The opinion of the court was delivered by: Ricardo M. Urbina United States District Judge
Master File: 07-mc-0014 (RMU)
GRANTING THE DEFENDANT'S MOTIONS TO DISMISS
Transferred to this district and coordinated for pretrial purposes, these cases collectively challenge the Internal Revenue Service's ("IRS") procedure for issuing refunds of a defunct long-distance telephone excise tax. The plaintiffs, 14 individuals and 2 companies, allege that the IRS illegally collected federal taxes from them in connection with their purchase of long-distance telephone services. They seek recovery of sums paid, as well as certain injunctive and declaratory relief. The sole defendant, the United States, submits that the court lacks subject-matter jurisdiction over any of the plaintiffs' claims, contending that they failed to comply with the terms of waiver of sovereign immunity; that injunctive and declaratory relief is barred by the Anti-Injunction Act, 26 U.S.C. § 7421(a), the Declaratory Judgment Act, 28 U.S.C. § 2201, and is moot following the IRS's decision to cease collecting the tax; and that the complaints fail to state claims for relief under either the U.S. Constitution or any federal statute, including the Administrative Procedure Act, 5 U.S.C. § 702. Because the court agrees that the plaintiffs failed to exhaust their administrative remedies before filing suit, it dismisses their refund claims.
Likewise, as intervening events have mooted the plaintiffs' claims for injunctive and declaratory relief, the court dismisses those. And, finally, because the plaintiffs' remaining causes of action under federal law fail to state a claim, they too fail.
The facts are free of conflict. For nearly forty years, § 4251 of the Internal Revenue Code empowered the IRS to collect a three-percent excise tax on long-distance telephone calls. Nat'l R.R. Passenger Corp. v. United States, 431 F.3d 374, 374-75 (D.C. Cir. 2005). Two years ago, in a span of decisions separated by not more than twelve months, five federal appeals courts unanimously declared the IRS's reliance on § 4251 to be unlawful. Reese Bros., Inc. v. United States, 447 F.3d 229, 234 (3d Cir. 2006); Fortis, Inc. v. United States, 447 F.3d 190, 190 (2d Cir. 2006); Nat'l R.R. Passenger Corp., 431 F.3d at 379; OfficeMax, Inc. v. United States, 428 F.3d 583, 600 (6th Cir. 2005); Am. Bankers Ins. Group, Inc. v. United States, 408 F.3d 1328, 1338 (11th Cir. 2005).
The IRS heeded this juridical clarion and, on May 25, 2006, announced that it was discontinuing collection of the tax effective July 31, 2006. IRS Not. 2006-50, 2006-25 I.R.B. 1141 § 4(c) (May 26, 2006) ("Notice 2006-50"). Notice 2006-50 also announced the implementation of a refund procedure for taxes paid between February 28, 2003 and August 1, 2006, by which taxpayers could file claims on their federal income tax returns, requesting either a full refund (provided they retained substantiating records) or a "safe harbor" amount (ranging between thirty and sixty dollars). Id.
This MDL combines three lawsuits. Plaintiffs Oscar Gurrola and Rosalva Gurrola filed a complaint against the defendant on June 5, 2006. Gurrola Compl. They filed their first amended complaint on June 22, 2006. It adds Bernadette Carol Duffy as a plaintiff, alleges that the collection of the excise tax violates the Fifth Amendment's Takings Clause and the Uniformity Clause of Art. I, §8 of the U.S. Constitution, portrays the collection of the tax as an illegal exaction, claims unjust enrichment and violations of 47 U.S.C. § 201(b) and Truth-In-Billing regulation 47 C.F.R. 64.2401(b), and seeks restitution, a refund of sums paid, and injunctive relief. Gurrola First Am. Compl. ¶¶ 90, 95, 99, 103, 109, 114, 117, 133.
Plaintiffs Virginia Sloan, Gary Sable, Robert McGranaham, Shari Perlowitz, Catering by Design, Inc., Joan Denenberg, Carolyn Hrusovsky, Reginald Krasney, Stacy Markowits, Marion Sachuk, James Gillins and NCS Companies, Inc. filed a complaint against the defendant on March 15, 2006, which contained claims for violations of the Fifth Amendment's Due Process and Takings Clauses, unjust enrichment, injunctive and declaratory relief enjoining the IRS from continuing collection of the excise tax, and APA claims alleging that collection of the tax exceeds IRS authority and that the IRS has unreasonably refused to promulgate regulations to enable taxpayers to seek refunds of the excise tax. Sloan Compl. ¶¶ 43, 39, 52, 56, 64, 70. They filed an amended complaint on May 3, 2006, which added a claim of illegal exaction, a claim for a tax refund and a claim for a writ of mandamus. Sloan First Am. Compl. ¶¶ 94, 118, 123. They filed a second amended complaint on July 6, 2006, which alleged new due process violations, infringements on substantive due process rights, and new APA claims that Notice 2006-50 exceeds the IRS's authority and was improperly promulgated without rulemaking, and sought declaratory and injunctive relief against implementation of Notice 2006-50. Sloan Second Am. Compl. ¶¶ 67, 76, 82, 89, 112, 118.
