Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_07-cv-01536/USCOURTS-caed-2_07-cv-01536-2/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 28:1331 Fed. Question

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

TIMOTHY EDWARD HODGSON, 

 NO. CIV. S-07-1536 WBS JFM

Plaintiff,

ORDER RE: MOTION TO DISMISS

v.

UNITED STATES OF AMERICA,

Defendant.

----oo0oo----

Plaintiff Timothy Edward Hodgson brought this action

against defendant United States of America alleging the violation

of the “Fair Tax Collection Practices” statute, 26 U.S.C. § 6304,

and seeking declaratory relief. Defendant now moves to dismiss

the complaint for failure to state a claim upon which relief may

be granted under Federal Rule of Civil Procedure 12(b)(6) and for

lack of subject matter jurisdiction pursuant to Rule 12(b)(1). 

I. Factual and Procedural Background

On June 1, 2000, plaintiff entered into an

offer-in-compromise (“OIC”) with the Internal Revenue Service

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(“IRS”) for unpaid tax liabilities from the tax years 1992

through 1998. (Compl. ¶ 6.) Under the terms of the offer,

plaintiff was required to pay $30,000 and to file tax returns and

pay all taxes owed on time for five years from the date the offer

was accepted. (Id. ¶¶ 7, 13, 14.) Plaintiff subsequently failed

to file the required tax returns and pay the taxes owed for the

2003 and 2004 tax years on a timely basis. (Id.)

On July 26, 2005, the IRS sent a notice letter to

plaintiff warning him that the OIC for the tax years 1992 through

1998 would be terminated if the delinquent tax returns and

payments were not submitted within thirty days of the letter. 

(Id. ¶ 13, Ex. 2.) The IRS also sent this notice to Robert L.

Goldstein, Esq.--plaintiff’s representative with respect to the

offer, negotiation, and acceptance of plaintiff’s OIC in June of

2000. (Id. ¶ 17.) However, the letter to Mr. Goldstein was sent

to an old, inactive address. (Id.) On or about September 15,

2005, the IRS sent another letter directly to plaintiff and a

copy of the letter to Mr. Goldstein (at the same inactive

address) notifying them that the OIC had been terminated and that

the unpaid balance of the liabilities for the 1992 through 1998

tax years had been reinstated. (Id. ¶¶ 19-21, Ex. 3.)

On July 26, 2007, plaintiff filed his complaint in this

action alleging that the IRS “recklessly or intentionally, or by

reason of negligence” disregarded 26 U.S.C. § 6304(a) by failing

to “readily ascertain’ his attorney’s correct address from their

records and failing to mail the July 26, 2005 notice letter to

his attorney at the correct address. (Id. ¶¶ 50-52.) Plaintiff

contends that this violation caused him to miss the thirty day

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grace period–-as offered by the July 26, 2005 notice letter--to

submit the delinquent returns and taxes owed for the 2003 and

2004 tax years, thereafter constituting a default of the OIC. 

(Id.)

II. Discussion

A. Legal Standards

1. Rule 12(b)(6) Motion to Dismiss for Failure to

State a Claim

On a motion to dismiss for failure to state a claim,

the court must accept the allegations in the complaint as true

and draw all reasonable inferences in favor of the pleader. 

Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); Cruz v. Beto, 405

U.S. 319 (1972). To survive a motion to dismiss, a party needs

to plead “only enough facts to state a claim to relief that is

plausible on its face.” Bell Atl. Corp. v. Twombly, 127 S. Ct.

1955, 1974 (2007). Dismissal is appropriate, however, where the

pleader fails to state a claim supportable by a cognizable legal

theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699

(9th Cir. 1988).

2. Rule 12(b)(1) Motion to Dismiss for Lack of

Subject Matter Jurisdiction

Federal courts are courts of limited jurisdiction only

authorized to adjudicate those cases which the Constitution and

Congress permit. Kokkonen v. Guardian Life Ins. Co. of Am., 511

U.S. 375, 377 (1994). “A federal court is presumed to lack

jurisdiction in a particular case unless the contrary

affirmatively appears.” Stock W., Inc. v. Confederated Tribes of

the Colville Reservation, 873 F.2d 1221, 1225 (9th Cir. 1989)

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(citing Cal. ex rel. Younger v. Andrus, 608 F.2d 1247, 1249 (9th

Cir. 1979)). On a motion to dismiss an action for lack of

subject matter jurisdiction, the plaintiff bears the burden of

establishing that subject matter jurisdiction exists. Kokkonen,

511 U.S. at 377. 

B. Improper Communication with Plaintiff

When the IRS knows that a taxpayer has retained an

authorized representative and can “readily ascertain” the

representative’s name and address, § 6304(a) prohibits the IRS

from directly communicating with the taxpayer “in connection with

the collection of any unpaid tax” “[w]ithout the prior consent of

the taxpayer given directly to the [IRS] or the express

permission of a court of competent jurisdiction.” 26 U.S.C. §

6304(a). 

