Smith v. United States

• Decision Date: 28 March 2014
• Docket Number: Civil Action No. 13-cv-01156-MSK-KLM
• Parties: DAVID L. SMITH; and M. JULIA HOOK, Plaintiffs, v. UNITED STATES OF AMERICA, Defendant.
• Court: U.S. District Court — District of Colorado

DAVID L. SMITH; and M. JULIA HOOK, Plaintiffs, v. UNITED STATES OF AMERICA, Defendant.

Civil Action No. 13-cv-01156-MSK-KLM

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Dated: March 28, 2014

Chief Judge Marcia S. Krieger

OPINION AND ORDER ADOPTING

RECOMMENDATION ON MOTION TO DISMISS

THIS MATTER comes before the Court on the Recommendation (#60) of the Magistrate Judge that the Defendant United States of America's Motion to Dismiss (#9) be granted. Plaintiffs David L. Smith and M. Julia Hook filed Objections (#62) to the Recommendation, and the government responded (#65).¹

I. Background

The Plaintiffs, both attorneys acting pro se, are individual taxpayers who, over the span of several years, have a long history of litigating their tax matters.² A chronology of events leading up to the filing of this action is helpful to put this case in context.

For all tax years at issue, the Plaintiffs filed joint income tax returns and were assessed with income tax deficiencies by the Internal Revenue Service (IRS).

In 2000 and 2002, the Plaintiffs challenged the IRS's assessed deficiencies for tax years 1992 to 1996 by filing petitions in the United States Tax Court. The Tax Court consolidated the petitions into one action. Ultimately, the case was dismissed for failure to prosecute, and the Tax Court entered default judgment against the Plaintiffs. See Smith v. Comm'r of Internal Revenue, T.C. Memo. 2003-266, 2003 WL 22100685 (2003), aff'd sub nom. Hook v. Comm'r of Internal Revenue, 103 Fed.Appx. 661 (10th Cir. 2004).

Later, in 2007, the Plaintiffs filed another petition in Tax Court, seeking redetermination of deficiencies assessed for tax years 2001 to 2005 and attempting to reargue the merits of the Tax Court's previous decision relating to tax years 1992 to 1996. The case was set for trial in May 2010. In 2009, Plaintiff Smith (but not Hook) filed a fourth petition in Tax Court. In this petition, Mr. Smith challenged a levy collection action that the IRS had commenced with respect to unpaid income-tax liability for the 2006 tax year.³

Meanwhile, on January 19, 2010 (before the Tax Court issued its decisions on the 2007 and 2009 petitions), the Plaintiffs sent the IRS a document titled "Protective Claim for Refund and/or Credit." In that document, the Plaintiffs alleged that since 2004, they have paid the IRS "almost $1 million in satisfaction of alleged deficiencies for income taxes, penalties and interest for tax years 1992-1996 and 2001-2006," which amount "exceeds the amount owed by a substantial amount, thus entitling [them] to a refund or credit for the overpayment." The Plaintiffs acknowledged that their claim for a refund or credit was "contingent on the Tax Court's determinations or redeterminations" in their 2007 and 2009 cases.

In April 2010, while Ms. Smith was in bankruptcy and one month before the scheduled trial in Tax Court, Mr. Smith filed a refund suit in the United States Court of Federal Claims. See Smith v. United States, 101 Fed.Cl. 474 (2011). In that suit, Mr. Smith challenged the "tax enforcement and collection actions taken against him and his wife by the [IRS]." He also challenged the tax deficiencies assessed against him for years 1992 to 1996 and 2001 to 2006.

In May 2010, Mr. Smith's 2007 case before the Tax Court went to trial.⁴ He argued, however, that the filing of suit in the Court of Federal Claims divested the Tax Court of jurisdiction over the entire action and automatically gave the Court of Federal Claims jurisdiction over all claims relating to tax years 1992 to 1996 and 2001 to 2006. In November 2010, the Tax Court issued its decision in the 2007 case, rejecting the jurisdictional argument and finding that the IRS's assessments against Mr. Smith were proper. See Smith v. Comm'r of Internal Revenue, T.C. Memo. 2010-240, 2010 WL 4457709 (2010).

In January 2011, the Tax Court issued its decision in Mr. Smith's 2009 case, finding that the IRS's levy action for unpaid tax in 2006 was proper and dismissing the action. See Smith v. Comm'r of Internal Revenue, Docket No. 27995-09L, Order and Decision (Jan. 7, 2011).

Finally, on November 14, 2011, the Court of Federal Claims issued its decision, finding that it lacked jurisdiction over Mr. Smith's claims and granting the government's motion to dismiss. See Smith, 101 Fed.Cl. at 479-81. Mr. Smith requested that the case be transferred to a district court, but the Court of Federal Claims denied the request because it found that no district court would have subject matter jurisdiction over the claims either. Id. The decision was later affirmed by the United States Court of Appeals for the Federal Circuit. See Smith v. United States, 495 Fed.Appx. 44, 50 (Fed. Cir. 2012).

