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6321-Trusts for third parties p1
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Burden of Proof

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[97-2 USTC 50,663] George Phillip Walker, Sharon Lee Walker, George Phillip Walker, Trustee for Andrew James Unincorporated, a business trust, and Sharon Lee Walker, Plaintiffs v. United States of America, by and through its Internal Revenue Service, Defendant

U.S. District Court, Dist. Ore., Civ. 96-759-AS, 6/30/97

[Code Secs. 6532 , 7422 and 7426 ]

Refund suits: Property subject to levy: Owner of: Origin of tax liability: Wrongful levy action: Timeliness: Limitations period: Extension of.--Married taxpayers' refund suit challenging the IRS 's collection and retention of funds in satisfaction of their outstanding tax liabilities was dismissed. Since the IRS levied against property that was owned by a trust that was the husband's alter ego, neither the taxpayers nor the trust could file a refund suit. Instead, the case was recharacterized as a wrongful levy action, which could be instituted only by the trust. However, the trust's claim was untimely filed, and it did not qualify for application of an extended limitations period.
[Code Sec. 7402 ]

Wrongful levy action: Timeliness: Letter from IRS : Equitable estoppel.--A wrongful levy action filed by a trust that was the alter ego of the individual who was its trustee was dismissed as untimely. Even though the IRS sent a confusing letter to the trustee, in the name of the trust, informing him that he had two years in which to recover his personal taxes, he provided no evidence of affirmative misconduct on the part of the IRS . Thus, the trust was not entitled to rely on the letter, and the IRS was not equitably estopped from asserting that the trust's claim was untimely. [Code Sec. 6325 ]

Damages: Payment of tax.--Married taxpayers were not entitled to an award of damages or injunctive relief from the IRS 's failure to release tax liens against them. The IRS established that the taxpayers had not paid the assessed amounts, and the taxpayers were unable to show that their liabilities had been fully satisfied.
[Code Sec. 7421 ]

Jurisdiction: Injunctive relief: Collection of taxes.--A federal district court lacked jurisdiction to enjoin the IRS 's efforts to collect married taxpayers' outstanding tax liabilities.

Code Sec. 7402 ]

Jurisdiction: Collection of taxes: Declaratory judgment.--A federal district court lacked jurisdiction to issue a declaratory judgment regarding to the validity of a trust because the underlying suit related to the assessment and collection of taxes..


ASHMANSKAS, Magistrate Judge:

Pending before the court is a motion to dismiss filed by defendant United States of America, by and through its Internal Revenue Service (" IRS "), against George Phillip Walker and Sharon Lee Walker (the "Walkers"). The Walkers challenge the IRS 's collection and retention of certain funds in connection with their allegedly delinquent federal tax liabilities. In addition to the Walkers individually, a third Plaintiff in this action is George Phillip Walker in his capacity as trustee for the Andrew James Unincorporated Business Trust (the "Trust").

The IRS moves for dismissal of plaintiffs' complaint in its entirety based on plaintiffs' failure to identify any basis upon which the United States has waived its sovereign immunity. As a result of plaintiffs' failure, the IRS asserts, this court lacks jurisdiction over each of plaintiffs' three claims for relief.


Beginning May 30, 1990, the IRS filed tax liens against the Walkers for delinquent federal income taxes. By September 1, 1993, those liens totaled over $30,000.

On September 1, 1993 , the Trust delivered a statutory warranty deed to Oregon Investors Development, Inc., an Oregon corporation ("OID"), which presumably conveyed all of the Trust's right, title and interest to certain real property located at 16651 Carnegie Avenue, Lake Grove, Clackamas County, Oregon (the "Subject Property").

On September 7, 1993, the IRS filed a Notice of Federal Tax Lien against the Subject Property and the Trust "as nominee and alter-ego of George Phillip Walker" in the amount of $18,331.63. On the same day, the IRS filed a Notice of Federal Tax Lien against the Subject Property and the Trust "as nominee and alter-ego of Sharon Lee Walker" in the amount of $10,193.94. The IRS levied on the funds at issue and continues to maintain federal tax liens against the Walkers.

The Walkers and the Trust challenge the IRS 's levy of funds allegedly owed to the Trust, as well as the continued maintenance of federal tax liens against the Walkers. Specifically, the Walkers and the Trust assert the following three claims for relief: 1) a claim for refund pursuant to 26 U.S.C. 7422; 2) a claim for damages and injunctive relief pursuant to 26 U.S.C. 6325; and 3) a claim for declaratory relief.

The IRS moves for the dismissal of plaintiffs' complaint in its entirety pursuant to Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction.


