Trakhter v. United States

• Court: District Court, N.D. California
• Decided: July 14, 2020
• Docket: 3:20-cv-02282
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 LENNY TRAKHTER, et al., Case No. 20-cv-02282-SI

8 Plaintiffs, ORDER GRANTING DEFENDANT’S 9 v. MOTION TO DISMISS FOR LACK OF JURISDICTION 10 UNITED STATES, Re: Dkt. No. 11 11 Defendant.

12 13 On June 11, 2020, the defendant, the United States, filed the instant motion to dismiss the 14 plaintiff-taxpayers’ tax refund complaint. Dkt. No. 12 at 11 (Mot. to Dismiss). Pursuant to Civil 15 Local Rule 7-1(b) the Court hereby vacates the July 17, 2020, hearing. The motion to dismiss is 16 GRANTED. 17 18 BACKGROUND 19 The IRS determined plaintiff-taxpayers Lenny Trakhter and Natalya Malakhova formed a 20 construction company in December of 2007. Dkt. No. 1 ¶ 8 (citing Dkt. No. 1-1, Exhibit A) (Refund 21 Complaint). On June 8, 2009, plaintiff-taxpayers filed their 2008 tax return indicating a total tax 22 liability of $8,040.00. Dkt. No. 1 ¶ 6 (Refund Complaint). In approximately July 2010, the IRS 23 audited plaintiff-taxpayers’ 2008 tax return. Id. at 1 ¶ 7. The IRS concluded the plaintiff-taxpayers 24 understated their construction company’s income. Id. at ¶ 7 (citing Dkt. No. 1-1, Exhibit A). 25 Subsequently, an IRS auditor conducted a bank deposit analysis for the 2008 tax year. Id. 26 at ¶ 11 (Refund Complaint). The IRS claimed plaintiff-taxpayers underreported gross income and 27 1 overstated business expenses. Id. at ¶ 9. The corporation’s missing funds were deemed constructive 2 dividends distributed to shareholders, i.e. plaintiff-taxpayers. Id. at ¶ 23. As a result, the net income 3 of the plaintiff-taxpayers’ corporation increased by $363,902.00. Dkt. No. 1 ¶ 9 (citing Dkt. No. 1- 4 1, Exhibit A (IRS Form 1040)) (Refund Complaint). The income increase required the plaintiff- 5 taxpayers to pay the IRS $160,065.98. Dkt. No. 1 ¶ 13 (citing Dkt. No. 1-1, Exhibit B (IRS Account 6 Transcript)). On April 5, 2018, the IRS levied and obtained $160,065.98 from plaintiff-taxpayers. 7 Dkt. No. 1 ¶ 14 (citing Dkt. No. 1-1, Exhibit B (IRS Account Transcript)). On April 3, 2019, 8 plaintiff-taxpayers filed a Request for Audit Reconsideration with the IRS for the 2008 tax year. 9 Dkt. No. 1 ¶ 15. 10 Plaintiffs state that on or about July 2, 2019, their counsel contacted the IRS to confirm the 11 IRS received the Request for Audit Reconsideration. Dkt. No. 1 ¶ 16. The IRS indicated no request 12 was received. Id. The following day, plaintiff-taxpayers’ counsel resubmitted the Request for Audit 13 Reconsideration. Dkt. No. 1 ¶ 16 (citing Dkt. No. 1-1, Exhibit D). On February 22, 2020, plaintiff- 14 taxpayers filed IRS Form 843 for tax year 2008. Dkt. No. 1 ¶ 17 (citing Dkt. No. 1-1, Exhibit E 15 (IRS Form 843 “Claim for Refund and Request for Abatement”)). 16 On April 3, 2020, plaintiff-taxpayers filed a civil complaint against the United States 17 government for refund of overpayment of taxes. Dkt. No. 1 (Refund Complaint). The United States 18 moved the Court to dismiss the complaint for lack of subject matter jurisdiction pursuant to FRCP 19 12(b)(1). Dkt. No. 11 at 3 (Mot. to Dismiss). 