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Maniolos v. United States

October 4, 2010

BERTHA ELIZABETH MANIOLOS, PLAINTIFF,
v.
UNITED STATES OF AMERICA, DEFENDANT.
WOODRUM C. BOLEY, PLAINTIFF,
v.
UNITED STATES OF AMERICA, DEFENDANT.



The opinion of the court was delivered by: Andrew J. Peck, United States Magistrate Judge

OPINION AND ORDER

Plaintiffs Bertha Elizabeth Maniolos and Woodrum C. Boley bring these actions alleging that the Internal Revenue Service ("IRS") wrongfully retained their economic stimulus rebates issued in 2008. (E.g., Maniolos Dkt. No. 2: Compl. ¶¶ 4-5; Boley Dkt. No. 1: Compl. ¶¶ 4-5.)

Presently before the Court is defendant United States' motions to dismiss pursuant to Fed. R. Civ. P. 12(b)(6). (Maniolos Dkt. No. 10: Gov't Notice of Motion; Boley Dkt. No.6: Gov't Notice of Motion.) The Government contends that the tax offer in compromise plaintiffs entered into with the IRS in 2007 entitle the IRS to keep their economic stimulus rebates. (Maniolos Dkt. No. 11: Gov't Br. at 1; Maniolos Dkt. No. 16: Gov't Reply Br. at 2; Boley Dkt. No. 7: Gov't Br. at 1; Boley Dkt. No. 9: Gov't Reply Br. at 2.)

The parties have consented to decision of these cases by a Magistrate Judge pursuant to 28 U.S.C. § 636(c). (Maniolos Dkt. No. 8; Boley Dkt. No. 11.)

For the reasons set forth below, the Government's motions to dismiss are GRANTED.

MANIOLOS FACTS

The relevant facts are undisputed.

While suffering through financial difficulties, Maniolos withdrew the contents of her tax-deferred retirement plans over several years without making sufficient provisions for withholding income tax. (Dkt. No. 2: Compl. ¶ 7; Dkt. No. 11: Gov't Br. at 2; Dkt. No. 12: Maniolos Br. at 1-2.) As a result, by early 2007, Maniolos owed the IRS approximately $40,000 in income tax, penalties, and interest for the tax years 1994, 1996, and 1997. (Compl. ¶ 7; Gov't Br. at 2; Maniolos Br. at 1.)

In mid-2007, Maniolos sought to satisfy her tax liabilities through a Form 656 offer in compromise ("OIC") with the IRS. (Compl. ¶ 8; Gov't Br. at 2; Maniolos Br. at 2.) On October 24, 2007, the IRS accepted Maniolos' OIC, which provided that Maniolos pay a total of $500 in satisfaction of her $40,000 tax liability. (Compl. ¶ 9 & Ex. A: OIC; Gov't Br. at 2; Maniolos Br. at 2.) In addition to the $500 payment, OIC section V(f) provided: "As additional consideration beyond the amount of my/our offer, the IRS will keep any refund, including interest, due to me/us because of overpayment of any tax or other liability, for tax periods extending through the calendar year in which the IRS accepts the offer." (Compl. ¶ 11 & Ex. A: OIC; Gov't Br. at 1; Maniolos Br. at 2.) On November 7, 2007, Maniolos made final payment of the $500 under the compromise. (Compl. ¶ 12; Maniolos Br. at 2.)

In early 2008, Maniolos filed a tax return for 2007 listing gross income of $7,670. (Compl. ¶¶ 13-14; Gov't Br. at 3; Maniolos Br. at 3.) Due to her income level and allowable deductions, Maniolos was not liable for any income tax for 2007. (Compl. ¶ 13; Gov't Br. at 3; Maniolos Br. at 3.) Accordingly, Maniolos requested a refund of $2,097, the amount she had voluntarily withheld for taxes from her 2007 income. (Compl. ¶ 14; Gov't Br. at 3; Maniolos Br. at 3.) The IRS retained the money as it was considered "additional consideration" under OIC section V(f). (Compl. ¶ 14; Gov't Br. at 3; Maniolos Br. at 3.) Maniolos concedes that the IRS properly retained this money. (Compl. ¶ 14; Gov't Br. at 3; Maniolos Br. at 3.)

On February 13, 2008, the Economic Stimulus Act ("ESA") of 2008 was signed into law. (Compl. ¶ 15; Gov't Br. at 3; Maniolos Br. at 3; see page 11 below.) Based on her income for 2007, Maniolos was entitled to a $300 refund under the ESA. (Compl. ¶ 15; Gov't Br. at 3; Maniolos Br. at 3.)*fn1 Rather than issuing Maniolos a check for $300, the IRS credited the money as a payment to Maniolos' unpaid 1997 income tax liability. (Compl. ¶¶ 16-17; Gov't Br. at 3; Maniolos Br. at 3-4.)

