FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

DUNN & BLACK, P.S., 

Plaintiff-Appellant,

and

FIDELITY DEPOSIT COMPANY OF

MARYLAND, a Maryland

corporation; AMERICAN GUARANTY

& LIABILITY INSURANCE COMPANY, a No. 05-35766

New York corporation, D.C. No.

Intervenors,  CV-04-00229-LRS

v. OPINION

UNITED STATES OF AMERICA,

Defendant-Appellee,

and

ENVIRONMENTAL RECLAMATION INC.,

an Idaho corporation,

Defendant. 

Appeal from the United States District Court

for the Eastern District of Washington

Lonny R. Suko, District Judge, Presiding

Argued and Submitted

March 6, 2007—Seattle, Washington

Filed July 11, 2007

Before: Diarmuid F. O’Scannlain, A. Wallace Tashima, and

Marsha S. Berzon, Circuit Judges.

Opinion by Judge O’Scannlain

8269
COUNSEL

Michael R. Tucker, Dunn & Black, P.S., Spokane, Washington, argued the cause for the plaintiff-appellant and filed a

brief; Richard D. Campbell, Robert A. Dunn, and Ryan D.

Yahne, Dunn & Black, P.S., Spokane, Washington, were on

the briefs. 

Curtis C. Pett, Tax Division, U.S. Department of Justice,

Washington, DC, argued the cause for the defendant-appellee,

and filed briefs; James A. McDevitt, U.S. Attorney, Eileen J.

O’Connor, Assistant Attorney General, and Thomas J. Clark,

Tax Division, U.S. Department of Justice, were on the briefs.

OPINION

O’SCANNLAIN, Circuit Judge: 

We must decide whether a law firm can bring an action

against the United States to recover attorney’s fees from

monies that its client was awarded as a result of a settlement

with the Federal Highway Administration, but never received

because the Internal Revenue Service requested that payment

be withheld to offset unpaid tax liabilities.

I

The United States, through the Western Federal Lands

Highway Division of the Federal Highway Administration

(“FHWA”), contracted with Environmental Reclamation, Inc.

(“ERI”) to work on the Warren Profile Gap Road Project

(“Project”) in south central Idaho. After the government ter8272 DUNN & BLACK v. UNITED STATES
minated the contract for default, ERI engaged the law firm

Dunn & Black, P.S. (“Dunn & Black”) to file an action in the

Court of Federal Claims to recover $1,724,296 in damages for

wrongful termination of the contract. The government

asserted a counterclaim for reprocurement costs in the amount

of $948,168.82. 

Until November 20, 2002, Dunn & Black represented ERI

at an hourly rate on matters concerning the Project. At that

time, ERI owed Dunn & Black $137,682.33 for legal services

rendered on the Project and other legal matters. On November

20, Dunn & Black renegotiated its hourly fee agreement with

ERI, changing it to a contingency fee arrangement, which

provided that Dunn & Black “shall be entitled to the first

$137,682.33 of any recovery from any claims related to the

Project, . . . for [ERI’s] debt on this and other matters.” The

agreement further provided that Dunn & Black shall receive

compensation for “its future services regarding the claims

arising out of the Project” in the amount of 50% of any

remaining recovery. ERI remained responsible for all litigation costs. 

On March 30, 2004, the FHWA, without admitting liability,

settled the dispute with ERI, stipulating to entry of judgment

in favor of ERI for $450,000. On April 5, 2004, the Court of

Federal Claims entered a judgment against the government in

the amount of $450,000. Upon learning of the judgment, the

Internal Revenue Service (“IRS”), requested that the Secretary of the Treasury withhold payment of the judgment for

setoff against ERI’s unpaid tax liabilities. On May 5, 2004,

the government informed Dunn & Black that the IRS would

be making claims to the settlement funds as an intended offset

of the entire amount of the judgment based on an unrelated

tax debt purportedly owed by ERI. On the same day, Dunn &

Black served the government with a notice of attorney’s lien.

On May 7, 2004, ERI terminated its attorney-client relationship with Dunn & Black without paying any fees owed. 

DUNN & BLACK v. UNITED STATES 8273
On June 3, 2004, the United States filed a civil action in the

district court to reduce ERI’s federal tax assessments to judgment. The government originally demanded $988,000 in

unpaid tax assessments, but amended the complaint to

demand only $567,304.85 for unpaid federal employment and

unemployment tax liabilities plus interest and certain penalties. The district court entered judgment in the amount of

$609,079.96, upon the government’s motion for default judgment against ERI. 

