Summary
holding that plaintiffs were attempting to impair the ability of the IRS to collect federal tax by seeking an advance determination of the validity of the tax the IRS seeks to collect
Summary of this case from RAJMP, Inc. v. United StatesOpinion
03-Civ.-1837 (WGB).
February 19, 2004
R. James Kravitz, Esq., FOX ROTHSCHILD LLP, Lawrenceville, NJ, Attorneys for Plaintiffs.
Susan Steele, Assistant U.S. Attorney, Isaac D. Paxman, Trial Attorney, Tax Division, U.S. Department of Justice, Washington, DC, Attorneys for Defendant.
OPINION AND ORDER
Defendant United States of America, Department of the Treasury, Internal Revenue Service ("IRS") moves to dismiss this matter for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1). Defendant's motion is granted. I. BACKGROUND
On or about March 21, 1995, Plaintiffs Federick R. Wilkens and Patricia Wilkens ("Plaintiffs") and the IRS reached an agreement to settle certain federal tax liabilities by entering into two Offers in Compromise. Under the terms of the Offers in Compromise, Plaintiffs agreed to make certain payments and to enter into a future income collateral agreement ("the Collateral Agreement").
On June 20, 1995, the parties entered into a Collateral Agreement, which provided that Plaintiffs would pay the IRS certain percentages of their income for five years (1996 through 2000). Plaintiffs made the payments for the first four years, but then refused to make any payment for the year 2000, as a result of a dispute over the amount owed for that year under the Collateral Agreement. The Collateral Agreement states in pertinent part:
That the aggregate amount paid under the terms of the Offer in Compromise and the additional amounts paid under the terms of this agreement shall not exceed an amount equivalent to the liability covered by the offer plus statutory additions that would have become due in the absence of the compromise.
Collateral Agreement, at ¶ 5 (emphasis added). According to Plaintiffs, the term "statutory additions" does not include interest, and therefore, they are obligated to pay an additional $16,331.78 to fully discharge their obligations under the Offers in Compromise and Collateral Agreement. In contrast, the IRS maintains that "statutory additions" does include interest and that payment of $57,085.84 will satisfy Plaintiffs' obligations under the Offers of Compromise at issue in this lawsuit.
On April 24, 2003, Plaintiffs filed the present action seeking a declaratory judgment regarding the meaning of the Collateral Agreement. An Amended Complaint was filed on June 30, 2003.
The IRS now moves to dismiss Plaintiffs' suit contending that this Court does not have subject matter jurisdiction because suits to restrain the collection of taxes are barred by the Anti-Injunction Act and the Declaratory Judgment Act. Further, the IRS argues that there is no independent basis for jurisdiction under the Administrative Procedures Act or the Little Tucker Act.
II. DISCUSSION
A. The Anti-Injunction Act and Declaratory Judgment Act
The IRS argues that although Plaintiffs' Amended Complaint is couched in contract terms, the relief sought therein would improperly restrain the collection of a tax in violation of the Anti-Injunction Act and the Declaratory Judgment Act.
The Anti-Injunction Act provides that with certain exceptions not applicable here, "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person . . ." 26 U.S.C. § 7421 (a); see also Jones v. United States, 889 F.2d 1448, 1449-50 (5th Cir 1989) ("[The Anti-injunction Act] insures that, once a tax has been assessed, the taxpayer ordinarily has no power to prevent the IRS from collecting it; his only recourse is to pay the tax in full, and then sue for a refund.").
The Declaratory Judgment Act, which waives sovereign immunity to allow suits seeking equitable relief against the United States, expressly excludes suits with respect to federal taxes. 28 U.S.C. § 2201(a); see also Bob Jones University v. Simon, 416 U.S. 725, 732 n. 7 (1974) ("The congressional antipathy for premature interference with the assessment or collection of any federal tax . . . extends to declaratory judgments.")
Plaintiffs do not dispute that the Anti-Injunction and Declaratory Judgment Acts do not allow suits to restrain the collection of federal taxes. However, Plaintiffs argue that they seek neither to restrain the collection of a tax, nor an interpretation under the Internal Revenue Code; rather, Plaintiffs maintain that this is a straight forward declaratory judgment action in which they solely seek an interpretation and judicial determination of the meaning and import of a contract namely, what the parties intended the term "statutory additions" to mean and what sums remain due under the Offers in Compromise and Collateral Agreement.
Plaintiffs also assert that they have chosen to not pay the amount demanded by the IRS and sue for a refund because the IRS has issued conflicting demands as to what it contends is owed. That argument is moot however, because the IRS states in its reply papers that payment of $57,085.84 will satisfy Plaintiffs' obligations under the Offers in Compromise at issue in this lawsuit.
