Sorenson v. Secretary of Treasury of United States

• Decision Date: 28 December 1982
• Docket Number: Civ. A. No. C82-441C.
• Citation: 557 F. Supp. 729
• Parties: Marie D. SORENSON, Plaintiff, v. The SECRETARY OF the TREASURY OF the UNITED STATES, and The United States of America, Defendants.
• Court: U.S. District Court — Western District of Washington

557 F. Supp. 729

Marie D. SORENSON, Plaintiff, v. The SECRETARY OF the TREASURY OF the UNITED STATES, and The United States of America, Defendants.

Civ. A. No. C82-441C.

United States District Court, W.D. Washington.

December 28, 1982.

Peter Greenfield, Evergreen Legal Services, Seattle, Wash., J. Bruce Smith, Evergreen Legal Services, Bellingham, Wash., for plaintiff.

Gene S. Anderson, U.S. Atty., Charles C. Pinnell, Asst. U.S. Atty., Seattle, Wash., Scott A. Milburn, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, D.C., for defendants.

ORDER ON PENDING MOTIONS

COUGHENOUR, District Judge.

Plaintiff challenges portions of the Omnibus Budget Reconciliation Act of 1981 which provides a new mechanism for the collection of delinquent child support payments. Under the Act, tax refunds owed to parents having delinquent child support obligations are instead transferred to the states to reimburse the states for expenditures they made to support the affected children under the Aid to Families with Dependent Children ("AFDC") program. Plaintiff challenges these provisions to the extent they authorize the transfer of tax refunds created by her earnings.

FACTS

Plaintiff is a married woman who lives in the State of Washington. Her husband is indebted to the State of Washington for his failure to make required child support payments to the children of his prior marriage. In February of 1982, plaintiff and her husband filed a joint 1981 Federal income tax return. All the income reported was from plaintiff's wages and unemployment benefits. Plaintiff and her husband were to receive a tax refund of $1,408, consisting of excess withheld wages and an earned income credit.

Plaintiff did not, however, receive her expected refund. The Internal Revenue Service ("I.R.S.") withheld payment of the refund so that the refund could be offset against the amount owed Washington State because of her husband's nonpayment of child support. After unsuccessfully trying to obtain her refund from the local office of the I.R.S. and the Washington State Department of Social and Health Services, Office of Support Enforcement ("DSHS"), plaintiff instituted the present action on April 19, 1982. On April 22, the I.R.S. confirmed the information plaintiff received from the local office that all or part of her refund was being withheld to satisfy a past-due support obligation. On June 28, the I.R.S. sent plaintiff "legal notice" that her claim for refund was partially disallowed. Presumably pursuant to Washington community property law, all of the overpayment of tax resulting from the income of plaintiff's husband and one-half of the overpayment resulting from plaintiff's income was to be retained and transferred to the State of Washington for the payment of plaintiff's husband's support obligation. Defendants later clarified their position, and only claimed one-half of the total community property overpayment.

ISSUES PRESENTED

Plaintiff objects to the retention of half of the tax refund resulting from her earnings and unemployment compensation. She has filed a motion for class certification and for summary judgment. Defendants have filed a motion to dismiss and a motion for summary judgment. The central issues raised by these motions are: (1) whether plaintiff's suit should be characterized as one involving the collection or assessment of taxes and therefore subject to the legal impediments to suit applicable to tax actions; (2) whether plaintiff's husband has a property interest in his wife's earnings for the purposes of collection of his separate debt of child support; and (3) whether the procedures employed satisfy due process. These inquiries require an examination of the statutory scheme and the relationship between State property law and the collection of Federal taxes.

THE STATUTORY SCHEME

The collection of past-due support payments is a matter of private, State and Federal concern. While Congress believed that the basic responsibility for the collection of child support rested with the States, Congress did envision a more active Federal role. See S.Rep. No. 93-156, 93rd Cong., 2nd Sess., reprinted in 1974 U.S.Code Cong. & Ad.News 8133, 8150 (hereinafter referred to as "Senate Report"). Two schemes have been enacted for the Federal collection of child support.