On June 30, 2004, Dunn & Black commenced the instant

action by filing a complaint for declaratory judgment in district court against the United States and ERI. Dunn & Black

requested that the district court declare that its fees in the

amount of $361,037.20 were reasonable for the legal services

rendered. Furthermore, Dunn & Black requested that the district court declare its attorney’s lien superior to all subsequent

liens, claims, and interest in and to the judgment. Alternatively, Dunn & Black requested that the district court declare

that the government’s setoff constituted unjust enrichment

without fairly compensating the firm for services in creating

the judgment fund. Lastly, Dunn & Black requested that the

district court declare that the government’s setoff was a violation of a property interest in the contingent fee and therefore

an unlawful property taking without compensation and a violation of due process. The government asserted in its answer

that ERI owed the IRS $987,839.84 as of April 30, 2004. 

Dunn & Black filed a motion for summary judgment. The

district court entered an order and judgment in favor of the

government. See Dunn & Black, P.S. v. United States, 366 F.

Supp. 2d 1008 (E.D. Wash. 2005). The district court first held

that it had jurisdiction over Dunn & Black’s claim pursuant

to 28 U.S.C. § 1346(a)(1). Dunn & Black, 366 F. Supp. 2d at

1022-23. Furthermore, the district court denied Dunn &

Black’s motion for summary judgment and held that the government’s claim of setoff in the amount of $450,000 was

8274 DUNN & BLACK v. UNITED STATES
appropriate pursuant to 31 U.S.C. § 3728. Dunn & Black, 366

F. Supp. 2d at 1032-36. 

Dunn & Black timely appealed.1

II

As a threshold matter, the government contends that the

district court lacked subject matter jurisdiction because Dunn

& Black’s claim is barred by the doctrine of sovereign immunity, which, of course, “is an important limitation on the subject matter jurisdiction of federal courts.”

2 Vacek v. U.S.

Postal Serv., 447 F.3d 1248, 1250 (9th Cir. 2006). 

[1] “It is well settled that the United States is a sovereign,

and, as such, is immune from suit unless it has expressly

waived such immunity and consented to be sued. Such waiver

cannot be implied, but must be unequivocally expressed.

Where a suit has not been consented to by the United States,

dismissal of the action is required . . . . [because] the existence

of such consent is a prerequisite for jurisdiction.” Gilbert v.

DaGrossa, 756 F.2d 1455, 1458 (9th Cir. 1985) (internal quotation marks and citations omitted). The Supreme Court has

“frequently held . . . that a waiver of sovereign immunity is

1On September 16, 2004, the district court allowed Fidelity and Deposit

Company of Maryland, and American Guaranty & Liability Insurance

Company, ERI’s judgment creditors, to intervene. The intervenors filed a

motion for declaratory judgment and an alternative motion for a stay of

Dunn & Black’s motion for summary judgment under Fed. R. Civ. P.

56(f). The district court denied the motion for declaratory judgment and

dismissed the alternative motion for a stay of Dunn & Black’s motion as

moot. Dunn & Black, 366 F. Supp. 2d at 1035-36. Neither intervenor

appealed the district court’s order. 

2

“Sovereign immunity and subject matter jurisdiction are distinct doctrines.” Wilkerson v. United States, 67 F.3d 112, 119 n.13 (5th Cir. 1995).

“In an action against the United States, in addition to statutory authority

granting subject matter jurisdiction, there must be a waiver of sovereign

immunity.” Arford v. United States, 934 F.2d 229, 231 (9th Cir. 1991). 

DUNN & BLACK v. UNITED STATES 8275
to be strictly construed, in terms of its scope, in favor of the

sovereign.” Dep’t of the Army v. Blue Fox, Inc., 525 U.S. 255,

261 (1999). 

Unless Dunn & Black satisfies the burden of establishing

that its action falls within an unequivocally expressed waiver

of sovereign immunity by Congress, it must be dismissed.

Cunningham v. United States, 786 F.2d 1445, 1446 (9th Cir.

1986). Dunn & Black invokes 28 U.S.C. § 1346(a)(1) and 28

U.S.C. § 2410 as the basis of waiver of sovereign immunity

in this case.3 The district court concluded that jurisdiction was

proper pursuant to § 1346(a)(1), and proceeded to the merits.

