Rucker v. Secretary of Treasury of U.S., 83-1804

• Decision Date: 28 December 1984
• Docket Number: No. 83-1804,83-1804
• Parties: -545, 53 USLW 2359, 85-1 USTC P 9115 Dalleen RUCKER, Plaintiff-Appellant, Kathy Warner, Intervenor-Appellant, v. The SECRETARY OF the TREASURY OF the UNITED STATES, and The United States of America, Defendants-Appellees, Rosa Ortega, Intervenor.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 351

751 F.2d 351

55 A.F.T.R.2d 85-545, 53 USLW 2359, 85-1

USTC P 9115

Dalleen RUCKER, Plaintiff-Appellant Kathy Warner, Intervenor-Appellant, v. The SECRETARY OF the TREASURY OF the UNITED STATES, and The United States of America, Defendants-Appellees Rosa Ortega, Intervenor.

No. 83-1804.

United States Court of Appeals Tenth Circuit.

Dec. 28, 1984.

Glenn Meyers of Colorado Rural Legal Services, Inc., Denver, Colo. (Jacquelyn Higinbotham of Colorado Rural Legal Services, Inc., Fort Morgan, Colo., with him on the brief), for plaintiff-appellant and intervenor-appellant.

Jo-Ann Horn, Atty., Tax Div., Dept. of Justice, Washington, D.C. (Robert N. Miller, U.S. Atty., Denver, Colo., of counsel; Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup and Richard Farber, Attys., Tax Div., Dept. of Justice, Washington, D.C., with her on the brief), for defendants-appellees.

Before SETH, BREITENSTEIN and SEYMOUR, Circuit Judges.

SEYMOUR, Circuit Judge.

Dalleen Rucker brought this class action against the Secretary of the Treasury and the United States, challenging the application to her of section 464 of the Social Security Act, 42 U.S.C. Sec. 664 (1982). Kathy Warner subsequently joined the action as an intervenor. Plaintiffs alleged that the Secretary exceeded his statutory authority by withholding federal income tax refunds and earned income credits due them. They sought declaratory and injunctive relief. The district court dismissed Rucker's claims as moot and also dismissed Warner's intervenor claim. We reverse.

I. BACKGROUND

This case involves the federal-state intercept program authorized by section 2331 of the Omnibus Budget Reconciliation Act of 1981, Pub.L. No. 97-35, 95 Stat. 860 (1981) (Omnibus Act). Under this program, federal income tax refunds due a taxpayer may be transferred to a state to the extent of a taxpayer's past-due child support obligations. Two provisions of the Omnibus Act are relevant here. The first is an amendment to the Social Security Act, 42 U.S.C. Sec. 664 (1982), which provides for reimbursing states that have supported the taxpayer's children through the Aid to Families with Dependent Children program (AFDC). ¹ Section 664(a) authorizes the Secretary of the Treasury to withhold "refunds of Federal taxes paid" which are due to a parent of children supported by AFDC, and to transfer these funds to an appropriate state agency to satisfy the parent's child support obligation. ² The second provision Plaintiff Dalleen Rucker is a married woman and a Colorado resident. Her husband is indebted to the State of Colorado for his failure to make required support payments to the children of his prior marriage. ⁴ In April 1982, Rucker and her husband filed a joint 1981 Federal income tax return, expecting to receive $1,124 back from the Internal Revenue Service. This sum consisted of an income tax refund and an earned income credit. In June 1982, the IRS notified the Ruckers by letter that this sum was being withheld to satisfy Mr. Rucker's child support obligations. In August 1982, Rucker filed an amended tax return seeking a refund of that portion of the overpayment of income taxes and the earned income credit allocable to her. She subsequently received a refund of $126, which represented the entire amount of her excess wage withholdings and a portion of the earned income credit. ⁵

is an amendment to section 6402 of the Internal Revenue Code, 26 U.S.C. Sec. 6402(c) (1982), which implements the procedure authorized by section 664(a) and provides that "[t]he amount of any overpayment to be refunded to the person making the overpayment" shall be reduced by the amount of any past-due child support. ³

Immediately after filing her amended tax return, and before receiving the $126 refund, Rucker brought this action claiming that defendants exceed their statutory authority by intercepting and withholding funds owed to a taxpayer who is the nonobligated spouse of a child support obligor. She also claimed that defendants' taking money due to a married taxpayer to satisfy obligations of a spouse, without affording the taxpayer notice and an opportunity to contest the liability, is a taking of property without due process in violation of the Fifth Amendment.

The district court dismissed plaintiffs' claims on the grounds of mootness. ⁶ Rucker v. Secretary of the Treasury, 555 F.Supp. 1051, 1053 (D.Colo.1983). The court held that Rucker's Fifth Amendment and tax refund claims were moot because she had received her allocable share of the income tax refund. The court also ruled that earned income credits are subject to the intercept program and that Rucker's earned income credit claim was also moot because she had received an allocable share of this credit. On appeal, Rucker raises only the issue whether earned income credits are subject to the intercept program and whether they lawfully can be withheld under section 664(a).

