Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_07-cv-00619/USCOURTS-caed-2_07-cv-00619-0/pdf.json

Parties Involved:
United States of America
Defendant
Douglas Waterhouse
Plaintiff

Document Text:

1

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

IN THE UNITED STATES DISTRICT COURT 

FOR THE EASTERN DISTRICT OF CALIFORNIA 

DOUGLAS WATERHOUSE, 

 Plaintiff, 

 v. 

UNITED STATES OF AMERICA 

 Defendant. 

_____________________________/ 

No. Civ. S-07-619 RRB CMK 

Memorandum of Opinion

and Order

Plaintiff, Douglas Waterhouse (“Waterhouse”) filed an 

action against the United States of America (“United States”) 

seeking judicial review of a decision by the Internal Revenue 

Service (“IRS”) Appeals Office upholding the imposition of a 

trust fund recovery penalty assessed against him. The United 

States now moves to dismiss the entire action under Federal Rule 

of Civil Procedure 12(b)(1) on the ground that this court lacks 

Case 2:07-cv-00619-RRB-CMK Document 17 Filed 08/24/07 Page 1 of 11
2

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

subject matter jurisdiction. For the following reasons, the 

court GRANTS the motion.1

I. BACKGROUND 

Waterhouse is a former minority shareholder of Skyline 

Contract Glass, Inc. (“Skyline”). Compl. ¶ 6. On or about 

October 2004, the IRS proposed to assess a trust fund recovery 

penalty against Waterhouse as a “responsible” individual under 

26 U.S.C. § 6672 for employment taxes allegedly not paid by 

Skyline for the following tax periods: June 2002, June 2003, 

September 2003, December 2003 and March 2004. Compl. ¶¶ 8, 11.2

 

 

1 Inasmuch as the Court concludes the parties have submitted 

memoranda thoroughly discussing the law and evidence in support 

of their positions, it further concludes oral argument is 

neither necessary nor warranted with regard to the instant 

matter. See Mahon v. Credit Bureau of Placer County, Inc., 171 

F.3d 1197, 1200 (9th Cir. 1999)(explaining that if the parties 

provided the district court with complete memoranda of the law 

and evidence in support of their positions, ordinarily oral 

argument would not be required). As a result, the oral argument 

presently scheduled for Wednesday, August 22, 2007, at 10:00 

a.m., is hereby VACATED. 

2 The Internal Revenue Code (“IRC”) requires employers to 

withhold from their employees’ paychecks funds representing the 

employees’ personal income and Social Security taxes. 26 U.S.C. 

§ 3102(a); United States v. Energy Resources Co., Inc., 495 U.S. 

545, 546 (1990). Because employers must hold these funds in 

“trust” for the United States, 26 U.S.C. § 7501, the taxes are 

commonly referred to as “trust fund” taxes. Energy Resources,

495 U.S. at 546-47. Should employers fail to turn over the 

trust fund taxes, the IRS may collect a Trust Fund Recovery 

Penalty, equal to the sum of the unpaid taxes, directly from the 

officers or other persons within the company who are responsible 

for collecting the taxes. 26 U.S.C. § 6672; Energy Resources, 

495 U.S. at 547. These persons are commonly referred to as 

“responsible” individuals. Energy Resources, 495 U.S. at 547.

Case 2:07-cv-00619-RRB-CMK Document 17 Filed 08/24/07 Page 2 of 11
3

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

On or about November 25, 2005, the IRS Office of Appeals 

sustained the proposed trust fund recovery penalty assessment 

against Waterhouse. Compl. ¶ 10. On December 14, 2005, the 

penalty was assessed in the following amounts: (1) $101,783.16 

(June 2002); (2) $37,723.21 (June 2003); (3) $72,765.58 

(September 2003); (4) $76,562.51 (December 2003); and (5) 

$47,906.27 (March 2004). Compl. ¶ 11. On July, 18, 2006, the 

IRS issued a Notice of Intent to Levy the assessed penalty. 

Compl. ¶ 12. Waterhouse timely filed a request with the IRS for 

a Due Process hearing. Compl. ¶ 13. 

