Opinion
Civil Action NO. 01-00753
July 23, 2002
Gary Michael Bowman, Roanoke, Virginia.
Thomas L. Eckert, Roanoke, Virginia, D. Brian Simpson, Washington, DC.
ORDER
This case is before the Court on the Internal Revenue Service's ("IRS") Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6). Plaintiff Brenda Ward ("Ward") brings this action under 42 U.S.C. § 7422 alleging in Count One that she is due a refund from the IRS for the collection of taxes it made under void assessments. Alternatively, Ward claims that this is a suit "for recoupment of tax wrongfully collected" under 28 U.S.C. § 1346 (a). In Count Two, Ward alleges that the IRS violated the discharge injunction of 11 U.S.C. § 524. The Court heard oral arguments on April 8, 2002 and again on July 2, 2002. Upon consideration of the record, the arguments of counsel, and the applicable law, the Court finds that the plaintiff can prove no set of facts in support of her claim which would entitle her to relief. Accordingly, it is hereby
ADJUDGED AND ORDERED
that the defendant's Motion to Dismiss be GRANTED, and that Count One be dismissed with prejudice and Count Two be dismissed without prejudice. The Clerk of the Court is directed to strike this case from the active docket of the Court and send certified copies of this Order and the Accompanying Memorandum Opinion to all counsel of record for the parties.
MEMORANDUM OPINION
This case is before the Court on the Internal Revenue Service's ("IRS") Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6). Plaintiff Brenda Ward ("Ward") brings this action under 42 U.S.C. § 7422 alleging in Count One that she is due a refund from the IRS for the collection of taxes it made under void assessments. Alternatively, Ward claims that this is a suit for "recoupment of tax wrongfully collected" under 28 U.S.C. § 1346(a). In Count Two, Ward alleges that the IRS violated the discharge injunction of 11 U.S.C. § 524. The Court heard oral arguments on April 8, 2002 and again on July 2, 2002. Upon consideration of the record, the arguments of counsel, and the applicable law, the Court grants the Defendant's Motion to Dismiss.
I.
Plaintiff Brenda Ward filed a petition under Chapter 7 of the Bankruptcy Code with her husband Barry Ward on March 22, 1991. Notice of the bankruptcy petition and stay was sent to the IRS at the Philadelphia Regional Service Center. On November 1, 1990, the IRS issued a notice of deficiency to the plaintiff at her last known address. On April 15, 1991, the IRS assessed additional tax, interest, and penalties to the Wards for tax years 1984, 1985, and 1987. Such assessments were made without obtaining relief from the automatic stay resulting from the bankruptcy filing. The IRS did not file a motion to obtain relief from the stay after-the-fact by requesting that the stay as to the IRS be annulled pursuant to Bankruptcy Code § 362(d). Plaintiff received a discharge in the bankruptcy case on July 8, 1991, and their case was closed on September 26, 1991.
Mr. Barry Ward is now deceased.
This fact was disputed earlier in this case but now is agreed upon by the parties. Because the IRS assessed deficiencies to the Plaintiff, 26 U.S.C. § 6511 is applicable.
The IRS contends that the assessments were made without effective knowledge of the bankruptcy stay because its Special Procedures office, which handles all tax matters of taxpayers who are the subject of pending bankruptcy cases, had not been notified of the Wards' filing as of the date the assessments in question were made. This fact is not contested by the parties.
In January 1992, the IRS began collecting the back taxes due by garnishing Plaintiffs pay. The IRS continued garnishing Plaintiffs pay until the summer of 1997. At least $40,000 was garnished from Plaintiffs wages during the period 1992-1997. On January 24, 2000, Plaintiff filed a motion to reopen her bankruptcy case, which was granted. Plaintiff filed an adversary proceeding see determination of whether assessments made by the IRS against the Debtors on April 15, 1991 while the automatic stay pursuant to 11 U.S.C. § 362 was in effect, and without having obtained relief from the stay, were void or simply voidable. In a January 29, 2001 Order, the Bankruptcy Court declared the April 15, 1991 IRS assessments "to be void and of no legal effect." See Adversary Proceeding No. 7-00-00050-WSR Order, January 29, 2001. Plaintiff then filed suit in this Court see a refund from the IRS for the collection of taxes it made under void assessments. Alternatively, Ward claims that this is a suit for "recoupment of tax wrongfully collected" under 28 U.S.C. § 1346(a). Ward also alleges that the IRS violated the discharge injunction of 11 U.S.C. § 524.
In 1997, the Plaintiff and her husband filed an adversary proceeding in bankruptcy court requesting that the court determine the amount of their tax liability. The Plaintiffs husband died during that case and the case was dismissed. When Plaintiff was administering her husband's estate, she discovered papers relating to the adversary proceeding. Plaintiff then commenced the 2000 adversary proceeding.
II.
