In the

United States Court of Appeals

For the Seventh Circuit

No. 09-3380

ROBERT J. GESSERT and THE GESSERT GROUP, 

Plaintiffs-Appellants,

v.

UNITED STATES OF AMERICA,

Defendant-Appellee.

Appeal from the United States District Court

for the Eastern District of Wisconsin.

No. 06-C-448—Lynn Adelman, Judge.

ARGUED DECEMBER 6, 2012—DECIDED JANUARY 3, 2013

Before EASTERBROOK, Chief Judge, and FLAUM, and

ROVNER, Circuit Judges.

FLAUM, Circuit Judge. The Gessert Group (“the Group”),

a pharmaceutical consulting group, obstinately refused

to pay its taxes. By 2005, it accumulated over $1 million

in unpaid liabilities. Revenue Officer Lillie Johnson pursued collection efforts on behalf of the United States.

She levied two of the Group’s accounts and also

sought to recover the taxes withheld from the Group’s
2 No. 09-3380

employees—so-called trust fund taxes—from Robert

Gessert personally. Gessert was the Group’s creator, sole

shareholder, and CEO, and presumably behind the

Group’s refusal to pay. The Group and Gessert filed suit

against the United States seeking refunds and abatements. It also pursued damages under I.R.C. § 7433,

which permits recovery for improper collection efforts.

The plaintiffs principally allege that the Group directed

Johnson to apply a handful of voluntary payments

towards its trust fund liability, but Johnson applied the

payments to the non-trust fund portion. This increased

Gessert’s personal liability. The parties also allege that

Johnson violated a series of Internal Revenue Code

(“Code”) and Treasury provisions and that she

improperly levied the Group’s accounts.

However, Gessert lacks standing under I.R.C. § 7433

because Johnson sought collection from the Group, not

Gessert. Further, the Group failed to allege economic

harm, which is also prerequisite to standing under I.R.C.

§ 7433. With respect to the refund claim, the district court

properly concluded the Group filed its administrative

claim too late. Finally, Gessert’s refund-and-abatement

claim fails because the Group did not provide specific

written direction to the IRS effectuating a directed payment. We therefore affirm the district court’s decision.

I. Background

A. Statutory Background

The Internal Revenue Code requires employers to withhold employees’ income tax and Social Security contribu-
No. 09-3380 3

tion from each employee’s paycheck. I.R.C. §§ 3402(a),

3102(a). Employers hold these taxes in trust for the federal

government, I.R.C. § 7501(a), and they are commonly called

“trust fund taxes.” Individuals responsible for collecting

trust fund taxes that willfully fail to collect, pay over, or

account for trust fund taxes can be assessed a “trust fund

recovery penalty” equal to the tax evaded. I.R.C. § 6672(a).

The trust fund recovery penalty liability is separate and

distinct from the firm’s liability—i.e., the responsible

person cannot recover from the firm and the IRS can

recover from the person individually. Kuznitsky v. United

States, 17 F.3d 1029, 1032 (7th Cir. 1994) (citing cases).

B. Factual Background

Robert Gessert created the Group in 1989 and served as

its sole shareholder, president, and CEO until it ceased

operations in 2004. Vytautus Jonynas served as CFO.

From the third quarter of 2000 through 2004, the company did not make timely employment tax deposits

and payments, failing to pay nearly all of its $1.4 million

tax liability. It also failed to file its employment tax

returns between January 2002 and April 2004 (although

the returns were eventually filed in 2004 and 2005).

The IRS assigned Revenue Officer Johnson to collect

the Group’s taxes. Johnson initially tried to satisfy the

Group’s liabilities through voluntary payments and an

installment agreement, but this proved futile when the

Group defaulted on the installment agreement. The Group

did make some voluntary payments. It made four electronic payments totaling $66,000 followed by two checks
4 No. 09-3380

totaling $100,000. These payments were not accompanied

by written instructions directing the IRS to apply these

payments to a specific obligation. Thus, the IRS applied

them to the Group’s non-trust fund obligations consistent

with IRS procedures. These payments fell considerably

short of meeting the Group’s liability.