"[W]here a jurisdictional issue is separable from the merits of a case, the court may determine jurisdiction by the standards of a Rule 12(b)(1) motion to dismiss for lack of jurisdiction. In such a situation, the district court is 'free to hear evidence regarding jurisdiction and to rule on that issue prior to trial, resolving factual disputes where necessary.' " Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987) (quoting Augustine v. United States, 704 F.2d 1074, 1077 (9th Cir. 1983) (internal quotation omitted).

"Because the court's power to hear the case is at stake, it is not limited to considering the allegations of the complaint It may consider extrinsic evidence; and if the evidence is disputed, it may weigh the evidence and determine the facts in order to satisfy itself as to its power to hear the case ***." Schwarzer, Tashima, Wagstaffe, Federal Civil Procedure Before Trial, Rutter Group Practice Guide 9:85 (1992) (emphasis in original) (citing Roberts v. Corrothers, 812 F.2d 1173, 1177 (9th Cir. 1987); MCG, Inc. v. Great Western Energy Corp., 896 F.2d 170, 176 (5th Cir. 1990)). However, where the question of jurisdiction is dependent on the resolution of factual issues going to the merits, a court may not resolve genuinely disputed facts. Augustine at 1077; See Schwarzer 9:85.1.


The doctrine of sovereign immunity absolutely protects the United States from being sued, except where it expressly consents to be sued. United States v. Mitchell, 463 U.S. 495, 500-501 (1940). The IRS asserts that plaintiffs have failed to identify any basis upon which the United States has waived its sovereign immunity with respect to plaintiffs' three claims for relief.

I. Plaintiffs' First Claim for Relief: Refund Under 26 U.S.C. 7422.

Plaintiffs' first claim for relief challenges the IRS 's levy on funds allegedly owed to the Trust, in partial satisfaction of the Walkers' tax liabilities. While plaintiffs' complaint seeks a refund pursuant to 26 U.S.C 7422, the IRS asserts that plaintiffs' claim is more properly characterized as a claim for wrongful levy pursuant to 26 U.S.C. 7426.

Whether 7422 or 7426 applies to plaintiffs' first claim for relief depends on whose tax liability caused the levy to be issued. For plaintiffs to seek relief under 7422, the Subject Property must belong to the party whose tax liability caused the levy to be issued. Because both the Walkers and the Trust deny that the Subject Property belonged to the Walkers, and because the Walkers' tax liability caused the levy to be issued, neither the Walkers nor the Trust may seek relief under 7422.

Plaintiffs' first claim for relief is properly characterized as an action for wrongful levy pursuant to 7426. However, a 7426 action may not be maintained by the taxpayer. See Federal Deposit Insurance Corp. v. United States, 1997 WL 104982 (D. Or.). Accordingly, only the Trust may seek relief pursuant to 7426, and plaintiffs' first claim for relief should be dismissed as to the Walkers.

Even though the Trust may seek relief pursuant to 7426, it still must comply with the applicable statute of limitations. An action to recover for wrongful levy must generally be initiated within nine months of the challenged levy. 26 U.S.C. 6532(c)(1). An exception is found in 6532(c)(2), which may extend the limitations period until the earlier of (1) twelve months from the date of a valid request to return the levied property, or (2) six months from the date the IRS rejects such a request. The Trust's administrative request for refund is dated September 4, 1993. The IRS rejected the Trust's refund request on May 26, 1994. Plaintiffs' complaint was not filed until May 24, 1996. Even assuming that 6532(c)(2) applies, plaintiffs' complaint was filed outside the statute of limitations applicable to 7426.

Plaintiffs assert that their claim can not be untimely because the IRS District Director's letter of May 26, 1994, "notifies plaintiff George Walker that he may file a lawsuit in the United States District Court or United States Claims Court within two years from the date of the letter." Plaintiffs' Memorandum in Opposition, p. 10 (emphasis in original). The letter was addressed to "George Phillip Walker," but is in response to the Form 843 Claim for Refund filed "in the name of Andrew James Unincorporated Business Trust." Plaintiffs' Memorandum in Opposition, Exhibit J. Because the IRS determined that the Trust was a nominee of George Walker, the District Director's letter was intended to inform George Walker that he had two years to bring suit for recovery of taxes recovered from him personally. Nonetheless, the Trust now asserts that it was entitled to rely upon the District Director's letter and that the IRS should be estopped from asserting that the Trust's 7426 claim is untimely.

A party seeking to raise the doctrine of equitable estoppel against the government must establish "affirmative misconduct going beyond mere negligence;" even then, "estoppel will only apply where the government's wrongful act will cause a serious injustice, and the public's interest will not suffer undue damage by imposition of the liability." Wagner v. Director, Federal Emergency Management Agency, 847 F.2d 515, 519 (9th Cir. 1988), citing Morgan v. Heckler, 779 F.2d 544, 545 (9th Cir. 1985); Mukherjee v. INS , 793 F.2d 1006, 1008-09 (9th Cir. 1986). While the District Director's letter of May 26, 1994, was confusing due to the multiple parties involved, plaintiffs have provided no evidence of "affirmative misconduct" on the part of the IRS .

