United States District Court, W.D. Pennsylvania
ROLLOCK COMPANY, et. al., Plaintiffs,
UNITED STATES OF AMERICA, Defendant.
CATHY BISSOON, District Judge.
For the reasons stated below, Defendant's Motion to Dismiss (Doc. 33) will be granted.
BACKGROUND AND PROCEDURAL HISTORY
Plaintiffs Anthony and Christopher Kordell (the "Kordells"), shareholders and officers of Plaintiff Rollock Company ("Rollock"), owned a tract of land in Somerset, Pennsylvania, which was leased to Rollock for the operation of its scrap metal business. Am. Compl. (Doc. 13) at ¶ 10. On September 11, 2001, the crash of Flight 93 occurred adjacent to this tract of land, approximately three hundred yards from Rollock's principal place of business. Id . at ¶ 1. Plaintiffs allege that Rollock received a notification from the IRS in early 2002, which designated Rollock as a September 11th case, and excused the corporation from filing employment tax returns and depositing employee withholdings. Id . at ¶ 30.
Relying on that notice, Rollock did not remit employee withholdings from the period of January 1, 2002, through September 30, 2009. Id . at ¶ 33. This notice allegedly was stolen from Plaintiffs' office in 2005, and never was recovered. Id . at ¶ 32. Plaintiffs allege that they did not receive any further correspondence from the IRS until 2009, when the IRS called to inquire as to the status of Rollock's tax returns. Id . at ¶ 35. Thereafter, Rollock filed its employment tax returns, and made a $550, 000 payment to the IRS in September 2009 with instructions to apply the payment to its outstanding tax liability. Id . at ¶¶ 35, 39. In March 2010, Rollock received notice from the IRS that its outstanding tax liability, with penalties, still amounted to over $600, 000. Id . at ¶ 40. The following month, Rollock filed an IRS Form 843 to request an abatement of interest and penalties. Id . at ¶ 41.
In October 2010, Rollock filed an IRS Form 656, Offer in Compromise ("OIC"), where Rollock offered a proposed payment plan of $10, 000 per month. Id . at ¶ 42. Shortly thereafter, the Kordells, as shareholders of Rollock, received notice of a Trust Fund Recovery Penalty Assessment from the IRS, which the Kordells subsequently appealed. Id . at ¶¶ 43-44. This appeal allegedly resulted in a settlement agreement where the Kordells made a $219, 000 payment to the IRS. Id . at ¶ 44. Plaintiffs allege that the IRS acknowledged the 2002 notice during these settlement negotiations, but would not respond to Plaintiffs' request for a copy of the document. Id . at ¶ 45.
Thereafter, the 2010 OIC was rejected, and Rollock submitted a second OIC in June 2011, which the IRS also rejected. Id . at ¶¶ 46-47. Regardless, Plaintiffs allege that Rollock continued to make monthly payments to the IRS, and at the time that the amended complaint was filed, Plaintiffs had paid approximately $1, 057, 000 towards Rollock's employment tax liability. Id . at ¶¶ 48-49. The IRS, however, issued a notice in July 2012, stating that Rollock still owed $876, 000 in taxes, penalties, and interest. Id . at ¶ 51. Further, in September 2012, the IRS informed Plaintiffs that their 2011 federal income tax refund would be applied to their default for the 2003 tax year. Id . at ¶ 53. Plaintiffs allege that the 2003 tax year is closed, and therefore filed an appeal with respect to this determination in October 2012. Id . at ¶¶ 54-55.
As a result of these events, Plaintiffs Anthony Kordell, Christopher Kordell and Rollock Company, (collectively, the "Plaintiffs"), have filed a seven-count complaint against the United States of America to "seek recovery of taxes, penalties and interest erroneously, improperly and illegally assessed and collected." Id . at ¶ 1. Specifically, Counts I through VI of the Complaint seek a "refund" of Plaintiffs' overpayment under different theories of liability, and Count VII seeks relief under the Declaratory Judgment Act. Defendant, the United States of America, (hereinafter, the "Government"), filed the outstanding Motion to Dismiss (Doc. 33) on the grounds that this Court lacks subject matter jurisdiction. Plaintiffs have filed a response in opposition (Doc. 40), and the Government has filed a Reply (Doc. 41).
The Government brings this Motion to Dismiss under Rule 12(b)(1). Specifically, the Government argues that this Court lacks subject matter jurisdiction because: (1) Plaintiffs did not file a claim with the IRS for a refund, which is a jurisdictional prerequisite to suit; and (2) the Declaratory Judgment Act specifically bars the Court from entering the relief sought by Plaintiffs in Count VII. Def.'s Br. in Supp. (Doc. 34) at 3.
The Government is making a factual attack on the Court's subject matter jurisdiction under Rule 12(b)(1), as it is challenging the Court's "very power to hear the case." Mortensen v. First Federal Sav. & Loan Ass'n , 549 F.2d 884, 891 (3d Cir. 1977). Accordingly, the Court is "free to weigh the evidence and satisfy itself as to the existence of its power to hear the case." Id . Moreover, the Court may consider evidence beyond the pleadings and is not required to take all allegations in the complaint as true. Id .; see also Gould Electronics Inc. v. United States , 220 F.3d 169, 178 (3d Cir. 2000). Plaintiffs bear the burden of proving that jurisdiction does in fact exist. Mortensen , 549 F.2d at 891.
A. Refund Requirement
First, the Government argues that this Court lacks subject matter jurisdiction over the complaint because Plaintiffs failed to file a refund claim with the IRS before bringing suit. District Courts have original jurisdiction of "[a]ny civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner ...