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Shane v. United States

January 9, 2008


The opinion of the court was delivered by: Reggie B. Walton United States District Judge


Phillip B. Shane, the plaintiff in this civil case, seeks to recover damages against the United States of America pursuant to the Taxpayer Bill of Rights, 26 U.S.C. § 7433 (2000), based on multiple alleged violations of the Internal Revenue Code, 26 U.S.C. §§ 1-9833 (2000), and various regulations enforcing those statutory provisions by the Internal Revenue Service (the "IRS"). Amended Verified Complaint, Petition, and Claim for Judicial Review and for Damages in the Nature of a Complaint, Petition, and Claim for Judicial Review and for Damages under the Authority of 26 U.S.C. § 7433 (the "Am. Compl.") at 1-18. The defendant seeks dismissal of the plaintiff's amended complaint "on the grounds that he failed to serve the [IRS], failed to exhaust administrative remedies, and failed to state a claim upon which relief can be granted." United States'[s] Motion to Dismiss Amended Complaint at 1. After carefully reviewing the plaintiff's amended complaint, the defendant's motion to dismiss, and all memoranda and exhibits relevant thereto,*fn1 the Court concludes for the reasons that follow that it must grant the defendant's motion and dismiss the plaintiff's amended complaint in its entirety.

I. Background

The following facts are alleged in the plaintiff's amended complaint. The plaintiff, a resident of California, Am. Compl. ¶ 1(A), has been the subject of scrutiny by the IRS since March of 1999, when he received a letter from an IRS agent indicating that his 1998 tax return had been changed by the IRS, Verified Statement of Facts Regarding Unlawful Collection Activities and Multiple Violations of Title 26 U.S.C. (the "Pl.'s Facts") ¶ 1.*fn2 After receiving a similar letter from the IRS on October 11, 2000, id. ¶ 2, the plaintiff learned on July 22, 2002, that the IRS intended to levy certain of his assets based on taxes owed for tax year 1998, id. ¶ 19, and on September 9, 2002, that taxes were owed based on his 1998 return, id. ¶ 23. The IRS issued substantially identical letters to the plaintiff throughout 2001 and 2002 with respect to the plaintiff's 2000 tax return, id. ¶¶ 4-9, 12, 17, 20, 22, and throughout 2002 with respect to the plaintiff's 1999 tax return, id. ¶¶ 10, 15-16, and unfiled 2001 tax return, id. ¶¶ 18, 21, 29, 32, 36.

On October 28, 2002, the IRS issued a letter directing the plaintiff to contact the agency immediately to prevent the loss of his property. Id. ¶ 24. The plaintiff wrote a letter in response to this notice, to which the IRS never responded. Id. Instead, on January 6, 2003, the IRS issued a notice to the plaintiff that it would levy his wages, prompting the plaintiff to write another letter in which he demanded proof of his liability. Id. ¶ 25. The IRS responded to this correspondence in a letter of its own dated March 5, 2003. Id. ¶ 28.

After corresponding with the IRS over the course of 2003 about the various claims arising from the plaintiff's 1998-2001 tax returns, id. ¶¶ 30-31, 34, 37, the United States Tax Court (the "Tax Court") accepted one of the plaintiff's letters as "an imperfect petition" on November 3, 2003, id. ¶ 39. When the plaintiff failed to file the forms necessary to perfect his petition, the Tax Court dismissed his petition for lack of jurisdiction. Id. ¶ 42. Notwithstanding this action by the Tax Court, the IRS wrote the plaintiff again on October 7, 2004, to offer him the opportunity for a face-to-face hearing if the plaintiff was "prepared to discuss issues relevant to paying [his] tax liability." Id. ¶ 43. The plaintiff responded by demanding that the contact person listed on the October 7, 2004 letter recuse herself and refer the plaintiff's hearing "to an impartial individual who will reach a decision after [a] hearing." Id.

On November 23, 2004, the Inspector General for the Tax Administration sent a letter to the plaintiff informing him that it had reviewed the plaintiff's complaint in response to the IRS's October 7, 2004 letter and would take "appropriate action." Id. ¶ 44. The IRS then sent a letter dated December 10, 2004, in which it stated that the plaintiff had declared a telephone hearing "unacceptable"--a charge the plaintiff denies. Id. ¶ 45. The IRS sent a second letter to the same effect on March 10, 2005. Id. ¶ 46. The IRS sent a final notice to the plaintiff informing him that the agency would levy his social security benefits on January 9, 2006. Id. ¶ 47. The plaintiff learned that the IRS was going to apply a portion of his social security benefit payments in satisfaction of its claims at that same time. Id.