In reference to the above history of litigation, the Complaint (#1) alleges that "the United States Tax Court, the United States Bankruptcy Court for the District of Colorado, and the United States Court of Federal Claims each declined to exercise jurisdiction to hear and/or decide [the Plaintiffs'] claim for refund and/or credit for income taxes, penalties and interest for tax years 1992-1996 and 2001-2006."

Following the decisions issued by the Tax Court and the Court of Federal Claims, the Plaintiffs sent a series of letters to the IRS:

• On October 25, 2012, the Plaintiffs sent a letter titled "Request for Certificates of Release of Federal Tax Liens." The Plaintiffs requested certificates of release for nine federal tax liens that were imposed at various times in 2004, 2005, 2007, 2008, and 2011, for unpaid balances of tax assessed in tax years 1993 to1996 and 2001 to 2007. The Plaintiffs stated that release of the liens was required under 26 U.S.C. § 6325(a)(1) because their liabilities were either fully satisfied or unenforceable under 26 U.S.C. §§ 6501 and 6502. They asserted that they "have paid the IRS almost $1,000,000 ($946,500 by [their] calculation) in full satisfaction of alleged taxes, penalties and interest for tax years 1992-1996 and 2001-2006" and argued that their overpayment entitled them to a refund/credit.

• Also on October 25, 2012, the Plaintiffs sent a letter titled "Request for Return of Levied/Seized Property." The Plaintiffs requested the "return of real and personal property (including money)," which was "levied on/seized by the IRS Office in Denver, Colorado." The Plaintiffs argued that they are entitled to return of the property under 26 U.S.C. § 6343(d) because either the levies/seizures were premature, not in accordance with administrative procedures, subject to an agreement with the IRS, return of the property would facilitate IRS collection of remaining liability, and/or return of the property would be in the best interests of the Plaintiffs and the United States.

• Also on October 25, 2012, Mr. Smith sent a letter titled "Request for a Release of the Continuing Levy" on his Social Security Payments, and "Notice of the Release". Mr. Smith requested release of the continuing levy on his social security payments, which has been in effect since 2007, for alleged deficiencies in tax liability for tax years 1992 to1996 and 2001 to 2006. Mr. Smith argued that the levy must be released under 26 U.S.C. § 6343(a) because the liability has been fully satisfied.

• On October 29, 2012, the Plaintiffs sent to the IRS a Claim for Refund of $362,675 for Tax Years 1992-1996 and 2001-2006. The Plaintiffs stated that they have overpaid their tax liability for tax years 1992 to1996 and 2001 to 2006, thus entitling them to a refund.

• Also on October 29, 2012, the Plaintiffs sent a letter titled "Claim for Refund/Credit in Unknown Amount for Penalties and Interest for Tax Years 1992-1996 and 2001-2006,and Request for Abatement of Penalties and Interest for These Tax Years." The Plaintiffs requested a refund/credit for penalties and interest paid for tax years 1992 to 1996 and 2001 to 2006, again asserting that they overpaid for these years and are therefore entitled to a refund.

The Complaint alleges that the government has not acted on any of the Plaintiffs' requests or claims for refunds. As a result of the government's inaction, a "cloud has been placed on the title to the real and personal property owned by Smith and/or Hook."

The Complaint does not clearly articulate or separate any specific cause of action. Rather, it generally states in an introductory paragraph that "[t]his is a civil action . . . for the recovery of internal-revenue taxes erroneously or illegally assessed or collected without authority, and sums that are excessive or were collected in a wrongful manner under internal-revenue laws, including without limitation 26 U.S.C. §§ 6325, 6331, 6334, 6335, 6337, 6342, 6343, 6402, 6501, 6502, 7422, and 7432; and to quiet title to real and personal property under 28 U.S.C. § 2410."

The Plaintiffs seek the following relief: (1) a credit and/or refund "of almost $1,000,000 ($946,500 by [the Plaintiffs'] calculation) for payment/overpayment of taxes, penalties and interest for tax years 1992-1996 and 2001-2006;" (2) abatement of penalties and tax interest for tax years 1992-1996 and 2001-2006; (3) "[t]he actual, direct economic damages sustained by Smith and/or Hook which, but for the failure of the United States to release the federal tax liens, would not have been sustained," (4) the release of all federal tax liens; (5) the return of all levied/seized property; (6) the release of the continuing levy on Mr. Smith's social security payments; (7) an order quieting title to all real and personal property owned by the Plaintiffs; and (8) interests, costs, attorney fees, and any other just relief.

The government moves to dismiss the Plaintiffs' claims for lack of subject matter jurisdiction and failure to state a claim under Fed. R. Civ. P. 12(b)(1) and 12(b)(6). Thegovernment has construed the Complaint as asserting a claim within each numbered section. Thus, sections II, VI, and VII correspond to the Plaintiffs' claims for a refund or...