United States District Court, E.D. Pennsylvania
TIMOTHY J. SAVAGE, District Judge.
Plaintiff Chaka Fattah, Jr., proceeding pro se, asserts claims for unauthorized tax collection actions under 26 U.S.C. § 7433; unauthorized disclosure of tax return information under both 26 U.S.C. § 7431 and the Privacy Act; and, a refund or abatement of tax penalties under 26 U.S.C. § 7422. He alleges that Internal Revenue Service ("IRS") agents presented at his residence at 6:20 a.m. and failed to contact his attorneys in violation of 26 U.S.C. § 6304(a). He also contends that the IRS, the Federal Bureau of Investigation ("FBI") and the Department of Justice ("DOJ") unlawfully disclosed his tax return information to the media. He also seeks abatement of tax penalties which he contends the IRS wrongfully denied.
The defendants have moved to dismiss Fattah's § 7431, § 7433 and Privacy Act claims. They argue that we lack subject matter jurisdiction because Fattah has not satisfied the jurisdictional requirements of §§ 7431 and 7433, which are limited waivers of sovereign immunity. More specifically, they contend that Fattah cannot state a § 7433 claim because § 7433 is limited to collection actions, and the agents' visit was in connection with a criminal investigation. The defendants contend that Fattah's § 7431 claim is time-barred. Alternatively, they argue that he fails to state a claim because he does not allege that his tax return information was disclosed. As to the Privacy Act, they argue that Fattah does not identify what provision of the Privacy Act he is invoking and what record was allegedly disclosed. The United States and the IRS have also moved for summary judgment with respect to Fattah's claim for a refund of tax penalties, contending that it is premature.
In response, Fattah argues that the defendants' actions giving rise to his claim related to a collection action. He also disputes that his § 7431 claim is time-barred because when he filed for in forma pauperis status, the statute of limitations was tolled. He contends that the information disclosed to the media was tax return information. Lastly, he opposes the motion for summary judgment, arguing that his claim is ripe and he is entitled to a refund of tax penalties due to economic hardship and reliance on his accountant's advice.
We conclude that Fattah has sufficiently pled facts showing that his tax return information was improperly disclosed, making out a § 7431 claim. However, he has not stated a claim under the Privacy Act. We further conclude that we lack subject matter jurisdiction over his § 7433 claim. Accordingly, we shall grant the motion to dismiss in part and deny it in part.
We shall deny the motion for summary judgment because there is an issue of fact concerning whether the IRS has rendered a decision with respect to Fattah's claim for refunds.
On February 29, 2012, at 6:20 a.m., two IRS agents arrived at Fattah's Center City Philadelphia residence. They served him with two subpoenas directed to the "Custodian of Records" for 259 Strategies LLC and Legal Marketing Strategies LLC. While serving the subpoenas, they questioned him about unpaid tax liabilities between the years 2005 and 2010, specifically "if any payments had been made on the 2010 tax year's income liability."
Later that morning, "federal agents" visited Fattah at his office. Press photographs attached to the complaint show the agents taking items from that location.
On February 29, 2012, Philly.com published a news article and photographs reporting that the IRS was investigating Fattah's company, 259 Strategies LLC. It reported that "[a]gents from the FBI and U.S. Treasury Department served two search warrants... for Fattah's records" and that they "seized Fattah's records and a computer" from his office. A print version of this story ran in The Inquirer the following day. The reports were accompanied by photos of federal agents walking into Fattah's residence and his business office. Several other news outlets reported similar versions of the story. The Washington Times published an article under the headline "Lawmaker's son target of federal search, " in which Shauna Frye, an IRS spokesperson, is quoted as having said that "IRS criminal investigators were at the Residences at the Ritz-Carlton... on official business."
On February 21, 2014, Fattah submitted an application to proceed in forma pauperis together with his complaint. On March 19, 2014, after a hearing, we granted the application and ordered the Clerk to file the complaint.
In the original complaint, Fattah alleged that the United States and the IRS violated 26 U.S.C. § 6304(a) by arriving at his residence before 8 a.m., violated 26 U.S.C. § 6304(a)(2) by failing to contact his legal counsel even though he had a valid Form 2848 on file with the IRS, and violated § 6304(b) by "contacting members of the media prior to, and after the visit to Plaintiff's residence...." Fattah also sought a refund of tax penalties.
On March 25, 2014, Fattah filed an amended complaint, adding the FBI and DOJ as defendants. The amended complaint also asserted claims for violations of § 7431 and the Privacy Act, both related to the disclosure of information to the media.
Fattah claims injuries of emotional distress, loss of reputation and "inconvenience." He also seeks a refund of civil penalties. He requests $928, 000 in actual damages, $9, 075, 000 in punitive damages, various legal costs, a "formal apology, " and an order that all officers or employees of the United States who are found to have violated § 6304, § 6103 and the Privacy Act be referred for discipline within their respective government agencies.
Motion to Dismiss
When considering a motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6), all well-pleaded allegations in the complaint are accepted as true and viewed in the light most favorable to the plaintiffs. Phillips v. Cnty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008). Additionally, the plaintiff's pro se pleadings must be considered deferentially, affording them the benefit of the doubt where one exists. Dluhos v. Strasberg, 321 F.3d 365, 369 (3d Cir. 2003) (citing Higgins v. Beyer, 293 F.3d 683, 688 (3d Cir. 2002)).
