F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

S N Y D E R & A S S O C I A T E S A Q U I S I T I O N S L L C, a California limited liability
company ; T O T A L T A

X P R E P A R A T I O N S , I

N C ., a California corporation, Plaintiffs-Appellants

,

v

.

U N I T E D S T A T E S O F A M E R I C A , Defendant-Appellee. N o. 15-56011

D.C. No. 8:14-cv-01350- CJ C-RNB

OPI NI ON

A ppeal from the United States District Court for the Central District of California Cormac J . Carney , District J udg e, Presiding

A rg ued and Submitted F ebruary 7, 2017 Pasadena, California

F iled J une 16, 2017

B efore: Susan P. Graber, J ay S. B y bee, and Morg an Christen, Circuit J udg es.

Opinion by

J u d g e Christen; Concurrence by

J udg e B y beeS N

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SUMMARY *

Tax

The panel reversed the district court’s dismissal on immunity gr o u n d s of a

n a ction broug ht by tax preparation and r efund-advance businesses ag ainst the I RS under the F ederal Tort Claims Act, and remanded for f urther proceeding s.

A s p a rt of a sting operation aimed at catching peop l e filing for fraudule n t t a x r efunds, the I RS enlisted the assistance of plain t i f

fs’ tax preparation and refund-advance businesses. The operation i n v o lved using millions o f plaintiffs’ dollars as bait under the promise of reimbursement, which d id not happen, and the r evocation of one of plaintiffs’ electronic tax fi l i n g privileg es, which forced plaintiffs into bankruptcy

.

The p anel held that 28 U.S.C. § 2680(c) does not confer absolute immunity on the I RS, and, construing the facts in a lig ht most favorable to appellees, the sting operation did not “aris[ e ] in respect of the assessment or collection of any tax

. ”

The p anel also declined to ac c ep t t he I RS’s a lternative
arg uments for affirming the d istrict court’s judg ment. The
p a n e l held that § 2680(h) does not bar p laintiffs’ c laims f o r neg lig ence, conversion, and failure to restor e t h ing s wrong fully acquired because plaintiffs did not alleg e that the I RS obtained their money throug h deceit. The panel also h eld

* T h is su m m ary co n stitu

tes n o p art o f th e o pin io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.S N

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that the alleg ations in plaintiffs’ c omplaint sufficiently stated claims f or failure to restore thing s wrong fully a cq u i r e d

, for

c onversion, and abuse of process under California law. T h e panel did no t r ea ch the g overnment’s arg ument that § 2680(a)’s d iscretionary f unction ex ception bars plaintiffs’ claims and, a t the v ery least, some discovery on this issue is warranted.

J udg e B y

bee concurred i n the judg ment. He wrote separately to address his concern that the majority ’s b lanket conclusion—that the I RS was n ot eng ag ed in “the a ssessment

or collection of any tax ” simply because no refunds were d ue to the subjects of the I RS investig ation—is an unduly narrow construction of what constitutes tax assessmen t a n d c o l l ection under § 2680(c). J udg e B y bee ag reed that pl a i n t i ffs should have an opportunity to show why they can maintain their tort suit ag a inst the I RS.

COUNSEL

J effrey Adams Robinson (arg ued) and Greg ory E. Robinson, Ro b i n s on & Robinson, I r vine, California, f

or PlaintiffsAppellants.

Gretchen M. W olfing er (arg ued ) a n d J oan I

. Oppenheimer, Attorney s; Caroline D. Ciraolo, Acting Assistant Atto r n ey General; Tax Division, Department of J ustice, W ashing t o n , D.C.; for Defendant-Appellee.S N

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OP INION

CHRI STEN, Circuit J udg e:

I n 2 010, the I nternal Re v e n u e S ervice set a trap to catch people filing f

or f raudulent tax refunds. The I RS enlisted the assistance of plaintiffs’ tax p reparation and r e f u nd-advance businesses. I t warned t hat r efusal to cooperate would interfere with a federal criminal investig a tion, it used millions of plaintiffs’ dollars as bait, a nd it promised to reimburse them f or any losses. Plaintiffs cooperated, but the I RS never returned their money

. I nstead, at the conclusion of the sting operation, the I RS subpoenaed more than 5,000 of plaintiffs’ documents to a ssist with its prosecution efforts and revoked

one p laintiff’s electr o n i c tax f iling privileg es—at the beg inning of the tax preparati o n s eason—forcing both plaintiffs into bankruptcy

.

Plaintiffs sued the I RS u nder the F ederal Tort Claims A ct (F TCA), alleg ing several c a uses of action, but the district
court g ranted the g o vernment’s motion to dismiss. The court ruled that the I RS is immune from l i ability f or its conduct because 28 U .S.C. § 2680 (c ) bars claims ag ainst the
g overnment “arising in r espect of the assessment or collection of any tax .” W e disag ree. B e cause § 2680(c) does not confer absolute immunity on the I RS, a nd because, co n s t ruing the facts in the lig ht most favorable to plaintiffs, the I RS’s sting operation did not “aris[ e ] in r e s p e ct of the assessment o r collection of any tax ,” we reverse th e d i s trict court’s judg ment and remand for further proceeding s.S N

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I. BACK G ROUND 1

A. The Tax F raud Sting

Total Tax Preparation, I nc. ( T TP) was a tax return preparation business. I t s affiliate, Sny der & Associates Aquisitions L L C ( S A A ) made loans to tax pay ers who were awaiting income tax refunds. T TP prepared its c lients’ federal income tax returns and r eferred clients wh o wanted refund advances to SAA. W h en SAA loaned money based on anticipated tax refunds, its clients instructed the I RS to send their refund checks to SAA. Kerry Sny der w as TTP’s president and SAA’s manag ing member.

I n 2 010, Nancy Hilton, a tax preparer who worked as an independent contractor, r eferred several clients to SAA for

r e f u nd anticipation loans. W hen one of her clients tried t o cash a check issued by SAA, the bank n o t i f i e d Sny d er that Hilton’s client was using fake identification. S ny der asked the bank to hold the check and immediately contacted Hilton. Hilton admitted to Sny der that she was working w ith I RS Criminal I nvestig a tions Special Ag ent Matt Danie l s in an undercover sting operation

, t o c a t c h p e o ple making fraudulent claims for tax refunds. Sny der realiz ed th a t t h e I RS was unlikely t o i s sue refunds for the fraudulent tax returns filed

on behalf of Hilton’s clients, and that SAA’s ability to collect

on its refund anticipation loans was in jeopardy

. Sny der

1 T h e g o v ern m en t f

i led a f acial attack o n th e co u r t ’s j u risd ictio n , b ased o n th e f

ou r co r n e r s o f th e co m

p lain t. W e accep t as tru e all f acts alleg ed in th e co m

p l ain t an d d raw all reaso n ab le in f eren ces in p lain tif

f s ’ f av o r. S ee Lea th erma n v. Ta rra n t C ty. Na r c o t ics In tellig en ce & Co o r d in a t io n Un it
, 5 0 7 U.S. 1 63
, 1 6 4 (1 9 9 3 ); S a fe Air fo r Everyo n e v. Meyer , 3 7 3 F.3 d 1 0 3 5 , 1 0 3 9 (9 th Cir. 2 0 0 4 ).S N

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requested that the bank stop pay ment o n all checks SAA h ad issued to Hilton’s clients.

