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Garlovsky v. United States

United States District Court, N.D. Illinois, Eastern Division

September 26, 2016

Bettye Garlovsky, Plaintiff,
v.
United States of America, Defendant.

          MEMORANDUM OPINION AND ORDER

          John Robert Blakey, United States District Judge.

         Plaintiff Bettye Garlovsky (“Plaintiff”) made a partial payment to the Internal Revenue Service pursuant to a tax penalty assessed against her late husband, Hillard Garlovsky (“Hillard”). Plaintiff contemporaneously requested a refund of her partial payment. Plaintiff's refund request was denied, and she filed suit. Pursuant to her Amended Complaint [28], Plaintiff seeks: (1) damages pursuant to 26 U.S.C. § 7433; (2) a refund of taxes erroneously paid pursuant to 26 U.S.C. § 7422; (3) a declaratory judgment; and (4) costs and expenses pursuant to 26 U.S.C. § 7430. Defendant moved to dismiss all counts for lack of jurisdiction under Rule 12(b)(1) [29]. That motion is granted in part and denied in part.

         I. Background[1]

         26 U.S.C. § 6672(a) authorizes the Internal Revenue Service (“IRS”) to collect a penalty from a “person” who acted “willfully” in causing a controlled company to fail to pay certain taxes. Pursuant to that provision, the IRS began an effort to collect a Trust Fund Recovery Penalty on February 21, 2014, by sending a letter to Hillard, Plaintiff's deceased husband. Am. Compl. [28] ¶ 11. Specifically, the IRS asserted that Hillard was responsible for the penalty arising from Lakeview Nursing and Rehabilitation's (“Lakeview”) failure to pay withheld employment taxes for June 30, 2010, September 30, 2010, December 31, 2010, and March 31, 2011. Id. ¶ 2.

         Plaintiff submitted a protest letter accompanied by a memorandum of law to the IRS on April 21, 2014, arguing Hillard was neither a responsible person nor a willful actor under 26 U.S.C. § 6672. Id. ¶12. According to Plaintiff, an IRS agent then demanded that Plaintiff complete a Form 56, “Notice Concerning Fiduciary Relationship, ” which requires the putative fiduciary to state the nature of their relationship to the assessed party. Id. ¶¶ 13-15. Plaintiff initially informed the IRS agent she was not a fiduciary to Hillard; however, she eventually reported that she was in receipt of Hillard's property and submitted a Form 56 to the IRS. Id. ¶¶ 14-16.

         In February and November of 2014, the IRS sent collection letters to Hillard, “in care of” Plaintiff. [33] Ex. 1A, 1B. The letters sent to Plaintiff's residence identified Hillard, not Plaintiff, as the assessed taxpayer. [33] at 1-3. On December 19, 2014, Plaintiff partially paid the penalty assessed against Hillard by submitting a check in the amount of $1, 000 to the IRS, and concurrently filed a request to have that amount refunded. Am. Compl. [28] ¶ 18. On May 26, 2015, the IRS denied Plaintiff's request for a refund. Id. ¶ 19.

         Plaintiff filed her Amended Complaint in this matter on April 4, 2016. Plaintiff states that IRS agents ignored her attempt to explain that she was not Hillard's fiduciary and continued to demand payment from her. Id. ¶¶ 46-47. Plaintiff, in Count I, asserts that the IRS agents' conduct was reckless, such that she is entitled to damages pursuant to 26 U.S.C. § 7433, which creates a civil action against the United States when any officer or employee of the IRS negligently, recklessly, or intentionally disregards any provision of the Internal Revenue Code (“IRC”). Id. ¶¶ 48-49.

         Count II of Plaintiff's Amended Complaint alleges that the collection of $1, 000 by the IRS was erroneous and illegal, such that Plaintiff's partial payment should be refunded pursuant to 26 U.S.C. § 7422. Id. ¶ 58. Additionally, Plaintiff asserts that Hillard was not a responsible person within the meaning of 26 U.S.C. § 6672 and is accordingly not liable for Lakeview's withholding taxes during the Penalty Period. Id. ¶ 55.

         Plaintiff's third cause of action requests a declaratory judgment. According to Plaintiff, the IRS indicated in February of 2014 that Lakeview owed an additional $918, 677.23 and refused to release Plaintiff from any future obligation to pay the remainder of the outstanding taxes. Id. ¶¶ 60-61. Plaintiff claims any assessment of the penalty against her for any part of the additional $918, 677.23 would be erroneous and illegal. Id. ¶ 62.

         In Count IV, Plaintiff alleges that she is entitled to reasonable litigation costs and attorneys' fees, pursuant to 26 U.S.C. § 7430. Id. ¶ 66. Plaintiff reasons that the assessment of penalties under 26 U.S.C. § 6672 was not substantially justified since Plaintiff produced to the IRS factual and legal support for her position that Hillard did not willfully cause Lakeview's failure to pay withholding taxes for the penalty period. Id. ¶ 65.

         Defendant now seeks to dismiss all four counts for lack of subject matter jurisdiction. As explained below, that motion is granted in part and denied in part.

         II. Legal Standard

         When reviewing a motion to dismiss for lack of subject matter jurisdiction, the Court must construe the Complaint in the light most favorable to Plaintiff, accept as true all well-pleaded facts and draw all reasonable inferences in her favor. Long v. Shorebank Dev't Corp., 182 F.3d 548, 554 (7th Cir. 1999).

         Plaintiff bears the burden of establishing that the Court's jurisdictional requirements have been met. Ctr. for Dermatology & Skin Cancer, Ltd. v. Burwell, 770 F.3d 586, 589 (7th Cir. 2014). Once her jurisdictional allegations are challenged, Plaintiff must support those allegations by competent proof. Thomson v. Gaskill, 315 U.S. 442, 446 (1942). For a Rule 12(b)(1) motion, the court “may properly look beyond the jurisdictional allegations of the complaint and view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists.” Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 444 (7th Cir. 2009) (internal quotation omitted).

         III. Analysis

         Defendant's motion to dismiss is grounded in the general proposition that the United States may not be sued without its consent, pursuant to the doctrine of sovereign immunity. U.S. Dept. of Energy v. Ohio, 503 U.S. 607, 615 (1992). The government may waive its sovereign immunity, but such waiver must be unequivocally expressed. Kuznitsky v. United States, 17 F.3d 1029, 1031 (7th Cir. 1994). In addition, the government has the power to attach conditions to its consent to be sued. Id. The Court will consider each of Plaintiff's claims in light of these general principles.

         A. Count I - Damages

         In order to sue the United States for damages, Plaintiff must demonstrate that her claim falls within an operative waiver of sovereign immunity and that she has exhausted her administrative remedies. Plaintiff's damages claim fails, as explained below.

         1. Plaintiff Is Ostensibly Outside The Purview Of § 7433

         As mentioned supra, Plaintiff's damages claim is governed by 26 U.S.C. § 7433(a), which provides:

If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of negligence, disregards any provision of this title, or any regulation promulgated under this title, such taxpayer may bring a civil action ...

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