Opinion
No. CV-00-2137-PHX-FJM
May 22, 2002
ORDER
Pending before the court is Defendant's Motion for Summary Judgment (Doc. #27) and Plaintiff's Motion to Compel (Doc. #53).
I. Defendant's Motion for Summary Judgment
First, Plaintiff alleges that personal income taxes, social security withholdings, and medicare withholdings were unlawfully withheld from his paycheck during the years 1995, 1996, 1997, and 1998. Plaintiff contends that he had no liability for income tax for the years 1995, 1996, 1997, and 1998. Plaintiff seeks a refund from the Internal Revenue Service for each of the stated years. Second, Plaintiff alleges that he has been subjected to unauthorized collection activity from November 10, 1998 to present. Plaintiff contends that he is not an employee of APS and that Defendant did not have authority to order APS to withhold income taxes, social security, and medicare from his paychecks. Plaintiff seeks damages in at least the amount of the money withheld since November 10, 1998. In addition, Plaintiff seeks reasonable fees and costs.
The Defendant moved for Summary Judgment on two grounds: (1) lack of subject matter jurisdiction and (2) failure to state a claim upon which relief can be granted. The Motion is supported by a Statement of Undisputed Facts (Doc #28), a Memorandum (Doc #29), and a Declaration of Kris Morgan (Doc #33). Plaintiff filed a response (Doc. #37) and a Statement of Facts in Support of the Response (Doc. #38). Defendant filed a reply (Doc. #47).
A. Count One — Refund for tax years 1995, 1996, 1997, and 1998
(1) 1995 and 1996
Initially, Russell v. United States, 592 F.2d 1069, 1071 (9th Cir. 1979), indicates that upon the filing in the Tax Court of a petition for a redetermination of a deficiency or a refund of overpayment, the Tax Court assumes jurisdiction for any subsequent issues regarding the calculation of taxes for the given tax year. Thus, as the reimbursement claims for 1995 and 1996 have already been filed by Plaintiff in the Tax Court, this court does not have subject matter jurisdiction over Plaintiff's claims for reimbursement of taxes for the years of 1995 and 1996. Plaintiff concedes that this portion of the action must be dismissed. The Motion for Summary Judgment with respect to the claim for reimbursement for tax years 1995 and 1996, in Count One, is granted.
(2) 1997 and 1998
The United States may not be sued unless Congress has waived sovereign immunity. Congress waived sovereign immunity to allow suits for refund of taxes erroneously or illegally collected. See 26 U.S.C. § 7422 (West 1989 Supp. 2001). But no suit may be brought until "a claim for refund or credit has been duly filed with the Secretary, according to the provisions of law in that regard, and the regulations of the Secretary established in pursuance thereof." 26 U.S.C. § 7422 (a). The Ninth Circuit has stated that, "if the refund claim does not meet the requirements of the Code and the regulations, the suit must be dismissed, because filing pursuant to the rules is a jurisdictional prerequisite." Boyd v. United States, 762 F.2d 1369, 1371 (9th Cir. 1985) (internal citations omitted). The filing of a proper claim for refund serves "to give the IRS adequate notice of the claim and its underlying facts so that it can make an administrative investigation and determination regarding the claim." Id.
In addition, a taxpayer must file a claim for refund for the tax year in which the person was required to file a return "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 (West 1989 Supp. 2001). And, under 26 U.S.C. § 6532 an action may not be brought under § 7422 for recovery of a refund until either the IRS has denied the refund or six months after filing for the refund. See 26 U.S.C. § 6532 (West 1989 Supp. 2001).
Plaintiff has not satisfied the requirements of 26 U.S.C. § 7422, 6511, 6532 for the tax years 1997 and 1998. A valid claim for refund has not been filed under the regulations. Form 843 is not a valid vehicle for claiming a refund of income taxes. The regulations require that a claim for refund be made on Form 1040. See 26 C.F.R. § 1.6012-1(a)(6); 26 C.F.R. § 301.6402-3 (a)(2); 26 C.F.R. § 301.6402-3 (a)(5). Furthermore, the forms filed by Defendant were inadequate to inform the IRS of the basis of his claim. The Defendant's Motion for Summary Judgment on Count One is granted for the tax years 1997 and 1998.
B. Count Two — Alleged Unauthorized Collection Action
In Count Two, Plaintiff seeks a refund of taxes that were allegedly collected without authorization from November 10, 1998 to present. First, Plaintiff claims that he is being subjected to taxation without apportionment and that the taxes are being taken for the private use of another, not the general welfare, without just compensation. This claim is without merit. U.S. Const. amend. XVI.
Second, Plaintiff contends that he is an independent contractor, not an employee of APS, and therefore APS should not have withheld taxes from his APS paychecks. Plaintiff recognizes that the IRS determined that Plaintiff was an employee of APS for taxation purposes. (Plaintiff's Facts Supporting Resp. to Motion for Summary Judgment at 3, lines 7-12). After the IRS determination, Plaintiff failed to pursue available administrative remedies to have the determination reversed. Because Plaintiff has not exhausted his administrative remedies, the issue of whether Plaintiff is an employee of APS subject to payroll withholding is not ripe for consideration. However, whether plaintiff is an employee of APS is irrelevant. Whether an employee or an independent contractor, Plaintiff is required to pay income taxes. See 26 U.S.C. § 1401-1403 (West 1988 Supp. 2001); 26 U.S.C. § 3101, 3111 (West 1989 Supp. 2001). Thus, he has suffered no damages from the withholding of taxes from his paycheck.
Third, Plaintiff alleges that the Code of Federal Regulations allowing the IRS to order withholding were improperly promulgated. Regulations published in the Code of Federal Regulations are presumptively valid. Employers are required under the Code to withhold taxes from employees' paychecks. See 26 U.S.C. § 3401, 3402 (West 1989 Supp. 2001). Furthermore, under 26 C.F.R. § 31.3402(f)(2)-1(g)(5)(ii), the IRS may review withholding certificates to determine if the certificates are truthful and valid. The Ninth Circuit has affirmed that the IRS has authority under the regulations "to review withholding certificates for compliance with internal revenue laws and to declare invalid those certificates found not to be in compliance." Stonecipher v. Bray, 653 F.2d 398, 402-03 (9th Cir. 1981) (interpreting prior version of regulations, but premise remains valid); see also 26 C.F.R. § 31.3402 (f)(2)-1(g)(5)(ii). If a person fails to submit a valid withholding form, the regulations require that "the employer shall withhold from the employee as from a single person claiming no exemptions." 26 C.F.R. § 31.3402(f)(2)-1(e).
Plaintiff has offered no evidence that the regulations were improperly promulgated. In this case, the IRS, under authority granted to it by the regulations, found the Plaintiff's withholding certificate to be invalid. Where no valid withholding certificate has been submitted, the employer is required to withhold as though the person is single claiming no exemptions. The Motion for Summary Judgment is granted as to Count Two.
II. Plaintiff's Motion to Compel
Plaintiffs Motion to Compel is mooted by this disposition.
Accordingly,
IT IS ORDERED granting the Defendant's Motion for Summary Judgment (Doc. #27).
IT IS FURTHER ORDERED denying Plaintiff's Motion to Compel (Doc. #53) as moot.