Court Opinion

ID: 4635532
Source: CourtListenerOpinion
Date Created: 2020-11-23 22:01:23.152616+00
Date Added: 2024-06-11T07:58:24.068591
License: Public Domain

In the United States Court of Federal Claims
                         Nos. 19-1020T, 19-1021T
                        (Filed: November 23, 2020)
                        NOT FOR PUBLICATION

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BING DU and HELEN GE,

                   Plaintiffs,                       Pro Se; Motion to Dismiss
                                                     for Lack of Subject Matter
v.                                                   Jurisdiction; RCFC
                                                     12(b)(1); Internal Revenue
THE UNITED STATES,                                   Code § 6512(a); Tax
                                                     Refund Claim.
                     Defendant.

**********************
Bing Du and Helen Ge, Half Moon Bay, CA, pro se plaintiffs.

Katherine R. Powers, Tax Division, U.S. Department of Justice,
Washington, D.C., with whom were Richard E. Zuckerman, Principal
Deputy Assistant Attorney General, and David I. Pincus, Chief, Court of
Federal Claims Section, for Defendant.

                                  OPINION

BRUGGINK, Judge.

        This a suit for refund of federal income tax. On July 16, 2019
plaintiffs Bing Du and Helen Ge filed two complaints seeking a refund of
$4,387.00 for tax year 2008 and $67,202.00 for 2009. The cases have been
consolidated. 1 Pending are defendant’s motion to dismiss for lack of
jurisdiction (ECF No. 24) and plaintiffs’ motion for judgment on the

1
  Plaintiffs’ two complaints allege that they overpaid taxes in 2008 and 2009.
The complaints allege identical facts, differing only in the amount and the
tax year. Because Bing Du & Helen Ge, No. 19-1020T shares nearly
identical questions of law and fact with Bing Du & Helen Ge, No. 19-1021T,
the cases were consolidated.
pleadings (ECF No. 27). The motions are fully briefed. For the reasons
stated below, we grant defendant’s motion to dismiss for lack of subject
matter jurisdiction and deny plaintiffs’ motion for judgment on the pleadings.

                               BACKGROUND

I. Factual History

       Bing Du and Helen Ge are married and jointly own two businesses: a
pharmaceutical consulting company, MedVicer, Inc. (“MedVicer”), and a
bed and breakfast (“B&B”) operated by D&G Associates. In 2008, plaintiffs
purchased land in Half Moon Bay, California to build their B&B. From 2008
to 2009, plaintiffs paid $190,000 to state regulatory agencies in California
for building fees and permits. Plaintiffs then deducted that amount from their
income taxes for 2008 and 2009 as indirect business expenses.

        In March of 2011, the Internal Revenue Service (“IRS”) audited
plaintiff’s 2008 and 2009 taxes. The IRS’ audit resulted in plaintiffs
receiving a notice of deficiency for both years. Def. App. 16 (ECF No. 24-
1) (IRS Notice of Deficiency). The audit identified two issues. First, the
$190,000.00 that plaintiffs deducted from their personal income taxes as
indirect business costs for 2008 and 2009, were required to be capitalized
under I.R.C. § 263A. 2 Am. Compl. ¶ 6 (ECF. No. 19). Second, the IRS
found that plaintiffs did not file tax returns for plaintiffs’ business, MedVicer,
for 2008 and 2009. Id ¶ 4. The IRS thus recalculated plaintiffs’ tax liability
under I.R.C. § 263A to include income generated by plaintiff’s business,
MedVicer. Id. ¶ 6. The additional tax liability identified by the IRS’ notice
of deficiency was $2,429.00 for the tax period ending December 31, 2008
and $33,533.00 for the tax period ending December 31, 2009. Id. Plaintiffs
also incurred penalties pursuant to Internal Revenue Code (“I.R.C.”)
§ 6662(a) of $485.80 for 2008 and $6,706 for 2009. Id.