According to the complaint, Ag e n t D a niels contacted Sny der a nd informed him that stopping pay ment w o u ld interfere with a federal criminal investig ation. Ag ent Daniels asked Sny der to allow the checks to c l e a r the b ank, a nd assured Sny der that SAA would b e r epaid. W hen Sny der called an I RS supervisor to confirm Ag e nt Dani els’s representations, the super visor vouched for the sting operation and for Ag ent Daniels. Sny der authoriz ed SAA to issu e new checks to Hilton’s clients, and Ag ent Daniels a nd

a n o ther I RS ag ent made additional assurances that SAA “would be made whole.”

TTP and SAA q

u i c k ly beg an to ex perience neg ative repercussions from their ag r eement to cooperate with the I RS. F irst, TTP’s and SAA’s bank informed them that it was closing their business accounts because of an inquiry the bank made to the I RS a

bout the investig ation of TTP’s and SAA’s clients. Plaintiffs alleg e that the I RS f a i led to inform the bank that TTP and SAA w ere aiding the sting operation at the I RS’s request. TTP and SAA incurred $ 12,777 in b an k a n d attorney s’ fees to keep their b a n k a c counts open. The I RS ign o red TTP’s and SAA’s repeated requests for written confirmation of its promise to r e pay SAA, and also ig nored their requests to reimburse the advanced funds a nd plaintiffs’ bank and attorney s’ fees.

Plaintiffs alleg e that the I R S r esponded to their requests by ser ving subpoenas for more than 5,000 pag es of their tax return and loan records. TTP and SAA produced the subpoenaed documents at sig nificant a d d i tional e x pense. The I RS later notified TTP that it was suspending TTP’s ability toS N

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file tax r eturns electronically throug h the I RS’s “e-filing ”
sy stem, beca u s e fraudulent r eturns had been filed using TTP’s electronic filing identification number. The let t e r notify ing TTP of the su s p en s ion directed all inquiries to Ag ent Daniels.

The suspension prevented TTP from f i ling tax returns electronically for clients, just as the 20 1 1 tax preparation

season beg a

n. I n i t ially

, the suspension put TTP at a sig nificant c o m p e titive disadvantag e. B ut on J anuary 1, 2011, the I RS beg an r equiring all paid tax preparers to file all
returns electronically

, and at that p oint, the suspension effectively put T T P out o f business. T TP’s failure deprived SAA of its most sig n ificant source of referrals, a nd SAA soon failed as w ell. TTP successfully appealed the I RS’s suspension of i t s e

- filing privileg es, but the damag e already had been done.

The c omplaint alleg e s that the I RS n ever i s s u e d refunds for Hilton’s clients, never repaid the funds Sny der’s company advanced for refund anticipation loans

, a n d never compensated TTP and SAA for any of their other losses.

B. District Court P roceedings

TTP and SAA submitted an administrat i v e c laim to the I RS for $2,608,078, and later filed suit in the Unit e d S t at e s Di strict Court for the Central District of California. They concurrently filed an action in the Court of F ederal Claims forS N

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an uncompensated taking a nd for breach of contract, pursuant to the Tucker Act, 28 U.S.C. § 1491. 2

I n this a ction, the I RS arg ued that the district court should dismiss T TP’s and SAA’s tort c laims for four reasons: (1) the lawsuit is barred by

28 U.S.C. § 2680(c), the tax assessment and collection e x ception to the F TCA; (2) claims based on the I RS’s m isrepresentations are barred b y the provisions o f 28 U.S.C. § 2680(h); (3) plaintiffs failed to state a clai m for thing s wro n gf

ully acquired, conversion, or abuse of process under C alifornia law; and (4) plaintiffs’ suit is barred b y 28 U.S.C. § 2680(a), the discretionary function ex c eption to the F TCA. The d istrict court g ranted the g overnment’s

m o t i o n and d ismissed plaintiffs’ claims pursuant to F eder al Rule of Civil Procedure 12(b)(1). T he court accepted the
arg ument that 28 U .S.C. § 2680(c) shields the I RS from TTP’s and SAA’s claims. TTP and SAA timely appealed.

II. STANDARD OF REVIEW

W e review de novo a district c ourt’s decision t o gr ant a motion to dismiss for lack o f subjec t matter jurisdiction. Lacano I nvs., LLC v. Balash

, 765 F

. 3 d 1 068, 1071 (9th Cir. 2014). B ecause the g overnment’s motion was filed pursuant to F ederal Rules of Civil Procedure 12(b)(1) and 12(b)(6), we accept as true all facts alleg ed in the complaint and construe them in the lig h t most favorable to plaintiffs, the non-moving party

. See Leite v. Crane Co.
, 749 F .3d 1117, 1121 (9th Cir. 2014) (“The district court resolves a facial attack as it would

2 T h e T u ck er A ct g ran ts ex clu s iv e j u risd ictio n to th e Co u rt o f Fed eral Claim s fo r a c tio n s s o u n din g i n co n tract ag ain st th e Un ited S tates, 2 8 U.S.C. § 1 4 9 1 (a)(1 ), w h ile th e FT C A g ran ts ex clu siv e j u risd ictio n to f ed eral d istrict co u rts to h ear to rt claim s, 2 8 U.S.C. § 1 3 4 6 (b )(1 ).S N

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a motion to dismiss under Rul e 12(b)(6): Accepting the
p l aintiff’s alleg ations as true and drawing all reasonab l e inferences in the plai n t i f f’s favor, the court determines whether the alleg ations are s u ff icient a s a leg al matter to invoke the court’s jurisdiction.”). Under 28 U.S.C. § 1291, we have jurisdiction to review the district court’s order.

III. DISCUSSION

A. T T P ’s and SAA’s Claim s D o Not A rise in R e spect o f the Assessm ent or Collection of Any Tax.

The F TCA waives the United States’ sovereig n immunity for tort claims ag ainst the federal g overnment in cases where

a private individual would have b een liable under “the law o f the place where the act or omission o c c urred.” 28 U .S.C. § 1346(b)(1). Section 2 680 provides for several e x ce p tions that “severely limit[ ] ” the F TCA’s waiver of sovereig n immunity

. Morris v. United States
, 521 F. 2 d 8 7 2, 874 (9th Cir. 1975). “I f a plaintiff’s tort claim falls within one of the

e x c e ptions, the district court lacks subject matt e r jurisdiction.” Id. Among § 2680’s several ex ceptions is § 2680(c), which p rev e n t s lawsuits ag a inst the federal
g overnment for “[ a] ny claim a rising in respect of the assessment or collection of any tax .”

W e have “ broadly c onstrued” § 2680(c) to encompass actions taken d

uring the scope o f t he I RS’s tax a ssessment and collection efforts. W rig h t v

. U

nited States
, 7 19 F .2d 1032, 1035 (9th Cir. 1983), abrogated on other gr o u n ds as recognized by Gasho v. United States
, 39 F .3d 1420 (9th Cir. 1994). F or ex ample, in Morris
, we held that 2680(c) barred
not just claims based on literal collection activity

, but also a tax pay e r’s claim that I RS ag ents wrong fully told his creditorsS N

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of his purported tax liability during an audit of his business. 521 F

. 2d at 874–75. Other circuits also have read § 2680(c)

ex p ansively

. See Aetn a Cas. & Sur. Co. v. United States
, 71 F .3d 475, 478 (2d Cir. 1995) ( “ W e understand the § 2 680(c) ex c eption to c over claims arising out of the operation of the g o vernme n t’s mechanism for assessing a nd col l e c t i n g tax es. The pay ment of refunds w hen due is an integ r al part of that mechanism.”); Capozzoli v

. Tracey
, 663 F .2d 654 (5th Cir. 1981) (holding that § 2680(c) barred

a lawsuit b y tax pay ers who alleg e d that an I RS ag ent prowled their property and took photos of their residence without permission, d

uring an investig ation to determine the e x tent o f damag e they

claimed as casualty losses on their tax returns).

