White v. CIR, Civ. A. No. 80-K-397.

• Decision Date: 13 April 1982
• Docket Number: Civ. A. No. 80-K-397.
• Citation: 537 F. Supp. 679
• Parties: Marjorie Allen WHITE, Plaintiff, v. COMMISSIONER OF INTERNAL REVENUE, and Director of the Internal Revenue Service at Denver, Colorado, Defendants.
• Court: U.S. District Court — District of Colorado

537 F. Supp. 679

Marjorie Allen WHITE, Plaintiff, v. COMMISSIONER OF INTERNAL REVENUE, and Director of the Internal Revenue Service at Denver, Colorado, Defendants.

Civ. A. No. 80-K-397.

United States District Court, D. Colorado.

April 13, 1982.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Marjorie Allen White, pro se.

Marshall I. Whitley, Tax Div., Dept. of Justice, Washington, D. C., for defendants.

MEMORANDUM OPINION AND ORDER

KANE, District Judge.

This case involves the plaintiff's 1975 federal income taxes. The plaintiff, appearing pro se, seeks:

1. a refund of $4,254.41 that she alleges was illegally assessed and collected from her for her 1975 income tax liability;

2. damages of $5,000 from the defendants in their individual capacities for alleged violation of plaintiff's constitutional rights; alternatively, damages in the same amount against the United States for alleged negligent and wrongful acts of IRS officers and staff relating to plaintiff's 1975 tax return;¹ and

3. $5,000 for the cost of bringing this suit; $5,000 for attorney fees, and an unspecified amount of interest if plaintiff prevails on her refund claim.

The defendants moved to dismiss, and, alternatively, for summary judgment. Without considering any materials outside of the complaint, I conclude that the claims for damages, costs and attorney fees should be dismissed. On the refund claim, I must consider materials outside of the pleadings, and therefore I will treat the motion with respect to the refund claims as one for summary judgment. I grant that motion in part and deny it in part.

I. SUBJECT-MATTER JURISDICTION

The numerous grounds which the defendants advance to support dismissal for lack of subject-matter jurisdiction relate to two fundamental questions which underlie every suit in district court involving a dispute between a taxpayer and the IRS. These questions are: (1) what conditions are necessary to invoke federal jurisdiction to review actions and decisions of the IRS; and (2) what remedies are available in district court for a meritorious claim against the IRS. Because of the confusion regarding remedies and jurisdiction reflected in the plaintiff's complaint and the defendants' brief I will review these issues before addressing the specific facts of this case.

District courts are courts of limited jurisdiction, having only the subject-matter jurisdiction conferred on them by congress. There are currently only two statutes which provide a jurisdictional basis for district courts to hear claims involving the IRS: 28 U.S.C. § 1346(a)(1) and 28 U.S.C. § 1331(a). Under 28 U.S.C. § 1346(a)(1) district courts have original jurisdiction of:

Any civil action against the United States for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected....

In order to invoke jurisdiction under section 1346(a)(1) three conditions must be met: (1) the claim must be against the United States and not against individual IRS officers, 26 U.S.C. § 7422(f); (2) plaintiff must file a timely refund claim with the IRS, 26 U.S.C. § 7422(a); and (3) plaintiff must prepay all deficiency assessments for the year in question, Flora v. United States, 357 U.S. 63, 78 S.Ct. 1079, 2 L.Ed.2d 1165 (1958), aff'd on rehearing, 362 U.S. 145, 80 S.Ct. 630, 4 L.Ed.2d 623 (1960).

In a suit under section 1346(a)(1) plaintiff may challenge the constitutionality, legality or fairness of any tax statute or any practice of the IRS, as well as the amount assessed or collected. However, in order to prevail on a claim under this section plaintiff must show that the IRS collected taxes it had no right to collect and, therefore, that the amount actually collected was incorrect. If plaintiff establishes that an improper amount was collected, her only remedy is a refund of the over payment. District courts have no jurisdiction under this statute to award any damages in excess of the refund amount.