Dunn & Black, 366 F. Supp. 2d at 1023. We consider each

provision in turn.

3Dunn & Black also cites 28 U.S.C. §§ 1331 & 1367 for jurisdiction in

this case. Those sections are grants of general jurisdiction and “cannot be

construed as authorizing suits of this character against the United States,

else the exemption of sovereign immunity would become meaningless.”

Geurkink Farms, Inc. v. United States, 452 F.2d 643, 644 (7th Cir. 1971).

Section 1331 “merely provides that the district court shall have original

jurisdiction in all civil actions arising under the Constitution, laws or treaties of the United States” and “cannot by itself be construed as constituting

a waiver of the government’s defense of sovereign immunity.” Gilbert,

756 F.2d at 1458-59. Similarly, § 1367 merely grants federal courts supplemental jurisdiction over state claims related to certain federal claims in

any civil action of which the district court has original jurisdiction, 28

U.S.C. § 1367(a), and that section cannot “operate as a waiver of the

United States sovereign immunity,” Wilkerson, 67 F.3d at 119 n.13. 

The parties agree that 26 U.S.C. § 7426(a)(1) does not serve as a basis

for waiver of sovereign immunity in this case because the government

never levied property held by Dunn & Black. See Treas. Reg. § 301.7426-

1(a)(1)(ii) (2007) (“Section 7462 and this paragraph (a) apply when a levy

is made by the Internal Revenue Service on a debt owed to a taxpayer by

another federal agency. By contrast, section 7426 and this paragraph (a)

do not apply if the Internal Revenue Service requests payment from

another federal agency pursuant to a request for setoff.”); see also EC

Term of Years Trust v. United States, 127 S. Ct. 1763, 1767-68 (2007)

(holding that § 7426(a)(1) is the exclusive remedy for third parties challenging a wrongful levy). 

8276 DUNN & BLACK v. UNITED STATES
A

1

[2] Dunn & Black first relies on 28 U.S.C. § 1346(a)(1) as

the basis for waiver of sovereign immunity in this case. That

section waives the government’s sovereign immunity by

authorizing federal district courts to hear “[a]ny civil action

against the United States for the recovery of any internalrevenue 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.” 28 U.S.C. § 1346(a)(1); United States

v. Williams, 514 U.S. 527, 531-32 (1995); see also Imperial

Plan, Inc. v. United States, 95 F.3d 25, 26 (9th Cir. 1996)

(“Title 28 U.S.C. § 1346(a)(1) waives the sovereign immunity

of the United States to permit suit in the United States District

Courts for the recovery of taxes which have been erroneously

collected.”). However, “[d]espite its spacious terms,

§ 1346(a)(1) must be read in conformity with other statutory

provisions which qualify a taxpayer’s right to bring a refund

suit upon compliance with certain conditions.” United States

v. Dalm, 494 U.S. 596, 601 (1990). 

[3] One express condition of Congress’s waiver of sovereign immunity is 26 U.S.C. § 7422(a), which, tracking the

language of § 1346(a)(1), provides that 

[n]o suit or proceeding shall be maintained in any

court for the recovery of any internal revenue tax

alleged to have been erroneously or illegally

assessed or collected, or of any penalty claimed to

have been collected without authority, or of any sum

alleged to have been excessive or in any manner

wrongfully collected, until a claim for refund or

credit has been duly filed with the Secretary, according to the provisions of law in that regard, and the

DUNN & BLACK v. UNITED STATES 8277
regulations of the Secretary established in pursuance

thereof. 

26 U.S.C. § 7422(a); see also Dalm, 494 U.S. at 601. 

[4] If a person neglects to file an administrative claim as

required by § 7422(a), that person has failed to satisfy a necessary condition of the waiver of sovereign immunity under

§ 1346(a)(1), and, as we have repeatedly held, the district

court is necessarily divested of jurisdiction over the action.4

Other circuits have reached the same conclusion.5

4

See, e.g., Omohundro v. United States, 300 F.3d 1065, 1066-67 (9th

Cir. 2002) (per curiam) (“To bring an action for credit or refund of overpaid taxes, a taxpayer must first file an administrative claim with the IRS.

. . . A taxpayer’s failure to file an administrative claim within the time

periods imposed by statute divests the district court of jurisdiction over an

action for a refund or credit.”); Imperial Plan, 95 F.3d at 26 (“ ‘A timely

claim is a jurisdictional prerequisite to an action for recovery of taxes

paid.’ ” (quoting Miller v. United States, 38 F.3d 473, 474 (9th Cir.