Section 2680(c) h as been r e a d to apply to both civil a nd criminal investig ations into potential tax l i a b i l ity

, see Jones

v

. United States
, 16 F .3d 979 (8th Cir. 1994), as well a s t o suits broug h t a g ainst the I RS by third parties who never h ad
any tax liability

, see Perkins v. United States
, 5 5 F

. 3d 910 (4th Cir. 1995) (barring

a wrong ful death claim arising from the death o f a miner h ired by the I RS to retr i e v e m i ning equipment to satisfy a federal tax d ebt); I n t erfirst Bank Dallas, N.A. v. United States
, 769 F. 2 d 299, 307 (5th Cir. 1985) (“[ Section 26 8 0 ( c ) ] g ives no indication whatsoever that the ex emptio n i s limited

. . . to c laims b roug ht by tax p ay ers

as opposed to third parties.”); B r o a d way Open Air Theatre, Inc. v. United States
, 208 F .2d 257, 2 59 (4th Cir. 1 953) (rejecting the p laintiffs’ arg ument that § 2680(c) does not apply when the lawsuit “is unrelated t o any alleg ed tax liability between the parties to the suit ” (emphasis added)).

Despite § 2 680(c)’s ex pansive reach, it does n o t g rant the I R S a b s o lute immunity

. W e previously have rejected the invitation t o re ad the statute as encompassing any activitiesS N

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that “mig ht serve as a deterrent that will facilitate the ‘assessment or collection’ of tax es g enerally .” See W right

, 719 F .2d a t 1035. Even courts that have applied § 2680(c) to cl a i m s that, at first blush, seem attenuated from a ssessment

a nd collection activities have taken pains to emphasiz e t h at they “do not intend to sug g est that the g ov e r n m ent is insulated from tort liability for any and all t r a nsg r essions committed by

I RS employ e es.” Capozzoli

, 663 F .2d at 658;

see also Perk i n s , 5 5 F

. 3d at 9 1 4 (“[ T] he breadth of section 2680(c)’s operation is not unlimited.”).

The g overnment arg ues that its con d u c t in this case involved the assessment or collection o f tax es because it was try ing to determine whet h e r t ax pay ers were claiming bona fide refunds. This a

r g u men t o v e r looks our oblig a tion to accept as true t h e a lleg ations in plaintiffs’ complaint. See Leatherman v. Tarrant Cty. Narcotics Intelligence & Coordination Unit
, 507 U.S. 163, 164 (1 993) (“W e r eview here a decision g ranting a motion to dismi s s , a n d therefore

m u st accept as true all the factual alleg ations in the complai n t.”). TTP and SAA a lleg e that the I RS already suspected that the individuals under investig ation w ere scam artists who were not entitl e d to any bona fide refunds. The alleg ation that the I RS’s efforts were aimed at snaring tax cheats cleanly disting uishes this case f r om the case on which the g overnment relies, Aetna Casualty & Surety Co.
, 71 F .3d 475. There, Aetna Casualty arg ued that it was entitled to part of a tax refund that the I RS had paid to a d i f f e rent tax pay er. Aetna sued the g o vernment for tortious conversion, id. at 477, and the Second Circuit held, u n remarkably

, that § 2680(c)’s bar of claims concerning tax assessment and collection efforts also bars claims based on “pay ment of refunds when due,” id. at 478. Here, the payment of ref u n d s w h en due is not at issue. Construing the alleg ed facts in plaintiffs’ fa v o r , theS N

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complaint includes fraudsters who f il ed fake returns, so no refunds were due. Pl a i n t i ffs alleg e that the I RS was not assessing the amount o f t a x e s the filers owed, nor was it attempting to collect t a x e s f rom them. I nstead, it was conducting a sting operation aimed a t snaring tax che a t e rs intent on stealing funds from the United States treasury

.

At o ral arg ument, the g o v ernment identified Pe rkins

, 55 F. 3 d 9 1 0, a s the case that “comes closest” to the f acts o f this case. B ut Perkins lends no support to the g overnment’s
arg ument. I t is readily

disting u ishable because it involved a miner h ired by the I RS to retrieve a p i e c e o f mining equipment in an attempt to satisfy a federal tax debt. See id.
at 9 12. The wrong ful death claim in Perkins easily qualified

as a claim arising fro m t h e g overnment’s tax collection efforts. See id. at 912–13.

The g overnment perfunctorily concedes that th e I R S is
not entitled to absolute immunity

, but g oes on to arg ue that § 2680(c) is intended to bar a ll lawsuits that “ hamper the

. . . ability of the I RS to conduct its b usiness,” a n d s tretches the definition of § 2680(c) so far that we can discern n o limit to its interpretation of the i m m u n i t y that § 2680(c) affords. I n particular, at oral a

rg u ment the g o vernment refused to recog niz e any distinction between the f acts of this case and a hy pothetica l s cenario in which an I RS ag ent driving a g overnment car runs a stop sig n a nd hits someone. Under the
g o v e rnment’s reading of § 2 680(c), its ex posure to liability for the on-duty auto accident would fall within § 2680(c)’s

ex c e ption to the waiver of sovereig n immunity . B y offering

no real limit to the scope of § 2680(c), the g o v e r n m e n t essentially

seeks absolute immunity for the I RS’s actions.S N

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The facts alleg ed in t h is c ase d escribe an elaborate criminal sting operation little different from law enforcement and investig ative efforts to ca t c h i d e ntity thieves w ho a re stealing ban k a c count information, or cons who a re committing health care fraud. A rg uably

, when Ag e nt Daniels asked Sny der to front the money f o r t h e I RS’s sting a

nd cautioned that failing to cooperate would interfere with a criminal investig ation, h e was not attempting to a s s e s s o r collect tax es , nor issuing duly o w ed refunds. Nor w ere the targ e ts of the sting operation try ing to enjoy

tax -free income by fu d ging on reporting requirements or g inning up fake deductions. I nstead, they were tr y i ng to use false identificati o n t o claim “refunds” wholly unconnected to pay ment o f tax es. The I R S convinced Sny der to use SAA’s funds as b a it to catch the scam artists and, in ex chang e for his trouble, Sny der lost both of his businesses.

The I RS revoked T T P’s e-filing privi l e ge s despite knowing that Sny der did the r esponsibl e t h i ng by stopping
pay ment on checks SAA advanced to Hilton’s clients and that TTP’s e-filing identification number was used in connection wi t h fraudulent returns at the request of the I RS. The
g overnment’s briefing does not attempt to tie the c ancellation of TTP’s e-filing privileg es to any efforts to assess or collect
tax es. The only p ossible links we can see between tax assessment an d c o l lection and the suspension of the e-filing privileg es is that t h e e

- filing sy stem is part of the I RS’s
g eneral mechanism f

or collecting tax es, and that the revocation of TTP’s e-filing privileg es was part of a g eneral effort to d eter tax fraud. Neither f a c t suffices to save the
g overnment’s immunity theory

. W e have previously rejected

an interpretation of § 2680(c) so ex pansive that it would

n e g ate 28 U.S.C. § 2680(h), which e x pressly allows c l a i m s for intentional torts such as malicious p rosecution by federalS N

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investi ga t i ve or law enforcement officers. See W right

, 719 F .2d at 1035–36.