On March 2, 2007, the IRS Office of Appeals issued a Notice 

of Determination sustaining its Notice of Intent to Levy. 

Compl. ¶ 14. On March 3, 2007, Waterhouse filed the instant 

action alleging that the IRS abused its discretion in concluding 

that he was a “responsible” individual liable for Skyline’s 

unpaid employment taxes. Compl. ¶ 16. Additionally, Waterhouse 

alleges that he was not afforded the proper opportunity to 

dispute the assessed penalty. Compl. ¶ 17. 

In the instant action, Waterhouse seeks a determination 

that he is not a “responsible” individual liable for Skyline’s 

unpaid employment taxes. Compl. ¶ 17. Waterhouse also seeks 

abatement of the trust fund recovery penalty assessment. Compl. 

¶ 17. 

// 

Case 2:07-cv-00619-RRB-CMK Document 17 Filed 08/24/07 Page 3 of 11
4

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

II. DISCUSSION 

A. Legal Standard 

Rule 12(b)(1) authorizes a party to move to dismiss a claim 

for lack of subject matter jurisdiction. Because federal courts 

are courts of limited jurisdiction, a lack of jurisdiction is 

presumed, and the party seeking to invoke the court’s 

jurisdiction bears the burden of proving that subject matter 

jurisdiction exists. Curtis v. Treasury Dept., 2007 WL 460646, 

*1 (N.D. Cal. 2007) (citing Kokkonen v. Guardian Life Ins. Co., 

511 U.S. 375, 377 (1994)). A Rule 12(b)(1) jurisdictional 

attack may be facial or factual. Safe Air for Everyone v. 

Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). 

A facial attack occurs where “the challenger asserts that 

the allegations contained in a complaint are insufficient on 

their face to invoke federal jurisdiction.” Safe Air, 373 F.3d 

at 1039. In resolving a facial attack to jurisdiction, the 

court must accept the factual allegations in the complaint as 

true. Curtis, 2007 WL 460646 at *2 (citing Miranda v. Reno, 238 

F.3d 1156, 1157 n.1 (9th Cir. 2001)). 

B. 26 U.S.C. § 6330 

 The United States argues that this court lacks subject 

matter jurisdiction because 28 U.S.C. § 6330 confers exclusive 

jurisdiction over Collection Due Process (“CDP”) claims to the 

United States Tax Court (“Tax Court”). 

Case 2:07-cv-00619-RRB-CMK Document 17 Filed 08/24/07 Page 4 of 11
5

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 When the IRS notifies a taxpayer of its intent to impose a 

levy for failure to pay taxes, the taxpayer has the right to a 

CDP hearing before the IRS Office of Appeals, and is entitled to 

raise defenses and to contest the levy or lien. Gorospe v. 

C.I.R., 451 F.3d 966, 967 (9th Cir. 2006) (citing 26 U.S.C. 

§ 6330(c)(2)(A)). After a taxpayer receives a determination by 

the IRS Office of Appeals, he or she may seek judicial review. 

Gorospe, 451 F.3d at 967. 

Specifically, a taxpayer may, within thirty days of a 

determination by the IRS Office of Appeals, seek judicial review 

of such determination by appealing to the Tax Court (and the Tax 

Court shall have jurisdiction with respect to such matter). 26 

U.S.C. § 6330(d); see also 26 C.F.R. § 301.6330-1(f) (stating 

that a taxpayer may appeal a Notice of Determination by the IRS 

Office of Appeals to the Tax Court within thirty days following 

a determination); cf. Gorospe, 451 F.3d at 967 (holding that 

under former § 6330(d) a taxpayer could seek judicial review, 

either in the Tax Court or in district court, depending on 

whether the Tax Court had jurisdiction to consider the 

underlying liability).3

 

3 26 U.S.C. § 6330(d) formerly read: 

“(1) Judicial review of determination. The person may, within 

30 days of a determination under this section, appeal such 

determination— 

Case 2:07-cv-00619-RRB-CMK Document 17 Filed 08/24/07 Page 5 of 11
6

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 26 U.S.C. § 6330(d), amended in 2006, states: 

“(d) Proceeding after hearing.-- 

(1) Judicial review of determination.--The person may, within 30 

days of a determination under this section, appeal such 

determination to the Tax Court (and the Tax Court shall have 

jurisdiction with respect to such matter). 

