Rahal v. United States

Decision Date30 April 2012
Docket NumberCASE NO. CV F 11-2083 LJO BAM
CourtU.S. District Court — Eastern District of California
PartiesSHANGARA RAHAL, et al., Plaintiff, v. UNITED STATES OF AMERICA, Defendant.

Defendant United States of America ("Government") seeks to dismiss plaintiffs Shangara Rahal and Joginder Rahal's (collectively the "Rahals'") tax refund action in that the Rahals' untimely attempt to seek a refund fails to invoke waiver of sovereign immunity and in turn this Court's subject matter jurisdiction. The Government further contends that the Rahals fail to satisfy requirements for a refund. The Rahals contend that they timely filed this tax refund action. This Court considered the Government's F.R.Civ.P. 12(b)(1) and (6) motion to dismiss on the record and VACATES the May 4, 2012 hearing, pursuant to Local Rule 230(g). For the reasons discussed below, this Court DISMISSES this action.

Audit Of Delta Medical Systems, Inc.

The Internal Revenue Service ("IRS") audited Delta Medical Systems, Inc. ("Delta") for the 2005 tax year. Delta, an S corporation, was created by the Rahals' son Paramvir. The Rahals were not Deltashareholders but claim that Delta employed them a consultants in 2005.

For 2005, Delta reported gross receipts of $1,162,002 and claimed deductions of $1,492,536 for a $330,534 net loss. The IRS determined that the gross receipts reported by Delta were payments to Delta from Paramvir S. Rahal, M.D., Inc. ("operating company"), Paramvir's operating company. Delta had claimed deductions for payments to employees or "consultants," including the Rahals. The IRS determined that the operating company improperly had attempted to assign income to Delta given Delta's claim of receipt of income for services rendered. All deductions claimed by Delta were disallowed as Delta was not engaged in business activity. The Rahals note that the IRS concluded that the Rahals "were not actually paid consulting fees." The IRS determined that the disallowance of deductions did not increase Delta's gross income but rather increased its taxable or adjusted gross income.

The Rahals' 2005 Tax Return

IRS records show that on October 12, 2006, the Rahals electronically filed their 2005 individual tax return which indicated Schedule C (sole proprietorship) income of $420,000 and reported tax due of $144,556.1 The IRS received the Rahals' $144,556 payment on October 16, 2006. The Internal Revenue Service ("IRS") assessed $44,669.64 penalties and interest for the Rahals' untimely tax return filing and payment.

On October 15, 2009, the Rahals mailed an amended 2005 return to claim a $189,225.64 refund, which equals the $144,446 tax paid plus $44,669.64 penalties and interest. The IRS received the amended return on October 21, 2009.

On December 18, 2009, the IRS disallowed the Rahals' refund claim as untimely in that it was not within three years of the original return or two years of the date of payment to satisfy 26 U.S.C. § 6511 ("section 6511").

The Rahals' Claims

On December 15, 2011, the Rahals filed this action and proceed on their (first) Amended Complaint for Tax Refund ("FAC") to claim that they are entitled to a $189,225.64 refund since theamounts they received from Delta and initially reported as income on their original 2005 return were ultimately disallowed by the IRS as not deductible by Delta.

F.R.Civ.P. 12(b)(1) Motion To Dismiss Standards

The Government contends that the Rahals' untimely filing of this action fails to invoke waiver of the Government's sovereign immunity and in turn this Court's subject matter jurisdiction.

F.R.Civ.P. 12(b)(1) authorizes a motion to dismiss for lack of subject matter jurisdiction. Fundamentally, federal courts are of limited jurisdiction. Kokkonen v. Guardian Life Ins. Co., 511 U.S. 375, 377, 114 S.Ct. 341 (1994). A "court of the United States may not grant relief absent a constitutional or valid statutory grant of jurisdiction." U.S. v. Bravo-Diaz, 312 F.3d 995, 997 (9th Cir. 2002). "A federal court is presumed to lack jurisdiction in a particular case unless the contrary affirmatively appears." Stock West, Inc. v. Confederated Tribes, 873 F. 2d 1221, 1225 (9th Cir. 1989). Limits on federal jurisdiction must neither be disregarded nor evaded. Owen Equipment & Erection Co. v. Kroger, 437 U.S. 365, 374, 98 S.Ct. 2396 (1978). "When subject matter jurisdiction is challenged under Federal Rule of Procedure 12(b)(1), the plaintiff has the burden of proving jurisdiction in order to survive the motion." Tosco Corp. v. Communities for Better Environment, 236 F.3d 495, 499 (9th Cir. 2001).