W e are aware o f no rep orted appellate decision that has addressed facts similar t o those here, and the g overnment offers no p ersuasive r eason why w e should be the first circuit
to g rant such ex p ansive immunity to the I RS. Granting immunity in this case wo u ld allow the F TCA’s waiver o f sovereig n immunity vis-a-vis the I RS to be wholly subsumed in the § 2680(c) ex ception. W e “read[ ] no ex e mp t i o n s into th e F TCA bey ond those provided.” Id. at 1036. Section 2680(c)’s ex ception to the waiver of sovereig n immunity is broad, b ut it is not unlimited, a n d t h e g overnment’s allencompassing view of it cannot be squared with the statutory tex t. B y its terms, the e x ception shields only actions taken in

co n n ection with efforts to assess or to collect tax es, which were not involved in this case.

B. The G o vernm ent’s Alternative Argum ents Do Not P r o v i d e G rounds f

or Af f irm ing the District Court’s Order.

The g overnment also urg es us to affirm the district court’s judg ment on four alter n a t ive g rounds that the district court did not reach. Althoug h “we can affirm the district court on
any g rounds supported by the r ecord,” W eis e r v. United States
, 959 F .2d 146, 147 (9th Cir. 1 992), none of the
g overnment’s ar g uments merits dismissal at this early stag e of litig ation.S N

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1. Section 2680(h) Does Not Bar the Claim s Because They Do Not Rest on A lleged Misrepresentations.

The g overnment arg u es that 28 U. S

. C

. § 2 680(h) bars TTP ’s and SAA’s claims for neg lig ence, conversion, a nd failure to restore thing s wrong fully acquired because they

a re premised on misrepresentations by the g overnment

. Section 2 680(h) establishes an ex ception to the waiver o f sovereig n i mmunity for c laims that “ aris[ e] out of

. . . m i s r e p r e s e n t a t i o n

. ” T h i s e x c e p t i o n i n c l u d e s misrepresentations made w illfully and misrepresentations made neg lig e ntly

. See United States v. Neusta d t , 3 6 6 U.S. 696, 702 (1961).

Section 2680(h) bars c laims that focu s on the
g overnment’s failure to use due care in communicating information, not actions f

o cused on breach of a different duty

. Block v. Neal

, 460 U.S. 289, 297 (1983). T h e plaintiff in Block received federal a ssistance for a house c onstruction loan, and a f

e d e ral ag ency undertook to supervise the construction. Id. at 291–92. The a g ency reported to p laintiff that the c onstruction was satisfactory but, after moving in, she discove r e d numerous defects. Id. at 292. She sued for
neg lig ent supe r v ision under the F TCA. T he g overnment arg ued that § 2680(h) barred her n e gl i g ence claim. Id. at 293– 9 4

. A ccording to the g overnment, plaintiff’s c laims

were based on misrepresentations about the condition of the house. Id. at 294. The Supre me Court held that § 2680(h) d i d not ex cept the g overnment’s waiver of sovereig n i mmunity

. I

d. at 296–97. I t r easoned that the cl a i m f o r

n e g l i g e n t s u p e r v i s i o n d i d n o t “ a r i s [ e ] o u t o f misrepresentation” within the meaning of § 2680(h) because the plaintiff did not seek to recover on the basis o f misstatements made b y the g overnment officials. T h e d uty toS N

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use due care supervising construction was separate f rom any duty the go v e rnment had to accurately communicate information to the plaintiff. I d. a t 297. “Neither the lang uag e

nor history of the [ F TCA] sug g est[ s] that when o ne aspect o f the [ g ] overnment’s conduct is not actionable under the ‘misrepresentation’ ex ception, a claimant is barred f r om pursuing a distinct claim a rising out of other aspects of the [ g ] overnment’ s conduct.” Id. at 298. “ Any other interpretation would encoura ge t he [ g ] overnment to shield i t s e l f c o m p l e t e l y f

r o m t o r t l i a b i l i t y b y a d d i n g misrepresentations to whate v er otherwise actionable torts it commits.” Id.

Here, § 2 680(h) does not shield the g overnment because TTP and SAA do not alleg e that the I RS obtained their
money throug h d eceit. T T P a n d SAA alleg e that the I RS
wrong fully obtained use of their m o ney during the sting operation and failed to return it. A s in Block

, any alleg ed misstatements by the I RS “are not essentia l to” plaintiffs’ claims, id. a t 297, which primarily rely on the g overnment’s alleg edly neg lig ent failure to “take due c a r e to see that Plaintiff[ s] were reimbursed and indemnified for any monies

w h ich they advanced to persons involved in the stin g, o r

a l l o wed Defendant to use a t their request, or which th e y otherwise lost.” Any “p a rtial o verlap” between plaintiffs’ claims and a potential misrepresentation claim does not bring the former within the scope o f § 2680(h)’s ex ception. See id. at 298.S N

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2. TTP and SAA Have Stated Claims U n der Cali f o rnia Law f

or F a ilure to Restore Things Wrongf ully Acquired and f

or Conversion.

The g overnment arg ues that TTP and SAA f ailed to state claims f or failure to restore thing s wrong fully a cqu i r ed a nd for conversion. This defense rests o n the g overnment’s theory that it never had control over property that belong ed to TTP or SAA. B u t TTP and SAA assert that the I RS coerced Sny der into r e i s suing checks to the targ ets of the I RS’s investig ation. At this e a rly stag e, we cannot determine whether the facts w ill be as TTP and SAA alleg e, but if plaintiffs are a b l e to support their alleg ations, a f a ct finder mig ht be able to decide that the g overnment ex erted sufficient control over their property to support these claims. See Cal. Civ. Code §§ 654, 1712.

California case law is sparse in these areas, but California defines “ownership of a thing ” a s “the r igh t o f one or more persons to possess and use it to the ex c lusion of others.” Id. § 654. E ven if consent is initially g iven, a plaintiff can state

a claim for failure to r e store thing s wrong fully acquired under § 1712 if the plaintiff lat e r withdraws consent. Similarly

, conversion is “the unwarranted interference by defenda n t with the dominion over the property of the p laintiff from which injury to the latter r esults.” W elco Elecs., Inc. v. M

ora , 1 66 Cal. Rptr. 3d 877, 882 (Ct. App. 2014) (int e rn al quotation marks omitted). “Mone y m a y be the subject o f conversion if the claim involves a specific, identifiable sum

. . . .” Id. Here, the complaint a lleg es specific sums o f
money that T T P a n d SAA allowed the I RS to direct. Althoug h the I RS directed that the money should be allowed
to pass into the hands of individuals under investig ation rather tha n to the I RS itself, the alleg a tion is that the I RSS N

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directed the disposition of plaintiff s’ funds. TTP and SAA did not consent to the I RS’s permanent use of these sums, a nd the I RS never reimbursed them. The complaint’s alleg ations suffice to state a c laim f

or failure to restore thing s wrong f ully acquired and conversion.

3. TTP a nd SAA Have Stated a Claim f or Abuse of P rocess Under Calif

ornia Law

. The g o vernment also a

rg ues that TTP and SAA failed to
state a claim for abuse of process. “To establish a cause o f action for abuse of p rocess, a p laintiff must plead two essential elements: that the def en d a nt (1) entertained an ulterior motive in using t h e p rocess and (2) committed a wilful act in a w rong ful manner.” Coleman v. Gulf Ins. Grp.
, 718 P.2d 77, 81 (Cal. 1986). T h e go v e rnment arg ues that plaintiffs cannot satisfy the second prong because they cannot show that the I RS committed a willful act in a wrong f ul

manner.