1994))); Yuen v. United States, 825 F.2d 244, 245 (9th Cir. 1987) (“Unless

a taxpayer has duly filed a claim for refund of federal taxes with the IRS,

a district court is without jurisdiction to entertain a suit for refund, and a

claim is not duly filed unless it is timely.” (citations omitted)); Boyd v.

United States, 762 F.2d 1369, 1371 (9th Cir. 1985) (“The regulations promulgated under section 7422(a) state, ‘The claim must set forth in detail

each ground upon which a credit or refund is claimed and facts sufficient

to apprise the Commissioner of the exact basis thereof.’ If the refund

claim does not meet the requirements of the Code and the regulations, the

suit must be dismissed, because filing pursuant to the rules is a jurisdictional prerequisite.” (citations omitted)); Thomas v. United States, 755

F.2d 728, 729 (9th Cir. 1985) (“Ordinarily, there is no jurisdiction in the

district courts over suits for the refund of penalty amounts paid until the

taxpayer has paid the full amount of the contested penalty assessment, and

has filed a claim for refund which the IRS has either rejected or not acted

upon in six months.” (citations and emphasis omitted) (citing § 7422(a)).

5

See, e.g., Young v. United States, 332 F.3d 893, 895 (6th Cir. 2003)

(“[T]he government’s waiver of sovereign immunity is explicitly limited

by the requirement that a taxpayer must first pursue administrative remedies . . . .” (citing § 7422(a))); Compagnoni v. United States, 173 F.3d

1369, 1372 (11th Cir. 1999) (“A key element of a section 1346 claim . . .

is exhaustion of administrative remedies.” (citing § 7422)); Oropallo v.

United States, 994 F.2d 25, 26 (1st Cir. 1993) (“[T]he jurisdictional grant

in section 1346(a)(1) must be read to incorporate the requirements of 26

U.S.C. §§ 7422(a) and 6511(a).”). 

8278 DUNN & BLACK v. UNITED STATES
[5] Dunn & Black does not assert, and the record does not

suggest, that it satisfied § 7422(a)’s statutory requirements by

filing an administrative claim with the IRS. Accordingly, even

if Dunn & Black otherwise would have standing to maintain

an action under § 1346(a)(1), Dunn & Black is barred from

relying on that section as a basis of waiver of sovereign

immunity in this case. 

2

Dunn & Black makes the curious argument that § 7422(a)

does not apply in this case because that section “establishes

a condition precedent to an action to recover taxes paid that

the taxpayer duly file a claim for refund or a credit with the

IRS and that the claim be disallowed,” but, here, “Dunn &

Black is clearly not the taxpayer.” (emphasis in original.) As

indicated above, § 7422(a)(1)’s language virtually mirrors that

of § 1346(a)(1).6 Yet Dunn & Black argues that § 1346(a)(1)

applies to non-taxpayers, but § 7422(a)(1) applies only to taxpayers. If we were to accept Dunn & Black’s argument here,

we would find ourselves pointed in diametrically opposite

directions with respect to nearly identical statutory language.

Such an interpretation of § 7422(a)(1) would, of course, fly in

the face of the familiar canon of interpretation that courts

6Compare 26 U.S.C. § 7422(a) (“No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to

have been erroneously or illegally assessed or collected, or of any penalty

claimed to have been collected without authority, or of any sum alleged

to have been excessive or in any manner wrongfully collected, until a

claim for refund or credit has been duly filed with the Secretary, according

to the provisions of law in that regard, and the regulations of the Secretary

established in pursuance thereof.”), with 28 U.S.C. § 1346(a)(1) (“The district courts shall have original jurisdiction, concurrent with the United

States Court of Federal Claims, of . . . [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 internalrevenue laws[.]”). 

DUNN & BLACK v. UNITED STATES 8279
should “interpret similar language in different statutes in a

like manner when the two statutes address a similar subject

matter.” United States v. Novak, 476 F.3d 1041, 1051 (9th

Cir. 2007). Because Dunn & Black offers no reason for such

contradictory interpretation of nearly identical statutory language involving the same subject matter, we reject this argument as unpersuasive. 

