United States District Court, District of Columbia
CHRISTOPHER R. COOPER, UNITED STATES DISTRICT JUDGE
of the U.S. tax man is long, but in this case it needed
extend only over our northern border to find Plaintiff Donald
Dewees. Dewees is a U.S. citizen living in Canada, where he
operates a consulting business. Because the business is
incorporated abroad, Dewees was required to furnish certain
annual information about the company to the IRS. 26 U.S.C.
§ 6038(b). Unfortunately for Dewees, he neglected to do
so for over a decade.
the tax man. After Dewees voluntarily disclosed his failure
to file the required informational returns, the IRS assessed
a statutory penalty of $120, 000, $10, 000 for each year of
non-compliance. Dewees challenged the penalty before the IRS
without success and refused to pay it. But what Dewees likely
did not anticipate is that, pursuant to the U.S.-Canada tax
treaty, the Candian tax authority would hold Dewees'
domestic tax refund in abeyance until the IRS penalty was
paid in full. After paying the penalty, Dewees filed suit in
this Court challenging the relevant treaty provisions as
unconstitutional under the Eighth Amendment and both the Due
Process and Equal Protection Clauses of the Fifth Amendment.
The Government now moves to dismiss. Finding that Dewees has
failed to state a claim for relief on his Eighth Amendment
and due process claims, and lacks standing to bring his equal
protection claim, the Court will grant the Government's
motion and dismiss the case.
citizens who hold controlling interests in foreign
corporations must annually file IRS Form 5471, which
discloses certain ownership and financial information about
the corporation. In addition, U.S. citizens living abroad
must disclose holdings in foreign bank accounts over certain
thresholds by filing a Report of Foreign Bank and Financial
Accounts (“FBAR”). See Def.'s Mot.
to Dismiss (“MTD”) 7; Compl. ¶ 12. In 2009,
Dewees learned that he had failed to comply with these
requirements, and, on the advice of a tax specialist, applied
to participate in the IRS's Offshore Voluntary Disclosure
Program (“OVDP”). See Compl.
¶¶ 13-16. OVDP is intended to encourage taxpayers
who have not disclosed their offshore assets, and who are not
already under investigation by the agency, to voluntarily
comply with applicable disclosure requirements. See
IRS, 2009 Offshore Voluntary Disclosure Program,
Maze v. IRS (“Maze I”), 206
F.Supp.3d 1, 5-6 (D.D.C. 2016), aff'd, 2017 WL
2989488 (D.C. Cir. July 14, 2017). In return for their
disclosures, the program offers taxpayers compromise terms on
penalties for outstanding taxes, assurance that the IRS will
not refer the matter to the Department of Justice for
criminal prosecution, and finality regarding previous
non-disclosures. See Maze I, 206 F.Supp.3d at 6-7.
The IRS assessed a penalty of $185, 862 against Dewees for
not filing FBARs from 2003 to 2008, but did not at that time
calculate a penalty for Dewees' failure to file Form
5471. See Compl. ¶¶ 22, 24-25; IRS,
Taxpayers with Foreign Assets May Have FBAR and FATCA
Filing Requirements in June,
Dewees refused to pay the assessed penalty and withdrew from
the OVDP. See id. ¶¶ 26-27.
September 2011, the IRS notified Dewees that it had assessed
a different penalty of $120, 000 against him for failing to
file Form 5471 from 1997 to 2008. See id.
¶¶ 1, 29. Section 6038(c) of the Tax Code
authorizes the IRS to impose a $10, 000 penalty for each
missed filing. See 26 U.S.C. § 6038(c). The
total penalty was based entirely on Dewees' failure to
file; he was not liable for any unpaid taxes. See
Compl. ¶ 47. Dewees requested an abatement of this
penalty for reasonable cause, which was denied, as was his
subsequent appeal of that decision. See id.
after Dewees' appeal had been rejected, the IRS
introduced another program to encourage taxpayers to
voluntarily disclose offshore assets-the Streamlined Filing
Compliance Procedures (“SFCP”). The SFCP differs
from the OVDP in several respects: The SFCP involves less
paperwork and imposes lower penalties than the OVDP, but only
covers three years of non-compliance as opposed to the
OVDP's eight-year coverage period. See
Def.'s MTD 3-4; Compl. ¶ 50; Maze v. IRS,
2017 WL 2989488, at *1 (D.C. Cir. July 14, 2017)
(“Maze II”). And, unlike the OVDP, the
SFCP does not offer immunity from criminal prosecution.