On December 1, 2009, Maniolos submitted a claim for the $300 to the IRS. (Compl. ¶ 18; Gov't Br. at 3.) By letter dated February 2, 2010, the IRS notified Maniolos that her claim was "disallow[ed]" because "[o]ne of the terms/conditions of an OIC offer in compromise is that the IRS will keep any refund, including interest, due to the taxpayer because of an overpayment of any tax or other liability, for tax periods extending through the calendar year in which the offer is accepted." (Compl. ¶ 20; Gov't Br. at 3-4.)

BOLEY FACTS

The relevant facts are undisputed.

Due to the mistaken belief that his agent was filing his tax returns, as of early 2007, Boley owed the IRS approximately $20,000 in income tax, penalties, and interest for tax years 2000, 2001 and 2002. (Boley Dkt. No. 1: Compl. ¶¶ 7, 10; Dkt. No. 7: Gov't Br. at 2; Dkt. No. 8: Boley Br. at 1.) In December 2007, Boley sought to satisfy his tax liabilities through an OIC with the IRS. (Compl. ¶ 8; Gov't Br. at 2; Boley Br. at 2.) On June 2, 2008, the IRS accepted Boley's OIC, which provided that Boley pay a total of $3,000 in satisfaction of his $20,000 tax liability. (Compl. ¶ 9 & Ex. A: OIC; Gov't Br. at 2; Boley Br. at 2). In addition to the $3,000 payment, OIC section V(f) provided: "As additional consideration beyond the amount of my/our offer, the IRS will keep any refund, including interest, due to me/us because of overpayment of any tax or other liability, for tax periods extending through the calendar year in which the IRS accepts the offer." (Compl. ¶ 11 & Ex. A: OIC; Gov't Br. at 1, 2; Boley Br. at 2.) On October 7, 2008, Boley made the final payment of the $3,000 under the compromise. (Compl. ¶ 12; Boley Br. at 2).

In early 2008, Boley filed a tax return for 2007 reporting a gross income of $38,771 (Compl. ¶ 13; Gov't Br. at 3; Boley Br. at 3.) Boley owed $36 for the 2007 tax year, which he paid in April 2008. (Compl. ¶ 13; Gov't Br. at 3; Boley Br. at 3.)

Based on his income for 2007, Boley was entitled to a $600 refund under the ESA. (Compl. ¶ 14; Gov't Br. at 3; Boley Br. at 3-4.) Rather than issuing Boley a check for $600, the IRS credited the money as a payment to Boley's unpaid 2000 income tax liability. (Compl. ¶¶ 15-16; Gov't Br. at 3; Boley Br. at 4.) On December 1, 2009, Boley submitted an administrative claim for the $600, which the IRS has not yet ruled on. (Compl. ¶¶ 17, 19; Gov't Br. at 3; Boley Br. at 4.)

PLAINTIFFS' COMPLAINTS AND THE GOVERNMENT'S MOTION TO DISMISS

Both Maniolos' and Boley's complaints allege five separate causes of action to recover the ESA amounts. The first cause of action is under 28 U.S.C. § 1346(a)(1) for "recovery of internal-revenue tax alleged to have been erroneously or illegally assessed or collected . . . or any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws." (Maniolos Dkt. No. 2: Compl. ¶ 6; Boley Dkt. No. 1: Compl. ¶ 6.) The second and third causes of action are exactly the same as the first, but relate to the 2007 and 2008 tax years, respectively. (Maniolos Compl. ¶¶ 22, 25; Boley Compl. ¶¶ 21, 24.) The fourth cause of action is under 28 U.S.C. § 1346(a)(2) alleging that the IRS breached the OIC when it retained the ESA amounts. (Maniolos Compl. ¶¶ 28-31; Boley Compl. ¶¶ 27-30.) The fifth cause of action is under 26 U.S.C. § 7433(a), alleging that plaintiff is entitled to the ESA amount for actual damages plaintiff sustained when the IRS "recklessly or intentionally, or by reason of negligence, disregarded the Internal Revenue Code" by applying the ESA amount to plaintiff's tax liability. (Maniolos Compl. ¶¶ 32, 36-37; Boley Compl. ¶¶ 31, 35-36.)

The Government has moved to dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(6) (Maniolos Dkt. No. 10: Gov't Notice of Motion; Boley Dkt. No. 6: Gov't Notice of Motion) on the ground that, pursuant to the ESA, the ESA amount was deemed a refund for an overpayment of plaintiff's 2007 taxes and therefore the IRS properly retained it under the OIC. (Maniolos Dkt. No. 11: Gov't Br. at 4-11; Maniolos Dkt. No. 16: Gov't Reply Br. at 2-6; Boley Dkt. No. 7: Gov't Br. at 4-9; Boley Dkt. No. 9: Gov't Reply Br. at 2-6.)*fn2

ANALYSIS

I. THE STANDARDS GOVERNING A MOTION TO DISMISS

A. The Twombly-Iqbal "Plausibility" Standard

In two decisions in the last few years, the Supreme Court significantly clarified the standard for a ...


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