3

[6] We also reject Dunn & Black’s suggestion at oral argument that the government waived the statutorily-required

exhaustion of administrative remedies argument by not raising it below. It is well established that the federal government

cannot waive sovereign immunity by failing to raise it before

the district court.7 Only Congress enjoys the power to waive

the United States’ sovereign immunity. Army & Air Force

Exch. Serv. v. Sheehan, 456 U.S. 728, 734 (1982). 

As discussed above, § 7422(a)’s requirement that a person

first file an administrative claim before commencing an action

against the United States in district court is a statutory limitation on Congress’s express waiver of sovereign immunity pur7

See, e.g., United States v. U.S. Fidelity & Guar. Co., 309 U.S. 506, 513

(1940) (“But, it is said, that there was a waiver of immunity by a failure

to object to the jurisdiction of the Missouri District Court over the crossclaim. It is a corollary to immunity from suit on the part of the United

States and the Indian Nations in tutelage that this immunity cannot be

waived by officials. If the contrary were true, it would subject the government to suit in any court in the discretion of its responsible officers. This

is not permissible.”); Commodity Futures Trading Comm’n v. Frankwell

Bullion Ltd., 99 F.3d 299, 306 n.5 (9th Cir. 1996)(“[The plaintiff] also

argues that the [federal government] waived its sovereign immunity argument by not raising it before the district court. This argument lacks merit;

an official cannot waive sovereign immunity by failing to object to a

court’s jurisdiction.”); Danning v. United States, 259 F.2d 305, 310 (9th

Cir. 1958) (concluding that the federal “government cannot lose its immunity by any act or omission of its agents, and that consent to be sued cannot be implied from the action or inaction of its officers”). 

8280 DUNN & BLACK v. UNITED STATES
suant to § 1346(a)(1). As such, a government officer cannot

waive the statutorily-provided exhaustion requirement by failing to raise it below. See Quarty v. United States, 170 F.3d

961, 972-73 & n.7 (9th Cir. 1999). 

[7] Contrary to Dunn & Black’s assertion, we have never

held otherwise. Section 7422(a) requires that any taxpayer

seeking a refund must first file an administrative claim with

the Secretary of the Treasury before filing suit in federal court

(the “exhaustion requirement”). 26 U.S.C. § 7422(a). Treasury Regulation § 301.6402-2(b)(1), in turn, provides that the

administrative claim “must set forth in detail each ground

upon which a credit or refund is claimed and facts sufficient

to apprise the Commissioner of the exact basis thereof” (the

“specificity requirement”). While we have held that the Treasury may waive the regulatory specificity requirement in limited circumstances,8

 the Treasury has no power to waive the

statutorily-imposed exhaustion requirement, which is an

inseverable condition on Congress’s waiver of sovereign

immunity under § 1346(a)(1). See Quarty, 170 F.3d at 973;

Gallo Cattle Co. v. U.S. Dep’t of Agric., 159 F.3d 1194, 1197

(9th Cir. 1998); see also Kikalos, 479 F.3d at 525 (“The

Supreme Court has held that while the Treasury may not

waive the congressionally mandated requirement that a claim

8As we have explained before, “[t]he government may waive compliance with the specificity requirements of Treasury Regulation § 301.6402-

2(b)(1) if it has investigated the merits of a claim and taken an action.”

Quarty, 170 F.3d at 973. “To establish that the government has waived

compliance with the regulations’ specificity requirement,” however,

“ ‘[t]he showing should be unmistakable that the Commissioner has in fact

seen fit to dispense with his formal requirements and to examine the merits of the claim. It is not enough that in some roundabout way the facts

supporting the claim may have reached him.’ ” Id. (alteration in original)

(quoting Angelus Milling Co. v. Comm’r, 325 U.S. 293, 297 (1945)); see

also Kikalos v. United States, 479 F.3d 522, 525 (7th Cir. 2007) (“The

Commissioner may waive the IRS’s specificity requirements if 1) the IRS

has sufficient knowledge of the claim, and 2) makes a determination on

the merits or leads the taxpayer to believe that the IRS treated the claim

as formally sufficient.”). 

DUNN & BLACK v. UNITED STATES 8281
be filed, the Treasury can waive its own formal requirements.” (citing Angelus Milling Co., 325 U.S. at 296). 

Dunn & Black relies on Bear Valley Mutual Water Co. v.

