His name is Robert Paulson Its a memorable quote from Fight Club, a great movie from 1999 that unofficial anthem for the sadists (Someone who loves inflicting pain on others) as well as the unwritten bible for the masochists who love inflicting pain on themselves. USA internal revenue manual part 5. Collecting Process Chapter 17. Legal Reference Guide for Revenue Officers Section 5. Suits Against the United States 5.17.5.2 (12-14-2007) Doctrine of Sovereign Immunity . irs.gov/irm/part5/irm_05-017-005.html 5.17.5.1 (08-01-2010) Overview This section reviews the principal types of judicial actions against the United States which revenue officers may encounter. For information regarding some of the general characteristics and procedures followed in instituting and carrying out a lawsuit for effecting or assisting in the collection of taxes, and some of the most common types of lawsuits commenced by the United States, see IRM 5.17.4, Suits by the United States. For procedural guidelines on responding to suits and claims for damages brought against the United States, see IRM 25.3.3, Suits against the United States and claims for damages under IRC § 7433. 5.17.5.2 (12-14-2007) Doctrine of Sovereign Immunity The traditional rule is that the government or sovereign cannot be sued without its consent. This doctrine prevented citizens from bringing actions against the government to redress wrongs allegedly committed against them by the government. The government retains sovereign immunity in order to protect the Treasury and its discretionary governmental functions. Waiver of sovereign immunity and consent to be sued can only be granted by an act of Congress. In giving its consent, Congress may impose such conditions and restrictions as it deems proper. Schillinger v. United States, 155 U.S. 163 (1894). The discussion that follows will review principal statutory exceptions to the doctrine of sovereign immunity and the principal types of judicial actions involving the United States which revenue officers may encounter. 5.17.5.3 (08-01-2010) Government Consent to be Sued in Actions Affecting Property on which United States Claims a Lien - 28 USC § 2410 With respect to real or personal property on which the United States claims a lien, the United States has consented to be sued in federal or state courts in suits to: quiet title; foreclose a mortgage or other lien; partition; or condemn. Also sovereign immunity has been waived as to interpleader suits or actions in the nature of interpleader with respect to real or personal property on which the United States has or claims a lien. 28 USC § 2410(a). The complaint must set forth with particularity the lien or interest of the United States. 28 USC § 2410(b). In actions to foreclose a mortgage or other lien against property in which the United States has an interest, a judicial sale must be sought. 28 USC § 2410(c). When the United States files a claim in a state court proceeding, counterclaims will not lie against the United States in that proceeding. See United States v. Shaw, 309 U.S. 495 (1940). As discussed in IRM 5.17.4, the United States may intervene in any civil action or suit to assert a federal tax lien on property which is the subject of such action or suit. 5.17.5.4 (08-01-2010) Jurisdiction for Civil Actions Against United States Jurisdiction is the authority of a court over the subject matter of the action, the parties to the action, and the kind and limits of the judgment rendered. Numerous statutes govern jurisdiction in civil, federal tax cases. Jurisdiction must be established under one of the following statutes in order for the court to entertain suit. In addition, IRC § 7421 deprives the court of jurisdiction regardless of these statutes. IRC § 7421(a) prohibits any suit to restrain the assessment or collection of any tax except as provided in subsection (a). The Supreme Court has determined that IRC § 7421(a) applies unless the United States is incapable of winning under the most favorable view of the facts, the taxpayer does not have an adequate remedy at law, and Congress has not provided the aggrieved party with an alternative legal venue by which to contest the legality of a particular tax. Enochs v. Williams, 370 U.S. 1 (1962); South Carolina v. Regan, 465 U.S. 367 (1984). 28 USC § 1331 - District courts have jurisdiction over federal question cases. 28 USC § 1340 - District courts have original jurisdiction of any civil action arising under the internal revenue laws. 28 USC § 1345 - District courts have original jurisdiction of all civil actions commenced by the United States, or by an authorized agency or officer. 28 USC § 1346 - District courts, concurrent with the U.S. Court of Federal Claims, have original jurisdiction over the following actions commenced against the United States: tax refund suits; any other civil action against the United States not exceeding $10,000, founded on federal law or regulations, or upon any express, or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort; an action involving the right of setoff and counterclaim against the plaintiff; and civil actions under: IRC § 7426 (wrongful levies and erroneous liens, etc.); IRC § 7429 (review of jeopardy levy or assessment procedures) [The United States Tax Court also has jurisdiction over these actions]; 28 USC § 2409(a) (action to quiet title where U.S. claims other than lien interest); and tort suits for money damages. 28 USC § 1361 - District courts have original jurisdiction over actions to compel an officer or an employee of the United States or any agency to perform a duty owed the plaintiff. 28 USC § 1491 - Defines the jurisdiction of the U.S. Court of Federal Claims. In the U.S. Court of Federal Claims, there is no dollar limitation on any action. 28 USC § 1503 - The U.S. Court of Federal Claims has jurisdiction over setoffs or counterclaims against the plaintiff. 28 USC § 2463 - All property taken or detained under any revenue law shall not be repleviable [recoverable], but is deemed to be in the custody of the law and subject to the orders and decrees of the United States Courts having jurisdiction thereof. 28 USC § 2409a - Applies where the United States claims an interest in property that is not a security interest. The provision is a consent to suit in a quiet title action. 