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Tomczak v. United States

United States District Court, W.D. Wisconsin

December 2, 2016

ROBERT S. and DIANE M. TOMCZAK, Petitioners,
v.
UNITED STATES OF AMERICA, JOHN ANDREW KOSKINEN, Commissioner of Internal Revenue, and TIYADA WOODWORTH, Internal Revenue Agent, Eau Claire, WI IRS Office, Respondents.

          OPINION AND ORDER

          WILLIAM M. CONLEY, DISTRICT JUDGE

         Relying on 26 U.S.C. § 7609(b)(2)(A) and § 7609(h), petitioners Robert and Diane Tomczak have petitioned this court for an order to quash a summons issued by the Internal Revenue Service to their bank, Royal Credit Union. (Dkt #1.) Before the court is the United States' motion to dismiss filed on behalf of all respondents, arguing that the court lacks both subject matter and personal jurisdiction over this dispute, because the United States has not waived its sovereign immunity, as well as service of process has not been adequately effectuated. (Dkt. #2.) While the government's motion to dismiss must be granted, the court takes issue with some of the respondent's arguments. Still, the fact remains that the petitioners did not serve their bank as required by 26 U.S.C. § 7609(b)(2)(B), and as such, the Tomczaks' petition must be dismissed for lack of jurisdiction.

         BACKGROUND[1]

         In November of 2015, the IRS began a formal audit of the Tomczaks' 2012 and 2013 tax returns based on the suspicion that the Net Operating Loss Carryforward (“NOL”) claimed on their business had not been reported correctly. (Resp'ts' Br. (dkt. #2) 4.) Before the formal audit, the Tomczaks had been working with Revenue Agent Tiyada Woodworth of the IRS's Eau Claire Field Office to provide tax information, supporting documentation, and answers to questions regarding those same, disputed returns. (Pet. (dkt. #1) ¶ 7.) Throughout the audit itself, the Tomczaks remained compliant with the requests of the IRS by producing bank deposits, business invoices and in-person responses to Agent Woodworth's questions. (Id. at ¶ 8.)

         On or about February 29, 2016, Agent Woodworth concluded her report of the Tomczaks' tax returns. (Id. at ¶ 13.) Based upon her findings, she determined that adjustments needed to be made to the Tomczaks' 2012 and 2013 returns, increasing their gross income by $35, 069 and $51, 068, respectively. (Id.) These amounts were again adjusted in April 2016, increasing the adjustment almost three fold for 2012 to $96, 261 and slightly reducing the adjustment for 2013 to $48, 423. (Id. at ¶ 18.)

         Unsurprisingly, the Tomczaks' relationship with Agent Woodworth soured. The Tomczaks not only asserted that Woodworth's calculations were incorrect, but questioned the accuracy of her data as compared to the information, documentation and records that they had provided. (Id. at ¶ 14.) The Tomczaks also believed that Agent Woodworth was improperly attempting to coerce a settlement by threatening to audit the preceding tax years if they refused to agree to her proposed changes. (Id. at ¶ 16.) Similarly, they allege that Agent Woodworth used the IRS summons power “for an improper and illegitimate purpose and in a bad faith manner . . . in an attempt to pressure, harass, and coerce the Petitioner's into settling a collateral dispute.” (Id. at ¶ 6.)

         On April 29, 2016, the Tomczaks received both an Information Document Request (“IDR”) and a notice of third-party summons from the IRS. (Id. at ¶ 25.) Under the terms of the IDR, the Tomczaks had two weeks to produce various paperwork and business records. (Pet. (dkt. #1) ¶ 25.) The notice indicated that a third-party summons had been served on the Tomczaks' bank, instructing it to give testimony and to present information to Agent Woodworth regarding the Tomczaks' savings account, checking account and loan records for examination. (Pet., Ex. 1 (dkt. #1-2) 5.)

         By this point, the Tomczaks had retained counsel, who subsequently filed the pending petition to quash summons that initiated this action. In response, the government filed its motion to dismiss based on lack of personal and subject-matter jurisdiction, as well as insufficient process and service of process.

         OPINION

         I. Sovereign Immunity

         The government first argues in its motion that the Tomczaks' petition should be dismissed because the United States has not waived its sovereign immunity. (Resp'ts' Br. (dkt. #2) 4.) The doctrine of sovereign immunity mandates that the United States is not subject to suit without its consent. Lehman v. Nakshian, 453 U.S. 156, 160 (1981). It is a well-established principle of law that consent is conveyed through congressional action, which “expressly and unequivocally” waives the government's sovereign immunity. United States v. Dalm, 494 U.S. 596, 608 (1990). Unless the government has waived its sovereign immunity, this court does not have subject-matter jurisdiction over the proceedings.[2] See United States v. Mitchell, 463 U.S. 206, 212 (1983) (“It is axiomatic that the United States may not be sued without its consent and that the existence of consent is a prerequisite for jurisdiction.”).

         Of course, it is also true that 26 U.S.C. § 7609 does constitute a limited waiver of the United States' sovereign immunity. See Barmes v. United States, 199 F.3d 386, 388 (7th Cir. 1999) (affirming that § 7609 gave the petitioners a right to move to quash an IRS summons). In pertinent part, § 7609(b)(1) provides that “notwithstanding any other law or rule of law, any person who is entitled to receive notice of a summons [regarding an IRS action] under subsection (a) shall have the right to intervene in any proceeding with respect to the enforcement of such summons under section 7604.” Therefore, the Tomczaks argue, a person who is entitled to notice of a third-party summons may bring a proceeding to quash the summons in a U.S. district court, as they purport to be doing here. See 26 U.S.C. § 7609(b)(2).

         In response, the government contends that the Tomczaks misstate their cause of action, since they are primarily attempting to challenge the IDR directed to them, rather than the third-party summons issued to their bank. (Resp'ts' Br. (dkt. #2) 1.) To the extent the Tomczaks' petition is seeking any relief from their obligation to respond to the IDR, the government is correct. The IDR is an administrative form, not a summons, and even if the Tomczaks could challenge the IDR, they would be precluded from doing so ...


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