“[ G] enerally

, an action [ for abuse of process ] l i e s only where the process is used to obtain an unjustifiable collateral advantage

. F or this reason, mere vex ation or harassment a re not recog niz e d as objectives sufficient to g ive rise to the tort.” Y o unger v. Solomon

, 113 Cal. Rptr. 113, 118 (Ct. App. 1974). TTP a nd SAA alleg e that the I RS issued subpoenas a nd revoked T TP’s e-filing privileg es to intimidate them a nd

cause them to drop claims for a r eturn of their funds. I f TTP and SAA had dropp e d t h eir claims, the I RS w ould have obtained a collateral advantag e—unchalleng ed conversion o f TTP’s and SAA’s money

. These alleg ations e asily amount to

more than “mere vex ation or harassment” and survive t h e g overnment’s motion to dismiss.S N

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4. We Do Not Reach the G overnm ent’s Argum ent That § 2680(a)’ s D i s c r e t i o n ary F unction Exception Bars the Claim s.

The g overnment further a r g u es that, because the alleg ed conduct involved the e x ercise of a d iscretionary fun c tion, 28 U.S.C. § 2680(a) bars TTP’s and SAA’s claims. Section 2680(a) e x cepts from the F TCA “[ a] ny claim

. . . based upon the ex ercise or performance o r t h e failure to ex ercise o r perform a discretionary funct i on or duty on the part of a federal ag ency or an e mploy ee of the [ g ] overnment, whether

or not the discretion involved b e abused.” The discretionary function ex ception involves a two-part test. Alfrey v. United States
, 276 F

. 3d 557, 561 (9th Ci r. 2002). F irst, we ask “whether the challeng ed conduct is discreti o n ar y , that is, whether it ‘involv[ es] an element of judg m e n t or choice.’” Id. (alteration in orig inal) (quoting Fang v. United Stat e s , 140 F .3d 1238, 1241 (9th Cir. 1998)). This prong “is n ot met ‘when a federal statute, reg ulation or p o l icy specifically prescribes a c ourse of action for an employ ee to follow.’” Id. (quoting Fang
, 140 F .3d at 1241)). Second, we ask “whether that judg ment is of the k ind tha t the discretionary function

ex c e ption was desig ned to shield.” I d. (quoting Berkovitz v. United States , 486 U.S. 531, 536 (1988)).

TTP and SAA arg ue that th e F ederal Rules of Civil Procedure require that they have a chance to co n d u ct discovery on what statutes, reg ulations, or policies g overn an I RS ag ent’s u se of p rivate pr o p erty in the course of a tax fraud investig ation. W e ag ree. The g overnm ent’s unsupported assertion that i t had unfettered discretion to commandeer TTP’s and SAA’s f unds is not sufficient. Depending on what discovery y ields, the g overnment may be unable to satisfy the first pr ong of the test f or theS N

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discretionary function ex ception. At the very least, some d i s c o v ery on this issue is warranted. See F ed. R. Civ. P

. 56(d).

IV. CONCLUSION

W e reverse the district court’s order g ranting the motion
to d ismiss and remand for further proceeding s in accordance with this opinion.

Appellee shall bear costs on appeal.

REVERSED and REMANDED.

B YB EE, Circuit J udg e, concurring in the judg ment:

I am sy mpathetic to the majority ’s resolution o f this case and ultimately ag ree that, o n the record before us, w e should

reverse the district court’s dismissal a nd remand for f

urther proceeding s. I write separately to address my c oncern with the majority ’ s blanket conclusion that the I n t e r nal Revenue S e r vice (I RS) was not e ng a g ed in “ the assessment o r collection of any tax ,” 28 U.S.C. § 2 68 0 ( c )

, simply because “no refunds were due” to the subjects of the I RS investig ation in this c ase, Maj. Op. at 11–12. I n m y o p i nion, that is an unduly narrow construction of § 2680(c). B ut I ag ree that Plaintiffs should have an opportunity to sho w w hy they can maintain their tort suit ag ainst the I RS.

The F ederal Torts Claims A ct ( F TCA) waives the United States’ sovereig n immunity f or tort clai m s alleg ing “money damag es

. . . for injury or loss of p r o p e r t y

. . . caused by theS N

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neg lig ent or w rong ful act or omission of any employ ee of the Government while acti ng within the scope of his office o r employ ment.” I d. § 13 4 6 ( b)(1). This waiver, however, is “severely limited” by ex ceptions listed in § 2680. Morris v. United States
, 521 F .2d 8 7 2, 874 (9th Cir. 1975). Relevant here is the ex ception in § 2680(c) for “[ a] ny claim a rising in respect of the assessment or collection of any tax

. ”

The F TCA does not define t a x “assessment” o r “collection. ” But the I nternal Revenue Code defines the

sc o p e o f the I RS’s assessment and collection a uthority

. Section 6201, entitled “Assessment a u thority ,” ex plains that the I RS “is a

uthoriz ed and r equired to make the inquiries, determinations, a nd a ssessments of all tax es (including interest, additional a m o unts, additions to the tax , a nd assessable penalties) imposed b y this title.” 26 U .S.C. § 6201(a). A n assessment is “made b y recording the liability

o f the tax pay er in the office o f the Secretary in ac c o rd a n c e with rules or reg ulations prescribed by th e S e c r etary

. ” 26 U.S.C. § 6 2 03. Section 6301, entitled “Collection authority ,” simply provides that “[ t] he Secretary shall collect the tax es imposed by the interna l r e v e n u e laws.” Thus, in a literal sense, a tax “asse s s m e nt” is a recorded determination of tax liability

. And a t ax “collection” is an effort to obtain

a tax liability

. As ex plained below, h owever, we have not limited the scope of § 2680(c) to literal assessment o r collection.

W e h ave addressed t he scope of § 2680(c) on only two occasions. I n Morris
, we interpreted the phras e “the

ass essment or c ollection o f any tax ” to encompass tax investig ations and audits. 521 F .2d at 87 4

. T h e re, the I RS ha ra s s ed and intimidated Morris and his wife during the investig ation and, o n several occasions, unlawfully seiz edS N

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their property

. Id. The I RS also told Morris’s creditors that Morris had a l a r ge t ax liability and would be insolvent as a result. Id. A t the conclusion of its inves t i ga t i o n , the I RS determined that Morris had n o outstanding tax liability a nd returned over $6000 in ov erpaid tax e s. Id. Morris and his wife broug ht an action under the F TCA. W e concluded:

Even assuming arguendo that the I nternal Revenue a g e n ts’ col l ection a ctivity was bey o nd the n ormal scope of autho r i t y a nd amounted to tortious conduct, we find that the claim falls squarely w i t h in the ex empted
g roup of to r t claims arising out of tax collection efforts.

The alleg ed conduct of the I RS age nts, if true, w ould b e deplorable; nevertheless, the d i s t r ict court lacked subject matter juris d i c t i o n over the claims ag ainst them.

Id. at 874 (citations omitted). The t ak e a w ay from Morris is that § 2680(c) covers more than literal t ax assessment o r collection; it also covers the I R S ’ s efforts to investig ate potential tax liabi l i ty

. This holding is in harmony with the I RS’s assessment authority under 2 6 U.S.C. § 6201(a), which includes the authority not o nly to assess tax es in a literal

sense (i.e. record a tax liability ) but also the authority to make “i n q u i r i e s ” a n d “ d e t e r m inations” reg arding any tax es imposed in the I nternal Revenue Code.