The Group also alleges that it voluntarily issued a

$75,000 check a few days after the IRS levied its bank

account and collected $114,000. The IRS’s records

indicate the check was received three months after

the levy. When the IRS submitted the check, it was dishonored. The Group alleges that it received a $1,500

overdraft fee as a result. 

In addition to the bank account, the IRS also issued

levies to DePuy Orthopedics, Inc. (“DePuy”) and Pfizer,

Inc., both of which owed the Group payments for services. The two companies respectively remitted

$121,292.50 and $96,744 to the IRS. Because these payments were involuntary, the IRS applied them to the nontrust fund portion of the Group’s liabilities. With payments still outstanding, the IRS assessed trust fund recovery penalties against Gessert personally. These penalties totaled $696,832.57—the unpaid portion of the

Group’s trust fund liabilities. At the commencement of

this suit, Gessert still owed $350,000 plus penalties and

additions, while the Group owed over $1 million on

its employment taxes.
No. 09-3380 5

C. Procedural Background

In 2005, Gessert and the Group filed administrative

claims for damages. After the IRS did not respond, both

Gessert and the Group filed separate claims under two

separate statutes.

1. Motion to Dismiss—Section 7433 Claims

First, Gessert and the Group sought damages under

I.R.C. § 7433 for purportedly improper collection actions

taken by the government. Both parties alleged that

Johnson refused to follow Jonynas’s verbal instruction

and misapplied voluntary payments to the non-trust fund

portion of the Group’s liability. As a result, Gessert’s

personal liability under the trust fund recovery penalty

remained the same after the payments. They also alleged

that the IRS wrongfully levied funds from DePuy and

Pfizer. They argued that the money owed by DePuy and

Pfizer to the Group was not due, meaning the IRS lacked

authority to levy the accounts. Finally, the parties

alleged general “misconduct” surrounding the collection

process and various violations of Code provisions and

a Treasury Regulation.

The district court dismissed all of Gessert’s claims under

this section. It held that the statute only authorizes suit

by the taxpayer who is subject to the improper collection

activities. Because the taxpayer was the corporation

instead of Gessert, he lacked standing. The IRS had

never taken any collection activities against Gessert

personally, even though he owed a substantial sum

under the trust fund recovery penalty.
6 No. 09-3380

The district court also dismissed the Group’s damages

claims regarding its allegation that the Government

applied the Group’s voluntary payments to the wrong

obligation. The Group could not meet section 7433’s

requirement that the wrongful activity result in actual

economic damages because the application lowered the

Group’s tax liability by the same amount either way.

The Group moved for reconsideration, arguing that the

$1,500 insufficient funds charge was pecuniary harm.

The district court dismissed this motion because the

fee occurred beyond the two-year statute of limitations period.

2. Summary Judgment—Remaining Section 7433

Claims and Refund Claims 

After the motion to dismiss, the only remaining

claims were that the Government lacked authorization

to levy the DePuy and Pfizer accounts and that Johnson

had violated the Code and Regulation. The district

court entered summary judgment in the Government’s

favor on these claims. It found the Group could not

challenge the levies under section 7433. Instead, section

7426 was the mechanism Congress established to challenge improper levies and that section limits standing

to the subject of the levy, not the taxpayer. Notwithstanding, it held that the levies were proper because

no reasonable factfinder would conclude that they were

advances instead of payment due to the Group. It also

concluded the arguments that Johnson violated the

various Code provisions were “baseless.” The district
No. 09-3380 7

court found the refund claims time barred under I.R.C.

§§ 6511, 7422. It then entered judgment against Gessert

for $445,041.87 and the Group for $1,343,621.67.

II. Discussion

We review both motions to dismiss and entries of

summary judgment de novo. For motions to dismiss we

accept all well-pled facts as true and construe all

inferences in favor of the plaintiff. Tamayo v. Blagojevich,

526 F.3d 1074, 1081 (7th Cir. 2008). In reviewing the

motions for summary judgment, we grant the motion

if, taking the evidence in the light most favorable to

Gessert, there is no issue of material fact and the

United States is entitled to judgment as a matter of law.

Fed. R. Civ. P. 56; Ault v. Speicher, 634 F.3d 942, 945 (7th

Cir. 2011).