20 21 LEGAL STANDARD 22 Fed. R. Civ. P. 12(b)(1) allows a party to challenge a federal court’s subject matter 23 jurisdiction. As the party invoking subject matter jurisdiction of the federal court, the plaintiff bears 24 the burden of establishing the court has the requisite subject matter jurisdiction. See Kokkonen v. 25 Guardian Life Ins. Co. of America, 511 U.S. 375, 377 (1994). A complaint will be dismissed if, 26 looking at the complaint as a whole, it appears to lack federal jurisdiction either “facially” or 27 “factually.” Thornhill Publ'g Co., Inc. v. General Tel. & Elecs. Corp., 594 F.2d 730, 733 (9th Cir. 1 jurisdictional attack may be facial or factual.”). A challenge to subject matter jurisdiction is a factual 2 attack where the moving party relies on extrinsic evidence and does not assert a lack of subject 3 matter jurisdiction solely based on the pleadings. Safe Air for Everyone, 373 F.3d at 1039 (quoting 4 Morrison v. Amway Corp., 323 F.3d 920, 924 n.5 (11th Cir. 2003)). 5 “In resolving a factual attack on subject matter jurisdiction, the district court may review 6 evidence beyond the complaint without converting the motion to dismiss into a motion for summary 7 judgment.” Id. (citing Savage v. Glendale Union High Sch., 343 F.3d 1036, 1039 n.2 (9th Cir. 8 2003)). If the moving party converts its motion to dismiss into a factual motion by submitting 9 affidavits, the opposing party must then also present affidavits or other evidence to meet its burden 10 for satisfying subject matter jurisdiction. Id. 11 12 DISCUSSION 13 A civil action for a tax refund may be brought against the United States pursuant to 28 U.S.C. 14 § 1346 and 26 U.S.C. § 7422. Section 7422(a) provides that no suit shall be maintained in any court 15 until a claim for refund or credit has been duly filed with the Secretary of the Treasury. See Boyd 16 v. United States, 762 F.2d 1369, 1371 (9th Cir. 1985). First, the “duly filed” claim must be timely. 17 Northern Life Ins. Co. v. United States, 685 F.2d 277, 279 (9th Cir. 1982). Second, “[i]f the refund 18 claim does not meet the requirements of the Code and the regulations, the suit must be dismissed . . 19 . .” Boyd v. United States, 762 F.2d 1369, 1371 (9th Cir. 1985). However, the district court may 20 have jurisdiction if the taxpayer presents facts sufficient to enable the commissioner of the Internal 21 Revenue to make an intelligent administrative review of the claim. Lemoge v. United States, 378 F. 22 Supp. 228, 232 (N.D. Cal. 1974). 23 First, the plaintiff-taxpayers here have not properly waited before filing suit. Jurisdiction 24 pursuant to § 7422(a) is limited by 26 U.S.C. § 6532(a)(1). Section 6532(a)(1) requires a taxpayer 25 to wait at least six months from the date a refund claim was filed before filing suit if the claim has 26 not been acted upon by the IRS. Here, plaintiff-taxpayers filed their refund claim on February 22, 27 2020, and then filed their civil complaint on April 3, 2020, less than two months later. Dkt. No. 1 ¶ 1 did not fulfill the § 6532(a)(1) requirements. This temporal requirement cannot be cured through 2 the passage of time as the Court must determine if it had jurisdiction as of the date the complaint 3 was filed. Grupo Dataflux v. Atlas Glob. Grp., L.P., 541 U.S. 567, 570 (2004) (citing Mollan v. 4 Torrance, 22 U.S. 537, 539 (1824)) (“It has long been the case that ‘the jurisdiction of the court 5 depends upon the state of things at the time of the action brought.’”). 