Plaintiffs' complaint was filed outside the statute of limitations applicable to 7426. The untimeliness of plaintiffs' complaint is not excused due to the District Director's letter of May 26, 1994. Accordingly, the IRS 's motion for dismissal of plaintiffs' first claim for relief should be granted with respect to the Trust.

II. Plaintiffs' Second Claim for Relief: Failure to Release Under 26 U.S.C. 6325 and Injunctive Relief.

Plaintiffs' second claim for relief seeks damages and injunctive relief arising from the IRS 's allegedly improper failure to release its federal tax liens against the Walkers. The IRS 's motion to dismiss asserts that the United States has not waived its sovereign immunity with respect to the claim.

On of the prerequisites of a 6325 action for release of lien is that all tax lability for the amount assessed, together with interest, "has been fully satisfied or has become legally unenforceable." 26 U.S.C. 6325(a)(1). In the alternative, 6325 requires the party seeking relief to post a bond that is conditioned upon the payment of the amount assessed. 26 U.S.C. 6325(a)(2).

The IRS claims that plaintiffs have neither satisfied the amounts assessed nor posted a bond for those amounts. As evidence of this assertion, the IRS has submitted Forms 4030 which support the IRS 's contention that the Walkers continue to owe the money evidenced by the federal tax liens. Plaintiffs' complaint, however, asserts that "the liability was satisfied on September 13, 1993." Complaint at p. 8. Plaintiffs have provided no further evidence that the Walkers' tax liabilities have been satisfied. Further, plaintiffs have not alleged that the liens are unenforceable.

At a minimum, 6325 places upon plaintiffs the burden of coming forward with competent proof that all liabilities assessed to the Walkers have been paid in full. The unsupported allegation in plaintiffs' complaint does not rise to this level. In light of the persuasive evidence presented by the IRS on this point, this court is not satisfied that it has jurisdiction to hear a claim for damages pursuant to 6325.

This court also lacks jurisdiction to hear plaintiffs' claim for injunctive relief. The Anti-Injunction Act provides that, with certain exceptions, "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed." 26 U.S.C. 7421(a). A judicially created exception to this general jurisdictional bar applies if plaintiffs can demonstrate that: "(1) under no circumstances can the government ultimately prevail on the merits; and (2) the taxpayer will suffer irreparable injury without injunctive relief." Elias v. Connett [90-2 USTC 50,397], 908 F.2d 521, 525 (9th Cir. 1990).

Plaintiffs have not satisfied the exception to the Anti-Injunction Act's jurisdictional bar. Rather, plaintiffs assert that due to procedural errors on the part of the IRS , the funds levied upon were obtained in violation of plaintiffs' due process rights under the Fifth Amendment to the Constitution. See United States v. Coson [61-1 USTC 9219], 286 F.2d 453, 456 (9th Cir. 1961); Rodriguez v. United States [86-1 USTC 9289], 629 F.Supp. 333, 340 (N.D. Ill. 1986). Despite this claim, plaintiffs have provided no evidence that the IRS failed to follow proper procedures with respect to the liens against the Walkers or the levy against the Trust. The IRS 's motion to dismiss plaintiffs' second claim for relief should be granted.

III . Plaintiffs' Third Claim for Relief: Declaratory Judgment

Plaintiffs' third claim requests a judicial declaration that the Trust is a valid and existing trust with George Walker as its trustee. The IRS 's motion to dismiss asserts that the United States has not waived its sovereign immunity with respect to the claim.

The Declaratory Judgment Act does not generally grant the federal courts the authority to issue judicial declarations "with respect to Federal taxes." 28 U.S.C. 2201(a). While there are some exceptions to this general rule, none of them apply to the relief sought by plaintiffs, nor have plaintiffs alleged that an exception applies. Rather, plaintiffs contend that the judicial declaration sought does not concern federal taxes, but rather a determination of the Trust's validity as an entity separate from George Walker.

Plaintiffs' contention ignores the nature of their case. Plaintiffs brought this suit to stop tax collection activities against the Walkers. Because this suit relates to the collection of federal taxes, this court lacks subject matter jurisdiction under the Declaratory Judgment Act to hear plaintiffs' third claim for relief. The IRS 's motion to dismiss plaintiffs' third claim for relief should be granted.


The IRS 's motion to dismiss plaintiffs' complaint in its entirety (doc. #15) should be GRANTED.

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