R.A. Riddell, 493 F.2d 948 (9th Cir. 1974), for the proposition

that the statutory exhaustion requirement is waivable. But in

that case, we recognized the very distinction emphasized

above: “The long-established interpretation of these provisions is that the filing of a claim with the Internal Revenue

Service is a jurisdictional prerequisite to a suit for refund, and,

in the absence of a waiver by the government, the taxpayer

cannot recover in its suit for refund on a different ground than

that set forth in the claim for refund.” Id. at 951 (emphasis

added) (footnotes omitted). 

B

1

Dunn & Black alternatively contends that 28 U.S.C. § 2410

provides an express waiver of sovereign immunity in this

case. The government responds that § 2410 does not apply

because the government claims an ownership interest, not a

mortgage or lien interest, in the judgment. 

[8] Section 2410 states, in relevant part, that the “United

States may be named a party in any civil action or suit in any

district court . . . to quiet title to, [or] . . . to foreclose a mortgage or other lien upon . . . real or personal property on which

the United States has or claims a mortgage or other lien.” 28

U.S.C. § 2410(a) (emphasis added). We have held that this

section operates as an express waiver of sovereign immunity.

Arford, 934 F.2d at 234. At the same time, however, we “have

strictly limited the reach and application of this statute.”

Hughes v. United States, 953 F.2d 531, 538 (9th Cir. 1991).

[9] Congress expressly limited waiver of sovereign immunity under § 2410 to actions where the United States “has or

8282 DUNN & BLACK v. UNITED STATES
claims a mortgage or other lien.” And we have repeatedly

held that “Congress in § 2410 did not consent to suits against

the United States where the United States claims a title interest as distinguished from a lien interest,” Bertie’s Apple Valley Farms v. United States, 476 F.2d 291, 292 (9th Cir. 1973)

(per curiam), or where the monies “have already come into

the hands of the IRS,” Farr v. United States, 990 F.2d 451,

453 (9th Cir. 1993).9

[10] In this case, at the time Dunn & Black commenced this

action the government never claimed a lien or mortgage interest in the $450,000 judgment.10 Rather, the government exer9

See also Huff v. United States, 10 F.3d 1440, 1444 n.3 (9th Cir. 1993)

(concluding that a plaintiff “cannot seek relief for monies or property

already in the hands of the IRS in a § 2410 quiet title action”); Hughes,

953 F.2d at 538 (“[W]hile a taxpayer may contest the procedural validity

of a tax lien under § 2410, he may do so only if, at the time the action is

commenced, the government still claims a lien or mortgage on the property. If the government has sold the property prior to the filing of the suit,

and no longer claims any interest in the property, § 2410 does not apply.

Similarly, such an action is jurisdictionally barred if, at the time it is commenced, the government claims a title interest rather than a lien interest.”

(citations omitted)). 

10Where a taxpayer owes the government for unpaid tax liabilities, the

lien-levy process is one mechanism for the government to collect that

debt. A lien, generally, is “[a] legal right or interest that a creditor has in

another’s property, lasting usu[ally] until a debt or duty that it secures is

satisfied.” Black’s Law Dictionary 941 (8th ed. 2004). “If any person liable to pay any tax neglects or refuses to pay the same after demand,” a

federal tax lien arises in the amount “in favor of the United States upon

all property and rights to property, whether real or personal, belonging to

such person.” 26 U.S.C. § 6321. However, because a tax lien is not selfexecuting, the government must take affirmative action to collect the

underlying tax debt. EC Term of Years Trust, 127 S. Ct. at 1764. The

“principal tool[ ] is a levy, which is a legally sanctioned seizure and sale

of property” within the scope of that tax lien. Id. (internal quotations

marks and citation omitted). 

But where, as here, the taxpayer owes the government for unpaid tax

liabilities and the government also owes the taxpayer for a tax overpayment or an unrelated debt, the government generally may exercise its right

DUNN & BLACK v. UNITED STATES 8283
cised its right of setoff against that judgment and therefore

claimed title in the proceeds that had come to rest in the hands

of the IRS at the time Dunn & Black filed this action. Accordingly, § 2410 does not waive sovereign immunity in this case.

