Denning v. Department of the Treasury ( 2024 )

1 2 UNITED STATES DISTRICT COURT 3 DISTRICT OF NEVADA 4 DAVID M. DENNING, et al., Case No. 3:23-cv-00149-ART-CLB 5 Plaintiffs, ORDER 6 v. 7 DEPARTMENT OF THE TREASURY, et al., 8 Defendants. 9 10 Plaintiffs David M. Denning and Valerie Denning bring this case against 11 the Department of the Treasury, the Internal Revenue Service, and the United 12 States of America, alleging Defendants owe them more than $150,000 in overpaid 13 taxes. Before the Court is Defendants’ Motion to Dismiss (ECF No. 12), which 14 argues that this Court lacks subject matter jurisdiction over Plaintiffs’ claims, 15 that their claims are otherwise non-meritorious, and that Plaintiffs have failed to 16 properly serve Defendants. As detailed below, this Court concludes that it does 17 not have jurisdiction over this case and grants Defendants’ motion. 18 I. BACKGROUND 19 Between 2015 and 2018, Plaintiffs reported to the IRS that they received 20 combined annual incomes ranging from $126,000 to $220,000. (ECF No. 1-2 at 21 2, 11, 21, 25.) In 2019, they decided that this money, which they received from 22 their employers, did not constitute “income” subject to federal income tax. (See 23 ECF Nos. 1 at 6; 16 at 7.) They then filed amended income tax returns (1040Xs), 24 which claimed their combined annual income fell between $2,175 (2015) and $0 25 (2016, 2017, and 2018). (ECF No. 1-2 at 2, 11, 21, 25.) In 2019 and 2020, they 26 again claimed incomes of $0, this time directly on their joint income tax returns. 27 (Id. at 33, 36.) These amounts directly conflict with the information on their W- 28 2s, which the IRS received from their employers. (See id. at 35, 38.) 1 Plaintiffs then filed a Complaint (ECF No. 1) with this Court, seeking 2 remuneration of $153,416, which is the amount they claim to have overpaid in 3 taxes between 2015 and 2020, plus interest. Defendants responded by filing a 4 Motion to Dismiss (ECF No. 12), which is the subject of this Order. 5 II. LEGAL STANDARD 6 A motion to dismiss under Fed. R. Civ. P. 12(b)(1) challenges the validity of 7 a legal claim based on a federal court's lack of subject matter 8 jurisdiction. See Fed. R. Civ. P. 12(b)(1). In cases against the United States, the 9 government enjoys sovereign immunity from lawsuits “save as it consents to be 10 sued . . . and the terms of its consent to be sued in any court define that court's 11 jurisdiction to entertain the suit.” United States v. Testan, 424 U.S. 392, 399 12 (1976). Because a waiver of sovereign immunity creates subject matter 13 jurisdiction, when a claim exceeds the scope of the government's waiver of 14 sovereign immunity, “the court lacks subject matter jurisdiction,” and the claim 15 must be dismissed under Fed. R. Civ. P. 12(b)(1). Morales v. United States, 895 16 F.3d 708, 713 (9th Cir. 2018). Any waiver of sovereign immunity “is to be strictly 17 construed, in terms of its scope, in favor of the sovereign.” Department of Army v. 18 Blue Fox, Inc., 525 U.S. 255, 261 (1999). The party asserting claims in federal 19 court bears the burden of demonstrating the court’s jurisdiction over those 20 claims. See In re Dynamic Random Access Memory (DRAM) Antitrust Litig., 546 21 F.3d 981, 984 (9th Cir. 2008). 22 III. DISCUSSION 23 Because this motion can be resolved on jurisdictional grounds, the Court 24 does not reach Defendants’ arguments related to service or sufficiency of the 25 pleadings. 26 Defendants argue that this Court lacks subject matter jurisdiction over 27 Plaintiffs’ claims because Plaintiffs have failed to exhaust their administrative 28 remedies before bringing their case in federal court, as required by 26 U.S.C. § 1 7422(a). Plaintiffs respond that they exhausted their administrative remedies 2 when they filed valid tax returns and 1040X forms, which constitute “claims for 3 credit or refund” under § 7422(a) and therefore satisfy § 7422(a)’s exhaustion 4 requirement. Plaintiffs also point to a Letter of Disallowance from the IRS, (ECF 5 No. 16-1 at 3-5) which they believe constitutes an independent waiver of 6 sovereign immunity. 7 Congress has waived the U.S.’s immunity from civil actions seeking to 8 recover erroneously assessed taxes. 28 U.S.C. § 1346(a)(1). To fall within the 9 scope of this waiver and sue in federal court, plaintiffs must first exhaust their 10 administrative remedies by filing “a claim for refund or credit.” 26 U.S.C. § 11 7422(a). Income tax returns and amended income tax returns, such as the ones 12 Plaintiffs filed between 2015 and 2020, may constitute claims for refund or credit, 13 but only if they comply with applicable regulations. 26 C.F.R. § 301.6402-3(a)(5); 14 26 U.S.C. § 7422(a) (to establish federal jurisdiction, claims must comply with 15 applicable “provisions of law . . . and . . . regulations”). Specifically, Plaintiffs’ 16 claims must be “properly executed” and must “set forth in detail each ground 17 upon which a credit or refund is claimed and facts sufficient to appraise the 18 Commissioner of the exact basis thereof.” 26 C.F.R. §§ 301.6402–3(a)(5); 19 301.6402–2(b)(1). If Plaintiffs cannot demonstrate this, their claims “will not be 20 considered for any purpose as [claims] for refund or credit” and they will not be 21 entitled to sue in federal court. 