Eigh t y ears after Morris
, we decided W right v. United S t a t e s , 719 F

. 2d 1032 ( 9th Cir. 1983). W rig ht had b e e n indicted for fail u r e to file tax r eturns and for making false
statements in his returns. Id

. at 1033. The g overnmentS N

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eventually dismissed the indictments, and W rig ht filed an F TCA ac tion a lleg ing that the indictments constituted malicious prosecution. Id. Th e go vernment arg ued that the indictments were part of “the assessment or c ollection” o f
t a x es and w ere thus barred b y § 2680(c). Id. at 1035

. W e noted that the indictments were not collection efforts “[ i] n the literal sense” because the p r o secution “was an attempt to impose criminal penalties on W rig h t, n o t to collect tax es from him.” Id

. Bu t w e a lso acknowledg ed that § 2680(c) “has been broadly construed” a n d t hat it would “not strain precedent to hold that . . . prosecuting W rig ht fell within the

ex c e ption because the prosecution mig ht serve as a deterrent that will facilit a t e the ‘ assessment or collection’ o f tax e s g enerally

. ” Id. U ltimately

, however, we rejected that broad construction in lig ht of § 2680(h), which ex pressly pe rm i ts claims for malicious prosecution by federal law enforcement officers. 1 There was no dispute that the I RS ag ent in question

1 2 8 U.S.C. § 26 8 0 (h ) ex c e p t s f ro m th e Un ited States’ w aiv er of

so v ereig n im m u n ity

[ a ] n y claim arisin g ou t o f assau l t, b attery , f alse im p riso n m en t, f

alse arrest, m alicio u s p ro secu t io n , ab u s e o f p ro cess, lib el, s lan der, m isrep resen tatio n , d e ceit, o r in t erf

eren ce w i th co n tract rig h ts: Pro vid ed

, T h at, w ith reg ard to acts o r o m issio n s o f i n v e s t ig ativ e

o r l aw en f

o r c em en t of

f icers o f th e Un ited States Go v ern m en t, th e p ro v isio n s o f th is ch ap ter an d sectio n 1 3 4 6 (b ) o f th is title sh all ap ply to an y claim arisin g , on

o r af ter th e d ate o f th e en actm en t o f th is p ro v iso

, o u t of

assau lt, b attery , f

alse im p riso n m en t, f

alse arrest, ab u s e

o f p ro cess, o r m alicio u s pro secu tio n

. Fo r th e p u rp ose

o f th is su b sectio n , “ in v estig ativ e o r law en f o rcem en t

o f f icer” m ean s an y o ffi c er o f th e U n i ted States w h o is

em p ow ered b y law t o ex ecu te search es, to s e i z e

ev id en ce, o r to m ak e arrests f o r v i o latio n s o f Fe d e ral law

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w a s a federal law e nforcement officer, id. at 1034, a nd w e

saw nothing i n § 2680(h) sug g esting “that malicious tax prosecutions are to b e treated differently from other malicious
pr o s ecutions,” id. at 1036. To avoid encroaching on § 2680(h), we interpreted § 2680(c) “ n ot to apply to [the I RS
ag ent’s] actions in c arry i n g out the criminal prosecution
ag ainst plaintiff, insofar as those acts are alleg ed to constitute malicious prosecution.” Id. Construing § 2680(c) i n t h i s

manner left b o t h § 2680(c) and § 2680(h) “with a g reat deal of room to operate.” Id.

Since deciding W

right

, we have n o t h ad occasion to further opine on what constitutes “the assessment o r collection of any tax .” 2 Other circuits, ho w e v e r, have h eld that a wide array of I RS conduct f a l l s w i thin § 2680(c)’s purview. To say that the stat u t e h a s b een g iven a broad construction is an understatement. S e e , e.g. , Perkins v

.

2 In S mith v. Bra d

y , 9 7 2 F.2 d 1 0 9 5 (9 th Cir. 1 9 9 2 ), w e co m pared § 2 6 8 0 ( c ) to 26 U.S.C. § 7 4 3 0. S ectio n 2 6 8 0 (c) w as n o t at i ssu e in th at
case, b u t w e o bserv ed t

h at cases in t erp retin g § 2 6 8 0 (c) “ sh o w th at a b ro ad

ran g e o f activ i t

y b y th e IRS arises i n co n n ectio n w ith th e d eterm in atio n of
tax liab ility .” Id

. at 1 1 0 0 . In Ga sh o v. Un ited S ta tes , 3 9 F.3 d 1 4 2 0 (9 th Cir. 1 9 9 4 ), w e ad d ressed § 2 6 8 0 (c)’ s ex em p tio n f o r liab ility fr om “ an y claim arisin g i n resp ect o f

. . . th e d eten tio n o f an y g o od s or m erch an dise b y an y o f f icer o f cu sto m s .” Rely in g o n W rig h t , th e p l ai n t i ffs in Ga sh o arg u ed th at § 2 6 8 0 (h ), w h ich p erm its claim s f o r v ario u s in ten t i o n al t o rts

co m m itt ed by f

ed eral law en f

orcem en t o f

f i cers, am en d ed th e § 26 8 0 (c) b ar. W e rej ected th e n o tio n th at § 2 6 80 (h ) in an y w ay a m en d ed § 26 8 0 (c)

so as to w aiv e im

m u n ity t h at w o u ld oth erw ise ap p ly

. W e h eld t h at W r ig h t sim p ly req u ires “ th e Un ited States to f irst d e m o n strate th at th e Cu sto m s

o r IRS ag en t ’ s to rtio u s co n du ct f alls w ith in th e s c o p e of activ ities

ex em p ted in § 2 6 8 0 (c). If

su ch a sh o w in g is m ad e, th e claim is b arred .” Id

. at 1 4 3 3

. B ecau s e w e co n stru ed t h e m a l i cio u s p ro secu tio n in W r ig h t

n o t to co n stitu

te a n a s s e s sm en t o r a co llectio n o f a t ax “ w ith in th e strict

m ean in g o f

th o se w o rd s,” th e g o v ern m en t h ad f ailed to d em o n strate th at its co n d u ct f

ell w ith i n th e sco p e o f

§ 2 6 8 0 (c). Id

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U nited S tates , 55 F .3d 910, 9 13 (4th Cir. 1 995) (“T h e opinions interpreting section 2 680(c) clarify that the

ex e mption applies not only to actions by p erson s ag ainst whom the tax collection e fforts are directed, but also to act i o n s by third parties injured by tax collection efforts.”); Interfirst Bank Dallas, N.A. v. U nited S tates , 769 F. 2 d 2 9 9, 307 (5th Cir. 1 985) ( “ [ S ection 2 680(c)] g ives no indication whatso e v e r that the ex e mption is limited to claims

. . . broug ht by tax pay ers as o ppos e d to third parties. I nstead, it specifically applies to a ll tax -related claims. ”) ; Capozzoli v

. Tracey
, 663 F

. 2d 654, 658 (5th Cir. 1981) (“This lang uag e is broad enoug h to en compass a ny a ctivities of an I RS ag ent

even remotel y r e l a ted to his or her official d uties.”); Broadway Open Air Theatre v. United States , 208 F .2d 257, 259 ( 4th Cir. 1953) (rejecting an arg ument that § 2680(c) does not a

pply to conduct “unrelated to any alleg ed tax liability between the parties to the suit”). As relevant to this appeal, the Eig hth Circuit held in J o n es v. United States that § 26 8 0 (c) e ncompasses both civil and criminal tax investig ations. See 16 F .3d 979, 980–81 (8th Cir. 1994). I n Jones
, the court dismissed an F TCA cl a i m a r i s ing o ut of an investig ation “that at all relevant times . .