6 Second, the plaintiff-taxpayers did not comply with Treasury Regulations 26 C.F.R. 7 § 301.6402-3(a)(2) or 26 C.F.R. § 301.6402-2(b)(1). Section 301.6402-3(a)(2) requires plaintiff- 8 taxpayers to submit a Form 1040X for overpayment refund claims if the taxpayer originally filed 9 with Form 1040 or 1040A. While plaintiff-taxpayers originally filed with Form 1040, they filed 10 their refund claim with Form 843. Dkt. No. 1-1, Exhibit A (IRS Form 1040); Dkt. No. 1 ¶ 17 11 (indicating plaintiff-taxpayers filed with Form 843). Plaintiff-taxpayers argue “it would be 12 redundant and burdensome to prepare a 1040X that reflected a different tax return than the tax return 13 they originally filed.” Dkt. No. 12 at 7 (Opp. Mot. To Dismiss). This argument is unpersuasive and 14 does not justify ignoring the Treasury Regulation. 15 Additionally, plaintiff-taxpayers did not comply with 26 C.F.R. § 301.6402-2(b)(1). Section 16 301.6402-2(b)(1) indicates a taxpayer must write and execute a refund claim under penalty of 17 perjury. Or, a plaintiff-taxpayers’ counsel may write and execute the refund claim and attach a 18 power of attorney form. 26 C.F.R. § 301.6402-2(e). Here, plaintiff-taxpayers’ counsel executed 19 the refund claim and attached the power of attorney. Dkt. No. 1-1, Exhibit C (Form 2848 power of 20 attorney). However, plaintiff-taxpayers’ counsel did not sign under penalty of perjury. Id. This is 21 a critical omission, as the IRS “has heightened requirements for allowing a representative to sign a 22 document under penalty of perjury on behalf of a principal.” Wilson v. United States, No. 18-408 23 T, 2019 WL 988600, at *5 (Fed. Cl. Feb. 27, 2019). The power of attorney form does not fulfil the 24 penalty of perjury requirement. Id. Plaintiff-taxpayers’ counsel needed to sign the refund claim 25 under penalty of perjury. Id. Thus, the plaintiff-taxpayers failed to follow the Treasury Regulation 26 § 301.6402-2(b)(1). Id. 27 Third, jurisdiction pursuant to § 7422 is satisfied if the refund claim presents “facts sufficient 1 claim.” Lemoge v. United States, 378 F. Supp. 228, 232 (N.D. Cal. 1974) (citing Tucker v. 2 Alexander, 275 U.S. 228, 231 (1927)). “Failure to observe [the statute and regulations] does not 3 || necessarily preclude recovery.” Id. However, “the court must be mindful that the basic purposes 4 || of § 7422(a) and the accompanying regulations are ‘to afford the [IRS] an opportunity to consider 5 and dispose of the claim without the expense and time which would be consumed if every claim had 6 || tobe litigated....’” Id. 7 Here, plaintiff-taxpayers state the IRS knew they were challenging the tax assessed by the 8 audit conducted on the 2008 tax return and challenging the imposed tax. Dkt. No. 12 at 6 (Reply). 9 || Plaintiff-taxpayers further argue their detailed letter explaining the basis of their request for refund, 10 || Form 843, and their originally filed 2008 1040 Form sufficiently enables the Commissioner of 11 Internal Revenue to make an intelligent administrative review of the claim. /d. at 7. However, as 12 || discussed above, the IRS was not given a meaningful opportunity to consider and dispose of the 5 13 claim, as the plaintiffs filed suit less than forty-five days after giving the IRS notice, instead of 14 || waiting the requisite 6 months. Dkt. No. 1 17 (Refund Complaint).

16 CONCLUSION 3 17 The Court GRANTS defendant’s motion to dismiss plaintiffs’ tax refund claim due to lack 18 || of jurisdiction. Plaintiff-taxpayer’s complaint is dismissed without prejudice. The plaintiff- 19 taxpayers may re-file their civil complaint after waiting six months from their IRS refund claim 20 || filing date if the IRS has not acted on the refund claim or after putting the IRS on notice by signing 21 their refund claim under penalty of perjury and by utilizing Form 1040X. 22 23 IT IS SO ORDERED. 24 |} Dated: July 14, 2020 Site WU tee 25 6 SUSAN ILLSTON United States District Judge 27 28