26 C.F.R. § 301.6402–2(b)(1). 22 Many courts have held that “forms that lack essential information— 23 particularly, forms that are replete with zeros in place of a taxpayer’s income— 24 are not tax returns within the meaning of the Internal Revenue Code and thus 25 cannot serve as a basis for a tax refund suit.” Waltner v. United States, 679 F.3d 26 1329, 1334 (Fed. Cir. 2012); see, e.g., Kehmeier v. United States, 95 Fed.Cl. 442, 27 445 (2010) (“tax returns reporting zero wages cannot serve as claims for refund 28 because they fail to include information upon which a tax could be 1 calculated.”); Hamzik v. United States, 64 Fed.Cl. 766, 768 (2005) (“Plaintiff's 2 Form 1040 is replete with zeros in response to most inquiries—except the amount 3 of tax withheld and refund claimed—and thus failed to include any reliable 4 information upon which the IRS could accurately calculate his taxes, or the 5 amount of taxes he owed or had overpaid.... [and] under no circumstances can it 6 be rationally construed as a return.”) (internal quotation marks omitted); 7 Maruska v. United States, 77 F. Supp. 2d 1035, 1039 (D. Minn. 1999) (“The 8 Plaintiffs’ return, replete with zeros in responses to all inquiries—except the 9 amount of refund claimed—and containing no recitation of the Plaintiffs' wages 10 or other income, is not a return for purposes of the tax laws.”); Ruble v. U.S. Gov. 11 Dep’t of Treasury, 159 F. Supp. 2d 1381, 1383-84 (N.D. GA 2001) (because 12 plaintiff’s tax returns and amended tax returns included “a zero for her adjusted 13 gross income, taxable income, and tax liability,” they were “not properly executed 14 tax returns that could constitute a refund claim.”). 15 Here, Plaintiffs have (1) submitted amended individual income tax returns 16 that replace the hundreds of thousands of dollars they claimed in income with 17 $0, with no apparent explanation; (2) submitted tax returns that claim $0 of 18 income, directly contradicting the information in their W-2s. (ECF No. 1-2 at 2, 19 11, 21, 25, 33, 35, 36, 38.) Their filings, like the filings in the above-cited cases, 20 provide bare, unsupported, and directly contradicted claims about their income, 21 from which no accurate tax calculation can be drawn. Plaintiffs’ filings do not 22 comply with 26 C.F.R. § 301.6402–2(b)(1)’s directive that a claim “set forth in 23 detail each ground upon which a credit or refund is claimed and facts sufficient 24 to appraise the Commissioner of the exact basis thereof,” nor can they be 25 considered “properly executed,” in compliance with 26 C.F.R. § 301.6402–3(a)(5). 26 “It is not enough for a form to contain some income information; there must also 27 be an honest and reasonable intent to supply the information required by the tax 28 code.” Waltner, 679 F.3d at 1334 (citing United States v. Moore, 627 F.2d 830, 1 835 (7th Cir. 1980); Florsheim Bros. Drygoods Co. v. United States, 280 U.S. 453, 2 462 (1930); Zellerbach Paper Co. v. Helvering, 293 U.S. 172, 180 (1934)). 3 Plaintiffs cite United States v. Long for the proposition that “a return 4 containing zeros on most of [its] lines and signed by the taxpayer without 5 modifications” constitutes a valid return under Ninth Circuit precedent. (ECF No. 6 16 at 6, citing United States v. Long, 618 F.2d 74 (9th Cir. 1980)). Long concerned 7 a tax protestor who submitted tax forms containing zeros in the spaces reserved 8 for “income, tax, and tax withheld” and was subsequently convicted for willful 9 failure to file income tax returns under a criminal statute (26 U.S.C. § 7203) that 10 is not at issue here. In Long, the Ninth Circuit ultimately held that the 11 government, which had destroyed the defendant’s tax records, had failed to prove 12 the elements of the offense. Long, 618 F.2d at 76. Long says nothing about § 13 7422(a), federal jurisdiction, or the waiver of sovereign immunity. It is inapposite 14 to the present case and provides no basis for establishing federal jurisdiction over 15 Plaintiffs’ claims. 16 Plaintiffs also suggest that their Letter of Disallowance provides an 17 independent basis for this Court’s subject matter jurisdiction, but this is 18 incorrect. (ECF No. 16 at 6.) The IRS does not have the power to waive the United 19 States’ sovereign immunity. The power to waive federal sovereign immunity lies 20 with Congress alone. Block v. North Dakota, 461 U.S. 273, 281 (1983). Absent 21 such a waiver, suits against the United States cannot progress in federal court. 22 The question before the Court is whether the scope of Congress’s waiver of 23 sovereign immunity covers the situation in which Plaintiffs find themselves. It 24 does not. 25 // 26 // 27 // 28 // 1 IV. CONCLUSION 2 It is therefore ordered that Defendants’ Motion to Dismiss (ECF No. 12) is 3 || granted. 4 It is further ordered that Plaintiffs’ Complaint (ECF No. 1) is dismissed. 5 The Court Clerk is directed to enter judgment accordingly and close this 6 || case. 7 Dated this 18 day of January 2024. 8 9 Ans lose 10 ANNE R. TRAUM 11 UNITED STATES DISTRICT JUDGE 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28