This jurisdictional limitation was described in American Association of Commodity Traders v. Department of the Treasury, 598 F.2d 1233, 1235 (1st Cir. 1979). Noting that the taxpayer had not filed a refund claim under 26 U.S.C. § 7422(a), the court held:

... appellant's recharacterization of its claim for taxes paid as `damages' will not suffice to supplant the jurisdictional requirement that an administrative claim precede a refund suit.... When the injury claimed is payment of excessive income taxes and the defendant is the United States, no amount of artful pleading will convince us that the case is not a claim for refund of taxes ... appellant's attempt to base jurisdiction for its other damage claims upon 28 U.S.C. § 1346(b)<sup>2</sup> is defeated by two clear provisions of the Federal Tort Claims Act. We have little doubt that this suit falls within the FTCA exclusion of claims `in respect of the assessment or collection of any tax...' 28 U.S.C. § 2680(c).³

Damage suits against the United States involving the IRS have also been held to be barred by 28 U.S.C. § 2680(a) which provides that remedies available under the Federal Tort Claims Act shall not apply to:

Any claim based upon an act or omission of an employee of the Government, exercising due care, in the execution of a statute or regulation, whether or not such statute or regulation be valid, or based upon the exercise or performance or the failure to exercise or perform a discretionary function or duty on the part of a federal agency or an employee of the Government, whether or not the discretion involved be abused.

and by 28 U.S.C. § 2680(h) which prohibits damage suits against the United States for claims:

... arising out of assault, battery, false imprisonment, false arrest, malicious prosecution, abuse of process, libel, slander, misrepresentation, deceit, or interference with contract rights....

See American Association of Commodity Traders, 598 F.2d at 1235; Mack v. Alexander, 575 F.2d 488 (5th Cir. 1978). Jurisdiction over damage claims against the United States is not conferred by the Administrative Procedure Act and it does not arise under 28 U.S.C. § 1343, as the plaintiff argues:

Section 1343 places original jurisdiction in the district courts when there is a substantive claim for violation of 42 U.S.C. Sections 1983 and 1985. However ... these statutes provide a remedy for deprivation of right under color of state law and do not apply when the defendants are acting under color of federal laws.

Id. at 489 (citation omitted).

A taxpayer may also challenge the constitutionality of the tax laws and the legality and fairness of IRS practices and procedures under 28 U.S.C. § 1331(a). Meritorious claims under this statute are not compensable in damages from the United States, American Association of Commodity Traders, 598 F.2d at 1235-36, but may be brought against government officials who are personally liable for deprivations of constitutional rights, Bivens v. Six Unknown Named Agents, 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971). However, IRS officials are absolutely immune from damages resulting from their decisions to initiate or continue proceedings such as audits and assessments, which are subject to later IRS adjudication. Butz v. Economou, 438 U.S. 478, 515-16, 98 S.Ct. 2894, 2915-16, 57 L.Ed.2d 895 (1978); Stankevitz v. IRS, 640 F.2d 205, 206 (9th Cir. 1981).

In order to recover damages from an IRS official in his individual capacity under Section 1331(a) personal jurisdiction must be acquired through service of process under F.R.Civ.P. 4(d)(1) or (7), the plaintiff must allege and prove specific allegations of unconstitutional conduct by the individual official she seeks to hold liable, and plaintiff must demonstrate a lack of good faith and actions beyond defendant's authority. Griffith v. Nixon, 518 F.2d 1195, 1196 (2d Cir.), cert. denied, 423 U.S. 995, 96 S.Ct. 422, 46 L.Ed.2d 369 (1975); Oldland v. Kurtz, 528 F.Supp. 316, 319, 321-22 (D.Colo.1981); Harrison v. Sulser, 47 A.F.T.R.2d 81-500 (1980).

In the present case this court has subject-matter jurisdiction under 28 U.S.C. § 1346(a)(1) to hear the refund claims, and under id. § 1331(a) to hear the damage claims against the defendants in their individual capacities. The record is unclear on whether the individual defendants have been properly served. I conclude, however, that even if they were properly served, the damage claims must be dismissed under F.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief may be granted.

II. THE DAMAGE CLAIMS: IRS PRACTICE AND PROCEDURES

In her damage claims, the plaintiff lists several actions by the defendants that the plaintiff believes were unconstitutional. In Oldland v. Kurtz, 528 F.Supp. 316, 321-22 (D.Colo.1981), I considered similar claims and found them to be without merit. Rather than repeat that analysis here, I will only consider the claims that are different from those asserted in Oldland.

A. Disclosure to State Tax Officials

The plaintiff asserts that the IRS violated her constitutional rights by notifying the Colorado Department of Revenue of the audit and deficiency assessment against her. She claims that this type of disclosure is prohibited by the Confidentiality and Disclosure of Returns and Return Information Statute, 26 U.S.C. § 6103. Section 6103(d)(1) provides, in relevant part:

— Returns and return information with respect to taxes imposed ... shall be open to inspection by, or disclosure to, any State agency, body or commission, or its legal representative, which is charged under the laws of such State with responsibility for the administration of State tax laws for the purpose of, and only to the extent necessary in, the administration of such laws, including any procedures with respect to locating any person who may be entitled to a refund. Such inspection shall be permitted, or such disclosure made, only upon written request by the head of such agency, body or commission, and only to the

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