Szanto v. Internal Revenue Serv. (In re Szanto)

• Decision Date: 13 June 2017
• Docket Number: Adv. Proc. No. 16–3141–pcm,Bankruptcy Case No. 16–33185–pcm11
• Citation: 574 B.R. 862
• Parties: IN RE: Peter SZANTO, Debtor. Peter Szanto, Plaintiff, v. Internal Revenue Service, Tammy Hedstrand, Vicky Hazley, Chris Wagner, Unknown Agents 1–10, Defendants.
• Court: U.S. Bankruptcy Court — District of Oregon

574 B.R. 862

IN RE: Peter SZANTO, Debtor.Peter Szanto, Plaintiff,

v.Internal Revenue Service, Tammy Hedstrand, Vicky Hazley, Chris Wagner, Unknown Agents 1–10, Defendants.

Bankruptcy Case No. 16–33185–pcm11

Adv. Proc. No. 16–3141–pcm

United States Bankruptcy Court, D. Oregon.

Signed June 13, 2017

Peter Szanto, Portland, OR, pro se.

Boris Kukso, Washington, DC, for Defendants.

MEMORANDUM OPINION

PETER C. McKITTRICK, U.S. Bankruptcy Judge

This matter came before the Court on April 28, 2017, on the United States' Motion to Dismiss filed on behalf of the Internal Revenue Service (IRS). In his Amended Complaint, plaintiff-debtor Peter Szanto seeks relief against the IRS for allegedly improperly assessed taxes, damages resulting from that assessment, a refund of taxes already paid, and injunctive relief.

Plaintiff has a long history of litigating against the IRS for the assessment of taxes in multiple tax years. This particular adversary proceeding focuses on the tax year 2007 and whether the IRS had agreed in 2012 to settle plaintiff's 2007 tax liability for a lesser amount than it now claims in its proof of claim. The complaint also asserts tort claims based on the IRS's conduct in assessing taxes for 2007, and its filing of an amended pleading in tax court for the tax year 2009.

This case raises interesting and complex legal issues, including the intersection of the Federal Tort Claims Act (FTCA), § 106 of the Bankruptcy Code, and 26 U.S.C. § 7433 of the Internal Revenue Code.

For the reasons stated below, the IRS's motion will be granted as to all the individual defendants and as to the United States as to all affirmative claims. Plaintiff will be granted leave to replead his claims for fraud and malicious prosecution consistent with this Memorandum Opinion. All other claims will be dismissed with prejudice.

FACTS

Plaintiff filed a chapter 11¹ case on August 16, 2016. The IRS filed a proof of claim, asserting that it is owed taxes, interest, and penalties totaling $72,406.54. The amounts claimed are as follows:

Tax Year     Date Assessed           Tax Due        Interest as of
                                                                    Petition Date
                2007         9/21/2009               $0             $3,136.33
                2007         1/7/2013                $5,557.34      $2,765.28
                2009         8/13/2012               $1,497.00      $342.14
                2009         11/28/2016              $2,409.00      $551.17
                2010         Pending examination     $25,278.00     $4,639.42
                

In addition, the proof of claim asserts that plaintiff owes $26,230.47 in penalties.

In response to the IRS's proof of claim, plaintiff filed this adversary proceeding, asserting three claims against the IRS as the single defendant: breach of contract, fraud, and intentional or negligent infliction of emotional distress. When the IRS filed a motion to dismiss, plaintiff obtained leave to file this amended complaint. In it, he added individual defendants who he claims are employees of the IRS, and asserted four claims: breach of contract, fraud, malicious prosecution, and intentional or negligent infliction of emotional distress. His complaint also sought an injunction against defendants and a refund of taxes paid. Although not separately stated as a claim for relief, the complaint also says that it is an objection to the IRS's proof of claim.

Plaintiff asserts that in 2013, the IRS wrongfully assessed additional taxes for the 2007 tax year after he had completely settled his 2007 tax liability earlier in 2012. He also claims that the IRS attempted to amend an answer in a tax court proceeding involving his 2009 tax liability by asserting an additional $380,161 of income for that tax year. Plaintiff argues that these acts by the IRS support claims for breach of contract, fraud, and malicious prosecution. Plaintiff also alleges that he has made payments to the IRS, which have been credited to his 2007 disputed tax liability, so he also seeks a refund of those amounts paid based on the theory that the 2007 assessment beyond the amount agreed upon in 2012 was wrongful.

