Zhou v. United States ( 2017 )

In the United States Court of Federal Claims
No. 16-884T
(Filed: August 16, 2017)
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JIANGLIN ZHOU and JIE SHEN, *
*
* Motion for Summary
Plaintiffs,
* Judgment; Rule 56(d)
* Request for Discovery;
v.
* Tax Court Stipulation;
*
Alleged Overpayment of
THE UNITED STATES,
*
Taxes; Tax Deficiency.
Defendant. *
*
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Joshua Wu, JW Law PLLC, Washington, D.C., for Plaintiffs.
Sophia Siddiqui, with whom were David A. Hubbert, Acting Assistant Attorney General,
David I. Pincus, Jr., Chief, G. Robson Stewart, Assistant Chief, Court of Federal Claims
Section, Tax Division, U.S. Department of Justice, Washington, D.C., for Defendant.
OPINION AND ORDER
WHEELER, Judge.
Plaintiffs Jianglin Zhou and Jie Shen seek the return of funds levied by the Internal
Revenue Service (“IRS”) to cover their alleged underpayment of 2006 and 2007 tax
liability. The Plaintiffs claim that their tax liability for 2006 and 2007 was completely
resolved by a previous Tax Court decision. The Government argues that the Tax Court
decision only resolved Plaintiffs’ deficiency for 2006 and 2007, but not their underpayment
of tax liability, and the IRS properly levied the Plaintiffs’ property. The Court GRANTS
the Government’s motion for summary judgment because the undisputed facts show that
the Tax Court decision did not resolve the entirety of Plaintiffs’ outstanding tax liability
for 2006 and 2007 and Plaintiffs did not overpay their taxes. The mathematics of this case
are confusing, but the relevant dollar amounts are not disputed.
Background
On their 2006 tax return, Plaintiffs reported that they were entitled to income tax
withholding credits totaling $77,893 by improperly including their Social Security and
Medicare tax withholding as income tax withholding. Gov.’s Mot., Ex 1 (2006 Tax
Return). Plaintiffs also self-reported their income tax liability at $54,422. Id. Based on
these calculations, their IRS account reflected an overpayment of $23,531. Id. The IRS
posted an account credit of $23,531 to Plaintiffs’ account. Gov.’s Mot., Ex. 2. However,
in reality, Plaintiffs’ actual income tax withholding for 2006 was $57,425. Gov.’s Mot.,
Ex. 3 (Wage and Income Transcript, 2006 and 2007). Therefore, Plaintiffs over-reported
their income tax withholding by $20,468. After the IRS discovered this error, it reduced
the Plaintiffs’ account credit by $20, 468. Gov.’s Mot., Ex. 2.
On their 2007 tax return, Plaintiffs reported that they were entitled to income tax
withholding credits totaling $49,222 by again improperly including their Social Security
and Medicare tax withholding as income tax withholding. Gov.’s Mot., Ex. 4 (2007 Tax
Return). Plaintiffs also self-reported their income tax liability at $50,539. Id. Based on
these calculations and Plaintiffs’ additional tax payment of $5,000, their IRS account
reflected an overpayment of $3,683. Id. Plaintiffs’ actual income tax withholding for 2007
was $34,696. Gov.’s Mot., Ex. 3. Thus, Plaintiffs over-reported their income tax
withholding by $14,526. After the IRS discovered this mistake, it reduced Plaintiffs’
account credit by $14,526. Gov.’s Mot., Ex. 5.
On March 2, 2010, the IRS proposed a deficiency reflecting the difference between
the correct amount of tax imposed and the amount of tax reported by Plaintiffs for 2006
and 2007. Gov.’s Mot., Ex. 6. The Notice of Deficiency listed a $22,827 deficiency for
2006 and a $25,348 deficiency for 2007. Id. On June 2, 2010, Plaintiffs filed a petition
with the U.S. Tax Court challenging the Notice of Deficiency. Gov.’s Mot., Ex. 7. While
before the Tax Court, Plaintiffs and the IRS agreed to settle the action. The parties
stipulated to amounts reflecting the Plaintiffs’ tax deficiency and adjusted credits to their
tax account. Gov.’s Mot., Ex. 10 (“Tax Court Stipulation”). On January 31, 2012, the Tax
Court entered the parties’ stipulation:
OREDERED AND DECIDED: That there is no deficiency in
income tax due from, nor overpayment, due to, petitioners for
the taxable years 2006; and
That there is a deficiency in the income tax due from
petitioners for the taxable year 2007 in the amount of $319.00.
