Opinion
Case No. 8:03-CV-1002-T-27EAJ.
June 15, 2004
ORDER ON MOTION TO DISMISS
BEFORE THE COURT is Defendants' Motion to Dismiss (Dkt. 17), Defendants' Brief in Support of Motion to Dismiss (Dkt. 18) and the United States' Opposition to Motion to Dismiss (Dkt. 20). Upon consideration, the Motion to Dismiss is DENIED.
This action seeks judgment under the Internal Revenue Code for an unpaid trust fund recovery penalty and foreclosure of a federal tax lien on Defendants' residence. (Dkt. 1). Defendants argue that (1) a Certificate of Release of Federal Tax Lien extinguished the underlying tax liability and precludes foreclosure of the lien, (2) the statute of limitations bars this action and (3) Plaintiff should be equitably estopped from seeking judgment. (Dkt. 2, ¶¶ 1-3).
Standard Applicable to Motion to Dismiss
In evaluating the sufficiency of a complaint, the Federal Rules of Civil Procedure require only that the complaint contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a); U.S. v. Baxter Intern., Inc., 345 F.3d 866, 880 (11th Cir. 2003). The threshold a complaint must meet to survive a motion to dismiss for failure to state a claim is "exceedingly low." Id. at 881.
A motion to dismiss should not be granted unless the movant demonstrates "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief."Conley v. Gibson, 355 U.S. 41, 45-46 (1957) (citations omitted); accord Smith v. Brown and Williamson Tobacco Corp., 363 F.3d 1183, 1187 (11th Cir. 2004). In determining whether to grant a motion to dismiss under Rule 12(b)(6), evidence outside the pleadings may not be considered. Morrison v. Amway Corp., 323 F.3d 920, 924 (11th Cir. 2003). All well pleaded facts in the complaint are accepted as true and the complaint is construed in a light most favorable to plaintiff. S Davis Intern., Inc. v. The Republic of Yemen, 218 F.3d 1292, 1298 (11th Cir. 2000). However, a complaint may be dismissed when the complaint on its face shows that an affirmative defense bars recovery. Marsh v. Butler County, Ala., 268 F.3d 1014, 1023, 11th Cir. 2001);Marshall County Bd. of Educ. v. Marshall County Gas Dist., 992 F.2d 1171, 1174 (11th Cir. 1993).
Effect of Release of Federal Tax Lien
Defendants argue that a Certificate of Release of Federal Tax Lien (RFTL) extinguished the underlying tax liability and therefore precludes Plaintiff from foreclosing the lien. (Dkt. 17). Defendants' argument fails in light of the plain language of § 325 of the Internal Revenue Code. Title 26 U.S.C. § 6325(f)(1)(A) (Internal Revenue Code) provides that a "certificate [of release of a federal tax lien] shall be conclusive that the lien referred to in such certificate is extinguished." Accordingly, the RFTL extinguished only the lien, as opposed to the underlying tax liability. E.g. Angier Corp. v. Commr. of Internal Revenue, 50 F.2d 887, 891-92 (1st Cir. 1931);Boyer v. Commr. of Internal Revenue, 2003 WL 22725293; 86 T.C.M. (CCH) 615 (2003); see Miller v. Commr. of Internal Revenue, 231 F.2d 8, 9 (5th Cir. 1956); Baker v. Commr. of Internal Revenue, 24 T.C. 1021, 1024 (1955). The RFTL does not, therefore, preclude this action, as the underlying tax liability has not been satisfied.
The Statute of Limitations
Defendants argue that this action is barred by the statute of limitations governing tax collections. (Dkt. 17). The applicable limitation period is ten (10) years after assessment of the tax. IRC § 6502(a). According to the Complaint, the trust fund recovery penalty was assessed on August 17, 1992. (Dkt. 1, ¶ 9). This case was filed on May 20, 2003, more than ten years after that assessment. While on the face of the Complaint it appears the statute of limitations has run on this collection action, the parties agree that the limitation period did not expire until May 26, 2003. (Dkt. 18). The case was filed prior to that date. (Dkt. 1).Notwithstanding that the case was filed before expiration of the statute of limitations, Defendants argue that service of process was not timely and therefore the case should be dismissed. (Dkt. 18). Plaintiff argues there was no service failure because Plaintiff's motion to enlarge the period for service tolled that period and alternatively, Defendants waived service. (Dkt. 20).
Plaintiff's first contention is correct, as the deadline for service was tolled by its motion to extend the time for serving process. Henderson v. U.S., 517 U.S. 654, 658-661 (1996). Plaintiff's second contention is likewise correct, as Defendants waived service on September 25, 2003, well before the new period for service expired. (Dkt. 13). Defendants' argument establishes no legal basis for dismissal of this case.
Equitable Estoppel
Defendants' contention that the principle of equitable estoppel precludes Plaintiff from asserting claims to recover these tax assessments is without merit. (Dkt. 18). Equitable estoppel will not be applied against the Government as it could be against private citizens. Office of Personnel Mgt. v. Richmond, 496 U.S. 414, 419 (1990). Further, estoppel is applied against the Tax Commissioner with the utmost caution and restraint. Boyer v. Commr. of Internal Revenue, 2003 WL 22725293; 86 T.C.M. (CCH) 615 (2003).
To apply estoppel against the Government, (a) the traditional private law elements of estoppel must be present, (b) the Government must be acting in its private capacity rather than its public or sovereign capacity and (c) the Government's agent must have acted within his or her authority. United States v. Vonderau, 837 F.2d 1540, 1541 (11th Cir. 1988); United States v. Walcott, 972 F.2d 323, 325 (1992).
The traditional private law elements of an estoppel claim are (1) words, acts, conduct or acquiescence causing another to believe in the existence of a certain state of things; (2) willfulness or negligence with regard to the acts, conduct or acquiescence; and (3) detrimental reliance by the other party upon the state of things so indicated. Bokum v. Commr. of Internal Revenue, 992 F.2d 1136, 1141 (11th Cir. 1993).
Defendants' argument fails on the second element. Activities undertaken by Government for private or commercial benefit may be subject to equitable estoppel but actions involving exclusively governmental or sovereign powers are not. Walcott, 972 F.2d at 325; Federal Deposit Ins. Corp. v. Harrison, 735 F.2d 408, 411 (11th Cir. 1984). Promulgating, interpreting and enforcing tax laws are sovereign functions. See Franchise Tax Bd. of Cal. v. Hyatt, 123 S.Ct. 1683, 1690 (2003); Harrison, 735 F.2d at 411 (citing Automobile Club of Mich. v. Commr., 353 U.S. 180 (1957)).
Taxing is a sovereign function. Equitable estoppel cannot be applied against Plaintiff in these circumstances. Accordingly it is,
ORDERED AND ADJUDGED that Defendants' Motion To Dismiss (Dkt. 17) is DENIED.