Plaintiff Neiland Cohen submitted an administrative refund claim to the IRS on November 18, 2005, then filed suit on his own behalf and that of similarly situated taxpayers on November 29, 2005 for an injunction against enforcement of the excise tax. Cohen Compl. ¶¶ 5, 24. Cohen filed an amended complaint on February 6, 2006 to add a tax-refund count to his suit, alleging exhaustion of administrative remedies in that the U.S. "has formally rejected [the plaintiff's] refund request." Cohen Am. Compl. ¶¶ 16-19. On July 24, 2006, the defendant filed a request for dismissal of the refund claim for lack of subject-matter jurisdiction. On July 26, 2006, the court, in recognition of the IRS's decision to stop collection of the excise tax, granted the plaintiff's motion to deny as moot the defendant's motion to dismiss the plaintiff's injunction claim. Order (July 26, 2006). On November 27, 2006, Cohen filed a second amended complaint, adding an APA claim for judicial review of the IRS's new refund mechanism. Cohen Second Am. Compl. ¶¶ 26-29; 5 U.S.C. § 702. At this time, Cohen also updated his refund request to include the period from July 1, 2002 through July 31, 2006 (the last day the tax was collected), reflecting a total refund claim of $54.84. Cohen Second Am. Compl. ¶¶ 22-25. On August 10, 2007, the court issued an order and opinion sustaining Cohen's APA claim against a motion to dismiss filed by the defendant. Mem. Op. (Aug. 10, 2007).
The proceeding analysis addresses and resolves all outstanding dispositive motions, to wit: (1) the defendant's motion to dismiss Gurrolas' first amended complaint for lack of subject- matter jurisdiction, lack of personal jurisdiction, insufficiency of service of process*fn1 , and failure to state a claim; (2) the defendant's motion to dismiss Sloan's second amended complaint for lack of subject-matter jurisdiction and failure to state a claim; and (3) the defendant's motion to dismiss the tax refund claim raised in Cohen's second amended complaint for lack of subject-matter jurisdiction.
A. Legal Standard for a Motion to Dismiss Pursuant to Rule 12(b)(1)*fn2
Federal courts are courts of limited jurisdiction and the law presumes that "a cause lies outside this limited jurisdiction." Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994); St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 288-89 (1938); see also Gen. Motors Corp. v. Envtl. Prot. Agency, 363 F.3d 442, 448 (D.C. Cir. 2004) (noting that "[a]s a court of limited jurisdiction, we begin, and end, with an examination of our jurisdiction").
Because "subject-matter jurisdiction is an 'Art. III as well as a statutory requirement[,] no action of the parties can confer subject-matter jurisdiction upon a federal court.'" Akinseye v. District of Columbia, 339 F.3d 970, 971 (D.C. Cir. 2003) (quoting Ins. Corp. of Ir., Ltd. v. Compagnie des Bauxite de Guinea, 456 U.S. 694, 702 (1982)). On a motion to dismiss for lack of subject-matter jurisdiction pursuant to Rule 12(b)(1), the plaintiff bears the burden of establishing by a preponderance of the evidence that the court has subject-matter jurisdiction. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992). The court may dismiss a complaint for lack of subject-matter jurisdiction only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Empagran S.A. v. F. Hoffman-Laroche, Ltd., 315 F.3d 338, 343 (D.C. Cir. 2003) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).
As subject-matter jurisdiction focuses on the court's power to hear the claim, however, the court must give the plaintiff's factual allegations closer scrutiny when resolving a Rule 12(b)(1) motion than would be required for a Rule 12(b)(6) motion for failure to state a claim. Macharia v. United States, 334 F.3d 61, 64, 69 (D.C. Cir. 2003); Grand Lodge of Fraternal Order of Police v. Ashcroft, 185 F. Supp. 2d 9, 13 (D.D.C. 2001). Thus, the court is not limited to the allegations contained in the complaint. Hohri v. United States, 782 F.2d 227, 241 (D.C. Cir. 1986), vacated on other grounds, 482 U.S. 64 (1987). When necessary, the court may consider the complaint supplemented by undisputed facts evidenced in the record, or the complaint supplemented by undisputed facts plus the court's resolution of disputed facts. Herbert v. Nat'l Acad. of Scis., 974 F.2d 192, 197 (D.C. Cir. 1992).