Gov.’s Mot., Ex. 9 (“Tax Court Decision”). The IRS credited Plaintiffs’ accounts to reflect
the Tax Court Stipulation (specific amounts are shown in the tables below). In August
2012, the IRS levied Plaintiffs’ brokerage account because the “plaintiffs had unpaid
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liabilities of $1,843.14 for tax year 2006, $10, 089.17 for tax year 2007, and $466.57 in
interest and failure to pay penalties for tax year 2007.” Gov.’s Mot. at 5 (citing Exs. 2, 5).
Plaintiffs’ tax transcript for 2006 reflecting all of these actions is as follows:
Tax liability reported on return: $54,422.
Withholding claimed on return: -$77,893.
Refunded to Plaintiff (excluding $8.77 in interest): -$23,573.23
Corrected withholding credit due to Plaintiffs’ error: $20,468.
Overpayment credit (made in 2009) -$4,258.45
Interest and penalties (from 2010-2012): $10,246.52
Outstanding balance after correction: $26,456.07
Tax Court Stipulation adjustment: -$16,051.
Reversed penalties and interest: -$8,577.28
Outstanding balance before levy: $1,827.79
Levy payment (including $15.35 in interest): -$1,843.14
Remaining balance after levy: $0.
Gov.’s Mot., Ex. 2, at 1-3. Plaintiffs’ tax transcript for 2007 reflecting all these actions is
as follows:
Tax liability reported on return: $50,539.
Withholding claimed on return: -$49,222.
Plaintiffs’ tax payment: -$5,000.
Refunded to Plaintiff: -$3,683.
Corrected withholding credit due to Plaintiffs’ error: $14,526.
Interest and penalties (from 2010): $2,956.95
Outstanding balance after correction: $17,482.95
Tax Court Stipulation adjustment (including $319 deficiency): -$6,943.78
Payment made by Plaintiffs: -$450
Outstanding balance before levy: $10,089.17
Interest and penalties (from 2012): $466.57
Levy payment: -$21,428.95
Overpayment credited to Plaintiffs $10,873.21
Remaining balance after levy: $0.
Gov.’s Mot., Ex. 5, at 1-5.
On July 25, 2016, Plaintiffs filed a complaint in this Court seeking a refund of the
levied amounts and any accrued interest, arguing that the Tax Court Stipulation resolved
their tax liability. Compl. ¶¶ 25-27. On June 9, 2017, the Government filed a motion for
summary judgment arguing that the Tax Court Stipulation only resolved Plaintiffs’ tax
deficiency but did not erase their outstanding tax liability. Gov.’s Mot. at 11. On July 10,
2017, Plaintiffs filed their opposition to the Government’s motion and requested time to
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complete discovery, pursuant to Rule 56(d). Pls.’ Resp. at. 3. The Government’s motion
is now fully briefed and the Court deems oral argument unnecessary.
Discussion
Summary judgment is appropriate where “the pleadings, the discovery and
disclosure materials on file, and any affidavits show that there is no genuine issue as to any
material fact and that the movant is entitled to judgment as a matter of law.” RCFC 56(c).
A fact is “material” if it might significantly alter the outcome of the case under the
governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The moving
party bears the initial burden of showing that there exists no genuine dispute as to any
material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Summary judgment will
not be granted if the “evidence is such that a reasonable [trier of fact] could return a verdict
for the nonmoving party.” Anderson, 477 U.S. at 248. The Court’s function is not to weigh
the evidence and determine the merits of the case presented, but to determine whether there
is a genuine issue of material fact for trial. Id. at 249; see Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 587-88 (1986). However, when the non-moving party
fails to make a sufficient showing of the existence of an essential element for which he
bears the burden of proof, summary judgment is appropriate. Celotex Corp., 477 U.S. at
322-23.