A. Section 7433 Claims

1. Gessert’s Claims

As sovereign, the Government may not be sued without

its consent. F.D.I.C. v. Meyer, 510 U.S. 471, 475 (1994);

United States v. Sherwood, 312 U.S. 584, 586 (1941). Waivers

are not implied and are construed narrowly against the

plaintiff. Soriano v. United States, 352 U.S. 270, 276 (1957)

(“[L]imitations and conditions upon which the Government consents to be sued must be strictly observed

and exceptions thereto are not to be implied.”). Section

7433 of the Internal Revenue Code is such a waiver. It
8 No. 09-3380

provides “[i]f, in connection with any collection of

Federal tax with respect to a taxpayer, any [employee] of

the Internal Revenue Service . . . disregards [the Code] or

any [IRS] regulation . . ., such taxpayer may bring a civil

action for damages against the United States.” I.R.C.

§ 7433. In other words, plaintiffs may sue IRS employees

that subjected them to improper collection efforts. However, the plain language limits relief to “such taxpayer[s]”

that were subjected to the wrongful activity; the Code

does not permit recovery by third parties harmed by

the activity. See Allied/Royal Parking L.P. v. United States,

166 F.3d 1000, 1003 (9th Cir. 1999) (two limited partners

could not sue for alleged wrongful acts during collection

from partnership).

Gessert only alleges that the IRS and Johnson engaged

in wrongful activity in its collection efforts towards the

Group. The record does not reflect that the IRS had ever

initiated collection efforts towards Gessert personally.

As such, Gessert is not “such [a] taxpayer” under

section 7433, and the Government has not consented to

suit by him. Therefore, the district court properly dismissed all of his claims under section 7433. 

Gessert argues that because he was assessed trust fund

recovery penalties during the time Johnson engaged in

the allegedly improper collections, he was a “taxpayer”

under the statute. He further points out that “both [he]

and the Group were directly impacted by Johnson’s

failure to honor the designation of payment.” Even

though Gessert was a taxpayer under the Code, see I.R.C.

§ 7701(a)(14) (“The term ‘taxpayer’ means any persons
No. 09-3380 9

subject to any internal revenue tax.”), he was not

“such taxpayer” under section 7433. “Such” limits the

broader term “taxpayer” to include only those taxpayers

subjected to the improper collection activities. Because

the IRS never sought to collect Gessert’s recovery penalty,

he is not “such [a] taxpayer.” Gessert’s reading would

transform the statute from “such taxpayer” to “any taxpayer affected by the allegedly improper conduct.” The

statute does not read as broadly as Gessert suggests.

Thus, we affirm the district court’s dismissal of Gessert’s

section 7433 claims.

2. The Group’s Claim Regarding Misapplication

of the Voluntary Payments

The Group appeals the district court’s dismissal of its

section 7433 claim that Johnson applied the voluntary

payments to the wrong obligation. Section 7433 permits

civil damages for certain unauthorized collection actions, but limits damages to the “sum of—actual, direct

economic damages sustained by the plaintiff as a proximate result of the reckless or intentional or negligent

actions of the officer or employee, and the costs of the

action.” I.R.C. § 7433(b)(1)-(2). The district court dismissed this claim because the group did not suffer any

economic harm—it owed both non-trust fund and

trust fund taxes, so the application to either liability

lowered its overall liability by the same amount.

We agree with the district court—the Group must

allege actual economic damage to state a claim under

section 7433. Otherwise, moneyed plaintiffs could
10 No. 09-3380

frustrate collection efforts by filing suits for claims

where they suffered no harm. This result would be inconsistent with Congress’s limited remedy and the principle

requiring us to strictly construe waivers of sovereign

immunity against the plaintiff. See Soriano, 352 U.S. at

276. Further, the statute does not permit nominal

damages, see I.R.C. § 7433(b)(1)-(2), and the declaratory

judgment act expressly prohibits declaratory judgments

in tax cases. 28 U.S.C. § 2201.

The Group relies exclusively on In re Kaplan to

overcome this statutory interpretation. 104 F.3d 589 (3d

Cir. 1997). However, Kaplan concerned the power of

bankruptcy courts to compel the IRS to allocate tax payments of a corporation not before the bankruptcy petition. Id. Kaplan had nothing to do with section 7433, under

which the Group currently proceeds. The reasoning of the

Third Circuit therefore does not require a contrary finding.