       Plaintiffs responded to the IRS’ findings by requesting permission
from the IRS to file an amended tax return for 2008 and 2009. Am. Compl.
¶ 7. Plaintiffs also requested that the IRS change the name listed on the IRS’
notice of deficiency from “Bing Du and Helen Ge” to “MedVicer” because

2
  Under I.R.C. § 263A, plaintiffs were required to capitalize the $190,000.00
in business costs that plaintiffs deducted for 2008 and 2009 on plaintiffs’
Schedule C activity involving D&G Associates, the operator of plaintiffs’
B&B.

                                        2
plaintiffs believed their business MedVicer was at issue, not plaintiffs’
personal income taxes. Id. ¶ 12. Both requests were denied.

       According to the IRS, plaintiffs’ business, MedVicer, was an S
Corporation, and thus plaintiffs should have included the income generated
by MedVicer, on their 2008 and 2009 personal tax returns. 3Am. Compl. ¶ 8.
Despite disagreeing with the auditor’s characterization of MedVicer’s
corporate form, plaintiffs agreed to sign an IRS Form 870 in order to avoid
the IRS placing a levy on plaintiffs’ home. 4 Id. ¶¶ 9, 10. The Form 870,
signed in October 2011, memorialized plaintiffs’ consent to allow the IRS to
collect outstanding tax liability related to the IRS’ audit determinations. 5 Id.

II. Procedural History

       Plaintiffs have since challenged the IRS’s assessments in multiple
courts. Plaintiffs first sought relief at the Tax Court.

         A. United States Tax Court Actions

       In March of 2012, plaintiffs petitioned the U.S. Tax Court contesting
the IRS’ audit determination of their 2008 and 2009 taxes and the name listed
on the IRS’ notice of deficiency, contending that the notice should have been
issued to plaintiffs’ business MedVicer and not plaintiffs personally. 6

3
  The characterization of an S Corporation by the Internal Revenue Code, 26
U.S.C. §§ 1361–1379, defines an S Corporation as a small business
corporation which elects under 26 U.S.C. § 1362(a) to be an S Corporation.
Pursuant to 26 CFR § 1.13666-1 (a)(1), shareholders are responsible for the
tax liability of an S Corporation, whether reporting items of income, loss,
deduction, or credit.
4
 IRS Form 870 is a waiver that allows immediate assessment and collection
of any deficiencies by the IRS.
5
 The plaintiffs represented that they signed IRS Form 870 in October of 2011
(See Am. Compl. ¶¶ 9, 10). The parties agree that Form 870 was executed
and agree that Form 870 related to the indirect business costs deducted on
Schedule C of Plaintiffs’ 1040 for 2008 and 2009, however the defendant
claims that the IRS could not locate a copy of Form 870 that the plaintiffs
executed. See Mot. to Dismiss at footnote 5, ECF No. 24.
6
    Tax Court Docket No. 7994-12.

                                       3
        The IRS extended a settlement offer to plaintiffs. Pls.’ Ex. 1 at 5-8
(ECF No. 18-1) (IRS appeals settlement proposal and tax computation). The
terms of the settlement did not change the name listed on the IRS’ notice of
deficiency as plaintiffs requested. Id. Instead, the IRS proposed that
MedVicer would be taxed as a Subchapter C Corporation for tax years after
2009, and several adjustments would be made to plaintiffs’ taxable income
for 2008 and 2009. Id. The first adjustment was that MedVicer’s taxable
income would be treated as adjustments to plaintiffs’ individual income. Id.
Second, plaintiffs would also be allowed net operating loss deductions for
2008 and 2009 attributable to MedVicer’s net operating losses in 2010 and
2011. Id. Finally, plaintiffs’ deficiency was assessed as $17,574.00 and
plaintiffs would not incur penalties under I.R.C. 6662(c). Id. Plaintiffs
accepted the settlement offer, and on November 12, 2013, the Tax Court
entered a stipulated judgment to give effect to the parties’ agreement. Id. at
1-4 (U.S. Tax Court docket entries and decision).