A. Subject Matter Jurisdiction
As a preliminary matter, Plaintiffs allege in their complaint that the IRS’s levy of
their brokerage account violated their Fourth and Fourteenth Amendment rights to due
process and to be free from unreasonable seizures. Compl. ¶¶ 22-23. In order for this
Court to have jurisdiction over a claim, a plaintiff must identify a “source of substantive
law that creates the right to money damages.” Greenlee County, Ariz. v. United States,
487 F.3d 871, 875 (Fed. Cir. 2007). This Court does not have jurisdiction over Fourth
Amendment or Fourteenth Amendment violations because monetary damages are not
available under either of these provisions. Brown v. United States, 105 F.3d 621, 623 (Fed.
Cir. 1997); LeBlanc v. United States, 50 F.3d 1025, 1028 (Fed. Cir. 1995); Stephanatos v.
United States, 81 Fed. Cl. 440, 445 (2008).
Thus, Plaintiffs’ constitutional claims are DISMISSED for lack of subject matter
jurisdiction. The Court will review Plaintiffs’ claims that the IRS’s levy constitutes an
overpayment of taxes in violation of the Tax Court Decision for which they are entitled a
refund under 26 U.S.C. § 6512(a)(2).
B. Discovery into the Tax Court Stipulation is Not Appropriate.
Rule 56(d) of this Court affords a party opposing summary judgment to request time
to conduct discovery when the “nonmovant shows . . . it cannot present facts essential to
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justify its opposition . . . .” “The opportunity provided by [Rule] 56(d) to conduct discovery
while resisting summary judgment is not unlimited . . . .” RQ Squared, LLC v. United
States, 119 Fed. Cl. 751, 758 (2015). When the material facts are not in doubt, a Rule 56(d)
request for discovery should be denied. Id. at 758.
The question before the Court is whether the Tax Court Stipulation entitled the IRS
to levy Plaintiffs’ property to pay their alleged underpayments for tax years 2006 and 2007.
Plaintiffs allege that discovery into the “circumstances and procedures surrounding” the
Tax Court Stipulation, “the understanding of the parties . . . with respect to the Tax Court
[Stipulation],” and the IRS’s implementation of the Tax Court Stipulation and treatment of
tax payments is necessary. Pls.’ Resp. at 7. First, discovery into the understanding of the
parties involved in the Tax Court Stipulation and the procedures which produced it is not
necessary. The Tax Court Stipulation and the Tax Court Decision are unambiguous. They
consist of descriptions of Plaintiffs’ tax accounts and the Tax Court’s order adopting the
parties’ agreement. See Gov.’s Mot., Exs. 9, 10. Absent ambiguities, the Court may not
refer to extrinsic evidence and must rely solely on the language of the documents at issue.
HRE, Inc. v. United States, 142 F.3d 1274, 1276 (Fed. Cir. 1998). Therefore, discovery
into the Tax Court Stipulation would not affect this Court’s interpretation of the Stipulation
or the Tax Court Decision. Next, the IRS’s implementation of the Tax Court Stipulation
is reflected in Plaintiffs’ Certificates of Assessments and Payments for 2006 and 2007.
Gov.’s Mot., Exs. 2, 5. Further discovery into that implementation will not alter the facts
presented in these Certificates.
To resolve Plaintiffs’ claim, the Court need only look at the parties’ agreement and
how Plaintiffs’ tax transcript reflects the IRS’s implementation of that agreement. All the
undisputed material facts are already before the Court in the form of the Tax Court
Stipulation, the Tax Court Decision, and Plaintiffs’ tax account information. Therefore, no
discovery is required to resolve this case, and summary judgment is appropriate. Anderson,
477 U.S. at 248. The Plaintiffs’ Rule 56(d) request to conduct discovery is DENIED.
C. Plaintiffs are not Entitled to a Tax Refund for 2006 or 2007.
The Tax Court Decision states “there is no deficiency in income tax due from, nor
overpayment, due to, petitioners for the taxable year 2006; and . . . there is a deficiency . .