The IRS on its own behalf and on behalf of defendant Hedstand, filed a motion to dismiss the amended complaint on the basis that: (1) plaintiff named the wrong party; (2) the claims against the individual defendants should be dismissed because the activities complained of were allegedly taken by IRS employees in their official capacities; (3) plaintiff's breach of contract claim should be dismissed for lack of subject matter jurisdiction; (4) alternatively, the contract claim should be dismissed for failure to state a claim; (5) plaintiff's tort claims should be dismissed for lack of subject matter jurisdiction; (6) alternatively, plaintiff's tort claims should be dismissed for failure to state a claim; (7) plaintiff's assertion that he is entitled to a refund of taxes paid is barred by statute; and (8) plaintiff's claim for injunctive relief is barred by the anti-injunction statute.

DISCUSSION

A party may move to dismiss a claim under Fed. R. Bankr. P. 7012(b), which makes Fed. R. Civ. P. 12(b)(1) and (6) applicable to adversary proceedings.

Pursuant to Fed. R. Civ. P. 12(b)(1), a court must dismiss a case if it lacks subject matter jurisdiction. A federal court is presumed to lack subject matter jurisdiction until the party asserting it establishes otherwise. Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994). Accordingly, plaintiff bears the burden of establishing jurisdiction.

Pursuant to Fed. R. Civ. P. 12(b)(6), a complaint will be dismissed for "failure to state a claim upon which relief can be granted." The complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief[.]" Fed. R. Civ. P. 8(a)(2). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Although detailed allegations of fact are not necessary, the complaint must contain "more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Id. Simply reciting the elements of a cause of action is insufficient. Id.

1. Improper Defendants

a. IRS is the incorrect party

The United States correctly states that the IRS is not subject to suit in a United States District Court. See, e.g., Blackmar v. Guerre, 342 U.S. 512, 514–15, 72 S.Ct. 410, 96 L.Ed. 534 (1952) ("When Congress authorizes one of its agencies to be sued eo nomine, it does so in explicit language ...."). An action against an agency of the United States is deemed to be an action against the United States. Dugan v. Rank, 372 U.S. 609, 613, 83 S.Ct. 999, 10 L.Ed.2d 15 (1963).

Plaintiff argues that the IRS is the correct party, because the proof of claim filed in this case was filed by the Department of Treasury, Internal Revenue Service. Although plaintiff refers in the complaint to the proof of claim and says that the complaint is acting as an objection to the proof of claim, the adversary complaint goes well beyond defeating the proof of claim. It asserts numerous affirmative claims for relief and seeks monetary damages and injunctive relief. Consequently, the identification of the creditor on the proof of claim does not override the well-established authority that a suit against the IRS is deemed to be a suit against the United States.

The court shall substitute the United States as the defendant.

b. Dismissal of claims against individual defendants

In addition to naming the IRS as a defendant, in his amended complaint plaintiff also named several individuals whom plaintiff asserts are or were employees of the IRS. Where a suit is against IRS employees in their official capacity, it is essentially a suit against the United States. Gilbert v. DaGrossa, 756 F.2d 1455, 1458 (9th Cir. 1985). Moreover, "[a] suit or proceeding [for the recovery of tax erroneously or illegally assessed or collected] may be maintained only against the United States and not against any officer or employee of the United States (or former officer or employee) or his personal representative." 26 U.S.C. § 7422(f)(1).

Plaintiff argues that, under Bivens v. Six Unknown Named Agents of the Fed. Bureau of Narcotics, 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971), governmental actors may be held personally liable for "violations, committed under the guise and pretext of government authority to deprive citizens of constitutional rights." Plaintiff's Response at p. 15. However, "the right to sue as established by Bivens is qualified and is not absolute." Adams v. Johnson, 355 F.3d 1179, 1183 (9th Cir. 2004). "Because the Internal Revenue Code gives taxpayers meaningful protections against government transgressions in tax assessment and collection," Bivens relief is not available in actions against IRS auditors and officials acting in their official capacity. Id. at 1186. Plaintiff does not allege that the individual defendants took any action outside their official capacity.

Plaintiff also argues that 26 U.S.C. § 7433(a) authorizes suit against individual IRS employees. However, that statute provides that a "taxpayer may bring a civil action for damages against the United States...." (emphasis supplied). It does not authorize suit against individual agents of the IRS.

Accordingly, all claims against the individual defendants will be dismissed.² Reference to "defendant" hereafter shall refer to the United States.

2. Contract Claim

Defendant concedes that "there is no dispute that this Court has jurisdiction to adjudicate an objection to the IRS Claim filed in this case," but argues that this court lacks jurisdiction to hear any complaint for relief beyond the adjudication of plaintiff's claim objection. Defendant further argues that plaintiff's contract claim fails to state a claim for relief. For the reasons discussed below, I conclude that, by...