        In February of 2018, plaintiffs again petitioned the U.S. Tax Court
contesting their 2008 and 2009 tax years. 7 Pls.’ Ex. 2. at 1-2 (ECF No. 18-
2). Plaintiffs asked the Tax Court to invalidate the IRS Form 870 that they
signed and to accept plaintiffs’ amended personal tax returns, IRS Forms
1040X, for 2008 and 2009. Am. Compl. ¶¶ 24, 34. In those amended returns,
plaintiffs represented that they “only owed about $700 in federal tax, and
they paid that amount when they filed their amended personal tax returns.”
Id. ¶ 25. Finally, plaintiffs alleged that the names and tax identification
numbers on the Tax Court’s final decision in case number 7994-12 were
wrong because the notice of deficiency was issued to plaintiffs personally
instead of their business, MedVicer. Id. ¶ 30.

       On April 5, 2018, the IRS filed a motion to dismiss Docket No. 3194-
18 for lack of jurisdiction because plaintiffs had not received a notice of
deficiency that would grant the Tax Court jurisdiction to hear plaintiffs’
petition. On September 6, 2018 the Tax Court granted the IRS’ motion to
dismiss. Plaintiffs filed a motion to vacate, which was denied.

       On September 18, 2018, plaintiffs filed a motion to vacate the
stipulated decision in Tax Court Docket No. 7994-12, arguing that the Tax
Court lacked jurisdiction because the 2012 notice of deficiency was
incorrectly issued to plaintiffs personally, rather than to plaintiffs’ business.
The Tax Court denied the motion to vacate as untimely. On February 11,
2019, plaintiffs appealed to the U.S. Court of Appeals for the Ninth Circuit.
The Ninth Circuit affirmed the Tax Court’s decision not to vacate its earlier

7
    Tax Court Docket No. 3194-18.

                                       4
order. Helen Ge and Bing Du v. Comm’r, No. 19-70359, Dkt. Entry 10 (9th
Cir., May 29, 2019).

       B. United States Court of Federal Claims

       On July 16, 2019, plaintiffs commenced the present actions by filing
two complaints alleging that plaintiffs overpaid taxes in 2008 and 2009.
Because the two complaints shared nearly identical questions of law and fact,
the cases were consolidated. (ECF No. 11) (Order granting defendant’s
motion to consolidate).

      On January 7, 2020 defendant answered plaintiffs’ complaints,
denying plaintiffs’ allegations of entitlement to a tax refund for 2008 and
2009 alleging that plaintiffs owed $54,597.00 on their 2009 tax account.
Answer ¶ 47 (ECF No. 12). Defendant further argued that plaintiffs’ claims
were barred under I.R.C. § 6512(a) and the doctrine of res judicata pursuant
to Commissioner v. Sunnen, 333 U.S. 592 (1948) because plaintiffs
previously petitioned the U.S. Tax Court for a refund for 2008 and 2009.
Answer, Additional Defenses, ¶¶ 1, 2.

        On January 28, 2020 plaintiffs filed an amended complaint, seeking a
refund of $21,960.00 for tax year 2008 and $67,202.00 for tax year 2009.
Pls.’ Ex. 4 at 9 (ECF No. 18-4) (Plaintiffs’ requested relief). On February
25, 2020 defendant answered plaintiffs’ amended complaint, denying that
plaintiffs were entitled to a refund and again asserting that plaintiffs owe
$54,597.55 in unpaid taxes for 2009. Answer to Am. Compl. ¶ 48 (ECF No.
19). Defendant further advised that:

       Plaintiffs received a notice of deficiency under I.R.C. §
       6212(a) and filed a petition at the U.S. Tax Court relating to
       tax years 2008 and 2009; therefore, the Tax Court had
       jurisdiction over the entirety of plaintiffs’ 2008 and 2009
       income taxes. Accordingly, the Tax Court’s decision as to
       those years barred plaintiffs’ suit for refunds for tax years 2008
       and 2009 under the doctrine of res judicata, pursuant to
       Comm’r v. Sunnen, 333 U.S. 591 (1948).