In so arguing, Plaintiffs contend that only one case provides useful authority on this topic — Roberts v. United States, 242 F.3d 1065 (Fed. Cir. 2001). In that case, the taxpayer entered into an offer in compromise with the IRS regarding his liability for prior tax years. Three years later, the IRS, claiming that the taxpayer had violated the terms of the offer in compromise, terminated the agreement and demanded that the taxpayer pay the entirety of the previously compromised unpaid tax liability. The taxpayer paid his back tax liability and then sued in district court for a refund of the taxes paid beyond the amount stipulated in the offer in compromise; the taxpayer claimed that he had substantially complied with the original offer in compromise, and that the agreement should not have been terminated. The district court transferred the case to the Court of Federal Claims pursuant to 28 U.S.C. § 1631.
28 U.S.C. § 1631 provides if a court determines that it lacks jurisdiction, "the court shall, if it is in the interest of justice, transfer such action or appeal to any other such court in which the action or appeal could have been brought at the time it was filed or noticed, . . ."
The Federal Circuit reversed the transfer order and remanded to the district court, finding that the district court and the Court of Federal Claims had concurrent jurisdiction pursuant to the Tucker Act, 28 U.S.C. § 1491. In reaching that decision, the Federal Circuit was faced with the question of whether the true nature of the action was based on contract or whether it was a "tax refund" case. Id. at 1068. Despite the presence of a contract, the court noted that the taxpayer was not requesting, for example, damages from the government for breach of contract. Rather, the court observed that "[t]he fact that the alleged collection error stems from the cancellation of [the taxpayer's] [offer in compromise] contract with the IRS does not negate the fact that the monies at issue were paid pursuant to the internal-revenue laws." Id. at 1069. Thus, the court concluded that the case before it was a tax refund suit. Id.
The Tucker Act grants jurisdiction to the Court of Federal Claims for "any claim against the United States founded . . . upon any express or implied contract with the United States." 28 U.S.C. § 1491(a)(1).
While the IRS is correct that in Roberts, the taxpayer had already paid the tax and hence, there was no potential restraint on tax collection that would have been barred by the Anti-Injunction Act, and there was no request for declaratory relief, Roberts is instructive insofar as it provides an example of circumstances where the true nature of the controversy is tax related rather than contractual.
In this case, as in Roberts, the true nature of the suit is not contractual. While Plaintiffs dispute the amount owed by Plaintiffs under the Offers in Compromise, the Offers in Compromise reflect an agreement concerning monies ultimately due and owing as a result of the internal revenue laws. Plaintiffs are thus actually attempting to obtain an advance determination of the validity of the tax that the IRS seeks to collect. In that regard, Plaintiffs are, in effect, trying to impair the ability of the IRS to collect federal tax. Accordingly, the Court finds that Plaintiffs' suit is barred by the Anti-Injunction Act and the Declaratory Judgment Act. See Calafut v. Commissioner of Internal Revenue, 277 F. Supp. 266 (M.D. Pa. 1967) (holding that where suit to remove tax lien in effect sought injunctive relief restraining collection of tax, suit was barred by Anti-Injunction Act).
B. Administrative Procedures Act and Little Tucker Act
The IRS also contends that the Administrative Procedures Act and the Little Tucker Act do not provide an independent basis for jurisdiction.
Indeed, the Administrative Procedures Act ("APA"), 5 U.S.C. § 701, et seq., does not provide an independent basis for jurisdiction. See Eagle-Picher Indus., Inc. v. United States, 901 F.2d 1530, 1532 (10th Cir. 1990). Furthermore, the APA is subject to the limitations of the Anti-Injunction Act and the exclusion of tax cases from the Declaratory Judgment Act. See McCarty v. United States, 929 F.2d 1085, 1088 (5th Cir. 1991) ("[The APA] does not confer jurisdiction if a more specific statute bars the requested relief. The Anti-Injunction Act, 26 U.S.C. § 7421(a), and the tax exception clause of the Declaratory Judgment Act, 28 U.S.C. § 2201, bar the relief sought and therefore [the APA] does not provide a basis for jurisdiction . . .").
Finally, 28 U.S.C. § 1346(a)(2), known as the Little Tucker Act, "authoriz[es] only actions for money judgments and not suits for equitable relief against the United States." Richardson v. Morris, 409 U.S. 464, 465 (1973). Here, however, Plaintiffs seek no monetary relief. Therefore, the Little Tucker Act does not confer jurisdiction upon this Court.
III. CONCLUSION
Because this Court lacks jurisdiction over this matter, the IRS's motion to dismiss is granted. The Clerk of the Court shall close this case.