A challenge to the court's jurisdiction under Fed.R.Civ.P. 12(b)(1) may be raised when the allegations of the complaint are facially insufficient to sustain the court's jurisdiction. When confronted with a motion of this kind, the court must proceed as it would for failure to state a claim under Fed.R.Civ.P. 12(b)(6). Adams v. Bain. 697 F.2d 1213, 1219 (4th Cir. 1982). Dismissal under Rule 12(b)(6) is improper "unless it appears 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). In considering a motion to dismiss, the court accepts as true all well-pleaded allegations and views the complaint in the light most favorable to the plaintiff. Mylan Labs Inc. v. Matkari 7 F.3d 1130, 1134 (4th Cir. 1993).
The defendant based its motion to dismiss on Rule 12(b)(1), claiming that the complaint is barred by the doctrine of sovereign immunity; and on Rule 12(b)(6), claiming the plaintiff failed to state a claim upon which relief can be granted.
III.
The Internal Revenue Code requires that a taxpayer must timely file an administrative claim for refund before filing a refund suit in district court. See 26 U.S.C. § 6511(a). Section 6511(a) operates as a statute of limitations that bars refund suits if an administrative claim for refund is not timely filed. See United States v. Dalm 494 U.S. 596, 601-02 (1990). Even if this suit is characterized as a claim for recoupment of tax wrongfully collected under 28 U.S.C. § 1346(a), instead of a refund suit under 26 U.S.C. § 7422(a), the statute of limitations provision of Section 6511(a) still applies. See Dalm, 494 U.S. at 602.
Section 6511(a), Period of Limitations on Filing a Claim, states that
Claim for credit or refund of an overpayment of any tax imposed by this title in respect of which the taxpayer is required to file a return shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later, or if no return was filed by the taxpayer, within 2 years from the time the tax was paid. 26 U.S.C. §
6511(a).
Section 6511(b), Limitation on Allowance of Credit and Returns, states that
(1) Filing of Claim within prescribed period. No credit or refund shall be allowed or made after the expiration of the period of limitation prescribed in subsection (a) for the filing of a claim for credit or refund, unless a claim for credit or refund is filed by the taxpayer within such period. 26 U.S.C. § 6511(b).
Accordingly, the claim for refund must contain sufficient information to allow the Commissioner to address the merits of the dispute. Consistent with this objective, the Secretary of the Treasury enacted § 301.6402-2(b)(1), which requires the taxpayer to state the specific grounds upon which a refund is claimed and the factual basis pertinent thereto:
(b) Grounds set forth in claim. (1) No refund or credit will be allowed after the expiration of the statutory period of limitation applicable to the filing of a claim therefor except upon one or more of the grounds set forth in a claim filed before the expiration of such period. The claim must set forth in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof. . . A claim which does not comply with this paragraph will not be considered for any purpose as a claim for refund or credit. Beckwith Realty v. United States. 896 F.2d 860, 862 (4th Cir. 1990) quoting § 301.6402-2(b)(1).
Courts have routimely held that an informal claim for refund that is timely filed and later perfected may be treated as a valid claim. See Crocker v. United States 563 F. Supp. 496, 499-500 (S.D.N.Y. 1983). An informal claim must fairly advise the IRS of the nature and ground of the taxpayer's claim and intent to request a refund. See United States v. Kales. 314 U.S. 186, 193-94 (1941). It must "set forth facts sufficient to enable the [IRS] to make an intelligent administrative review of the claim." Crocker 563 F. Supp. 496 at 500 (quoting Scovill Mfg. Co. v. Fitzpatrick. 215 F.2d 567, 269 (2d Cir. 1954). In addition, the claim must have a written component; oral claims alone are insufficient. See Gustin v. United States Internal Revenue Service, 876 F.2d 485, 488 (5th Cir. 1989). The general approach of the Courts has been to examine each allegation of the informal claim on its own facts "with a view towards determining whether under those facts the Commissioner knew, or should have known, that a claim was being made." Id. at 488-89 (quoting Newton v. United States 163 F. Supp. 614, 619 (Ct.Cl. 1958). In addition, an informal claim
must afford the IRS clear notice of a demand for refund in order to enable to administration of that office to conduct its affairs, necessitate that the writing be sufficiently specific to apprise the IRS that the taxpayer desires a refund and to pin-point the area of dispute, thereby facilitating an examination of the claim if appropriate. Miller v. United States 949 F.2d 708, 711 (4th Cir. 1991).
Plaintiff claims that she took several actions that constitute an informal claim for refund. First, she argues that the letter from plaintiffs counsel to the IRS, dated May 2, 2001, constitutes an informal claim for refund. Next, Plaintiff argues that her earlier bankruptcy proceedings are an informal claim for refund. The Court will take each of these arguments in turn.
Plaintiffs first argument that she satisfies 26 U.S.C. § 7422(a) is that her attorney's May 2, 2001 letter to Mr. Mike Colley of the IRS constitutes an informal claim for refund. Plaintiffs attorney sent a copy of the bankruptcy court's January 29, 2001 Order and stated in his letter that "[i]t see to me that the IRS owes Mrs. Ward a refund for the taxes which were credited to tax liability arising from void assessments." Gary Bowman's May 2, 2001 letter to Mike Colley, Richmond, VA IRS. Plaintiff claims that this letter "set[s] forth in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof' in order to meet the standard necessary for an informal claim. Beckwith Realty 896 F.2d at 862.