Answer to Am. Compl., Affirmative Defenses, ¶ 1.

       On May 29, 2020, defendant filed a motion to dismiss plaintiffs’
complaint for lack of jurisdiction (ECF No. 24). On June 23, 2020, plaintiffs
cross-filed a motion for judgment on the pleadings. (ECF No. 27). Both
motions are now fully briefed.

                                       5
                                 DISCUSSION

        Defendant argues that this court lacks jurisdiction over plaintiffs’
claims for a tax refund for 2008 and 2009 pursuant to I.R.C. § 6512(a),
which bars claims for refunds when the taxpayer already has petitioned the
Tax Court for the same tax years. Mot. to Dismiss at 14 (ECF No. 24).
Defendant also asserts that we lack jurisdiction pursuant to the doctrine of
res judicata because the Tax Court issued a final decision adjudging
plaintiffs’ tax liability for the two years at issue in plaintiffs’ complaints here.
Id. at 21. Finally, defendant argues this court lacks jurisdiction over the claim
for a refund for tax year 2009 because plaintiffs have not yet paid their taxes
for that year. Id. at 24.

        In plaintiffs’ motion for judgment on the pleadings, plaintiffs claim
they have provided the court with enough evidence to support federal tax
refunds for 2008 and 2009, which plaintiffs allege were “illegally withheld
by the IRS.” Pls.’ Mot. for J at 2. Plaintiffs also argue that the doctrine of
mutual mistake supports their contention that the decision in Tax Court
Docket No. 7994-12 is void. Id. at 6. Plaintiffs identify the fact that the Tax
Court addressed its decision to plaintiffs personally rather than their business
as the “mutual mistake” that ought to invalidate the result from the Tax Court.

        Defendant argues in response that plaintiffs’ motion for judgment fails
because plaintiffs cannot “rescind” the stipulated final decision of Tax Court
Docket No. 7994-12 based on allegations of “mutual mistake.” Def. Resp. to
Mot. for J. at 2-3 (ECF No. 29). Defendant asserts that although the
“common law doctrine of mutual mistake, as described in Sherwood v.
Walker, 66 Mich. 568, 33 N.W. 9191 (1887), may be relied upon to invalidate
an agreement between two parties, it is no longer an acceptable basis to
vacate a prior Court order.” Id. Defendant cites to Prizer v. United States,
11 Cl. Ct. 184, 186 (1986) (applying the doctrine of res judicata and I.R.C.
§ 6512(a) to bar subsequent suits challenging a tax assessment when the issue
could have been raised at the tax court). Id. According to defendant, in
plaintiffs’ case, the appropriate time to raise the issue of “mutual mistake”
was with the Tax Court, when plaintiffs could ensure the settlement decision
reflected what plaintiffs thought the decision should reflect. Def. Resp. to
Mot. for J. at 3. Defendant further cites Snow v. Comm'r, 142 T.C. at 420
(2014) for the proposition that mutual mistake is no longer accepted as a basis
for invalidating prior decisions, and, in any event, the place to do that is in
the Tax Court itself—which plaintiffs already tried—not this court, which
has no jurisdiction to review Tax Court decisions.

                                         6
I. Jurisdiction

       The Tucker Act, this court's primary grant of jurisdiction, only gives
this court authority to “render judgment upon any claim against the United
States founded either upon the Constitution, or any Act of Congress or any
regulation of an executive department, or upon any express or implied
contract with the United States ... in cases not sounding in tort.” 28 U.S.C.
§149 l(a)(l) (2012). Under the Tucker Act this court has jurisdiction to hear
claims for refund of tax alleged to have been erroneously or illegally assessed
or collected. See, e.g., RadioShack Corp. v. United States, 566 F.3d 1358,
1360 (Fed. Cir. 2009). As such, plaintiffs must allege that there is a
constitutional, statutory, or regulatory provision that mandates that they are
presently owed money by the United States government or that they have a
contract with the government under which they are owed payment.