. w as in a criminal status, as opposed to b eing an administrative or civil matter.” Id. at 980. I t did so in spite of the fact that the investig ation did not result in “any attempted assessment or collection o f
tax es o r p e nalties.” Id. According to the court, whether an investig ation is civil or criminal in nature “mak es no difference” to § 2680(c)’s bar. Id. ; see also Perkins

, 55 F .3d
at 9 16 (summarily rejecting an arg ument that § 2680(c) does
not apply when the I RS is “conducting a c r i m i nal investig ation rather than collecting tax es” as having “no basis in law”).S N

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T h e majority d oes not dispute Jones ’s conclusion th at § 2680(c) applies to c riminal tax i n v e s tig ations as well a s civil tax investig a tions and, I think, properly so. See Maj. Op.
at 10. I n a different co n t ex t , the Supreme Court has commented o n “the interrelated criminal/civil nature o f a tax fraud inquiry .” United States v. LaSalle Nat’l Bank

, 437 U.S. 298, 314 ( 1978); se e a l

s o id. at 314 n.15. I n LaSalle

, the Court addressed the scope of the I RS’s summons authority under 26 U.S.C. § 7602. Id. a t 305. That provision h as since been modif

i ed

, but at the time it only permitted the I RS to issue summonses in connection with civil, not criminal, investig ations. S

ee id. at 301 n.3. T h e q u e s t i on before the Court was whether the statute au t h o r iz ed a summons issued solely for the purpose of building a criminal case. Id. at 307–08. T he Court reasoned that “[ f] or a fraud investig ation
to be solely criminal in nature w ould require an ex traordinary departure from the normally inseparable g oals of ex amining whether the b asis ex ists f or c riminal c h a r g es and for the
assessment of civil penalties.” Id. at 314. C o m m i t t i n g tax fraud may subject perpetrators to both c r i m i n al and civil penalties. Id. at 308; see a lso 26 U.S. C

. § 7 2 06 (subjecting fraudulent tax p ay ers to criminal penalties of imprisonment, fines u p to $100,000 ($500,000 for co rp o rations), or both, plus c osts of prosecution); id. § 6663(a) (adding seventy -five percent of any underpay ment to a t ax p ay ers’s tax liability when the underpay

ment is d

ue to frau d ). Those civil penalties are, by statute, considered part of the tax p ay er’s tax liability

. See 26 U.S.C. § 6201 ( “The Secretary is authoriz ed and required to make the inquiries, d e t e r m inations, a nd
assessments of a l l tax e s (including interest, additional amounts, a dditions to the tax, a nd assessable penalties ) imposed by this title

. . . . ” ( e m phasis added)). I t is thus
t y pically the c ase that the I RS, when try ing to dete rm i n e criminal liability

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penalties should be added to the tax pay er’s liability

. Not only d o e s the I RS have an interest in assessing civil penalti e s ag ainst fraudulent tax pay ers, it also has an in t e r e s t in collecting the unpaid tax es. And “[ t] h e institutional responsibility of the [ I RS] to calculate and to collect civil fraud penalties and fraudulently reported or unreported tax e s is not necessarily

overturned by

a sing le ag ent who attempts to build a criminal case.” LaSalle

, 4 37 U

. S

. at 3 1 4

. I t is

ra r e l y t h e case that the I RS “abandon[ s]

. . . the pursuit o f civil tax determination or collection” simply because it a l s o chooses to investig ate potential tax crimes. See id. at 314, 318.

LaSalle lends support to o u r c onclusion in W right that a purely c riminal prosec u t i on does not constitute tax assessment or c ollection, althoug h LaSalle also sug g e sts that

a purely criminal tax investig ation will be rare. 3 “Only [ upon the recommendation of prosecution] do the criminal and civil aspects o f a tax fraud case beg in to diver ge

. ” Id. at 311.

3 T h ere i s a g o o d r e a so n f o r t h is. Crim in al tax ev asio n is a sp ecif ic in ten t crim e. In su c h c a s e s, th e g o v ern m en t b ears a v ery h ig h b u rd en b ecau se it m

u st s h o w th at th e def

en d an t “ w illfu l l y attem

p t[ed ] in an y

m an n er t o ev ad e o r d ef

eat an y tax .” 26 U.S.C. § 7 2 0 1

. In t h is co n t ex t,

“ w illf u lln ess” m ean s th e g o v ern m en t m u st “ p ro v e th at th e law im p o sed a d u ty o n th e d ef

en d an t, th at th e d ef

en d an t k n ew o f th is d u ty , an d th e h e

v o lu n t arily an d i n ten tio n ally v io lated th at d u ty .” Ch eek v. Un ited Sta tes , 4 9 8 U.S. 1 9 2
, 2 01 (1 9 9 1 ). T h e Co u rt h as lo n g “ in terp reted th e statu to ry term ‘ w i llf u lly ’ as u s ed in th e f

ed eral crim in al tax statu tes as carv in g o u t

an ex cep tio n to th e trad itio n al ru l e [th at ev ery p erso n is p resu m ed to k n o w th e law ]. T h i s sp ecial treatm en t o f crim in al tax o f f en ses is larg ely d u e to th e co m p lex ity o f th e t ax law s

. ” I d

. at 2 00

. T h e b u rd en o f p ro o f in tax p ro secu tio n s i s th u s g reater th an it is f o r o t h e r c r i m es, ev en w

h ere th e g o v e r n m en t m

u st sh o w t

h e d ef en d an t acted “ w illf

u l ly .” S ee Brya n v. Un ited Sta tes , 5 2 4 U.S. 1 8 4, 1 9 3

– 95 (1 9 9 8 ). B ecau se o f th e h ig h b u rd en

o f p ro o f , m o st tax in v estig atio n s w ill h av e o n ly civ il co n seq u en ces.S N

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Althoug h the I RS “ d oes not sacrifice its interest in unpaid
tax es just b ecause a cr iminal prosecution beg ins,” id. at 311–12, the imposition of criminal p enalties does nothing to further the I RS’s interest in collecting o r assessing tax es aside from the deterrent e ffec t o n the tax pay er and others, see W right

, 71 9 F .2d at 1 035. The investig ation preceding prosecution, howeve r , generally has both civil and criminal motives even w hen the investig ation is “in a criminal status” “a t a ll relevant times.” See Jones
, 16 F .3d at 980. B ut the Court recog niz ed in LaSalle that there is at least the possibility that the I RS could c a r r y o ut an investig ation

s t r ictly for the purpose of pressing criminal charg e s

. 437 U.S. at 318. I f it turns out that the I RS has “abandon[ ed] in a n institutional sens e

. . . the pursuit of civil tax determination or collection,” id.

, then it is no long er carry ing
out its tax assessment or c ollection functions and falls outside the scope of § 2680(c).

Here, the Government arg ues that its investig ation had a civil component because it was try ing t o determine whether
to pay the tax pay ers’ claimed refunds. Plaintiffs counter that the sole purpose of the sting operation was to catch criminals that the I RS already suspected were committing tax fraud. I n all likelihood, the i n v e stig ation had both civil a nd criminal

c o m p o n e n ts. S

ee id. a t 314. Specifically

, the I R S investig atio n w a s likely an effort to prevent the pay ment o f fraudulent returns and impose civil and criminal penalties, with the civil penalties making up part o f the tax pa y er’s tax liability

. See 26 U.S.C. § 6 201. I t also seems likely that the I RS would g o after any u npaid tax es the su b j e ct s of the investig ation may owe. B ut the complaint is ambig uous as to the nature o f the investig ation. I t alleg es that the investig a t i o n was desig ned “to identify instances o f fraudulent tax returns,” which lends support to the I R S ’sS N

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contention that i t wa s try ing to determine whether it had to pay the refunds. The complaint a lso a lleg es that the investig ation was an effort to “catch criminals attempting to d e fraud the I RS.” This alleg ation hig hlig hts the crim i n al
nature of the I RS’s investig ation, a nd, construed narrowly in Plaintiffs’ favor, lend s support to the majority ’s conclusion tha t t h e I RS’s efforts were solely “aimed at snaring tax cheats.” Maj. Op. at 1 1. A l t h o u gh I think the complaint fairly sug g ests both civil a n d criminal motives, I see no harm in permitting discovery for t h e purpose of clarify ing the nature of the I RS investig ation.