Subsection (c) of § 6304 goes on to provide that civil

actions based on violations of § 6304 be brought pursuant to 26

U.S.C. § 7433. In turn, § 7433 permits taxpayers to bring the

civil action against the United States for actual, direct

economic damages sustained as a proximate result of the IRS’s

reckless, intentional, or negligent violation of § 6304. 26

U.S.C. § 7433. 

The crux of plaintiff’s complaint is not that the IRS

improperly communicated directly with him, but that it failed to

properly communicate with his attorney. The harm which is

alleged resulted not from improperly sending the notice letter to

plaintiff, because he claims that because of personal problems he

never opened it. Rather the alleged harm – i.e., the

reinstatement of his tax liability in the amount of $101,659.67

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1 Plaintiff contends that had Mr. Goldstein received the

IRS’s July 26, 2005 notice letter detailing the thirty day grace

period, “Mr. Goldstein would have immediately contacted plaintiff

and filed the required returns . . . which would have avoided the

termination of plaintiff’s [OIC] and the [IRS’s] current demand

for $101,659.67 in unpaid taxes resulting therefrom.” (Compl. ¶

48.)

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when his OIC defaulted - is alleged to have resulted from the

failure of the IRS to properly send the notice to his attorney.1

While communicating directly with a taxpayer who is

represented by counsel may indeed constitute a violation of §

6304, the failure to communicate with counsel at the correct

address does not. The congressional intent of § 6304 was to

address the concerns regarding abusive or harassing contact with

taxpayers. S. Rep. No. 105-174, at 93 (1998). Thus, the

objective of § 6304(a) is to prevent bypassing a taxpayer’s

representative for the purpose of harassing or abusing the

taxpayer with respect to collection of his or her tax liability,

and the significance of awarding civil damages against the

government for violations must be limited to this very conduct. 

See Allied/Royal Parking L.P. v. United States, 166 F.3d 1000,

1003 (9th Cir. 1999) (asserting that civil damage provisions

under section 7433 “must be read narrowly”). 

As a result, § 6304--in concert with § 7433--creates a

cause of action only for civil damages that proximately result

from the IRS’s improper communication with a represented

taxpayer. To expand § 7433 to confer a civil remedy for the

IRS’s failure to properly send notice to the taxpayer’s

representative would be beyond this court’s limited jurisdiction

over these cases. See Buaiz v. United States, 471 F. Supp. 2d

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2 “Failure to give notice or other written communication

to the recognized representative of a taxpayer will not affect

the validity of any notice or other written communication

delivered to a taxpayer.” 26 C.F.R. § 601.506(a)(3).

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129, 135-36 (D.D.C. 2007) (noting that district courts should

read § 7433 narrowly to stay “consistent with Congress’s broad

intent that the federal judiciary have limited jurisdiction over

cases involving the assessment and collection of income taxes”). 

Accordingly, the court will grant defendant’s motion to

dismiss plaintiff’s first cause of action for failure to state a

claim. 

C. Declaratory Relief

Plaintiff seeks declaratory relief under 28 U.S.C. §

2201 in order to invalidate a Treasury Regulation, 26 C.F.R. §

601.506(a)(3),2

 which plaintiff alleges is in conflict with the

express terms and congressional intent underlying §6304(a). 

(Compl. ¶¶ 60-63.) The Declaratory Judgment Act permits a court

to “declare the rights and other legal relations of any

interested party seeking such declaration” “[i]n a case of actual

controversy within its jurisdiction, except with respect to

Federal taxes other than actions brought under section 7428 of

the Internal Revenue Code of 1986.” 28 U.S.C. § 2201 (emphasis

added). Section 7428 relates to declaratory judgments involving

the status and classification of certain tax exempt organizations

under 26 U.S.C. § 501(c)(3), and thus is inapplicable to the

instant action. Therefore, plaintiff’s second claim does not

fall within the narrow waiver of sovereign immunity for federal

tax issues provided in 28 U.S.C. § 2201. See E.J. Friedman Co.,

Inc. v. U.S., 6 F.3d 1355, 1358-59 (9th Cir. 1993) (holding that

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because the case at bar involved federal taxes, 28 U.S.C. § 2201

cannot serve as a waiver of sovereign immunity, and thus

declaratory relief is unavailable). 

Accordingly, the court will also grant defendant’s

motion to dismiss plaintiff’s second cause of action for lack of

subject matter jurisdiction.

IT IS THEREFORE ORDERED that defendant’s motion to

dismiss plaintiff’s complaint be, and same hereby is, GRANTED. 

Plaintiff is given 30 days from the date of this order

to file an amended complaint consistent with this order.

DATED: November 2, 2007

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