See id., at *4 n.2. Transferring between the two
programs is generally disfavored, but taxpayers who are
otherwise eligible for the SFCP and made their OVDP
submissions before July 1, 2014, may remain in the OVDP while
requesting the more favorable terms available under the SFCP.
See Maze I, 206 F.Supp.3d at 7-8.
2015, the Canadian Revenue Agency notified Dewees that it was
holding his Canadian tax refund in abeyance due to his
outstanding $120, 000 debt to the IRS. See Compl.
¶ 37. This international collection assistance is
permitted by Article XXVI(A) of the United States-Canada
Income Tax Convention. See Def.'s MTD 9-10;
Compl. ¶ 37. Dewees promptly sent the Canadian Revenue
Agency a check for $134, 116.34, representing the $120, 000
penalty plus interest. See Compl. ¶ 38. In
September 2015, he filed a claim seeking a refund of that
amount, which was rejected in May 2016. See Compl.
¶ 5. He then brought this action, requesting that the
Court find the collection assistance provisions of the United
States-Canada Tax Convention unconstitutional for violating
(1) the Excessive Fines Clause of the Eighth Amendment, (2)
the Due Process Clause of the Fifth Amendment, and (3) the
Equal Protection Clause of the Fifth Amendment. See
id. ¶¶ 42-47, 66-67, 52-53.
Standards of Review
Government moves to dismiss for failure to state a claim upon
which relief can be granted with respect to all three of
Dewees' claims. See Def.'s MTD 1.
Alternatively, it asks that Dewees' equal protection
claim be dismissed for lack of subject matter jurisdiction.
See Id. at 18. Under Federal Rule of Civil Procedure
12(b)(1), the Court must dismiss any action over which it
cannot properly exercise jurisdiction. “[D]efect[s] of
standing” constitute “defect[s] in subject matter
jurisdiction.” Haase v. Sessions, 835 F.2d
902, 906 (D.C. Cir. 1987). The “plaintiff bears the
burden of . . . establishing the elements of standing,
” and each element “‘must be supported in
the same way as any other matter on which the plaintiff bears
the burden of proof, i.e., with the manner and
degree of evidence required at the successive stages of the
litigation.'” Arpaio v. Obama, 797 F.3d
11, 19 (D.C. Cir. 2015) (quoting Lujan v. Defenders of
Wildlife, 504 U.S. 555, 561 (1992)).
survive a 12(b)(6) motion, a “complaint must contain
sufficient factual matter, accepted as true, to ‘state
a claim to relief that is plausible on its face.'”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). A court “accept[s] as true all of the
allegations contained in [the] complaint, ”
disregarding “[t]hreadbare recitals of the elements of
a cause of action” and “mere conclusory
statements.” Iqbal, 556 U.S. at 678. The court
then examines the remaining “factual content [to
determine if it may] draw the reasonable inference that the
defendant is liable for the misconduct alleged.”
Id. A court must also consider “documents
incorporated into the complaint by reference.”
Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
551 U.S. 308, 322 (2007).
Excessive Fines Claim
bail shall not be required, nor excessive fines imposed, nor
cruel and unusual punishments inflicted.” U.S. Const.
amend. VIII. In analyzing an excessive fines claim, the Court
must first decide whether a penalty is a fine before
determining if it is unconstitutionally excessive. See
United States v. Bajakajian, 524 U.S. 321, 334 (1998). A
payment to the government is only considered a
“fine” under the Eighth Amendment if it is
“punishment for some offense.”
Bajakajian, 524 U.S. at 328 (quoting Austin v.
United States, 509 U.S. 602, 609- 10 (1993)). In other
words, the purpose of the penalty must be primarily
retributive or deterrent rather than remedial. Id.
In the ...