The majority reasons that “the targ ets of the sting operation [ were n ot] try ing to enjoy tax -free income b y fudg ing o n reportin g r e q uirements or g inning up fake deductions” b ut “were try ing to use false identific ation to claim ‘refunds’ wholly unconnected to pay ment of tax es.” Id.
at 13. I have two responses. F irst, t h e r e a l crux of my disag reement with the majority is its apparent conclusion that I RS efforts to prevent the pay ment of frau d u lently filed refunds do not fall within the broad array of the I R S ’s
assessment and collection activities. See id. at 12 ( “ Plaintiffs alleg e that the I RS w as not assessing the amount of tax es the filers owed, n or was it a ttempting to collect tax es from them. I nstead, it w as conducting a sting o peration aimed at snaring
tax cheaters i ntent on stealing funds from the United States treasury

. ”). The majority disting uishes this case from A e tna Casualty & S

urety Co. v. United States
, 71 F .3d 475 (2d Cir. 1995), which reasoned that “ [ t] he pay ment of ref

u n d s when due is an integ ral part of” the “ mechanism for assessingand collecting tax es” and thus w ithin § 2680(c)’s purview. Id. at 478. The majority concludes that “ the payment of r e f u n d s when due is not at issue” because “ the complaint inc l u d e s f r a udsters who filed fake r eturns, so no refunds were du e

. ”S N

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Maj. Op. a t 11–12. I d o n o t r e ad A e tna as drawing a line between p ay

ment and nonpay

ment of refunds. Rather, the Second Circuit in Aetna was try ing to avoid a n arrow

co n s t ruction o f § 2 680(c) that ex cluded refunds from

ass e s s ment and collection efforts. Id. at 478–79. T o conclude, as the proposed m a j o r ity d oes, that paying duly

owe d refunds falls under § 2680(c) while denying refunds does not strikes me as unduly narrow. I t puts the cart before the horse. I f discovery reveals that the I RS was, as it asserts, attempting to determine whether the refund claim s a t issue

were bona fide, then it cannot be the case that t he I RS is

asse s s i n g t ax es when it turns out the claims were bona fide but is not when it tu r n s out the claims were bog us. The “[ a] ssessment authority ” g iven to the I RS in 26 U.S.C. § 6201 include s t h e ability to make “inquiries, determinations, a nd
assessments of all tax e s.” An inquiry into the validity o f a tax pay e rs’ F orm 1040 falls squarely within that authority

.
Second, even assuming w e c a n disting uish b etween cheating on the tax e s we pay and cheating on the refunds we claim, t h e majority ’s conclusion that the I RS “was not attempting to assess or c ollect tax e s ” is, at best, premature. Maj. O p. a t 13. The complaint simp l y alleg es that the I RS

was a ttempting to d e tect instances of fraudulent tax returns. There are various way s a tax pay er c ould comm i t fraud o n a tax return, including fudg ing numbers or c l a iming fake deductions. The complaint g ives an e x ample of o ne of the investig ated tax pay ers using a fake I D, but it is far from clear what kind of fraud the other s u b j ects of the investig ation mig ht have committed. I f discovery reveals that some of the investig ated tax pay ers w ere fudg ing numbers, then, based on the m aj o rity ’s own reasoning

, the majority would ag ree that the investig ation constit u t e d t ax assessment. B ut, in any event, I ’m not sure w hy it matters whether the fraud involvedS N

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fake I Ds or fudg ed numbers. The I RS’s interest in not pay ing

a fraudulently claimed return is the same reg ardless of the ty pe of fraud at issue. And a tax pay er who has borrowed an I D from someone else or who has claimed false d eductions is still liable for any

unpaid tax es.

I n s hort, the majority ’s conclusion that the I RS was not eng ag ed in tax assessment or collection rests on a n u n d u l y

narrow construction of what constitutes tax asses s m e n t a nd collection

. I nonetheless ag ree that we should r everse the district court on the record before us. Plaintif f s s h o uld at least g et the chance to show that the I RS investig ation had no other purpose than to impose criminal penalties. 4

* * *

I f the subjects of the I RS investig at i o n in question were to b ring tort claims ag ainst the I RS for conduct related to the investig ation into the validity of their c l a i med returns, I wonder whether any of us would have g iven pause to the district court’s conclusion that § 2 6 8 0 (c) bars such claims. W h at makes this case different from a l l of the other cases apply ing § 2 680(c) to bar claims is not so much the nature o f the I RS investig ati o n , b ut the fact that Plaintiffs are not the
tax pay e rs at issue a

n d are innocent third parties. W e cannot, however, disting uish t h i s c ase on that g round without doing damag e t o the statute’s tex t, see § 2680(c) (“The provisions of this chapter and section 1 346(b) of this title shall not a pply
to

. . . (c) A ny claim arising in re s p e c t o f the a ssessment o r collection of any tax

. . . .” (emphasis added)), or creating an overt circuit split, see , e

. g. , I n t erfirst Bank Dallas, N.A.
,

4 B ased o n th e reco rd b ef

ore u s, I w o u ld n o t reach th e Go v ern m en t’ s altern ativ e arg u m en t s f

o r af f irm i n g th e d ism issal o f

P lain tif f s’ claim s.S N

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769 F .2 d a t 3 07 (“[ Section 2680(c)] g ives no indication whatsoever that the ex emption is limited to c l ai m s

. . . broug ht by tax pay ers as opposed to third parties.”). Th at said, I think that our c ase law fairly g ives Plaintiffs a chance
to show that the I RS investig ation was purely criminal. B ut I can’t ag ree with the majority ’s conclusio n t h a t I RS investig ations into the va l i d ity of a claimed refund fall outside the scope of § 2680(c).

F inally

, it i s worth emphasiz ing what Plaintiffs are not alleg ing in this lawsuit. They are not alleg ing t h a t the I RS breached an ex press or implied contract to mak e P laintiffs whole. Nor a r e t h e y alleg ing that the failure to repay Plaintiffs constituted a g overnment taking

. These c laims would fall u nder the Tucker Act, which spec i f i c a l ly waives immunity for breach of contract and t a k i n g s claims. 28 U.S.C. § 1491(a)(1). Plaintiffs have raised these c laims before the Court of F ederal Claims. W ithout passing on the merits of that lawsuit, breach of contract and taking s would

seem to b e the more natural way of sty ling Plaintiffs’ claims. Here, however, Plaintiffs’ tort claims arose d u ring the course of an I RS investig a tion. F urther d iscovery may confirm the Governm e n t ’s arg ument that Plaintiffs’ claims a rose “in respect of the assessment o r co l lection of any tax ” a nd a re thus barred b y § 2680(c), but the Plaintiffs should g et the opportunity to show otherwise. I don’t think we can conclude that the Government is wrong on this record.

I concur in the judg ment only

.