. for the taxable year 2007 in the amount of $319.00.” Gov.’s Mot., Ex. 9 (emphasis added).
Thus, the plain language of the Decision determined Plaintiffs’ deficiency amounts for the
years 2006 and 2007, and the overpayment amount for year 2006. However, at issue here
is whether Plaintiffs underpaid their taxes in 2006 and 2007. The term “deficiency” is
statutorily defined as the amount of income tax imposed on a taxpayer less the tax shown
by the taxpayer on his return. 26 U.S.C. § 6211(a). “Thus the amount of a deficiency . . .
turns not on what payments have been applied to the account, but rather on what
assessments have been made with respect to that account.” Longino v. C.I.R., 105 T.C.M.
(CCH) 1491, at *70-71 (T.C. 2013). Further, “[p]ayments are not included in determining
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. . . a deficiency, simply because they do not fit within the definition of a deficiency.”
Hillenbrand v. C.I.R., 84 T.C.M. (CCH) 643, at *5 (T.C. 2002). Plaintiffs mistakenly
describe the Tax Court Decision as deciding the “Plaintiffs’ tax liabilities”. Pls.’ Resp. at
10. However, the Tax Court Decision is silent regarding whether the Plaintiffs have paid
their outstanding income tax liability.
Plaintiffs “do not dispute the numbers presented in the Government’s motion”. Id.
at 4. Plaintiffs’ tax transcripts (see charts above) plainly show that the agreed upon
amounts in the Tax Court Stipulation were credited to Plaintiffs’ account. In 2006, the
Government refunded Plaintiffs $23,522 due to Plaintiffs’ over-reporting of their income
tax withholding. Plaintiffs owed $26,456.07 to the Government in taxes, penalties and
interest due to that mistake. The Tax Court Stipulation reduced that amount by $24,628.28
according to the parties’ agreement. Thus, $1,827.79 remained due to the Government in
interest and penalties associated with their incorrect tax filing. Gov.’s Mot., Ex. 2.
Importantly, the Tax Court Stipulation only required the Government to credit Plaintiffs’
account $10,234 to affect a deficiency of $0. Gov.’s Mot., Ex. 10. The Government chose
to also abate some interest and penalties. The Government did not have to abate any
interest or penalties in order to be in compliance with the Tax Court Decision. One can
similarly trace the IRS’s actions in Plaintiffs’ 2007 tax transcript. See Gov.’s Mot., Ex. 5.
Plaintiffs owed the Government $17,482.95 as a result of their reporting error. According
to Tax Court Stipulation, $7,262.78 was credited to their account leaving a debt of
$10,089.17. The Government levied $21,428.95, collected the remaining tax liability and
returned the extra amount levied to Plaintiffs. Id.
Plaintiffs simply cannot establish that they overpaid their 2006 and 2007 taxes. The
terms of the Tax Court Stipulation are clear and the relevant tax transcripts show that the
stipulation terms were carried out. Plaintiffs accrued interest and penalties associated with
their reporting error that were unaffected by the Tax Court Stipulation. Therefore,
Plaintiffs were liable for that debt and the IRS properly levied their brokerage account to
collect it.
Conclusion
There is no genuine dispute as to any material fact in this case. The Court has the
power to award plaintiffs a return of overpaid taxes when they are able to show that they,
in fact, overpaid. The undisputed facts in this case demonstrate that Plaintiffs did not
overpay their taxes. Therefore, the Government’s motion for summary judgment is
GRANTED. The Clerk is directed to enter judgment accordingly. No costs.
IT IS SO ORDERED.
s/ Thomas C. Wheeler
THOMAS C. WHEELER
Judge
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