II. MOOTNESS

Defendants assert that there is no case or controversy to support federal court jurisdiction, as required by article III, section 2 of the United States Constitution, because Rucker has received her allocable share of the earned income credit. Defendants claim that it was unnecessary and purely advisory for the trial court to consider whether the earned income credit could be withheld under section 664, and that no justicable issue is presented to this court on appeal. See Golden v. Zwickler, 394 U.S. 103, 110, 89 S.Ct. 956, 960, 22 L.Ed.2d 113 (1969); Baker v. Carr, 369 U.S. 186, 204, 82 S.Ct. 691, 703, 7 L.Ed.2d 663 (1962); Norvell v. Sangre de Cristo Development Co., 519 F.2d 370, 375 (10th Cir.1975); Oklahoma City, Oklahoma v. Dulick, 318 F.2d 830, 831 (10th Cir.1963).

This argument misconceives the nature of Rucker's claim. As we read Rucker's complaint, she is clearly claiming that defendants have exceeded their statutory authority by withholding any of the earned income credit due to her and her husband as a family unit. The IRS refunded only what it determined to be the portion of the credit allocable to her alone. The remaining portion of the credit has not been refunded to the Ruckers and Mrs. Rucker's claim to the remainder provides the necessary controversy needed to support federal court jurisdiction. In arguing to the contrary, defendants assume the very issue in this case: whether the earned income credit can be allocated among spouses and a portion of it withheld under section 664 to satisfy one spouse's child support obligations. Consequently, Rucker's claim is not moot.

III. SOVEREIGN IMMUNITY

Defendants argue that if Rucker's claim is not moot, it is barred by her failure to comply with the jurisdictional requirements of the Internal Revenue Code, 26 U.S.C. Sec. 7422(a) (1982), which provides that no suit may be maintained for the recovery of any tax until a claim for refund has been duly filed with the IRS. They argue that Rucker's suit, instituted after her refund claim had been filed but prior to the expiration of the six-month period set forth in 26 U.S.C. Sec. 6532(a)(1) (1982), ⁷ is barred by the doctrine of sovereign immunity. See, e.g., Dieckmann v. United States, 550 F.2d 622, 623 (10th Cir.1977); United States v. Freedman, 444 F.2d 1387, 1388 (9th Cir.1971), cert. denied, 404 U.S. 992, 92 S.Ct. 538, 30 L.Ed.2d 544 (1971); Oldland v. Kurtz, 528 F.Supp. 316, 322-23 (D.Colo.1981).

A number of courts have addressed this very issue in the context of challenges to the intercept program. Almost all have concluded that claims to withheld tax refunds and earned income credits are not barred by sections 7422(a) and 6532 of the Internal Revenue Code. See Nelson v. Regan, 731 F.2d 105, 109 (2d Cir.1984); Jahn v. Regan, 584 F.Supp. 399, 408 n. 17 (E.D.Mich.1984); Sorenson v. Secretary of the Treasury, 557 F.Supp. 729, 732-33 (W.D.Wash.1982), appeal docketed, No. 83-3694 (9th Cir. Mar. 23, 1983); cf. Marcello v. Regan, 574 F.Supp. 586, 594 (D.R.I.1983) (26 U.S.C. Sec. 7421(a) likewise does not bar these challenges); Coughlin v. Regan, 584 F.Supp. 697, 705-06 (D.Maine 1984) (same). But see Vidra v. Egger, 575 F.Supp. 1305, 1307-08 (E.D.Pa.1982). As these decisions recognize, the statutory language of section 7422(a) and the policies prohibiting judicial intervention in tax collection and assessment are not applicable to challenges to the intercept program. The intercept program operates only after tax assessment and collection, when the federal government ceases to have an interest in the tax refunds. Judicial review at this point will not interfere with or thwart the government's ability to collect taxes or its need for steady and predictable tax revenues. See, e.g., Marcello, 574 F.Supp. at 594. Cf. Bob Jones University v. Simon, 416 U.S. 725, 736, 94 S.Ct. 2038, 2045, 40 L.Ed.2d 496 (1974). Accordingly, we conclude that plaintiffs' claims for earned income credit benefits are not barred by sections 7422(a) and 6532 of the Internal Revenue Code.

IV. EARNED INCOME CREDIT WITHHOLDING

As noted above, 42 U.S.C. Sec. 664(a) authorizes the Secretary of the Treasury to withhold "refunds of federal taxes paid" which are due to an obligated spouse. In addition, 26 U.S.C. Sec. 6402(c) provides that the amount of any "overpayment to be refunded to the person making the overpayment" shall be reduced by the amount of past-due child support. Rucker asserts that the earned income credit is neither a "refund of federal taxes" nor an "overpayment" within the meaning of these two statutory provisions, and thus is not subject to withholding in the intercept program.

The earned income credit is a benefit available to certain families with dependent children and with an earned family income of less than $10,000 per year. See 26 U.S.C. Sec. 43 (1982). The maximum credit allowed is $500. It is reduced proportionately as the adjusted gross family income increases above $6000, dropping to zero at $10,000. It was designed to provide relief to low income...