Under the first and older system, the States are authorized to use the Federal income tax collection mechanism itself for collecting support payments. Senate Report at 8153. Upon request of a State with an approved State plan, the Secretary of the Department of Health, Education and Welfare is authorized to certify the amount of any child support obligation assigned to that State to the Secretary of the Treasury. 42 U.S.C. § 652(b). Parents, as a condition of eligibility for welfare, are required to assign their rights to support payments to the State and to cooperate with the State in the securing of support payments from the obligated parent. Senate Report at 8152. The support obligation becomes a debt owed by the obligated parent to the State. Id. at 8153. Upon receiving certification from the Secretary of Health, Education and Welfare of the amount owed to the State by the obligated parent, the Secretary of the Treasury is required to assess and collect that amount "in the same manner, with the same powers, and (except as provided in this section) subject to the same limitations as if such amount were a tax...." 26 U.S.C. § 6305(a). This collection mechanism was intended to be available only in cases in which the State could establish to the satisfaction of H.E.W. that it had made diligent efforts to collect the payments through other processes but without success. Senate Report at 8153. This method is hereafter referred to as the "assessment" collection method.

The second Federal method of collection is the one presently under challenge. Upon receiving notice from a State child support agency that an individual owes past-due support which has been assigned to the State as a condition of AFDC eligibility, the Secretary of the Treasury is required to determine whether any amounts as refunds of Federal taxes paid are payable to that individual. If any refunds are owed, he is authorized to withhold from such refunds an amount equal to the past-due support. That money is to be paid directly to the State agency, together with notice of the taxpayer's current address. See Omnibus Budget Reconciliation Act of 1981, Pub.L. 97-35, 95 Stat. 357, S.Rep. No. 97-139, 97th Cong., 1st Sess., reprinted in 1981 U.S.Code Cong. & Ad.News 396, 1347 (hereinafter referred to as "Committee Report"). See also 42 U.S.C. § 664 and 26 U.S.C. § 6402. Thus, unlike the prior system, these provisions authorize the interception and transfer of funds already in the possession of the Government. This method is hereafter referred to as the "transfer" collection method.

THE CHARACTERIZATION QUESTION

The characterization of the plaintiff's claim is hotly contested by the parties. Defendants contend that this is a tax refund suit while plaintiff claims this is merely a collection case. The determination of the nature of the plaintiff's claim has a direct impact on the issues of subject matter jurisdiction, sovereign immunity, injunctive and declaratory relief and the propriety of the maintenance of a class action.

Tax cases in the Federal courts are subject to strict procedural requirements. Suit cannot be begun for the recovery of any tax until six months have expired from the filing of the claim for refund, unless the Secretary of the Treasury disallows the claim within that time. 26 U.S.C. § 6532. See Davis v. Commissioner, 78-1 U.S.T.C. ¶ 9355 (D.S.C.1978). The six-month requirement may even be applicable if the Secretary subsequently denies the claim after plaintiff had begun suit. See Anderson v. I.R.S. District Director, 79-2 U.S.T.C. ¶ 9519 (E.D.Wis.1979). Another result in tax cases is that the United States and its officers have not consented to be sued for tax refund actions unless the procedural requirements have been satisfied. See 5 U.S.C. § 702 (sovereign immunity is not waived if another statute expressly forbids the relief sought). Moreover, except in extremely limited situations, injunctive and declaratory relief are unavailable in the tax context. 26 U.S.C. § 7421(a) prohibits the bringing of suit for the purpose of restraining the assessment or collection of any tax. The Anti-Injunction Act has been given wide reading by the courts. See Bob Jones University v. Simon, 416 U.S. 725, 94 S.Ct. 2038, 40 L.Ed.2d 496 (1974); Zimmer v. Connett, 640 F.2d 208 (9th Cir.1981). The Declaratory Judgment Act contains a similar exception for suits with respect to Federal taxes. 28 U.S.C. § 2201. Finally, the above jurisdictional and procedural limitations, as well as the general nature of tax cases, would make class certification very problematic.

A support obligation is significantly different from a tax obligation. See Senate Report at 8153 ("support obligations are not a tax"). Defendants argue, however, that as plaintiff is seeking a return of her tax refund, she is subject to the procedural limitations of a tax refund suit. Moreover, the jurisdictional limitations of 26 U.S.C. § 6305(b) are allegedly applicable to plaintiff's claim. 26 U.S.C. § 6305(b) attempts to preclude the courts of the United States from retaining jurisdiction to review or restrain the Secretary of the Treasury from assessing or collecting amounts under the "assessment" collection method. Although § 6305 makes no reference to the "transfer" collection method under challenge in the present action, defendants rely on language found in the House Conference Report that indicates the second collection method "amplified" prior law. See Committee Report at 604. Finally, the Secretary of the Treasury's own regulations provide that the past-due support under the "transfer" collection method is to be collected by offset ...