The Court finds that plaintiffs letter and attached Order were not sufficiently specific to notify the IRS that plaintiff sought a refund. See Beckwith Realty. 896 F.2d at 862. The letter does not identify the tax periods at issue, it does not identify the dates the credits were posted, and it does not identify the refund amount sought by Plaintiff.
Even if the Court found the letter to be a valid informal claim for refund, Plaintiffs complaint is still barred by 26 U.S.C. § 6511(a). Section 6511(a) mandates that a claim for refund must be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever is later. In this case, plaintiff is see a refund for taxes incurred in the years 1984, 1985 and 1987. The last dates on which plaintiff could have filed a timely claim for refund are as follows: (1984) October 2, 1997; (1985) February 5, 1999; (1987) January 27, 1999. See Defendant's Memorandum of Law in Support of Defendant's Motion to Dismiss at 11. Therefore, even if the letter sent by Mr. Bowman to Mr. Colley constituted an informal claim for refund, the letter was submitted beyond the statute of limitations period in § 6511(a).
The "statute of limitations" provisions provided by 26 U.S.C. § 6511 (a) also apply to suits for recoupment of taxes wrongfully collected. See United States v. Dalm. 494 U.S. at 602.
Plaintiffs next argument that she satisfied the requirements of 26 U.S.C. § 7422(a) is that the amended complaint she filed in Bankruptcy Court on May 19, 2000 constitutes an informal claim. Plaintiff filed that adversary proceeding see determination of whether assessments made by the IRS against the Debtors on April 15, 1991 while the automatic stay pursuant to 11 U.S.C. § 362 was void or simply voidable. In a January 29, 2001 Order, the Bankruptcy Court declared the April 15, 1991 IRS assessments "to be void and of no legal effect." See Adversary Proceeding No. 7-00-00050-WSR Order, January 29, 2001. She argues that the complaint specifically requests a refund, states why she requests a refund, was served on the IRS, caused the IRS to investigate and litigate the claim, and caused the Bankruptcy Court to issue an opinion.
In the alternative, Plaintiff argues that the complaint filed in Bankruptcy Court on July 22, 1997 was an informal claim for refund. The complaint raised the issues relating to the "tax years prior to 1988" which "were discharged" in the bankruptcy case, and complained that the "IRS has continued to collect money from the debtors after the discharge in the case."
Plaintiff relies on two cases, A.G. Rushlight Co. v. United States 146 F. Supp. 338 (D.Oregon 1956) and Fisher v. United States. 1990 U.S. Dist. LEXIS 15229 (N.D. Cal. 1990), 967 F.2d 585 (9th Cir. 1992) to support her position that a complaint to determine tax liability filed with the bankruptcy court constitutes an informal claim for refund sufficient to meet the requirements of 26 U.S.C. § 7422(a). In both cases, however, the district courts held that a petition for redetermination of tax deficiencies filed in the Tax Court could be considered informal claims for refund when a formal claim for refund is later filed. See A.G. Rushlight. 146 F. Supp at 338; Fisher, 1990 U.S. Dist. LEXIS at *6-8. The district courts determined that the petitions filed with the Tax Court "gave sufficient notice and set forth the claim adequately." A.G. Rushlight, 146 F. Supp. at 339. See also Fisher, 1990 U.S. Dist. LEXIS at *6-8.
In this case, because the Plaintiff neither filed a complaint with the Tax Court or later filed a formal claim for refund, the facts are distinguishable from both the A.G. Rushlight and Fisher cases. The Fourth Circuit has strictly construed the requirements for an administrative claim for refund as set forth in Beckwith Realty and Miller. Because the bankruptcy proceedings did not "set[s] forth in detail each ground upon which a credit or refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof, " the bankruptcy proceedings cannot be considered by the Court to be informal claims. Beckwith Realty 896 F.2d at 862; see also Miller, 949 F.2d at 711.
Because Plaintiff failed to timely file an administrative claim for refund as required by 26 U.S.C. § 7422(a) and 26 U.S.C. § 6511(a), the Court does not have subject matter jurisdiction over her claim for refund or recoupment of taxes wrongfully collected. Accordingly, the Court will dismiss Count One of the Plaintiffs Complaint with prejudice.
IV.
In Count Two, Plaintiff alleges that the IRS violated the bankruptcy court's 1991 discharge injunction. Section 524 of the Bankruptcy Code provides that a discharge operates as an injunction against actions to collect on discharged debts. See 11 U.S.C. § 524(a). The IRS collected against plaintiffs 1984, 1985 and 1987 tax liabilities. These tax liabilities were not discharged. Because the IRS did not collect on a discharged debt, the IRS did not violate § 524's discharge injunction. Therefore, the Court will dismiss Count Two for failure to state a claim upon which relief can be granted, and will do so without prejudice.
As the parties recognize, this claim should have been brought in bankruptcy court as a violation of the automatic stay.
For the above-stated reasons, the Defendant's Motion to Dismiss shall be granted.
ENTER: