SUSAN G. BRADEN, Chief Judge.
In Diversified Group Inc. v. United States, 841 F.3d 975, 980 n.3 (Fed. Cir. 2016), the United States Court of Appeals for the Federal Circuit referenced Section 6707A of the Internal Revenue Code ("IRC"), 26 U.S.C. § 6707A, concerning the United States Tax Court's jurisdiction thereunder. The issues in this case concern the United States Court of Federal Claims' jurisdiction under IRC Section 6707A and are of first impression.
To facilitate review of this Memorandum Opinion And Final Order, the court has provided the following outline.
I. RELEVANT FACTUAL BACKGROUND.
II. PROCEDURAL HISTORY.
III. DISCUSSION.
IV. CONCLUSION.
The IRC defines a "reportable transaction" as any transaction that the Secretary of the Treasury (the "Secretary") "determines as having a potential for tax avoidance or evasion." 26 U.S.C. § 6707A(c)(1). Reportable transactions are classified either as "listed" or "other than listed." See 26 U.S.C. §§ 6707A(b)(2), (d)(1). "Listed" transactions are those reportable transactions that are the same as or substantially similar to transactions that the Secretary has "specifically identified . . . as . . . tax avoidance transaction[s]."
A taxpayer who participates in a reportable transaction, but fails properly to report that transaction to the Internal Revenue Service (the "IRS"), is subject to a penalty. See 26 U.S.C. § 6707A(a) ("Any person who fails to include on any return or statement any information with respect to a reportable transaction which is required . . . shall pay a penalty[.]"). The penalty imposed for failing properly to report a reportable transaction is equal to "75 percent of the decrease in tax shown . . . as a result of [the reportable] transaction." 26 U.S.C. § 6707A(b)(1). For individual taxpayers the amount of the penalty cannot exceed $100,000, in the case of a "listed" transaction, and $10,000, in the case of an "other than listed" transaction. See 26 U.S.C. § 6707A(b)(2).
The Commissioner of Internal Revenue (the "IRS Commissioner") is authorized to "rescind all or any portion of any penalty" resulting from an "other than listed" transaction, if "rescinding the penalty would promote compliance with the requirements of [the IRC] and effective tax administration." 26 U.S.C. § 6707A(d)(1). The IRS Commissioner is not, however, authorized to rescind penalties resulting from a "listed" transaction. See 26 U.S.C. § 6707A(d)(1) (authorizing the IRS Commissioner to rescind penalties only "with respect to a reportable transaction other than a listed transaction"); see also H.R. Rep. No. 108-548 (Part 1), at 262 (2004) ("The penalty cannot be waived with respect to a listed transaction.").
The IRS Commissioner's determination of whether to rescind a penalty assessed for an "other than listed" transaction, is not subject to judicial review. See 26 U.S.C. § 6707A(d)(2); see also Smith v. Comm'r of Internal Revenue, 133 T.C. 424, 428 (T.C. 2009) ("A determination by the [IRS] Commissioner regarding the rescission of a penalty may not be reviewed in any judicial proceeding."); 14A HERTSEL SHADIAN, MERTENS LAW OF FED. INCOME TAXATION § 55:99 (2018), Westlaw ("Any determination on the rescinding of any penalty may not be appealed in any judicial proceeding."). The legislative history of IRC Section 6707A, however, reflects that the prohibition against judicial review of an IRS Commissioner's rescission determination, does not apply to an IRS decision to impose a penalty in the first place. See H.R. Rep. No. 108-548 (Part 1), at 262 n.233 (2004) (explaining that IRC Section 6707A(d)(2) does not "limit the ability of a taxpayer to challenge whether a penalty is appropriate (e.g., a taxpayer may litigate the issue of whether a transaction is a reportable transaction (and thus subject to the penalty if not disclosed) or not a reportable transaction (and thus not subject to the penalty))" (emphasis added)); see also Smith, 133 T.C. at 428 ("The legislative history indicates that the statute's prohibition of judicial review is not intended otherwise to limit the taxpayer's ability to litigate whether a penalty is appropriate.").
The governing IRS regulation permits the Secretary to "prescribe the procedures for a taxpayer to request rescission of [an IRC S]ection 6707A penalty with respect to a reportable transaction other than a listed transaction[.]" 26 C.F.R. § 301.6707A-1(d)(2). Pursuant to this authority, the Secretary issued Revenue Procedure 2007-21. See REV. PROC. 2007-21, 2007-1 C.B. 613, 2007-9 I.R.B. 613 (I.R.S. Feb. 26, 2007) ("REV. PROC. 2007-21"). Revenue Procedure 2007-21 provides that "[a] person may only request rescission of a penalty under [IRC S]ection . . . 6707A[,] if the violation relates to a reportable transaction other than a listed transaction." REV. PROC. 2007-21 § 3. In addition, Revenue Procedure 2007-21 describes the procedures for requesting rescission, including the deadline by which a person must request rescission;[
REV. PROC. 2007-21 § 1; see also REV. PROC. 2007-21 § 4.01 ("The method of requesting rescission that is provided in [R]evenue [P]rocedure [2007-21] is the exclusive method of requesting rescission. A person may not request rescission through a refund claim, in a collection due process hearing, or through any other avenue for approaching the [IRS]." (emphasis added)).
In 2005, David Barzillai participated "in a welfare benefit plan (the "Plan")[
On or about August 24, 2006, Mr. Barzillai filed a federal Income Tax Return, IRS Form 1040, for the 2005 tax year. 9/18/17 Gov't Mot. Ex. 2 at 003. It was not until May 3, 2011, however, that Mr. Barzillai notified the IRS of his participation in the Plan. 9/18/17 Gov't Mot. Ex. 1 at 008, 068; 12/13/17 Pl. Resp. Ex. A.
On January 19, 2012, the IRS sent Mr. Barzillai a letter to inform him that the IRS was "proposing to assess a [$100,000] penalty against him for the 2005 tax year under . . . [IRC] Section 6707A . . ., resulting from his participation in the Plan." 3/15/17 Compl. ¶ 6; see also 9/18/17 Gov't Mot. Ex. 1 at 015 (assessing an "IRC 6707A Penalty" of $100,000.00 for the period ending "12/31/2005"). The January 19, 2012 letter also informed Mr. Barzillai that, if he did not agree "to the assessment and collection of the proposed penalty . . ., [he could] request a conference with [the IRS's] Appeals Office."
9/18/17 Gov't Mot. Ex. 1 at 012-013 (emphasis added).
On March 5, 2012, counsel for Mr. Barzillai sent a letter to an IRS Revenue Agent in California, contesting the assessment and proposed penalty and requesting a conference with the IRS's Illinois Appeals Office. 3/15/17 Compl. ¶ 7; 9/18/17 Gov't Mot. Ex. 1 at 001-010. The March 5, 2012 letter also explained why the Plan was "not subject to the disclosure penalty under . . . [IRC S]ection 6707A" and argued that a penalty should not be assessed against Mr. Barzillai, because the IRS "received notice of [his] participation in [the Plan]."9/18/17 Gov't Mot. Ex. 1 at 004-009. The March 5, 2012 letter added,
9/18/17 Gov't Mot. Ex. 1 at 009 (emphasis added).
On June 6, 2013, a conference was held between Mr. Barzillai
On April 15, 2014, the IRS applied an overpayment credit of $100,875
On November 3, 2014, the IRS notified Mr. Barzillai that it "applied $100,925 of [his] 2013 . . . overpayment[
On November 7, 2014, Mr. Barzillai filed an IRS Form 843, i.e., a "Claim for Refund and Request for Abatement," requesting a refund of $100,925. 3/15/17 Compl. ¶ 9;3/15/17 Compl. Ex. A. Attached to the IRS Form 843 was a statement by Mr. Barzillai explaining that he
3/15/17 Compl. Ex. A.
On July 22, 2015, Mr. Barzillai amended the November 7, 2014 IRS Form 843 to advise the IRS that the penalty was assessed "after the expiration of the statute of limitations permitting such assessment," under 26 U.S.C. § 6501(c)(10).
On June 29, 2016, the IRS notified Mr. Barzillai that his request for a refund was "formally disallowed in full" and advised him that "no further reconsideration [could] be granted." 3/15/17 Compl. ¶ 10; 3/15/17 Compl. Ex. C.
On March 15, 2017, Mr. Barzillai ("Plaintiff") filed a Complaint in the United States Court of Federal Claims. ECF No. 1 ("3/15/17 Compl."). The March 15, 2017 Complaint alleges: (1) that the IRS Commissioner "improper[ly] fail[ed] . . . to rescind the penalty" assessed against Plaintiff under IRC Section 6707A; and (2) that IRC Section 6707A "violates the Due Process Clause of the Fifth Amendment," because IRC Section 6707A(d)(2) does not afford judicial review of an IRS Commissioner's determination not to rescind a penalty. 3/15/17 Compl. ¶¶ 12-13. Therefore, "[t]he assessment made by the IRS against [Plaintiff] . . . is invalid and the amount seized from [Plaintiff] should be refunded to him, together with interest as provided by law."
On September 18, 2017, the Government filed a Motion to Dismiss, pursuant to Rule of the United States Court of Federal Claims ("RCFC") 12(b)(1). ECF No. 11 ("9/18/17 Gov't Mot."). 3/15/17 Compl. ¶ 14.
On December 13, 2017, Plaintiff filed a Response In Opposition To The Government's Motion To Dismiss.
On January 26, 2018, the Government filed a Reply In Support Of Its Motion To Dismiss. ECF No. 20 ("1/26/18 Gov't Reply").
The Government argues that, because "Plaintiff invokes the Tucker Act . . . as the source of the [c]ourt's jurisdiction to entertain this action," Plaintiff "must identify a `money-mandating' source of substantive law that creates the right to money damages[.]" 9/18/17 Gov't Mot. at 15 (citing Fisher v. United States, 402 F.3d 1167, 1172 (Fed. Cir. 2005) (en banc) ("The Tucker Act itself does not create a substantive cause of action; in order to come within the jurisdictional reach and the waiver of the Tucker Act, a plaintiff must identify a separate source of substantive law that creates the right to money damages."). The Due Process Clause of the Fifth Amendment, however, "is not money-mandating." 9/18/17 Gov't Mot. at 15 (citing Collins v. United States, 67 F.3d 284, 288 (Fed. Cir. 1995) ("the due process clause does not obligate the government to pay money damages")). Therefore, "to the extent [P]laintiff claims that the [G]overnment violated [Plaintiff's] Fifth Amendment due process rights, the [c]ourt lacks jurisdiction to entertain that claim." 9/18/17 Gov't Mot. at 15.
In addition, "[t]he United States is immune from suit unless it has specifically waived sovereign immunity." 9/18/17 Gov't Mot. at 16 (citing United States v. Testan, 424 U.S. 392, 399 (1976) ("It long has been established, of course, that the United States, as sovereign, is immune from suit save as it consents to be sued and the terms of its consent to be sued in any court define that court's jurisdiction to entertain the suit.")). Although the Tucker Act is one such waiver of sovereign immunity, "Congress can displace Tucker Act jurisdiction over a claim by enacting a statute that contains its own self-executing remedial scheme." 9/18/17 Gov't Mot. at 16-17 (citing United States v. Bormes, 568 U.S. 6, 12 (2012) ("The Tucker Act is displaced . . . when a law assertedly imposing monetary liability on the United States contains its own judicial remedies. In that event, the specific remedial scheme establishes the exclusive framework for the liability Congress created under the statute.")). In this case, Plaintiff "asks the [c]ourt to find that the IRS violated the Due Process [C]lause when it `improperly refused' [P]laintiff's alleged rescission request under [IRC Section] 6707A(d)(1)," but "Congress has specifically expressed its intent to foreclose judicial review of that determination." 9/18/17 Gov't Mot. at 17 (citing 26 U.S.C. § 6707A(d)(2) ("Notwithstanding any other provision of law, any determination under this subsection may not be reviewed in any judicial proceeding.")). Therefore, "[t]o the extent [P]laintiff challenges any alleged determination under [IRC Section] 6707A(d)(1), . . . this [c]ourt does not have jurisdiction to entertain that claim." 9/18/17 Gov't Mot. at 17.
In the alternative, the Government argues that Plaintiff lacks standing "to bring his due process claim[,] because the provision that [P]laintiff challenges—[IRC Section] 6707A(d)(2)— was never, in fact, applied to him." 9/18/17 Gov't Mot. at 9. "To establish that an injury is fairly traceable to a challenged statute, [however, P]laintiff must establish that the statute was actually applied to him." 9/18/17 Gov't Mot. at 10 (citing Davis v. Scherer, 468 U.S. 183, 189 n.7 (1984) (observing, where a "statute was never applied to [an] appellee, he lacks standing to question its constitutionality"); New York Civil Serv. Comm'n v. Snead, 425 U.S. 457, 458 (1976) (per curiam) (holding that, because "appellee's claim . . . amount[ed] to a request for a determination of the constitutionality of a statute which, . . . ha[d] never in fact been properly applied . . . to her[,] . . . she ha[d] no standing to assert such a challenge"); see also Riggsbee v. Bell, 787 F.2d 1564, 1569 (Fed. Cir. 1986) (holding that appellant "was not injured by, and therefore ha[d] no standing to challenge" the Secretary of Education's instruction to remove a form provision permitting students to apply solely for a Pell Grant without a processing charge, because appellant applied for both campus-based aid and a Pell Grant)).
In this case, "[n]either [IRC Section] 6707A(d)(1) or (2) were . . . applied to [P]laintiff[,] because [P]laintiff never requested that the IRS rescind the penalty[.]" 9/18/17 Gov't Mot. at 12. Moreover, "even if [P]laintiff had filed a request for the IRS to rescind the penalty[,] . . . the IRS . . . could not have acted on his request," because Plaintiff "was assessed a penalty based on his failure to report participation in a listed transaction," but IRC Section 6707A(d)(1) "does not apply to penalties relating to . . . listed transactions." 9/18/17 Gov't Mot. at 14 (emphasis in original). In addition, "[IRC Section] 6707A(d)(2)—which proscribes judicial review of any IRS determination made under [IRC Section] 6707A(d)(1)—correspondingly does not apply to listed transactions." 9/18/17 Gov't Mot. at 14. Therefore, Plaintiff "cannot establish that his alleged injury of having to pay the penalty would be redressed if the [c]ourt were to invalidate the rescission provisions." 9/18/17 Gov't Mot. at 14.
Plaintiff responds that "[t]his [c]ourt's jurisdiction to hear this case is granted under the Tucker Act because [IRC Section] 6707A is a money-mandating statute." 12/13/17 Pl. Resp. at 5. This is so, because the United States Court of Federal Claims has "long held that `a claim to recover an illegal exaction made by officials of the Government, . . . based upon a power supposedly conferred by statute' can be heard in this [c]ourt." 12/13/17 Pl. Resp. at 6 (quoting Clapp v. United States, 117 F.Supp. 576, 580 (Ct. Cl. 1954), cert denied, 348 U.S. 834 (1954)). Moreover, IRC Section 6707A(d)(2)'s prohibition against judicial review does not supplant this court's jurisdiction, because "[i]f a provision of the [IRC] violates due process, an assessment made pursuant to that provision is invalid and cannot preclude the [c]ourt's jurisdiction." 12/13/17 Pl. Resp. at 6. Therefore, because "[P]laintiff's money was seized pursuant to a money-mandating statute and the statute that prevents review of the IRS's discretionary rescission authority violates the Fifth Amendment of the United States Constitution, this [c]ourt has subject matter jurisdiction necessary to review this case." 12/13/17 Pl. Resp. at 6-7.
In addition, Plaintiff argues that he has standing "to challenge the denial of his claim for refund and abatement of the penalty at issue[,] because . . . [P]laintiff asked for rescission and the IRS denied his request." 12/13/17 Pl. Resp. at 3. Plaintiff adds that, although the Government "attempts to circumvent this factual issue by . . . asserting that . . . [P]laintiff failed to follow the procedures for requesting rescission," that argument is without merit, because "those procedures were not applicable to . . . [P]laintiff." 12/13/17 Pl. Resp. at 4. Further, the Government's argument that Plaintiff's "injury was not caused by the denial of rescission by the IRS" is also without merit, because it "ignores the fact that it was the IRS determination in the first place identifying the participation in the . . . [P]lan as a listed transaction that triggered the statutory provision denying a right to rescission." 12/13/17 Pl. Resp. at 4-5. Therefore, Plaintiff's injury "directly resulted from the denial of rescission under [IRC Section] 6707A(d)(1)." 12/13/17 Pl. Resp. at 5.
The Government replies that although "Plaintiff concedes that the Due Process Clause is not money-mandating," he "incorrectly asserts that [IRC Section] 6707A is itself money-mandating." 1/26/18 Gov't Reply at 7 (citing 12/13/17 Pl. Resp. at 5-6). In addition, Plaintiff's reliance on Clapp is misplaced, because it "does not stand for the proposition for which [P]laintiff cites it, and, in any event, [P]laintiff has failed to state an illegal exaction claim." 1/26/18 Gov't Reply at 7. In this case, "unlike in Clapp, [P]laintiff does not allege that a misapplication of the statute caused the `exaction'; rather, he challenges the lack of judicial review in a separate rescission provision. [That is], the statute that [P]laintiff challenges—i.e., [IRC Section] 6707A(d)(2)—did not cause the `exaction' from which [P]laintiff seeks relief." 1/26/18 Gov't Reply at 7-8. Therefore, Plaintiff "fails to state an illegal exaction claim." 1/26/18 Gov't Reply at 8.
In addition, Plaintiff's argument that IRC Section 6707A(d)(2) violates the Due Process Clause of the Fifth Amendment is without merit, because "the preclusion of judicial review does not prohibit taxpayers from challenging the imposition of an [IRC Section] 6707A penalty in a court of law. Rather, it only precludes judicial review of any rescission determination, as the legislative history of [IRC Section] 6707A confirms." 1/26/18 Gov't Reply at 9 (emphasis in original). "In short, [P]laintiff's due process claim complains that [P]laintiff was deprived of a judicial remedy that the statute does not preclude." 1/26/18 Gov't Reply at 9.
The Government adds that, "[e]ven if [Plaintiff] asked for rescission during his administrative appeal, [P]laintiff still lacks standing to challenge [IRC Section] 6707A(d)(2) . . . [,] because [P]laintiff was never assessed a penalty to which that statute applies." 1/26/18 Gov't Reply at 5. Instead, "Plaintiff was assessed a $100,000 listed . . . transaction penalty[.]" 1/26/18 Gov't Reply at 5 (emphasis in original). But, "[r]escission is not available for this type of penalty." 1/26/18 Gov't Reply at 5 (citing 26 U.S.C. § 6707A(d)(1)(A)). "Rather, it is only available for the lesser $10,000 non-listed . . . transaction penalty . . . which [P]laintiff was never assessed." 1/26/18 Gov't Reply at 5 (emphasis in original) (citing 26 U.S.C. § 6707A(d)(1)(A)). Therefore, Plaintiff does not have standing to challenge IRC Section 6707A(d)(2). 1/26/18 Gov't Reply at 5-6.
Finally, "[P]laintiff's real grievance is that [IRC Section] 6707A(d)(1) does not permit equitable rescission of the $100,000 listed . . . transaction penalty . . . which [P]laintiff was assessed." 1/26/18 Gov't Reply at 6 (emphasis in original). Therefore Plaintiff's remedy lies with Congress, "not with the [c]ourt." 1/26/18 Gov't Reply at 6. Plaintiff also "incorrectly complains that the listed-transaction penalty is not judicially reviewable." 1/26/18 Gov't Reply at 6. As already discussed, however, IRC Section 6707A(d)(2)'s prohibition against judicial review "does not apply to the imposition of any penalty. Rather, it applies only to a rescission determination." 1/26/18 Gov't Reply at 6-7.
The United States Court of Federal Claims has jurisdiction under the Tucker Act, 28 U.S.C. § 1491, to adjudicate "any claim against the United States founded either upon the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort." 28 U.S.C. § 1491(a)(1). The Tucker Act, however, is "a jurisdictional statute; it does not create any substantive right enforceable against the United States for money damages . . . . [T]he Act merely confers jurisdiction upon [the United States Court of Federal Claims] whenever the substantive right exists." Testan, 424 U.S. at 398.
To pursue a substantive right under the Tucker Act, a plaintiff must identify and plead an independent contractual relationship, Constitutional provision, federal statute, and/or executive agency regulation that provides a substantive right to money damages. See Todd v. United States, 386 F.3d 1091, 1094 (Fed. Cir. 2004) ("[J]urisdiction under the Tucker Act requires the litigant to identify a substantive right for money damages against the United States separate from the Tucker Act[.]"). Specifically, a plaintiff must demonstrate that the source of substantive law upon which he relies "can fairly be interpreted as mandating compensation by the Federal Government." United States v. Mitchell, 463 U.S. 206, 216 (1983) (quoting Testan, 424 U.S. at 400).
The United States Court of Federal Claims has jurisdiction to entertain tax refund claims under the Tucker Act. See Hinck v. United States, 64 Fed. Cl. 71, 74-76 (Fed. Cl. 2005) (explaining that the court's tax refund jurisdiction is derived from the Tucker Act), aff'd, 446 F.3d 1307 (Fed. Cir. 2006), aff'd, 550 U.S. 501 (2007). The jurisdictional requirements for maintaining a tax refund suit in the United States Court of Federal Claims are the same as the requirements for maintaining a tax refund suit in a United States district court, i.e., filing an administrative claim for refund before filing a tax refund claim in the United States Court of Federal Claims. See United States v. Clintwood Elkhorn Min. Co., 553 U.S. 1, 4 (2008) ("A taxpayer seeking a refund of taxes erroneously or unlawfully assessed or collected may bring an action against the Government either in United States district court or in the United States Court of Federal Claims. The [IRC] specifies that before doing so, the taxpayer must comply with the tax refund scheme established in the [IRC]. That scheme provides that a claim for a refund must be filed with the [IRS] before suit can be brought, and establishes strict timeframes for filing such a claim." (emphasis added) (citations omitted)); see also id. (holding that "the plain language of 26 U.S.C. §§ 7422(a)[
The March 15, 2017 Complaint alleges that the IRS Commissioner "improper[ly] fail[ed] . . . to rescind the penalty" assessed against Plaintiff under IRC Section 6707A. 3/15/17 Compl. ¶ 12. The IRS Commissioner's authority to rescind penalties assessed under IRC Section 6707A is set forth in IRC Section 6707A(d)(1).
IRC Section 6707A(d)(1) provides that a taxpayer, against whom a penalty is assessed under IRC Section 6707A, may request the IRS Commissioner to rescind "all or any portion" of that penalty, if it is "with respect to a reportable transaction other than a listed transaction." 26 U.S.C. § 6707A(d)(1). An IRS Commissioner's determination under IRC Section 6707A(d)(1) is discretionary. See 26 U.S.C. § 6707A(d)(1) (providing that the IRS Commissioner "may rescind all or any portion of any penalty imposed by this section" (emphasis added)); see also Bitter v. Comm'r of Internal Revenue, No. 10462-15L, 2017 WL 1050570, at *5 n.7 (T.C. Mar. 20, 2017) ("[IRC] Sec[TION] 6707A(d) gives the IRS discretionary authority to `rescind all or any portion of' a penalty, but only if `the violation is with respect to a reportable transaction other than a listed transaction.'").
The United States Supreme Court has held that "statutory schemes with their own remedial framework exclude alternative relief under the general terms of the Tucker Act." Bormes, 568 U.S. at 14; see also id. at 12 ("We have long recognized that an additional remedy in the Court of Claims is foreclosed when it contradicts the limits of a precise remedial scheme."); id. ("The Tucker Act is displaced . . . when a law assertedly imposing monetary liability on the United States contains its own judicial remedies. In that event, the specific remedial scheme establishes the exclusive framework for the liability Congress created under the statute."). Congress established such a "remedial framework" in IRC Section 6707A(d) for requesting rescission of penalties assessed under IRC Section 6707A. See 26 U.S.C. § 6707A(d). Importantly, IRC Section 6707A(d)(2) specifies that "[n]otwithstanding any other provision of law, any determination under [IRC Section 6707A(d)(1)] may not be reviewed in any judicial proceeding." 26 U.S.C. § 6707A(d)(2) (emphasis added); see also Smith, 133 T.C. at 428 ("A determination by the [IRS] Commissioner regarding the rescission of a penalty may not be reviewed in any judicial proceeding."); 14A HERTSEL SHADIAN, MERTENS LAW OF FED. INCOME TAXATION § 55:99 (2018), Westlaw ("Any determination on the rescinding of any penalty may not be appealed in any judicial proceeding.").
For these reasons, the court has determined that it does not have jurisdiction to adjudicate those portions of ¶ 12 of the March 15, 2017 Complaint challenging the IRS Commissioner's alleged determination not to rescind the penalty assessed against Plaintiff under IRC Section 6707A. Accordingly, this claim must be dismissed, pursuant to RCFC 12(b)(1).