2

Our prior decision in Arford v. United States, 934 F.2d 229,

is not to the contrary. There, the IRS sent a notice of levy on

the taxpayer’s retirement benefits to the Retirement Pay Division of the Air Force, another government agency that disbursed those retirement benefits. Id. at 231. The taxpayer sued

the United States, alleging that Congress waived sovereign

immunity by § 7426 as to the request for recovery of the

amount levied on past retirement payments, and by § 2410 as

to the request to quiet title on the levy against continuing

retirement payments. Id. We held that § 7426 does not serve

as a waiver of sovereign immunity as to the requested recovery because that section only applies where the person is not

the one “ ‘against whom is assessed the tax.’ ” Id. at 232

(quoting § 7426(a)(1)). We also held that § 2410 serves as a

of setoff to enforce collection of that tax debt rather than relying upon the

lien-levy mechanism. A setoff simply refers to a debtor’s right to reduce

the amount owed a creditor by any sum that creditor owes the debtor.

Black’s Law Dictionary at 1404. “The right of setoff (also called ‘offset’)

allows parties that owe each other money to apply their mutual debts

against each other thereby avoiding ‘the absurdity of making A pay B

when B owes A.’ ” Citizens Bank v. Strumpf, 516 U.S. 16, 18 (1995)

(quoting Studley v. Boylston Nat’l Bank, 229 U.S. 523, 528 (1913)). The

Supreme Court has recognized the government’s common law right of setoff. See United States v. Munsey Trust Co., 332 U.S. 234, 239 (1947)

(“The government has the same right ‘which belongs to every creditor, to

apply the unappropriated moneys of his debtor, in his hands, in extinguishment of the debts due to him.’ ” (citation omitted)). Congress has also created a statutory right of setoff for the government. See 31 U.S.C. § 3728(a)

(“The Secretary of the Treasury shall withhold paying that part of a judgment against the United States Government presented to the Secretary that

is equal to a debt the plaintiff owes the Government.”). 

8284 DUNN & BLACK v. UNITED STATES
waiver of sovereign immunity with respect to the request to

quiet title on the continuing retirement payments, because the

taxpayer challenged procedural aspects of the lien. Id. at 234.

We rejected the government’s attempt to avoid the waiver of

sovereign immunity under § 2410 by asserting that the transfer of money from the other agency to the IRS was a setoff

not subject to the procedural requirements governing transfers

by lien and levy, even though the transfer occurred pursuant

to a formal notice of levy. Id. 

Arford does not disturb the well-established rule that a person cannot invoke § 2410 where the government asserts a title

interest in the disputed property or where the monies have

already come to rest in the hands of the IRS. Rather, Arford

stands for the simple proposition that the government cannot

avoid the waiver of sovereign immunity under § 2410 by

attempting to mask a transfer occurring pursuant to a formal

notice of levy as a setoff beyond the procedural requirements

for liens and levies.11 But here, the government never filed a

notice of levy, but simply withheld those funds pursuant to its

statutory right of setoff. 

Second, as our subsequent precedents make clear, Arford

also stands for the limited proposition that a person “can only

use § 2410 to challenge the continued collection of taxes

through the garnishment of . . . wages” or retirement pay.

11We note that Treas. Reg. § 301.7426-1(a)(1) was subsequently

amended to follow Arford in this respect. Compare Treas. Reg.

§ 301.7426-1(a)(1)(ii) (2007) (“Section 7462 and this paragraph (a) apply

when a levy is made by the Internal Revenue Service on a debt owed to

a taxpayer by another federal agency. By contrast, section 7426 and this

paragraph (a) do not apply if the Internal Revenue Service requests payment from another federal agency pursuant to a request for setoff.”), with

Treas. Reg. § 301.7426-1(a)(1) (1986) (“No action is permitted under section 7426(a)(1) unless there has been a levy upon the property claimed.

For example, no cause of action arises under this section where the United

States sets-off an amount due to the taxpayer against taxes owed by him

since no levy has been made.”). 

DUNN & BLACK v. UNITED STATES 8285
Hughes, 953 F.2d at 538 (emphasis added). Dunn & Black,

however, does not challenge the continued collection of

unpaid tax liabilities. For these reasons, Arford does not compel a contrary conclusion with respect to § 2410 in this case.

III

[11] Neither § 1346(a)(1) nor § 2410 operates to waive sovereign immunity in this case. Accordingly, the district court

lacked jurisdiction over Dunn & Black’s action against the

United States. We vacate the district court’s summary judgment and remand with instructions to dismiss the case for lack

of subject matter jurisdiction. 

The parties shall bear their own costs on appeal. 

VACATED AND REMANDED. 

8286 DUNN & BLACK v. UNITED STATES