We affirm the district court’s dismissal of the Group’s

section 7433 claim that Johnson applied the voluntary

payments to the wrong fund.

3. The Group’s Claims Regarding the Levies

The Group next claims that the levies against Pfizer and

DuPuy were improper. The IRS may levy a delinquent

taxpayer’s property. I.R.C. § 6331. But the IRS may only

levy “property possessed” by the taxpayer or existing

obligations, which exist “when the liability of the obligor

is fixed and determinable although the right to receive

payment thereof may be deferred until a later date.” I.R.C.

§ 6331(b); Treas. Reg. § 301.6331-1(a)(1). The Group
No. 09-3380 11

argues that these obligations were advances, and therefore

that the Group’s right to them was not “fixed and determinable.” See Treas. Reg. § 301.6331-1(a)(1). Accordingly,

the Group claims that the accounts could not be levied

by the IRS.

However, these arguments are unavailing because

they too do not allege any economic harm and therefore

the group lacks standing. Under the Group’s theory, the

DePuy and Pfizer accounts were not yet owed to it. Accordingly, Depuy and Pfizer—not the Group—would

have suffered economic harm as a result of the allegedly

improper levy. In fact, assuming arguendo that the leviedupon funds still belonged to DePuy and Pfizer, the

Group would have realized a windfall in having Depuy

and Pfizer’s property applied to its own liabilities. See

Allied/Royal Parking, 166 F.3d at 1004-05; Maisano v.

Welcher, 940 F.2d 499, 501 (9th Cir. 1991) (“If the [property]

belongs to the [third party], the [taxpayers] have no

standing to sue and their case must be dismissed.”).

In addition, Congress provides a remedy for third

parties to collect wrongfully levied property but

expressly forbids the taxpayer against whom the IRS is

seeking to collect the taxes from doing so. I.R.C. § 7426(a)

permits “any person (other than the person against

whom is assessed the tax out of which such levy

arose)” whose property has been levied or sold pursuant

to a levy, to sue to recover the property. The Group is

“the person [that was] assessed the tax out of which

such levy arose.” Thus, the government did not waive

sovereign immunity to challenge the levies.
12 No. 09-3380

4. The Group’s remaining Section 7433 claims

concerning Johnson’s behavior

Next, the Group argues that Johnson violated various

provisions of the Code and a regulation, permitting

recovery under section 7433. Again, the Group offers no

economic damages, so it has no standing to sue. Regardless, the claims lack merit.

i. Section 6304(b)

Section 6304(b) states an officer may not “harass, oppress, or abuse any person in connection with the collection of any unpaid tax” including “the use of obscene or

profane language.” I.R.C. § 6304(b), (b)(2). The Group cites

a number of minor incidents which it argues violate

the statute. For example, it argues that Johnson did not

explain to Jonynas what a levy was, that she “threatened

to take action” when Jonynas tried to interfere with

IRS’s levy against the Pfizer funds, and became upset

when Jonynas discovered he could designate payments. Most of the allegations take the form of the Group

labeling Johnson’s behavior as “abrupt,” “threatening,”

“erratic,” and “aggressive.” These conclusory allegations

devoid of factual support do not preclude summary

judgment. See Ozlowski v. Henderson, 237 F.3d 837, 840

(7th Cir. 2001). Indeed, in light of the Group’s refusal to

pay over $1 million it owed the government, including

over $300,000 it withheld from its employees but did not

turn over to the government, it is unremarkable that

Johnson persistently tried to assess a trust fund

recovery penalty against Jonynas for his role in the
No. 09-3380 13

debacle. Further, to the extent that Johnson was wrong

in doing so, the IRS Appeals Office ultimately removed

the penalty against Jonynas. Thus, Jonynas’s rights

were vindicated.

Finally, the Group argues Johnson “repeatedly” called

DePuy about the levied funds. However, its record citations cite just a handful of unremarkable calls to both

Pfizer and DePuy inquiring about the levies. Indeed, the

testimony of DePuy and Pfizer employees directly conflicted with these allegations, describing Johnson as

professional. This claim does not justify reversal.

ii. Section 7206(4)

Next, the Group argues Johnson violated section 7206(4),

which makes it a felony for any individual that “[r]emoves,

deposits, or conceals . . . with intent to evade or defeat the

assessment or collection of any tax.” This provision is

directed at taxpayers that try to defeat tax claims. See,

e.g., United States v. McClain, 934 F.2d 822, 824 (7th Cir.

