Hockin v. United States of America

Opinion and Order - The Court adopts in part and rejects in part the Findings and Recommendation, ECF {{46}}. Defendant's Motion to Dismiss (ECF {{15}}) is granted as to Plaintiff's quasi-estoppel claim but denied as to Plaintiff's refund claim and Plaintiff's innocent spouse claim. Signed on 8/15/2019 by Judge Michael H. Simon.

District of Oregon, ord-3:2017-cv-01926

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1 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF OREGON KIMBERLY HOCKIN, Case No. 3:17-cv-1926-JR Plaintiff, OPINION AND ORDER v. UNITED STATES OF AMERICA, Defendant. J. Scott Moede, Volunteer Attorney, LEWIS & CLARK LOW-INCOME TAXPAYER CLINIC, 1018 Board of Trade Building, 310 SW Fourth Avenue, Portland, OR 97204. Of Attorneys for Plaintiff. Richard E. Zuckerman, Principal Deputy Assistant Attorney General, and Boris Bourget, Trial Attorney, Tax Division, UNITED STATES DEPARTMENT OF JUSTICE, P.O. Box 683, Washington, DC 20044, and Billy J. Williams, United States Attorney, UNITED STATES ATTORNEY'S OFFICE, 1000 S.W. Third Avenue, Suite 600, Portland, OR 97204. Of Attorneys for Defendant. Michael H. Simon, District Judge. Kimberly Hockin ("Plaintiff") brings this action against the United States of America ("Defendant"), seeking a refund of taxes collected by the Internal Revenue Service ("IRS") for the 2007 tax year. Defendant moves to dismiss Plaintiff's claims for lack of subject matter jurisdiction. U.S. Magistrate Judge Jolie Russo issued findings and a recommendation that the Court grant Defendant's motion as it relates to Plaintiff's claim that it was inequitable to hold her PAGE 1 – OPINION AND ORDER 1 responsible for the unpaid tax or deficiency incurred on the joint tax returns that her ex-husband filed when they were married and as to Plaintiff's quasi-estoppel claim. For the reasons that follow, the Court adopts in part and rejects in part the Findings and Recommendation. Defendant's motion to dismiss is denied in part and granted in part. STANDARDS Under the Federal Magistrates Act ("Act"), the Court may "accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate." 28 U.S.C. § 636(b)(1). If a party objects to a magistrate judge's findings and recommendations, "the court shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made." Id.; Fed. R. Civ. P. 72(b)(3). For those portions of a magistrate judge's findings and recommendations to which neither party has objected, the Act does not prescribe any standard of review. See Thomas v. Arn, 474 U.S. 140, 152 (1985) ("There is no indication that Congress, in enacting [the Act], intended to require a district judge to review a magistrate's report to which no objections are filed."); United States. v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003) (en banc) (holding that the court must review de novo magistrate judge's findings and recommendations if objection is made, "but not otherwise"). Although in the absence of objections no review is required, the Act "does not preclude further review by the district judge[] sua sponte. . . under a de novo or any other standard." Thomas, 474 U.S. at 154. Indeed, the Advisory Committee Notes to Fed. R. Civ. P. 72(b) recommend that "[w]hen no timely objection is filed," the Court review the magistrate judge's recommendations for "clear error on the face of the record." Federal courts are courts of limited jurisdiction. Gunn v. Minton, 568 U.S. 251, 256 (2013) (quotation marks omitted). As such, a court is to presume "that a cause lies outside this limited jurisdiction, and the burden of establishing the contrary rests upon the party asserting PAGE 2 – OPINION AND ORDER 1 jurisdiction." Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (citations omitted); see also Robinson v. United States, 586 F.3d 683, 685 (9th Cir. 2009); Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). A motion to dismiss under Federal Rule of Civil Procedure 12(b)(1) for lack of "subject-matter jurisdiction, because it involves a court's power to hear a case, can never be forfeited or waived." United States v. Cotton, 535 U.S. 625, 630 (2002). An objection that a particular court lacks subject matter jurisdiction may be raised by any party, or by the court on its own initiative, at any time. Arbaugh v. Y&H Corp., 546 U.S. 500, 506 (2006); Fed. R. Civ. P. 12(b)(1). The Court must dismiss any case over which it lacks subject matter jurisdiction. Fed. R. Civ. P. 12(h)(3); see also Pistor v. Garcia, 791 F.3d 1104, 1111 (9th Cir. 2015) (noting that when a court lacks subject-matter jurisdiction, meaning it lacks the statutory or constitutional power to adjudicate a case, the court must dismiss the complaint, even sua sponte if necessary). A Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction may be either "facial" or "factual." See Safe Air for Everyone, 373 F.3d at 1039. A facial attack on subject matter jurisdiction is based on the assertion that the allegations contained in the complaint are insufficient to invoke federal jurisdiction. Id. "A jurisdictional challenge is factual where 'the challenger disputes the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction.'" Pride v. Correa, 719 F.3d 1130, 1133 n.6 (9th Cir. 2013) (quoting Safe Air for Everyone, 373 F.3d at 1039)). When a defendant factually challenges the plaintiff's assertion of jurisdiction, a court does not presume the truthfulness of the plaintiff's allegations and may consider evidence extrinsic to the complaint. See Terenkian v. Republic of Iraq, 694 F.3d 1122, 1131 (9th Cir. 2012); Robinson, 586 F.3d at 685; Safe Air for Everyone, 373 F.3d at 1039. A factual challenge "can attack the substance of a complaint's jurisdictional allegations despite PAGE 3 – OPINION AND ORDER 1 their formal sufficiency." Dreier v. United States, 106 F.3d 844, 847 (9th Cir. 1996) (citation and quotation marks omitted). Plaintiff timely filed an objection to which Defendant