Millie J. Schuyler v. United States of America

Case No. CV 11-7059-GHK (PLAx); 2012-1 U.S.T.C. ¶50,268, (Dec. 19, 2011)

December 19, 2011

Proceedings:       (In Chambers) Order re: Motion to Dismiss Complaint Under Fed. R. Civ. P 12(b)(1); [5]

This matter is before the Court on Defendant United States of America’s (“Government”) Motion to Dismiss Complaint Under Fed. R. Civ. P. 12(b)(1) (“Motion”).  The Government moves to dismiss Plaintiff Millie Schuyler’s (“Plaintiff”) Complaint for Refund of Internal Revenue Taxes (“Complaint”) on the ground that Plaintiff failed to satisfy the procedural requirements of 26 U.S.C. §§ 6325(b)(4) and 7426(a)(4) before filing suit in this Court.  Based on Plaintiff’s failure to satisfy these requirements, the Government argues that there has been no waiver of sovereign immunity or grant of subject matter jurisdiction for Plaintiff’s action, and this action must be dismissed.  We have considered the arguments in support of and in opposition to the Motion and consider this matter appropriate for resolution without oral argument.  L.R. 7-15.  As the Parties are familiar with the facts, we will repeat them only as necessary. Accordingly, we rule as follows.

A. Background

In May of 1985, Plaintiff and her husband bought real property located at 3410 Lakeshore Boulevard, Lakeport, California 95453 (“Lakeport Property”) as joint tenants.  (Compl. ¶ 15.a).  On March 11, 1990, her husband executed a Quitclaim Deed, purporting to convey the Lakeport Property to Plaintiff as her sole and separate property.  (Compl. ¶ 15.b).  There is no allegation that the Quitclaim Deed was ever recorded.  During the 1990s, Plaintiff and her husband were estranged, and lived separately during the years 1996, 1997, 1998, and 1999.  (Compl. ¶ 15.c).  While living apart from Plaintiff, her husband incurred separate income tax liabilities for his income tax years 1996, 1997, 1998, and 1999.  (Compl. ¶ 15.d).  On November 7, 2001, the Internal Revenue Service (“IRS”) filed a Notice of Federal Tax Lien for the husband’s 1996 through 1999 liabilities in Lake County, California, on all property and rights to property belonging to him. (Compl. ¶ 15.e).

Plaintiff and her husband remained legally married until the husband’s death on July 17, 2005. (Compl. ¶ 15.f).  The Lakeport Property was sold on February 28, 2006, when a grant deed dated February 13, 2006, purporting to convey the Lakeport Property from Plaintiff to unrelated purchasers

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was recorded in Lake County.  (Compl. ¶ 15.h).  The purchase money for the sale of the Lakeport Property was held in escrow by the title company for estimated amounts due to creditors, including the IRS.  (Compl. ¶ 15.I).  The IRS sent a letter dated June 20, 2006, to the title company, stating the amount needed to release the liens against the husband.  (Compl. ¶ 15.j).  On July 5, 2006, the title company sent a check to the IRS for payment of the tax liabilities in the amount of $136,638.97. (Compl. ¶ 15.j).

Plaintiff filed claims with the IRS for refund of her payment of her husband’s income tax liabilities from escrow, asserting that the IRS liens did not attach to the Lakeport Property due to the 1990 Quitclaim Deed and the extinction of her husband’s joint tenancy interest on death.  (Compl. ¶¶ 8- 11). On September 2, 2009, the IRS issued its denial of the refund claims on the ground that Plaintiff did not follow the provisions of 26 U.S.C. § 6325(b)(4). On August 26, 2011, Plaintiff filed her Complaint in this Court, asserting subject matter jurisdiction under 28 U.S.C. § 1346(a)(1) and 26

U.S.C. § 7422.  Plaintiff seeks a refund of the proceeds from the sale of the Lakeport Property paid from escrow to satisfy the husband’s federal tax liabilities.

B. Discussion

“It is axiomatic that the United States may not be sued without its consent and that the existence of consent is a prerequisite for jurisdiction.” United States v. Mitchell, 463 U.S. 206, 212 (1983). The Government argues that it has not waived sovereign immunity because Plaintiff failed to utilize the administrative remedies available to her under 26 U.S.C. §§ 6325(b)(4) and 7426(a)(4).

In 1998, Congress enacted the Internal Revenue Service Restructuring & Reform Act, which added subsection (b)(4) to 26 U.S.C. § 6325 and subsection (a)(4) to 26 U.S.C. § 7426.  Under § 6325(b)(4), the owner of property subject to the federal tax lien of another can obtain a certificate of discharge as a matter of right from the IRS by providing a cash deposit or bond sufficient to protect the Government’s lien interest in the property.  Although the IRS determines the amount necessary to protect the lien interest, it has no discretion to refuse to issue a properly applied for certificate of discharge.  The provision authorizes the refund of all or part of the amount deposited if the IRS later determines that the Government does not have a lien interest or has a lesser lien interest than it initially determined.

