Rische v. United States

• Decision Date: 05 October 2020
• Docket Number: CASE NO. 2:20-cv-00033-BAT
• Citation: Rische v. United States, CASE NO. 2:20-cv-00033-BAT (W.D. Wash. Oct 05, 2020)
• Court: U.S. District Court — Western District of Washington
• Parties: JEFFREY ALAN RISCHE, Plaintiff, v. UNITED STATES OF AMERICA, Defendant.

JEFFREY ALAN RISCHE, Plaintiff, v. UNITED STATES OF AMERICA, Defendant.

CASE NO. 2:20-cv-00033-BAT

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE

October 5, 2020

ORDER GRANTING DEFENDANT'S PARTIAL MOTION TO DISMISS

In its Rule 12(b)(1) partial motion to dismiss based on lack of jurisdiction, Defendant United States of America ("United States") seeks dismissal of several claims brought by Plaintiff Jeffrey Alan Rische. Dkt. 14. Plaintiff opposes the motion. Dkt. 15.

Plaintiff's claims are based on IRS § 6702 penalty assessments for Plaintiff's tax submissions from 2009-2012 and claimed refunds for the 2015 and 2017 tax years. Plaintiff requests: 1) a refund of 2015 income tax, 2) a refund of $26,080.74 in IRS garnishments from January to June 2018; 3) a refund of 2017 income tax, 4) a refund of $7,779.28 in IRS garnishments from January and February of 2019, and 5) declaratory judgment that the United States violated his First and Eighth Amendment rights by denying him due process in collection procedures and in assessing excessive penalties. Dkt. 1. Based on Plaintiff's response (Dkt. 15), the United States concedes that the Court has jurisdiction over the 2009-2011 civil penalty refund claims and the 2017 income tax refund claim. Dkt. 17, p. 12.

The Court reviews whether the following claims should be dismissed for lack of jurisdiction: (1) 2015 income tax refund claim; (2) refund claim for § 6702 penalties for 2012, 2013, 2015, and 2016; and (3) declaratory relief claim.

For the reasons set forth herein, the motion to dismiss is granted as the Court lacks jurisdiction over these claims.

STANDARDS OF REVIEW

A. Rule 12(b)(1) Motion

Under Rule 12(b)(1), the Court must dismiss a claim over which it lacks subject matter jurisdiction. Federal courts have limited subject matter jurisdiction. Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). A federal court presumes a civil action lies outside its limited jurisdiction and the burden to prove otherwise rests on the party asserting jurisdiction exists. Id. An attack on subject matter jurisdiction may be either facial or factual. Edison v. United States, 822 F.3d 510, 517 (9th Cir. 2016). "In a facial attack, the challenger asserts that the allegations contained in a complaint are insufficient on their face to invoke federal jurisdiction. By contrast, in a factual attack, the challenger disputes the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction." Id. (quoting Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004)).

The United States mounts a factual attack by filing declarations and exhibits challenging Plaintiff's allegations. A moving party converts a Rule 12(b)(1) motion into a factual motion "by presenting affidavits or other evidence properly brought before the court." Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004) (quoting Safe Air, 373 F.3d at 1039)).

In response to a factual attack, the plaintiff "must present 'affidavits or any other evidence necessary to satisfy [his or her] burden of establishing that the court, in fact, possesses subject matter jurisdiction.'" Edison, 822 F.3d at 517 (quoting Colwell v. Dep't of Health & Human Servs., 558 F.3d 1112, 1121 (9th Cir. 2009)). Plaintiff has filed a response, declaration, and attached exhibits in opposing the motion to dismiss. Dkt. 15; 15-1 Declaration of Jeffrey Alan Rische, Exhibits 1-14.

In resolving a factual attack, the Court may look beyond the complaint to the parties' evidence without converting a Rule 12(b)(1) motion into a summary judgment motion. Id. And in evaluating the evidence, the Court need not presume the truthfulness of the plaintiff's allegations but must resolve any factual disputes in his or her favor. Id. However, the Court must treat a Rule 12(b)(1) motion as a summary judgment motion if "the jurisdictional issue and substantive issues are so intertwined that the question of jurisdiction is dependent on the resolution of factual issues going to the merits of an action." Safe Air, 373 F.3d at 1039 (quoting Sun Valley Gas., Inc. v. Ernst Enters, 711 F.2d 138, 139 (9th Cir. 1983)); see also id. at 1040; Bolton v. Lynch, 200 F. Supp. 3d 1179, 1183 n.1 (E.D. Wash. 2016).

B. Tax Refund Jurisdiction

The United States has waived its sovereign immunity for suits brought for the recovery of taxes that have been erroneously collected. 28 U.S.C. § 1346(a)(1); 26 U.S.C. § 7422. Section 7422 requires a party to have first brought an administrative claim for a refund with the IRS before initiating a suit in district court for a refund of any amount erroneously or wrongfully assessed or collected. 26 U.S.C. § 7422(a).