       A pro se plaintiff’s pleadings are generally held to “less stringent
standards” than those of a professional lawyer. Haines v. Kerner, 404 U.S.
519, 520–21 (1972). However, the court cannot extend this leniency to
relieve plaintiffs of their jurisdictional burden. Kelley v. Sec’y, U.S. Dep’t of
Labor, 812 F.2d 1378, 1380 (Fed. Cir. 1987). Whether a court has
jurisdiction is a threshold matter in every case. See Steel Co. v. Citizens for
a Better Env’t, 523 U.S. 83, 94–95 (1998).

       In this case, the plaintiffs’ requested relief is a claim for tax refund.
Pls.’ Ex. 4 at 9 (Plaintiffs’ request for refund). Congress granted the Court
of Federal claims the authority to entertain tax refund suits. See 28 U.S.C. §
1346(a). One prerequisite to file a claim for a tax refund in this court is
“payment of the assessed taxes in full.” Ledford v. United States, 297 F.3d
1378, 1382 (Fed. Cir. 2002)(citing Flora v. United States, 362 U.S. 145, 177
(1960); Rocovich v. United States, 933 F.2d 991, 993-94 (Fed. Cir. 1991).

       Because plaintiff has an outstanding tax liability for 2009, a year in
which they seek a refund, the court’s jurisdiction requirement has not been
met. 8 The court’s jurisdiction is limited to those claims where the taxpayer
has fully paid all taxes assessed for the year at issue prior to filing suit. See
Flora v. United States, 357 U.S. 63, 75 (1958).

8
  Plaintiffs’ IRS Form 4340 lists an outstanding tax balance of $54,597.55
for 2009. (See Def. App. at 15) (Bing Du and Helen Ge IRS Form 4340,
2009). IRS Forms 4340 Certificates of Assessments, Payments, and Other
Specified Matters show unpaid assessed tax balances are presumptive proof
of unpaid taxes. See Simmons v. United States, 127 Fed. Cl. 153 (2016).

                                       7
       Defendant further argues that we lack jurisdiction over plaintiffs’
claims for a tax refund for the 2008 and 2009 tax years because I.R.C. §
6512(a) bars claims for refunds “in any court” where the taxpayer has
previously petitioned the U.S. Tax Court for the same tax years. We agree.
The present complaints are plainly barred by statute and none of the
applicable exceptions apply. Plaintiffs sought relief from the Tax Court for
tax years 2008 and 2009. Although a settlement was reached, it was
effectuated through a decision by the Tax Court. That being the case, section
6512 bars other courts from hearing a “suit by the taxpayer for the recovery
of any part of the tax” previously determined by the Tax Court. I.R.C. §
6512(a). The only avenue open to plaintiff was thus reconsideration by the
Tax Court or appeal. Both of which have failed. We have no jurisdiction to
upset any of those decisions. 9

II. Res Judicata

       Although we need not reach the issue, we note that the doctrine of res
judicata would also apply here to bar plaintiffs’ claims. We note only that,
rather than a jurisdictional bar, the doctrine prohibits the claim from being
brought because it has already been adjudged. Thus, dismissal would be
appropriate for failure to state a claim, rather than for lack of jurisdiction.

                               CONCLUSION

       Because plaintiffs previously put the tax years challenged here at issue
in a petition to the Tax Court, we lack jurisdiction to hear the issues anew.
Accordingly, defendant’s motion to dismiss pursuant to Rule 12(b)(1) is
granted; and plaintiff’s motion for judgment on the pleadings is denied. The
Clerk is directed to dismiss the complaint and to enter judgment accordingly.

                                                  s/Eric G. Bruggink
                                                  ERIC G. BRUGGINK
                                                  Senior Judge

9
  We also agree with defendant that this court would otherwise lack
jurisdiction over plaintiffs’ claim for a 2009 tax year refund because the tax
showed as owing by their returns has not been paid. See Flora v. United
States, 357 U.S. 63, 75 (1958).

                                      8