1991); United States v. Hook, 781 F.2d 1166, 1170 (6th

Cir. 1986). It is not a rule governing the conduct of IRS

employees and therefore cannot form the basis of

recovery under section 7433. Moreover, any remedy for

damages (e.g., the $1,500 fee assessed for insufficient

funds) was barred by the statute of limitations.

iii. Section 7214

Section 7214 penalizes officers or employees that are

“guilty of extortion or willful oppression” or “knowingly
14 No. 09-3380

demand[] . . . greater sums than are authorized by law.”

I.R.C. § 7214(a)(1)-(2). The Group principally argues

that Johnson tried to “strong arm” a sum greater than

what she could legally levy from DePuy. In support, the

Group cites Depuy employee Monte Moore’s testimony

that “after [Johnson] received the $121,000 check [for the

levy], she called [Moore], acknowledged having received

the check, and then asked about something along the lines

of, ‘Now, when will I get the rest of the money.’ ” The

Group had a $300,000 contract with DePuy of which

approximately $121,000 was due. As noted above, the IRS

can only levy money due. Moore testified that when

Johnson called after receiving the first $121,000, he “told

her that [he] wasn’t sure exactly what she was referring

to” and explained that the “$200,000 wasn’t due and

payable” under the terms of the levy. The Group does

not assert that Johnson pursued this $200,000 after

learning it was not due. Thus, this conduct does not

meet section 7214’s requirement that the revenue

officer “knowingly” demand or extort the property.

The Group makes a few more accusations. It argues

Johnson violated the section by threatening to seize

Gessert’s house. However, Gessert owes the IRS over

$400,000 that he refuses to pay. The Code permits

Johnson to seize the house. I.R.C. §§ 6331, 7403. The

Group next asserts Johnson “threatened” Jonynas when

he faxed a Pfizer employee during the levy process. However, Jonynas does not explain how Johnson threatened

him, what was said, or whether Johnson could legally

take the threatened action. These accusations do not

merit reversal.
No. 09-3380 15

iv. Treas. Reg. § 801.3

Finally, the Group asserts that Johnson violated

Treasury Regulation § 801.3 entitled “[M]easuring employee performance.” Section 801.3(b) instructs evaluators to consider “whether they provided fair and equitable treatment to taxpayers.” The district court properly

concluded that Johnson could not violate this regulation

because it only provided a method for evaluating her

performance. 

Accordingly, we affirm the entry of summary judgment

for the Group’s remaining section 7433 claims.

B. Refund and Abatement Claims

1. The Group’s Claims

The district court properly dismissed the Group’s

refund claims. The Group apparently does not challenge

this conclusion on appeal. Before a plaintiff can bring

suit in district court, it must file “a claim for refund or

credit . . . with the [IRS].” I.R.C. § 7422(a). There are time

limits on filing an administrative claim, however. Any

“[c]laim for credit or refund of an overpayment . . . shall

be filed by the taxpayer within 3 years from the time

the return was filed or 2 years from the time the tax

was paid, whichever of such periods expires later.” I.R.C.

§ 6511(a). In addition to the administrative remedies

requirement, a refund suit is limited to overpayment,

I.R.C. § 6402(a), which is payment in excess of what is

due. Jones v. Liberty Glass Co., 332 U.S. 524, 531 (1947).
16 No. 09-3380

The Group’s refund claims are time-barred. The

Group made voluntary payments in February, May, and

June 2002, which were applied to outstanding taxes for

2000, 2001, and 2002. The Group filed its administrative

refund claim on July 1, 2005—over three years after the

returns and two years after payment. Thus, the Group’s

claims do not meet the requirements of the statute. Moreover, refund claims are limited to overpayment, and

the Group does not allege it paid more than it owed. The

Group’s situation is analogous to Schon v. United States,

where we held that a company’s assertion that the IRS

should have applied its payments to another liability

does not constitute overpayment when it admits that it

still owes taxes to the IRS. 759 F.2d 614, 617 (7th Cir.

