS and misappropriated by the Defendant as of December 27, 2005, plus 9% pre and post judgment interest compounded annually as is applicable in New York State on a judgment for conversion, plus costs and attorney fees." Finally, plaintiff asserts in his complaint in this court that he "should also be awarded damages pursuant to IRC 7433 [26 U.S.C. § 7433 (2018)] for the reckless and intentional misconduct of the IRS in confiscating and retaining monies it illegally converted."

In response to the complaint, defendant filed a motion to dismiss plaintiff's complaint in its entirety for lack of subject-matter jurisdiction pursuant to Rule 12(b)(1) (2018) of the Rules of the United States Court of Federal Claims (RCFC). Defendant asserts (1) that plaintiff did not file this suit for refund within the time allowed in 26 U.S.C. § 6532(a) (2018); and (2) this court is barred from hearing plaintiff's damages claim under 26 U.S.C. § 7433 for "reckless and intentional misconduct" by the IRS.

FINDINGS OF FACT

Plaintiff is a nonresident alien without a valid United States social security number. Defendant's motion to dismiss indicates, and the parties do not dispute, that "during the time relevant to this suit, plaintiff Meir Peretz was a citizen of Israel and was not a United States resident." Along with his complaint, plaintiff included some documents related to plaintiff's Citicorp, Inc. (Citicorp) brokerage account. The Citicorp documents indicate that on April 27, 2000, plaintiff purchased, using his Citicorp account, 10,000 shares of Intel Corporation (Intel) at $115.50 per share and 10,000 shares of Microsoft Corporation (Microsoft) at $66.125 per share for a total of $1,816,314.00.²

Based on the record before the court, it appears that on December 21, 2005, plaintiff sold 12,735 shares of Intel at a price of $25.92 per share, and 3,658 shares of Microsoft at a price of $26.76 per share, for a total credit to plaintiff's account of $427,912.18. On December 27, 2005, Citicorp withheld, as backup withholding tax, a total of $119,815.40 from the proceeds of the sales. Plaintiff's 2005 Year End Summary from Citicorp indicates that a total of $121,287.57 was withheld as backup withholding tax for the year of 2005. As noted above, the additional withholding of $1,472.17 occurred as a result of plaintiff's receipt of dividends.

Plaintiff seeks to receive a refund of $121,288.00 with the IRS for the 2005 tax year. Attached to plaintiff's complaint in this court is a 2005 Form 1040 tax return, signed by plaintiff, and which, in Line 73a, requests a refund of $121,288.00. Plaintiff does not state a date on which he first sent a 2005 Form 1040 to the IRS, but alleges that it was sent along with his Form W-7, "Application for Individual Taxpayer Identification Number." Plaintiff's Form W-7, also attached to plaintiff's complaint, is date-stamped received by the IRS on April 14, 2009, but the 2005 Form 1040 attached to plaintiff's complaint in this court does not contain an IRS date-stamp. As will be discussed below, when plaintiff appealed the July 29, 2015 Notice of Disallowance for plaintiff's 2005 refund, the IRS Appeals Office took the position in a July 13, 2016 correspondence with plaintiff leading up to the denial of plaintiff's appeal on October 27, 2016, that the IRS did not first receive plaintiff's 2005 Form 1040 until August 30, 2010. Furthermore, although it appears that a number of versions of plaintiff's 2005 Form 1040 were submitted to the IRS by plaintiff on separate occasions,³ none of the 2005 Form 1040s which have been produced by thedefendant in connection with the above-captioned case are date-stamped as received by the IRS on April 14, 2009. The 2005 Form 1040 with the earliest date-stamp in the record before the court indicates receipt by the IRS on August 30, 2010. There is, however, one version of plaintiff's 2005 Form 1040, produced by the defendant, that contains no date-stamp, and is identical to the 2005 Form 1040 attached to plaintiff's complaint, except that it is unsigned by the plaintiff. Nevertheless, all versions of plaintiff's 2005 Form 1040 in the record before the court, as well as the one attached to plaintiff's complaint, show the input of "[$]0" for taxable income (Line 43) and for total tax liability (Line 63) as well as show "[$]121,288" for "Federal Income tax withheld from Forms W-2 and 1099" (Line 64), for total payments (Line 71), for the amount of overpayment (Line 72), and for the refund requested (Line 73a).

On October 1, 2009, the IRS sent plaintiff Letter 685C, rejecting his Form W-7. The October 1, 2009 Letter 685C states:

Because your Form W-7/W-7SP, Application for IRS Individual Taxpayer Identification Number [ITIN], was rejected, we have assigned you [Redacted]6665* as your Internal Revenue Service Number (IRSN) to expedite the processing of the 1040 tax return you submitted with your ITIN application.

- The IRSN we assigned is neither a social security number nor an IRS Individual Taxpayer Number (ITIN).

- Therefore, no refund will be issued until you are assigned a valid ITIN or a social security number.

(capitalization and redaction in original). The October 1, 2009 Letter 685C does not specifically indicate why plaintiff's Form W-7 was rejected. Additionally, plaintiff uses this October 1, 2009 Letter 685C to support that a 2005 Form 1040 was submitted to the IRS on April 14, 2009, because the October 1, 2009 Letter 685C references "the 1040 tax return you submitted with your ITIN application." As discussed above, plaintiff alleges that he submitted his 2005 Form 1040 with his Form W-7 to the IRS, and the Form W-7 in the record before the court is date-stamped received by the IRS on April 14, 2009.⁴ Defendant has agreed that, "for purposes of defendant's motion to dismiss, defendant has assumedto be true that, on April 14, 2009, plaintiff filed with the IRS a Form 1040 for 2005, requesting a refund of $121,288."

The record before the court also contains a letter dated August 25, 2010, from plaintiff's now-deceased accountant, Menachem David, to the IRS. Mr. David's August 25, 2010 letter states:

Your enclosed letter indicates that Mr. Peretz's W7 was rejected because it was incomplete. I contacted the IRS, which indicated that the item missing was 6d.

We are now enclosing a corrected Form W7, with Item 6d completed.

Form W7 accompanied a timely filed tax return, requesting a tax refund. Please process Form W7, issue an ITIN, and expedite the refund.

Along with Mr. David's August 25, 2010 letter and the resubmitted Form W-7 with Item 6d completed, Mr. David also submitted a version of plaintiff's 2005 Form 1040, also requesting a refund of $121,288.00, and which is date-stamped received by the IRS on August 30, 2010. As noted above, it is this 2005 Form 1040, date-stamped on August 30, 2010 by the IRS, that, on July 13, 2016, the IRS Appeals Office assumed was plaintiff's first filing of his 2005 Form 1040.

On November 22, 2010, the IRS sent plaintiff Notice No. CP567, informing him that the IRS was again rejecting his Form W-7 because he "did not respond within 45 days to Notice CP-566, We Received Your Application for an IRS Individual Taxpayer Identification Number (ITIN), requesting additional information or supporting identification or exception documentation, to process your Form W-7." (emphasis in original). Although the record before the court...