Section 7426(a)(4) provides a judicial remedy if the owner is dissatisfied by the IRS’s determination of the lien value.  It authorizes the owner to file an action challenging the lien within 120 days after the issuance of the certificate of discharge.  If the owner does not challenge the IRS’s determination within the 120-day period, the IRS has 60 days to apply the amount deposited or collect on the bond to the extent necessary to satisfy the Government’s lien interest.  § 6325(b)(4)(C).  If the owner successfully challenges the IRS’s determination of the value of the lien interest, the court shall enter judgment ordering a refund of the amount deposited or a release of the bond to the extent that the deposit or bond amount exceeds the value of the lien interest determined by the court.  § 7426(b)(5).

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The statute clearly states that “[n]o other action may be brought by such a person for such a determination.”  § 7426(a)(4).

Here, Plaintiff does not allege that she ever requested or received a certificate of discharge.

Additionally, Plaintiff filed her Complaint in this Court over five years after she paid her husband’s lien, significantly long after the 120–day period envisioned by Congress.  Nonetheless, Plaintiff argues that this Court has jurisdiction over her claims under 28 U.S.C. § 1346, United States v. Williams, 514 U.S. 527 (1995), and Parsons v. Anglim, 143 F.2d 534 (9th Cir. 1944).  In Williams, the Court held that an

ex-wife who paid her ex-husband’s federal tax under protest, in order to remove a tax lien on the house formerly owned jointly by both, had standing to bring a refund action under § 1346(a)(1). Parsons dealt with a predecessor to § 1346 contained in the pre-1954 version of the Internal Revenue Code and has no bearing on this case because it pertains to a superseded statute.

The Government argues that Williams’s holding that § 1346 can serve as a basis of jurisdiction for a taxpayer in Plaintiff’s situation was superseded when Congress passed the Internal Revenue Service Restructuring & Reform Act 1998, and added subsection (b)(4) to 26 U.S.C. § 6325 and subsection (a)(4) to 26 U.S.C. § 7426.  We agree.  Indeed, every other case that we are aware of that has addressed this question has held that a taxpayer in Plaintiff’s situation must utilize the procedures set forth in 26 U.S.C. §§ 6325(b)(4) and 7426(a)(4) before filing a claim in district court. See, e.g., Munaco v. United States, 522 F.3d 651, 657 (6th Cir. 2008) (“Allowing [plaintiff] to sue under § 1346 would ignore the fact that Congress passed a specific statutory remedy for persons in his position and would render meaningless the 120–day limitations period. Congress was quite clear that, other than a suit following receipt of a certificate of discharge, ‘[n]o other action may be brought by such person.’”); Four Rivers Investments, Inc. v. United States, 77 Fed. Cl. 592, 603 (Fed. Cl. 2007) (“The court concludes that § 1346(a)(1) cannot provide jurisdiction in this court for refund suits brought by third party real property owners who wish to challenge tax lien-related collections by the IRS and who have not pursued the remedy provided to them by §§ 6325(b)(4) and 7426(a)(4).”); Cryster v. United States, No. CV-060175-LRS, 2006 WL 3203585, at *5 (E.D. Wash. Nov. 2, 2006) (dismissing for lack of jurisdiction because the “Plaintiff failed to exhaust administrative remedies under § 6325(b)(4) and bring a timely action under § 7426(a)(4)”); City of Richmond, Ky. v. United States, 348 F. Supp. 2d 807, 814 (E.D. Ky. 2004) (noting that the plaintiff in that case “did not use the available remedies [provided by §§ 6325(b)(4) and 7426(a)(4)] before bringing the present refund suit” and dismissing for lack of jurisdiction because of the plaintiff’s failure to exhaust administrative remedies). Moreover, the IRS has issued a Revenue ruling to this effect. See Rev. Rul. 2005-50, 2005-2 C.B. 124, 2005 WL 1710987 (“[I]n light of amendments to sections 6325 and 7426 of the Code made by the IRS Restructuring and Reform Act of 1998, a person liable for the underlying tax may not file a refund action under the holding of United States v. Williams, 514 U.S. 527 (1995).”).

Although these opinions are not binding on this Court, we agree with the weight of this authority that 26 U.S.C. §§ 6325(b)(4) and 7426(a)(4) superseded the holding in Williams. Indeed, it is a general principle that “a precisely drawn, detailed statute [such §§ 6325(b)(4) and 7426(a)(4)] pre-empts more general remedies [such as § 1346].” Brown v. GSA, 425 U.S. 820, 834 (1976). Therefore, Plaintiff was

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required to utilize the procedures set forth in 26 U.S.C. §§ 6325(b)(4) and 7426(a)(4) before filing suit in this Court.  As Plaintiff failed to utilize these procedures, we hereby GRANT the Government’s Motion.  Plaintiff’s Complaint is DISMISSED for lack of subject matter jurisdiction.



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