1985). Further, the Group appears to seek a declaratory

judgment that the IRS should have allocated the taxes

to the trust fund portion. However, the Declaratory

Judgment Act bars relief “with respect to federal taxes.”

28 U.S.C. 2201; Schon, 759 F.2d at 617-18. We affirm

the district court’s dismissal of these claims.

2. Gessert’s Claims

Finally, Gessert argues his trust fund recovery penalty

should be lowered under I.R.C. § 7422. To this end, he

claims that the Group and Johnson orally agreed that

voluntary payments would be allocated to the Group’s

trust fund liabilities. The government counters that the

IRS honors only written directions to apply funds to a

specific liability. Accordingly, the IRS contends it was

free to apply the funds in its own best interest. The IRS
No. 09-3380 17

generally prefers applying payments to the non-trust

fund liability because it can recover the trust fund

portion from another person. And, “[o]nce the corporation is out of business, the United States can kiss

goodbye any non-trust fund taxes owed [to] it but not

paid.” See United States v. Schroder, 900 F.2d 1144, 1146 n.1

(7th Cir. 1990).

As previously mentioned, 28 U.S.C. § 1346 authorizes

“[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.” Gessert argues that his tax fund recovery

penalty is erroneously high because the IRS should

have credited the Group’s voluntary payments to its

trust fund liability thereby lowering Gessert’s penalty

liability.

Unlike the Group’s claims, the parties agree that

Gessert’s claim is timely, although the district court ruled

otherwise. Generally, a party must pay his entire tax

liability before bringing a viable suit. Flora v. United

States, 357 U.S. 63 (1958). Thus, in the Group’s case, it

must pay its entire tax liability before it seeks a refund

for overpayment. However, divisible taxes are treated

differently. Examples of divisible taxes include excise

taxes, where the tax is assessed “per transaction” or “per

head.” Trust fund penalty taxes are treated as “per employee”—i.e., each employee’s tax withheld but not paid
18 No. 09-3380

over constitutes a separate transaction, making it divisible. A taxpayer satisfies the administrative prerequisites for divisible taxes by paying the tax for a

single transaction in each applicable period. MICHAEL

SALTZMAN, IRS PRACTICE AND PROCEDURE § 11.06 (2d ed.

rev. 2002). Taxpayers can challenge trust fund penalty

liabilities by paying the tax for one employee for each

applicable period and filing an administrative claim

within two years of payment or three of the return.

Gessert satisfied these requirements by paying $100 for

each period he was assessed trust fund penalty liability.

“IRS policy permits taxpayers who ‘voluntarily’ submit

payments to the IRS to designate the tax liability to

which the payment will apply.” United States v. Energy

Resources Co., Inc., 495 U.S. 545, 548 (1990) (citation omitted). Over time, the IRS has modified the scope of this

right. At one time, the IRS required only “directions” from

taxpayers in order to effectuate a directed payment. See

Rev. Rul. 73-305, 1973-2 C.B. 43. However, the IRS subsequently curtailed the scope of the right that it had

initially authorized, requiring that taxpayers provide

“specific written direction as to the applications of the

payment.” Rev. Proc. 2002-26 § 3.01 (emphasis added).

Absent written directions, the “Service will apply the

payment to periods in the order of priority that the

Service determines will serve [the Service’s] best interest.”

Id. at § 3.02.

Thus, to the extent that at one time the IRS permitted

oral directions to effectuate a directed payment, under

revenue procedure 2002-26 (applicable here), a taxpayer
No. 09-3380 19

must specify in writing the payment’s designation. See

Martin v. Commissioner, 38 F. App’x 980, 984 (4th Cir. 2002)

(“[U]nless a taxpayer provides specific written instructions for the application of a voluntary payment, the IRS

may apply the payment as it wishes.”). Here, no specific

written direction was provided to the IRS regarding

the designation of the Group’s voluntary payments.

Johnson was therefore entitled to apply the payments

in the best interest of the IRS. Her application of the

voluntary payments to the non-trust fund liability

was not in error and does not merit reversal.

III. Conclusion

For the foregoing reasons, we AFFIRM the decision of

the district court.

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