(2) Jurisdiction retained at IRS Office of Appeals.--The 

Internal Revenue Service Office of Appeals shall retain 

jurisdiction with respect to any determination made under this 

section, including subsequent hearings requested by the person 

who requested the original hearing on issues regarding— 

(A) collection actions taken or proposed with respect to such 

determination; and 

(B) after the person has exhausted all administrative remedies, 

a change in circumstances with respect to such person which 

affects such determination.” 

 Based on the plain language of the statute, the court 

concludes that it does not have subject matter jurisdiction over 

this action. The removal of subdivision (d)(1)(B) from § 6330 

divests district courts of jurisdiction to review CDP claims. 

 

(A) to the Tax Court (and the Tax Court shall have jurisdiction 

with respect to such matter); or 

(B) if the Tax Court does not have jurisdiction of the 

underlying tax liability, to a district court of the United 

States. 

If a court determines that the appeal was to an incorrect court, 

a person shall have 30 days after the court determination to 

file such appeal with the correct court.” 

In Gorospe, the Ninth Circuit explained that former 

§ 6330(d) did not vest the Tax Court with plenary jurisdiction 

over appeals of CDP determinations. Gorospe, 451 F.3d at 968. 

Rather, the Tax Court was only vested with jurisdiction over 

appeals of CDP determinations where it had jurisdiction to 

consider the underlying liability. Id. In all other cases, 

jurisdiction was vested in the district courts. Id. 

Case 2:07-cv-00619-RRB-CMK Document 17 Filed 08/24/07 Page 6 of 11
7

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 For this reason, the court GRANTS the motion to dismiss. 

C. Request to Amend the Complaint 

 Waterhouse requests leave to amend the Complaint to add a 

claim under 26 U.S.C. § 7433(a). The Taxpayer Bill of Rights, 

26 U.S.C. § 7433, provides a cause of action, and a waiver of 

sovereign immunity, for alleged misconduct by the IRS.4

 However, 

while § 7433 allows for the award of damages, a taxpayer is not 

entitled to bring suit in federal court until all available 

administrative remedies have been exhausted. 26 U.S.C. 

§ 7433(d)(1). 

Under IRS regulations, a taxpayer alleging misconduct must 

file an administrative claim prior to filing suit. 26 C.F.R. 

§ 301.7433-1. More particularly, the taxpayer must submit his 

claim, in writing, “to the Area Director . . . of the area in 

which the taxpayer currently resides.” 26 C.F.R. § 301.7433-

1(e)(1). The claim must include, among other things, the 

grounds for the claim, a description of the injuries, and the 

dollar amount of damages sought. 26 C.F.R. § 301.7433-

 

4 26 U.S.C. § 7433(a) provides: “If, in connection with any 

collection of Federal tax with respect to a taxpayer, any 

officer or employee of the Internal Revenue Service recklessly 

or intentionally, or by reason of negligence disregards any 

provision of this title, or any regulation promulgated under 

this title, such taxpayer may bring a civil action for damages 

against the United States in a district court of the United 

States. Except as provided in section 7432, such civil action 

shall be the exclusive remedy for recovering damages resulting 

from such actions.”

Case 2:07-cv-00619-RRB-CMK Document 17 Filed 08/24/07 Page 7 of 11
8

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

1(e)(2)(ii-iv). A taxpayer may not file suit until the IRS has 

issued a decision or failed to act on the claim within six 

months of the date of filing. 26 C.F.R. § 301.7433-1(d). 

Although Waterhouse claims to have exhausted all his 

administrative remedies, he has failed to provide a description 

of how he satisfied the express requirements of the 

administrative claim process. As such, there is no indication 

that Waterhouse actually exhausted the administrative remedies 

available to him. Therefore, he cannot sue for damages under § 

7433. 

For this reason, the court DENIES Waterhouse’s request for 

leave to amend the Complaint. 

