Dzuira v. United States

Citations: 966 F. Supp. 126; 1997 U.S. Dist. LEXIS 8469; 1997 WL 324440Docket: Civil Action No. 96-30063-MAP

Court: District Court, D. Massachusetts; June 10, 1997; Federal District Court

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The District Judge adopted the Report and Recommendation to allow the IRS's motion to dismiss the complaint filed by Plaintiffs Bruce and Ann Dzuira without prejudice, permitting them to file an amended complaint by June 27, 1997. The Dzuiras claimed that the IRS improperly sold their Andrew Wyeth watercolor, "Deer Crossing," for significantly less than its value after seizing it to satisfy a tax obligation. The IRS had initially valued the painting at $100,000 with a minimum bid of $60,000, but it failed to sell. The minimum bid was later reduced to $30,000, and the painting was sold for that amount in May 1994. The Plaintiffs requested a $30,000 credit for the difference, but the IRS did not respond. The court reviewed the motion to dismiss based on lack of subject matter jurisdiction, affirming that the burden of proof lies with the party asserting jurisdiction. The IRS argued that it had not waived its sovereign immunity, a necessary condition for jurisdiction, as the United States cannot be sued without its consent, and such waivers must be strictly construed.

The complaint lacks a cited basis for waiving sovereign immunity but asserts jurisdiction under 28 U.S.C. § 1346, which waives such immunity for tax refund suits. However, this waiver requires taxpayers to fully pay any assessed tax deficiency before filing for a refund, as established in cases like Flora v. United States and Conway v. United States. The plaintiffs admitted they did not pay the tax deficiency before filing the suit, disqualifying them from the waiver under § 1346 and resulting in a recommendation for dismissal due to lack of subject matter jurisdiction.

Additionally, the plaintiffs seek relief under 26 U.S.C. § 6335, which governs IRS sales of seized property, claiming procedural violations regarding the return of a painting after an unsuccessful auction. Although the IRS acknowledged procedural errors, it argued that § 6335 does not provide a waiver of sovereign immunity. This position is supported by several unreported district court opinions. The plaintiffs' reliance on Anderson v. United States is noted to be misplaced, as that case dealt with a pre-sale injunction and did not discuss sovereign immunity. The potential for a waiver under 28 U.S.C. § 2410, which allows for quiet title actions concerning property claims by the U.S., is mentioned as possibly applicable to claims under § 6335.

Plaintiffs are seeking a waiver of sovereign immunity concerning a completed sale to a third party, which the IRS no longer claims any interest in, thus negating the need to quiet title. The court references previous cases indicating that section 2410 does not provide jurisdiction for section 6335 claims against the IRS. This means that section 6335 does not waive the IRS's sovereign immunity in this instance. However, the Plaintiffs have cited section 7433 of the Tax Code as a potential basis for a waiver, which allows taxpayers to sue for damages if the IRS acts recklessly or intentionally disregards the Tax Code. 

The IRS contends that Plaintiffs have not adequately claimed any intentional or reckless disregard, assert that Plaintiffs have suffered no damages due to fee waivers, and note that section 7433 was not mentioned in the original complaint. The court finds the IRS’s first two arguments unconvincing, as Plaintiffs suggest they suffered damages by being unable to sell a painting at its fair market value. While the complaint does not mention section 7433, the court believes the liberal pleading standards should allow for an amendment. It notes that such amendments could clarify damages, the nature of the IRS's conduct, and assert a waiver of sovereign immunity under section 7433. However, the court does not comment on the potential success of an amended complaint and acknowledges the exhaustion requirements of section 7433. In conclusion, the court recommends allowing the IRS’s motion to dismiss without prejudice, enabling Plaintiffs to file an amended complaint.

Section 7422(a) prohibits lawsuits for recovering erroneously assessed or illegally collected internal revenue taxes or penalties until a claim for refund has been properly filed with the IRS. Section 6335(e)(1) outlines procedures for the sale of property seized by levy, including: 

A) The IRS must set a minimum sale price for the property considering levy expenses and whether buying the property serves the U.S. interest.
B) If bidders offer at least the minimum price, the property is sold to the highest bidder.
C) If no bids meet the minimum price and the IRS determines that purchasing the property is in the U.S. interest, it will be sold to the government at that price.
D) If the property is not sold, it is returned to the owner, with sale expenses added to the tax owed, and any released property remains subject to existing liens.

Ownership transfers only when sold to a bona fide purchaser. Claims under the Federal Tort Claims Act (FTCA) and the Administrative Procedure Act (APA) do not waive sovereign immunity in this context, as the FTCA exempts tax-related claims and the APA does not imply jurisdiction. Plaintiffs have not invoked these provisions. Section 7433 allows taxpayers to sue for damages if IRS employees recklessly or intentionally disregard tax law, but plaintiffs cannot rely on the tax manual for liability as it applies solely to violations of the Tax Code and regulations, not the Internal Revenue Manual.

The IRS contests implications regarding its efforts to have the Plaintiffs sell 'Deer Crossing,' referencing severed documents that suggest these attempts were unsuccessful. Despite the strength of the IRS's argument, the court deems it premature to convert the IRS's motion to dismiss into a summary judgment, as the factual record is still developing. The court advises that under Rule 3(b) of the Rules for United States Magistrates, any objections to the findings and recommendations must be filed in writing with the Clerk within ten days of receipt. The objections must specify the portions contested and their basis. Noncompliance with this rule may prevent further appellate review. Additionally, responding parties have ten days to reply to any objections filed. Relevant case law is cited to support these procedural requirements.