United States District Court, E.D. New York
RUSLAN AGARUNOV and MEDICAL RECORDS RETRIEVAL, INC., D/B/A KARMA SUPPLIES, Plaintiffs,
UNITED STATES OF AMERICA, Defendant.
MEMORANDUM DECISION AND ORDER
BRIAN M. COGAN, District Judge.
Plaintiffs Medical Records Retrieval, Inc. ("MRR") and its sole shareholder, Ruslan Aguranov, challenge a tax lien against MRR's property that arose pursuant to a tax assessment by the Internal Revenue Service ("IRS"). In essence, plaintiffs contend that the IRS has acted arbitrarily and capriciously, to the point of denying plaintiffs due process, by not accepting a settlement offer from plaintiffs in exchange for releasing the lien. Plaintiffs further contend that at the administrative "due process hearing" held before an IRS agent, they received oral confirmation that the settlement offer was acceptable, although the agent called back later in the day to say that her boss had rejected the settlement offer.
The IRS has moved to dismiss for lack of subject matter jurisdiction, and its motion must be granted. Plaintiffs are in the wrong court.
Taking the allegations in the complaint as true, and supplementing them with additional facts submitted by the IRS as part of its challenge to the Court's subject matter jurisdiction, the case arises from the IRS' assessment of $127, 096.52 in unpaid tax against MRR for the tax periods beginning June 30, 2011 and continuing through December 31, 2012. By operation of law, particularly 26 U.S.C. § 6321,  the assessment gave rise to a lien on all of MRR's real and personal property to the extent necessary to satisfy the assessment plus interest and penalties. Under 26 U.S.C. § 6322, that lien continues "until the liability for the amount so assessed... is satisfied or becomes unenforceable by reason of lapse of time." As of the filing of the complaint, the total amount assessed was in excess of $270, 000.
Plaintiff Agarunov, MRR's sole shareholder, attempted to meet with the IRS to resolve the tax liability, and was told that it would take 3-6 months for the assignment of a field agent to deal with it. While waiting, MRR continued to make unspecified tax payments. Ultimately, Agarunov was contacted by an agent, but missed her call, and she did not return multiple messages he left for her. Instead, on or about May 23, 2013, the IRS sent MRR a Notice of Tax Lien and Right to a Hearing. After more unsuccessful attempts to reach an agent, Agarunov finally did. However, that agent told him the process was "out of her hands." She also told him that she had visited MRR's business address and that building appeared to be empty, which, the complaint alleges, was not the case.
Plaintiffs then requested a hearing under 26 U.S.C. § 6320 on June 5, 2013. Section 6320 allows for a "due process" hearing upon a taxpayer's request to challenge the imposition of a tax lien. Plaintiffs and their accountant had a telephone hearing pursuant to this request on August 7, 2013. The agent conducting the hearing admitted to being unprepared, but allegedly told Agarunov and his accountant that if, by the end of the day, they sent her MRR's 2011 tax returns, bank records, and proof that the tax liens were precluding MRR from obtaining financing, the IRS would release the lien. This was apparently based on Agarunov's offer of "collection alternatives" to the lien. After receiving the documents, however, the agent called Agarunov back and told him that her Manager would not agree to release the lien.
On September 18, 2013, the IRS sent plaintiffs' accountant an "Appeals Case Memo." This was essentially a summary of the due process hearing and an explanation of why the IRS had rejected MRR's "collection alternatives." The grounds stated for rejecting the "collection alternatives" was that MRR was not current on its taxes for the quarter ending September 30, 2013; however, the complaint alleges that MRR was, in fact, current for that quarter.
Plaintiffs then negotiated a payment schedule with the IRS, and plaintiffs allege that MRR made payments earlier than called for under the schedule. As to the remaining amounts due, which the IRS asserts consist of the full amount of the tax assessment plus additional taxes and interest, plaintiffs have repeatedly offered a "Collateral Agreement and a Bond" in lieu of the lien, but the IRS has not responded to plaintiffs request to discuss this alternative.
MRR has $13 million in receivables that are due but cannot collect them because it cannot obtain financing as a result of the lien. At one point, an IRS Manager told Agarunov that if he could come up with $100, 000, the IRS would release the lien, but then changed his mind. The continuation of the lien has crippled MRR's business.
Plaintiffs predicate subject matter jurisdiction on 26 U.S.C. § 7432. That statute does not provide for a district court to order the release of a tax lien. Rather, it states that "[i]f any officer or employee of the Internal Revenue Service knowingly, or by reason of negligence, fails to release a lien under section 6325 on property of the taxpayer, such taxpayer may bring a civil action for damages against the United States in a district court of the United States." Id. at § 7432(a). The damages allowed are defined as "actual, direct economic damages sustained by the plaintiff which, but for the actions of the defendant, would not have been sustained, " plus the costs of the action. Id. at § 7432(b). By limiting the right to relief to damages, the statute appears to assume that taxpayer has already established its right to vacate any tax liens, either administratively or in the Tax Court, and its remedy for the negligent or intentional failure of the IRS to implement the release of the lien consists of a claim for damages.
Right away, there is an apparent disconnect between plaintiffs' complaint and the statute. Although the complaint makes a perfunctory demand for unspecified damages, the primary relief it seeks is for this Court to "vitiate the filed Federal Tax Lien, order the same be discharged and order the IRS to consider alternative collection means, including a collateral agreement." Plaintiffs' request is in the nature of equitable or mandamus relief, and the United States has not waived its sovereign immunity sufficient to allow this Court to issue such relief. See United States v. Sherwood, 312 U.S. 584, 588 (1941).
But plaintiffs have additional problems. The predicate to jurisdiction under § 7432 is that the IRS is required to release its lien under 26 U.S.C. § 6325. However, § 6325 requires release of a tax lien only if the "Secretary [i.e., the Commissioner of the Internal Revenue Service] finds that the liability for the amount assessed, together with all interest in respect thereof, has been fully satisfied or become legally unenforceable, " or if "[t]here is furnished to the Secretary and accepted by him a bond that is conditioned upon the payment of the amount assessed, together with all interest in respect thereof." (Emphasis ...