D. Request for Transfer 

Waterhouse requests a transfer of this action to the Tax 

Court. The court, however, has already determined that it lacks 

subject matter jurisdiction. Therefore, it does not have the 

power to transfer this action pursuant to § 1404(a).5

 See

Grimsley v. United Engineers and Constructors, Inc., 818 F. 

Supp. 147, 148 (D.S.C. 1993) (citing cases). However, because 

28 U.S.C. § 1631 permits federal courts to transfer matters even 

 

5 28 U.S.C. § 1404(a) provides: “For the convenience of 

parties and witnesses, in the interest of justice, a district 

court may transfer any civil action to any other district or 

division where it might have been brought.”

Case 2:07-cv-00619-RRB-CMK Document 17 Filed 08/24/07 Page 8 of 11
9

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

when it lacks subject matter jurisdiction, transfer may be 

appropriate. Id. 

Section 1631 provides, in pertinent part: “Whenever a civil 

action is filed in a court as defined in section 610 of this 

title . . . and that court finds that there is a want of 

jurisdiction, the court shall, if it is in the interest of 

justice, transfer such action . . . to any other such court in 

which the action . . . could have been brought at the time it 

was filed or noticed, and the action . . . shall proceed as if 

it had been filed in or noticed for the court to which it is 

transferred on the date upon which it was actually filed in or 

noticed for the court from which it is transferred.” 28 U.S.C. 

§ 1631. Section 610 provides: “the word ‘courts’ includes the 

courts of appeals and district courts of the United States, the 

United States District Court for the District of the Canal Zone, 

the District Court of Guam, the District Court of the Virgin 

Islands, the United States Court of Federal Claims, and the 

Court of International Trade.” 28 U.S.C. § 610. 

Thus, under § 1631, a federal “court,” as defined by § 610, 

may transfer a case to another court if the following conditions 

are satisfied: (1) the transferee court must have been able to 

exercise jurisdiction on the date the notice of filing was 

misfiled; (2) transferor court must lack jurisdiction, and (3) 

Case 2:07-cv-00619-RRB-CMK Document 17 Filed 08/24/07 Page 9 of 11
10

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

transfer must serve interests of justice. Public Citizen Inc. 

v. Mineta, 343 F.3d 1159, 1171, n.22 (9th Cir. 2003).6 

Although it would otherwise be proper to transfer this 

action under § 1631, this court lacks the authority to do so 

because the Tax Court is not specifically enumerated as a 

“court” under 28 U.S.C. § 610. See Skillo v. U.S., 68 Fed. Cl. 

734, 746-47 (Fed. Cl. 2005) (holding that the Tax Court is not a 

“court” under § 610 such that another “court” could, under § 

1631, transfer an action to it).7

 

For this reason, the court DENIES Waterhouse’s request to 

transfer this action to the Tax Court. 

III. CONCLUSION 

 For the reasons stated above, the court GRANTS the motion 

to dismiss and DENIES Waterhouse’s requests for leave to amend 

and for a transfer of this action to the Tax Court. 

 

6 “The ‘interest of justice’ requirement ordinarily will be 

satisfied if the statute of limitations has expired subsequent 

to the time of the original filing, so that transfer, rather 

than dismissal, will preserve the plaintiff’s cause of action.” 

Butler v. U.S., 442 F.Supp.2d 1311, 1317 (Ct. Int’l Trade 2006) 

(quotation marks omitted). 

7 Notably, Waterhouse was specifically informed in writing by 

the IRS that he was required to file an appeal with the Tax 

Court within thirty days of the IRS’s Notice of Determination, 

and that if he filed in the wrong court (e.g., United States 

District Court), he would be unable to refile in the Tax Court 

if the time for filing a Tax Court petition had expired. Exh. 

A, attached to Decl. of Paul S. Ham, In Support of Def.’s Mtn. 

to Dismiss. 

Case 2:07-cv-00619-RRB-CMK Document 17 Filed 08/24/07 Page 10 of 11
11

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

IT IS SO ORDERED. 

 ENTERED this 24th day of August, 2007. 

 s/RALPH R. BEISTLINE 

 United States District Judge 

Case 2:07-cv-00619-RRB-CMK Document 17 Filed 08/24/07 Page 11 of 11