28 USC § 2410 - Applies to foreclosure, quiet title, partition, condemnation, and interpleader actions where the United States claims a lien interest. If the plaintiff complies with the specific requirements of section 2410, sovereign immunity of the United States is waived and jurisdiction over the United States is obtained. However, subject matter jurisdiction of the state or federal court must exist independently. See Wells v. Long, 162 F.2d 842 (9th Cir. 1947). IRC § 7402 - Internal Revenue Code section 7402 is a general jurisdictional statute relating to the enforcement of internal revenue laws. 5.17.5.5 (08-01-2010) Procedures Governing Civil Actions Against United States The Federal Rules of Civil Procedure establish procedures for civil actions against the United States in federal district courts. Fed. R. Civ. P. 1. The action is commenced by filing a complaint with the court. Then, the clerk of court will issue a summons to the plaintiff or the plaintiff’s attorney, who is responsible for prompt service of the summons and a copy of the complaint upon the United States. Fed. R. Civ. P. 3, 4. Service must be made upon the United States by delivering a copy of the summons and the complaint to the U.S. Attorney for the district in which the action is brought, or to an Assistant United States Attorney or designated employee, and by sending a copy of the summons and the complaint by registered or certified mail to the Attorney General of the United States in Washington, D.C. Fed. R. Civ. P. 4(i)(1). Service must be made upon an officer or agency of the United States by serving the United States, as above, and by sending a copy of the summons and complaint to such officer or agency by registered or certified mail. Fed. R. Civ. P. 4(i)(2). A civil action against the United States in the United States Court of Federal Claims is commenced by filing a complaint with the clerk of that court. Service of the summons and complaint on the United States must be made in accordance with Rule 4(i). See paragraph (1)(a), above. 28 USC § 2410(b) establishes procedures for service of process on the United States in suits against the United States in state courts. These procedures are identical to those provided by the Federal Rules of Civil Procedure, cited above. Where the United States is not a party to a suit, and intervenes in such suit pursuant to IRC § 7424, 28 USC § 2410(b) is inapplicable. 5.17.5.6 (12-14-2007) Removal to Federal Court A civil action or criminal prosecution commenced in a state court against the United States or any agency thereof or any officer of the United States acting within the scope of his/her authority (e.g., the collection of the revenue) may be removed to the United States district court. 28 USC § 1442(a)(1). A state law tort action against a federal officer or employee acting within the scope of his or her employment may be removed to the United States district court upon certification of the U.S. Attorney for the district in which the state action was brought that the officer or employee acted within the scope of his or her employment. 28 USC § 2679(d); see IRM 5.17.5.12, below, for a discussion of tort suits. The United States has consented to be named a party in certain state court actions affecting property in which it has a lien or interest. 28 USC § 2410. But this waiver of immunity is granted on condition that the United States has an unqualified option to remove the action to a federal district court. 28 USC § 1444. Where the United States intervenes in a state court action to assert a federal tax lien on property which is the subject of such action, the removal provision of 28 USC § 1444 is also available. IRC § 7424. 5.17.5.7 (08-01-2010) Nature of Injunctive Relief An injunction is a court order prohibiting the defendant from doing an act or compelling the defendant to perform an act. See Fed. R. Civ. P. 65. An injunction suit against the Service typically seeks to prevent collection activity. An injunction under Fed.R.Civ.P. 65 is an equitable remedy which may be granted only where the plaintiff establishes that he or she is entitled to equitable relief, i.e. that: what the defendant is doing or is about to do, is causing, or will cause, irreparable injury to the plaintiff; money damages will not compensate for the invasion of plaintiffs rights, i.e., there is no adequate remedy in a court of law; and the plaintiff has an indisputable right which has been clearly invaded by the defendant. 5.17.5.8 (12-14-2007) Prohibition of Suits to Restrain Assessment or Collection of Taxes Outside of a few limited and narrow exceptions, a suit brought to restrain the assessment or collection of taxes is strictly prohibited by law. 5.17.5.8.1 (08-01-2010) Anti-Injunction Act - IRC § 7421 The Anti-Injunction Act contains a broad prohibition on suits to restrain the assessment or collection of taxes. IRC § 7421(a) provides as a general rule that 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 the tax was assessed. This rule also applies to the liability of transferees or fiduciaries. IRC § 7421(b). IRC § 7421 is based on the general rule of equity that where a person has an adequate remedy at law, he or she may not seek equitable relief by way of injunction against the assessment or collection of taxes. The remedy is to pay the tax assessed (or a divisible portion thereof for the Trust Fund Recovery Penalty) and file a refund suit in federal district court or the United States Court of Federal Claims, or, in the case of income, estate or gift tax, to litigate the merits of the tax in the United States Tax Court. See IRM 5.17.5.9 for a discussion of statutory exceptions to the prohibition against suits to restrain assessment or collection of tax. 5.17.5.8.2 (12-14-2007) Declaratory Judgments A declaratory judgment is a request for a court to declare the rights of parties, without ordering anything to be done. Under the Declaratory Judgment Act, 28 USC § 2201, federal tax questions are exempt from the jurisdiction of the district courts to render declaratory judgments. In Eastern Kentucky Welfare Rights Organization v. Simon, 506 F.2d 1278 (D.C. Cir. 1974), revd on other grounds, 426 U.S. 26 (1976), the court held that a party whose tax liability was not directly in dispute could maintain a declaratory judgment action where there was no adequate remedy at law and where a judgment would not have the effect of restraining assessment or collection of taxes. In In re Frey, 98-2 USTC ¶ 50,638 (M.D. Fla. 1998), the court dismissed plaintiffs wifes request for a judgment under section 2201, declaring that the wife was not a nominee of her husband. The court cited the exemption of tax disputes from section 2201. See also Rodriguez v. United States, 629 F. Supp. 333 (N.D. Ill. 1986).
Posted on: Sat, 15 Mar 2014 14:25:14 +0000