The plaintiff filed his complaint in this Court on March 23, 2007. After the defendant filed a motion to dismiss the plaintiff's complaint, the plaintiff filed an amended complaint on July 6, 2007. The defendant moved to dismiss the amended complaint on August 1, 2007. The plaintiff responded to the defendant's motion on September 17, 2007.*fn3

In its motion, the defendant argues that the Court should dismiss the plaintiff's amended complaint because (1) the plaintiff did not serve the IRS with a copy of the Court's summons and his complaint or amended complaint, see Def.'s Mem. at 3-4 ("Failure to properly serve the United States deprives the Court of personal jurisdiction, leaving the Court with no power to compel an answer or response."), (2) the Court lacks "jurisdiction over [the] plaintiff's claim" insofar as it could be construed as a claim for "a tax refund" under 26 U.S.C. § 7422 (2000), id. at 5, (3) the Court lacks subject-matter jurisdiction under § 7433 "because [the] plaintiff has failed to demonstrate that he filed an administrative claim for damages with the [IRS]," id. at 6, (4) the "[p]laintiff's amended complaint . . . fails to provide the necessary factual detail to state a claim," id. at 8, (5) any request for "an order enjoining the [IRS] from engaging in any further tax collection activities . . . is barred by the Anti-Injunction Act," 26 U.S.C. § 7421 (2000), Def.'s Mem. at 14, and any request for declaratory relief "is barred under the Declaratory Judgment Act, 28 U.S.C. § 2201 [(2000)]," id. at 14 n.5, and (6) the plaintiff cannot recover damages under the Administrative Procedures Act, 5 U.S.C. §§ 701-800 (2000), the Federal Records Act, 44 U.S.C. § 3101 (2000), or the National Archives Act, 44 U.S.C. § 3106 (2000),*fn4 because the Administrative Procedures Act "does not provide jurisdiction over actions concerning the assessment and/or collection of federal taxes," id. at 18, and "[§] 7433 is the exclusive remedy for damages involving the collection of federal taxes," id. at 18 n.8.

The plaintiff concedes that his lawsuit "is not a 'refund' suit" under § 7422, Pl.'s Opp'n at 2, and he stipulates that he does not seek to enjoin the IRS from engaging in collection activities, id. at 14. Further, the plaintiff does not contest the defendant's argument that damages are unavailable under the Administrative Procedures Act, the Federal Records Act, or the National Archives Act. See id. at 13 (describing these statutory provisions only as a source of jurisdiction, not as a statutory basis for the recovery of damages).*fn5 But the plaintiff vigorously disputes the defendant's arguments that (1) service was not perfected in this case, see id. at 2 (arguing that "service upon [the] IRS is not warranted under § 7433"), (2) the Court lacks subject-matter jurisdiction in this case because the plaintiff failed to exhaust his administrative remedies, see id. at 3-9 (arguing that there was no substantive administrative remedy available to the plaintiff to exhaust), and (3) the plaintiff's factual allegations fail to state a claim for relief under § 7433, see id. at 10-12, 14 (arguing that the plaintiff's allegations in his amended complaint "meet[] the 'notice pleading' requirements set forth in [Federal Rule of Civil Procedure] 8(a)").

II. Standards of Review

The defendant's arguments for dismissal based on purported deficiencies in the plaintiff's amended complaint implicate both Rule 12(b)(1) and Rule 12(b)(6) of the Federal Rules of Civil Procedure. "Rule 12(b)(1) presents a threshold challenge to the [C]court's jurisdiction, whereas 12(b)(6) presents a ruling on the merits with res judicata effect." Al-Owhali v. Ashcroft, 279 F. Supp. 2d 13, 20 (D.D.C. 2003). The two sub-parts of the rule are governed by distinct legal standards, as outlined below. In addition, the defendant's argument that the IRS was not properly served in this case implicates Rule 12(b)(5) of the Federal Rules of Civil Procedure. The Court therefore addresses all three sub-parts of Rule 12 in its discussion of the governing standards of review.

A. Motion to Dismiss for Insufficient Service of Process under Rule 12(b)(5)

Federal Rule of Civil Procedure 4 sets forth specific requirements for service of a plaintiff's complaint and the summons issued by the Clerk of the Court at the request of a plaintiff. "The Court may dismiss a complaint for ineffective service of process pursuant to [Rule] 12(b)(5) if the plaintiff fails to establish that he . . . has properly effectuated service pursuant to Rule 4." Lindsey v. United States, 448 F. Supp. 2d 37, 42 (D.D.C. 2006) (Walton, J.). "[T]he party on whose behalf service is made has the burden of establishing its validity when challenged; to do so, he must demonstrate that the procedure employed satisfied the requirements of ...

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