When addressing an attack on the existence of subject matter jurisdiction, a court "is not restricted to the face of the pleadings." McCarthy v. U.S., 850 F.2d 558, 560 (9th Cir. 1988). In such a case, a court may rely on evidence extrinsic to the pleadings and resolve factual disputes relating to jurisdiction. St. Clair v. City of Chico, 880 F.2d 199, 201 (9th Cir.), cert. denied, 493 U.S. 993, 110 S.Ct. 541 (1989); Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987); Augustine v. United States, 704 F.2d 1074, 1077 (9th Cir. 1983); Smith v. Rossotte, 250 F.Supp.2d 1266, 1268 (D. Or. 2003) (a court "may consider evidence outside the pleadings to resolve factual disputes apart from the pleadings").

No presumptive truthfulness attaches to a plaintiff's allegations, and the existence of disputed material facts does not preclude evaluation of the merits of jurisdictional claims. Thornhill Pub. Co., Inc. v. General Tel. & Electronics Corp., 594 F.2d 730, 733 (9th Cir. 1979). On a factual attack of a complaint with affidavits or other evidence, "the party opposing the motion must furnish affidavits orother evidence necessary to satisfy its burden of establishing subject matter jurisdiction." Savage v. Glendale Union High School, 343 F.3d 1036, 1040, n. 2 (9th Cir. 2003).

When a court considers "items outside the pleading" on a F.R.Civ.P. 12(b)(1) motion, the court resolves "all disputes of fact in favor of the non-movant." Dreier v. United States, 106 F.3d 844, 847 (9th Cir. 1996). The Ninth Circuit Court of Appeals explains that "where the district court has properly considered items outside the complaint in considering a motion to dismiss, the standard we apply upon de novo review of the record is similar to the summary judgment standard that the district court purported to apply." Drier, 106 F.3d at 847.

With these standards in mind, this Court turns to the Government's challenges to this Court's subject matter jurisdiction.

Absence Of Immunity Waiver

"The United States can be sued only to the extent that it has waived its sovereign immunity." Baker v. U.S., 817 F.2d 560, 562 (9th Cir. 1987), cert. denied, 487 U.S. 1204, 108 S.Ct. 2845 (1988). "Absent a waiver, sovereign immunity shields the Federal Government and its agencies from suit." F.D.I.C. v. Meyer, 510 U.S. 471, 475, 114 S.Ct. 996 (1994). "A party bringing a cause of action against the federal government bears the burden of showing an unequivocal waiver of immunity. Baker, 817 F.2d at 562. "Thus, the United States may not be sued without its consent and the terms of such consent define the court's jurisdiction." Baker, 817 F.2d at 562. A waiver of traditional sovereign immunity is not implied but must be unequivocally expressed. See U.S. v. Testan, 424 U.S. 392, 399, 96 S.Ct. 948, 953-954 (1976).

"The question whether the United States has waived its sovereign immunity against suits for damages is, in the first instance, a question of subject matter jurisdiction." McCarthy, 850 F.2d 558, 560 (1988). "It is incumbent upon the plaintiff properly to allege the jurisdictional facts . . ." McNutt v. General Motors Acceptance Corp. of Indiana, 298 U.S. 178, 182, 56 S.Ct. 780 (1936). "Where a suit has not been consented to by the United States, dismissal of the action is required." Gilbert v. DaGrossa, 756 F.2d 1455, 1458 (9th Cir. 1985).

The terms of the United States' "consent to be sued in any court define that court's jurisdiction to entertain the suit." U.S. v. Sherwood, 312 U.S. 584, 586, 61 S.Ct. 767 (1941). Waivers of immunitymust be "construed strictly in favor of the sovereign," McMahon v. United States, 342 U.S. 25, 27, 72 S.Ct. 17, 19, 96 L.Ed. 268 (1951), and not "enlarge[d] . . . beyond what the language requires," Eastern Transp. Co. v. United States, 272 U.S. 675, 686, 47 S.Ct. 289, 291, 71 L.Ed. 472 (1927); see Hodge v. Dalton, 107 F.3d 705, 707 (9th Cir. 1997) ("Any waiver of immunity must be 'unequivocally expressed,' and any limitations and conditions upon the waiver 'must be strictly observed and exceptions thereto are not to be implied.")

The Government contends that the FAC lacks a valid waiver of sovereign immunity given the Rahals' failure to comply with the applicable limitations period.

Section 6511's Limitations Period

Section 6511(a) provides either a two- or three-year limitations period to file a refund action: "Claim for credit or refund of an overpayment of any tax imposed by this title in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later . . ." Section 6511(b)(1) further provides: "No credit or refund shall be allowed or made after the expiration of the period of limitation prescribed in subsection (a) for the filing of a claim for credit or refund, unless a claim for credit or refund is filed by the taxpayer within such period."

"A timely claim is a jurisdictional prerequisite to an action for recovery of taxes paid." Miller v. U.S., 38 F.3d 473, 474 (9th Cir. 1994). "Section 6511 has as its purpose foreclosing untimely claims." Miller, 38 F.3d at 475.

The record reveals that the Rahals filed their original 2005 tax return on October 12, 2006 and...

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