The standard of review of a motion to dismiss made pursuant to Rule 12(b)(1) depends on whether the motion is a facial attack or a factual attack. See Petruska v. Gannon Univ., 462 F.3d 294, 302 n.3 (3d Cir. 2006); Constitution Party of Pa. v. Aichele, __ F.3d __, 13-1952, 2014 WL 3294855, at *7 (3d Cir. July 9, 2014). Consequently, we must distinguish between facial attacks and factual attacks. A facial attack "is an argument that considers a claim on its face and asserts that it is insufficient to invoke the subject matter jurisdiction of the court" because of some jurisdictional defect. Aichele, 2014 WL 3294855, at *7. In reviewing a facial attack, as we do in considering a Rule 12(b)(6) motion, we accept the well-pleaded allegations in the complaint as true and draw all reasonable inferences arising from them in favor of the plaintiff. Gould Elecs. Inc. v. United States, 220 F.3d 169, 176 (3d Cir. 2000)) (internal quotation marks omitted).
Conversely, a factual attack is "an argument that there is no subject matter jurisdiction because the facts of the case... do not support the asserted jurisdiction." Aichele, 2014 WL 3294855, at *7. In other words, in a factual challenge to jurisdiction, the defendant disputes the allegations on which jurisdiction depends. In that instance, we need not accept plaintiff's allegations as true and we may consider materials outside the complaint to determine whether the exercise of federal jurisdiction is proper. CNA v. United States, 535 F.3d 132, 139, 145 (3d Cir. 2008).
Section 7433 Claim for Violation of § 6304(a) and § 6304(a)(2)
A taxpayer may bring an action against the United States when an officer or employee of the IRS disregards, either recklessly, intentionally or negligently, any statutory or regulatory provision in connection with the collection of any federal tax. 26 U.S.C. § 7433(a). Section 7433 creates an action for damages arising only from the "collection" of taxes, not for damages arising from the investigation, assessment and determination of tax liability. See Hudson Valley Black Press v. IRS, 409 F.3d 106, 112-13 (2d Cir. 2005) ("Congress ultimately enacted a narrower version of § 7433 that allowed damages actions only relating to tax collection, not to tax assessment, and only for violations of the Internal Revenue Code and its implementing regulations, not for violations of all federal law.") (citation omitted); Judicial Watch, Inc. v. Rossotti, 317 F.3d 401, 411 (4th Cir. 2003) (noting, in dictum, that § 7433 does not provide a cause of action for "damages arising from the investigation and determination of tax liability"); Hart v. United States, Civ. A. 96-5639, 1997 WL 732466, at *1-2 (E.D. Pa. Nov. 21, 1997) (construing § 7433 narrowly and limiting it to collection of taxes only); aff'd, 178 F.3d 1279 (3d Cir. 1999); Springer v. United States, No. 08-CV-4, 2009 WL 981856, at *1 (N.D. Okla. Apr. 10, 2009). Thus, an action under § 7433 is available only where the complained of conduct arose out of an attempt to collect an unpaid tax.
Fattah asserts two violations of the Internal Revenue Code as predicates for his § 7433 action. First, he claims that IRS agents violated § 6304(a) when they arrived at his residence before 8 a.m. Second, he argues that they violated § 6304(a)(2) by failing to contact his legal counsel despite knowing that he had a valid Form 2848, appointing a representative as his power of attorney, on file with the IRS.
The defendants argue that the agents were engaged in a criminal investigation, not a collection action, which is outside the statutory waiver of sovereign immunity in § 7433. See Springer, 2009 WL 981856, at *1. According to the defendants, because Fattah's § 7433 claim "fails to fall within the applicable waiver of sovereign immunity, " this court lacks subject matter jurisdiction over that claim.
The defendants submit the affidavit of Dennis Bohn, an IRS revenue officer, who states that no revenue officer was assigned to Fattah between the tax years of 2005 and 2010, and no collection summonses have been issued with respect to the liabilities for those years. Because the motion is supported by a sworn affidavit, we construe it as a factual attack under Rule 12(b)(1). See Int'l Ass'n of Machinists & Aerospace Workers v. Nw. Airlines, Inc., 673 F.2d 700, 711 (3d Cir. 1982) ("[Defendant's] motion was supported by a sworn statement of facts. It therefore must be construed as a factual, rather than a facial attack....").
Where a defendant contests the jurisdictional allegations by presenting evidence, as is the case here, the plaintiff is permitted to respond with evidence supporting jurisdiction. Gould Elecs., 220 F.3d at 177. "The factual circumstances set forth by the plaintiff... must meet and controvert the facts asserted by the defendant[s]." Int'l Ass'n of Machinists & Aerospace Workers, 673 F.2d at 711. If the facts asserted by the defendants are not controverted, we must determine whether we have subject matter jurisdiction based on the factual context presented by the defendants. Id. at 711-12. On the other hand, if there is a dispute of material facts, we must resolve the contested facts. See Gould Elecs., 220 F.3d at 177.
Bohn's affidavit asserts that the records indicate that there were no revenue officers assigned to Fattah's case and no collection summonses had been issued. Accordingly, the defendants argue, the agents' visit must have been part of a criminal investigation, which is not actionable under § 7433, because "if there were collection actions, the IRS's records would contain various related entries and notations." The defendants also note that the business cards submitted by Fattah as exhibits to his response indicate that the agents were criminal investigation agents, not collection revenue officers. Finally, they point out that the agents served Fattah with two subpoenas addressed to the "custodian of records" for Fattah's respective businesses, suggesting that they were at Fattah's residence in connection with a criminal investigation.
In response, Fattah contends that when they went to his apartment, the IRS agents "asked Plaintiff questions about alleged unpaid tax liabilities from tax years 2005-2010, including amounts that were already assessed.... As alleged, the agents asked if any payments had been made on the 2010 tax year's income tax liability.'" According to Fattah, "[t]hese oral questions are communication[s] in connection with the collection of an unpaid tax (at the time)." In his sur-reply, he also points out that the defendants, in moving for summary judgment on his tax penalty abatement claims, concede that ...