responded. Plaintiff objects to the portion of Magistrate Judge Russo's recommendation that the Court conclude that it lacks jurisdiction to consider Plaintiff's innocent spouse claim and Plaintiff's quasi-estoppel claim. BACKGROUND In this facial challenge, the Court draws the facts from the allegations in Plaintiff's complaint. Plaintiff married Shawn Harrison ("Harrison") in 1997. While they were married, Harrison had complete control over the family finances and took responsibility for the family's taxes. Plaintiff was unaware of any potential financial problems until, at the end of 2008, several of the family's vehicles were repossessed and the bank foreclosed on the family home. Plaintiff alleges that Harrison was suffering from alcohol abuse and addiction and was physically violent with her daughters. On July 30, 2009, Plaintiff and Harrison filed for divorce. The divorce was finalized on August 5, 2009. Two days earlier, on August 3, 2009, Harrison filed a joint tax return for the 2007 tax year. On October 26, 2009, Harrison filed a joint tax return for the 2008 tax year. Plaintiff claims that she did not sign either the 2007 or 2008 tax returns. No party has located a copy of the 2007 tax return. In 2014, the IRS told Plaintiff that she owed $10,000 for tax year 2007 and $80,000 for tax year 2008. Plaintiff filed a claim with the IRS for innocent spouse relief under 26 U.S.C. § 6015(f). The IRS denied Plaintiff's claim for innocent spouse relief for both 2007 and 2008 but granted Plaintiff other relief for the 2008 tax year because it concluded that Plaintiff did not sign PAGE 4 – OPINION AND ORDER 1 the return for tax year 2008.1 In December 2014, the IRS issued a letter ruling informing Plaintiff of its decision to deny innocent spouse relief as to the 2007 tax year. Plaintiff alleges that she made several payments on the 2007 tax liability, totaling more than $10,000. Plaintiff filed a claim with the IRS, seeking a refund of these payments plus interest and penalties. The IRS denied Plaintiff's claim for a refund. Plaintiff then sued in United States District Court, seeking a refund of these payments under 28 U.S.C. § 1346(a)(1) and 26 U.S.C. § 7422(a). Plaintiff asserts three theories of recovery. First, she claims that she did not sign the 2007 tax return and so it is not a valid joint tax return and any tax liability collected on the 2007 tax return was erroneously or illegally collected. Magistrate Judge Russo concluded that Plaintiff had stated a valid refund claim under 28 U.S.C. § 1346(a)(1) and therefore recommended that the Court deny Defendant's motion to dismiss as to this claim. The Court adopts that portion of the Findings and Recommendation. Second, Plaintiff claims that the doctrine of quasi-estoppel bars the IRS from collecting the tax liability for the 2007 year because it granted relief to Plaintiff for the 2008 tax year. Plaintiff failed to raise her quasi-estoppel claim before the IRS and thus Magistrate Judge Russo was correct in recommending the dismissal of that claim. The Court adopts that portion of the Findings and Recommendation. Third, Plaintiff claims that it would be inequitable to hold her liable for the 2007 tax return because she is an innocent spouse under 26 U.S.C. § 6015(f). Magistrate Judge Russo 1 Although copies of the IRS's decisions are not attached to the Complaint, the Court relies on Defendant's representations at oral argument before Judge Russo. PAGE 5 – OPINION AND ORDER 1 concluded that the Court lacked jurisdiction to consider Plaintiff's innocent spouse claim. The Court now addresses this claim. DISCUSSION Under 28 U.S.C. § 1346(a)(1), the United States District Courts and the Court of Federal Claims have original jurisdiction over "[a]ny civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws." Before suing in federal court, however, a claimant must first file a claim for refund or credit with the Secretary of the Treasury. 26 U.S.C. § 7422(a). A taxpayer in the United States who believes that she is wrongly being asked to pay a tax by the IRS has two options. Both options begin with filing a request for relief with the IRS. If the request for relief is denied, the taxpayer can either petition the United States Tax Court for review or the taxpayer can pay the tax and seek a refund in a federal district court or the Court of Federal Claims. If a taxpayer wants to sue the United States in a federal district court, however, she must first pay the tax owed before she sues. Flora v. United States, 362 U.S. 145, 163 (1960). A taxpayer seeking innocent spouse relief faces the same situation. As the Ninth Circuit has explained: In implementing the innocent spouse tax relief enacted by Congress, the Department of the Treasury promulgated a regulation establishing the factors to be utilized in analyzing requests for equitable relief. . . . If a claim meets basic eligibility requirements, the file is transferred to an examiner to further review the claim and decide whether relief should be granted. When a decision is made, the taxpayer is informed and given thirty days to appeal to the IRS's Office of Appeals. After the administrative appeal is decided, the IRS sends a final PAGE 6 – OPINION AND ORDER 1 determination letter. The taxpayer then has the right to appeal the IRS decision to federal court. The taxpayer has the option of either petitioning the U.S. Tax Court for review, or paying the deficiency and filing a refund claim in federal district court or the Court of Federal Claims. Wilson v. Comm'r or Internal Revenue, 705 F.3d 980, 984–85 (9th Cir. 2013); see also Matuszak v. Comm'r of Internal Revenue, 862 F.3d 192, 198 n.5 (3rd Cir. 2017) (suggesting that plaintiffs who do not appeal to Tax Court may pay the tax and seek a refund in federal district court); Flores v. United States, 51 Fed. Cl. 49, 51 n.1 (2001) (same). The innocent spouse statute gives claimants 90 days from the IRS's denial of innocent spouse relief