B. The Procedure for Challenging an Unlawful Federal Tax
Before treading into this jurisdictional maze, the court pauses to review the established legal infrastructure for obtaining a tax refund. At the outset, a taxpayer challenging a tax must first file a refund claim with the IRS. See I.R.C. § 7422(a) (providing that "[n]o suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax . . . until a claim for refund . . . 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"). The Secretary by regulation requires that claims for refund: 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. The statement of the grounds and facts must be verified by a written declaration that it is made under the penalties of perjury. A claim which does not comply with this paragraph will not be considered for any purpose as a claim for refund or credit.
Treas. Reg. § 301.6402-2(b)(1). The requirement for filing a proper refund claim "is designed both to prevent surprise and to give adequate notice to the Service of the nature of the claim and the specific facts upon which it is predicated, thereby permitting an administrative investigation and determination." Computervision Corp. v. United States, 445 F.3d 1355, 1363 (Fed. Cl. 2006) (citation omitted). The claim must be filed timely: after the tax has been paid, Rosenman v. United States, 323 U.S. 658, 658 (1945), but before the expiration of the time for filing, United States v. Dalm, 494 U.S. 596, 602 (1990), which occurs "3 years from the time the [tax] return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later," I.R.C. § 6511(a).
If a claim is filed and the IRS denies it or withholds a response for six months, a claimant may file a refund suit against the United States in the Federal Claims Court or a federal district court. I.R.C. § 7422(a); I.R.C. § 6532; 28 U.S.C. § 1346(a). In a refund suit, the taxpayer must prove both the excessiveness of the assessment and the correct amount of any refund to which she is entitled. United States v. Janis, 428 U.S. 433, 434 (1976). When the claim is filed within the three-year limitation period, "the amount of the credit or refund shall not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to 3 years."
I.R.C. § 6511(b)(2). This is the only limit on recovery in a refund suit -- thus, "where the taxpayer timely files a tax return, pays the tax, files a timely administrative claim, and then is assessed an additional tax, which the taxpayer pays, . . . . a taxpayer . . . [need not] exhaust his administrative remedies twice." Keeter v. United States, 957 F. Supp. 1160, 1163, 1165 (E.D. Cal. 1997). Simply stated, a refund may include additional taxes paid after the filing of a refund claim, so long as the total does not exceed the portion of tax paid prior to the administrative claim. Lundy v. IRS, 45 F.3d 856, 858 (4th Cir. 1995); Keeter, 957 F. Supp. at 1164.
C. The Court Lacks Subject-Matter Jurisdiction over the Plaintiffs' Refund Claims
1. The Gurrola Plaintiffs Fail to Allege Exhaustion of Administrative Remedies
The defendant takes pains to make clear that a tax refund suit is the exclusive remedy for a taxpayer to recovery wrongfully collected taxes. The United States has waived its sovereign immunity against such suits, but only to the extent that a plaintiff has first filed a timely claim with the IRS. Gurrola Def.'s Mot. to Dismiss at 19. The Gurrola plaintiffs admit that they have filed no claims with the IRS for refunds of sums they have paid on the excise tax. Gurrola Am. Compl. ¶ 108. Nevertheless, they argue that the defendant has "waived the requirements of a prior administrative request by rendering futile all possible current requests for the refund." Id. ¶ 107. In support thereof, they observe that Notice 2005-79 "preemptively denied all possible refund requests" when it declared that the IRS would continue to litigate the legality of the tax. Gurrolas' Opp'n to Def.'s Mot. to Dismiss ("Gurrolas' Opp'n") at 18. Moreover, they continue, Notice 2006-50 (which superceded Notice 2005-79) announced that refund claims could only "be brought after the close of the 2006 calendar year," the effect of which "was to place Plaintiffs on notice that, even if they had filed an administrative request, no such request would be processed within the six month time period required by statute." Id. at 18-19. These circumstances, along with the fact that the IRS has "fully investigated the merits of the [plaintiffs'] claims," id. at 21, should leave the court disposed to treat the exhaustion requirement as either waived by the IRS or excused as futile. Id. In the alternative, the plaintiffs propose that the court treat their civil complaint as "a satisfactory request for a refund," because "it put the Treasury on notice of the nature of the claims and permitted the Commissioner's agents to focus on the merits of the claims." Id.
The Gurrola plaintiffs' arguments fail. As for their defense that Notice 2005-79 preemptively denied all refund requests, this point is inapposite. Notice 2006-50 superceded Notice 2005-79 on May 25, 2006, advising tax payers of a new procedure for filing excise tax refund requests that the IRS would honor. IRS Not. 2006-50, 2006-25 I.R.B. 1141. The Gurrola plaintiffs did not file suit until June 5, 2006. Thus, they ...