In addition to having first brought an administrative claim for a refund, a taxpayer must fully pay the assessed tax before a court has jurisdiction over a refund claim. See Flora v. UnitedStates, 362 U.S. 145 (1960). This includes interest on the tax when a taxpayer is disputing the interest. Horkey v. United States, 715 F.Supp. 259, 261 (D. Minn. 1989). A party who has not fully paid the assessed tax or first brought an IRS administrative claim has not complied with the explicit waiver of sovereign immunity, and a district court would lack jurisdiction over his tax refund suit. Flora, 362 U.S. 145; Dunn & Black, P.S. v. United States, 492 F.3d 1084, 1089 (9th Cir. 2007).

DISCUSSION

Facts specific to each of Plaintiff's claims are included in the Court's jurisdictional analysis of each claim. The overarching theme of Plaintiff's claims for refunds is his belief that the IRS mishandled his returns and refund requests by improperly applying an overpayment of taxes in 2015 to penalties assessed against the 2009-2012 tax years, when the IRS had already garnished his earnings three times (between February and March of 2018) to apply to those penalties. The IRS Tax Account Transcript attached to Plaintiff's declaration clarifies that the $23,596 reported for 2015 was initially credited to civil penalties assessed in 2009-2012 ($10,849.65 for 2011, $5,420.14 for 2009, $5,420.14 for 2010, and $1,906.07 for 2012). However, this same exhibit shows that these credits were later reversed (-$10,849.65 for 2011, $-5,420.14 for 2010, -$5,420.14 for 2009, and -$1,906.07 for 2011). Dkt. 15-1, Exhibit 13, p. 10. According to the United States, this likely occurred because Plaintiff's 2015 "zero return" showed no tax liability with a large refund owing, which prompted the credits, which were reversed after the return was investigated. Dkt. 17, pp. 4-5. Thereafter, the IRS sent Plaintiff a notice of deficiency for the 2015 tax return and he filed a petition with the U.S. Tax court on January 28, 2019. See Rische v. Commissioner, Docket No. 1617-19 (U.S. Tax Court) ("the Tax Court Case").

As to Plaintiff's garnishment refund claims, IRS records show that it applied the $26,080.74 garnishments to Plaintiff's 2010-2012 tax period (which included multiple § 6702 frivolous submission penalties). The IRS applied the $7,779.28 garnishment to Plaintiff's 2009 and 2012 tax year (which also included § 6702 frivolous submission penalties). Although mentioned in the facts portion of Plaintiff's complaint, there is no specific count or relief requested as to civil penalties for 2013, 2015, and 2016. In his response, Plaintiff clarifies that he is also seeking a refund of § 6702 penalties for these years.

A. 2015 Income Tax Refund Claim

In Count I, Plaintiffs seeks a refund of $23,596.00 for the 2015 tax year. Dkt. 15-1, p. 11, Declaration of Jeffrey Alan Rische ("Rische Decl."), Exhibit 1. As previously noted, Plaintiff's income tax return for this year reported $0 in wages, with a claimed refund of $23,596.00 (including Medicare and Social Security tax). The IRS initially applied the claimed refund of $23,596.00 to civil penalties assessed for the 2009-2012 tax years, but then reversed the credits and issued a notice of deficiency for the 2015 tax year. In response, Plaintiff filed the Tax Court Case.

There are several outstanding questions regarding the 2015 refund request that are not at issue here, i.e., whether Plaintiff submitted his refund request on the proper form and the balance for the 2015 income tax year. In addition, many courts have held that "zero income returns," such as Plaintiff's 2015 tax return, are not properly executed and therefore do not constitute valid administrative refund requests. See, e.g., Waltner v. United States, 679 F.3d 1329, 1333 (Fed. Cir. 2012); Maruska v. United States, 77 F. Supp. 2d 1035, 1039 (D. Minn. 1999); See also, § 7422(a) (a taxpayer must file an administrative claim for refund before suing in district court) and 26 C.F.R. § 301.6402-3 (an income tax return is such an administrative claim).

Assuming for purposes of this motion only, that Plaintiff's 2015 Form 1040 is a valid administrative claim, the Court lacks jurisdiction over the 2015 income tax year because of the pending Tax Court Case:

If the taxpayer files a petition with the Tax Court within the time prescribed in section 6213(a) ... no credit or refund of income tax for the same taxable year... shall be allowed or made and no suit by the taxpayer for the recovery of any part of the tax shall be instituted in any court.

26 U.S.C. § 6512(a). There are six exceptions to this prohibition, which do not apply here.¹

Plaintiff alleges that the Tax Court case became moot when the IRS removed the deficiency (based on an audit showing he is due a refund of $27,087.50) but the IRS failed to disclose to the Tax Court that there is no deficiency for 2015. Dkt. 15, p. 11, Rische Decl., ¶ 18. On September 4, 2020, Plaintiff filed a motion for summary judgment in the Tax Court case and that motion is still pending. Id.

Regardless of the parties' positions as to the balance for the 2015 tax year and Plaintiff's reasons for filing the motion for summary judgment, § 6512(a) prohibits a refund suit when a concurrent Tax Court case...