The March 15, 2017 Complaint also alleges that IRC Section 6707A "violates the Due Process Clause of the Fifth Amendment," because IRC Section 6707A(d)(2) does not afford judicial review of an IRS Commissioner's determination not to rescind a penalty. 3/15/17 Compl. ¶¶ 12-14. The United States Court of Federal Claims, however, does not have jurisdiction over due process claims under the Tucker Act. See Norman v. United States, 429 F.3d 1081, 1095 (Fed. Cir. 2005) ("The Court of Federal Claims ordinarily lacks jurisdiction over due process claims under the Tucker Act[.]"). But, when ¶¶ 12-14 of the March 15, 2017 Complaint are read in a light most favorable to Plaintiff, they could be construed as alleging an "illegal exaction" claim, i.e., the IRS "improperly collected [and] withheld" Plaintiff's property, pursuant to an "unconstitutional" statute.
In this case, any "illegal exaction" claim must be based on the IRS's "statutory power" to impose penalties for failing properly to report a reportable transaction under IRC Section 6707A(a). See 26 U.S.C. § 6707A(a) ("Any person who fails to include on any return or statement any information with respect to a reportable transaction which is required . . . shall pay a penalty[.]"); see also Aerolineas Argentinas v. United States, 77 F.3d 1564, 1573 (Fed. Cir. 1996) ("The Tucker Act provides jurisdiction to recover an illegal exaction by government officials when the exaction is based on an asserted statutory power."); Norman, 429 F.3d at 1095. Although IRC Section 6707A does not expressly provide for the "return of money unlawfully exacted," the text and legislative history of IRC Section 6707A evidence that a return of money necessarily is implied where a penalty is improper. See H.R. Rep. No. 108-548 (Part 1), at 262 n.233 (2004) (explaining that IRC Section 6707A(d)(2) does not "limit the ability of a taxpayer to challenge whether a penalty is appropriate (e.g., a taxpayer may litigate the issue of whether a transaction is a reportable transaction (and thus subject to the penalty if not disclosed) or not a reportable transaction (and thus not subject to the penalty))"); see also Norman, 429 F.3d at 1095 (quoting Cyprus Amax Coal Co. v. United States, 205 F.3d 1369, 1373 (Fed. Cir. 2000)) ("To invoke Tucker Act jurisdiction over an illegal exaction claim, a claimant must demonstrate that the statute or provision causing the exaction itself provides, either expressly or by `necessary implication,' that `the remedy for its violation entails a return of money unlawfully exacted.'").
The court's "jurisdiction over illegal exaction claims, however, is subject to the administrative refund scheme that Congress established in the [IRC]." Strategic Housing Finance Corp. of Travis County v. United States, 608 F.3d 1317, 1324 (Fed. Cir. 2010); see also id. (holding that "a party seeking to recover any internal-revenue tax, penalty, or sum from the United States must pursue and exhaust its administrative remedies pursuant to the IRS's regulations prior to filing a complaint in federal court"). In this case, on November 7, 2014, only four days after the IRS notified Plaintiff that it "applied $100,925 of [his] 2013 . . . overpayment to the amount [he] owe[d] for [the penalty]," Plaintiff filed an IRS Form 843, requesting a refund in that amount. 3/15/17 Compl. ¶ 9; 3/15/17 Compl. Ex. A. On June 29, 2016, the IRS notified Plaintiff that the request for a refund was "formally disallowed in full" and advised him that "no further reconsideration [could] be granted." 3/15/17 Compl. ¶ 10; 3/15/17 Compl. Ex. C (emphasis added). Therefore, Plaintiff properly exhausted all administrative remedies available under the IRS's regulations to seek a refund of the penalty assessed under IRC Section 6707A, prior to timely filing the March 15, 2017 Complaint. See 26 U.S.C. §§ 6511(a), 6532(a)(1), 7422(a); see also Strategic Housing Finance Corp., 608 F.3d at 1324 (holding that "a party seeking to recover any internal-revenue tax, penalty, or sum from the United States must pursue and exhaust its administrative remedies pursuant to the IRS's regulations prior to filing a complaint in federal court").
For these reasons, the court has determined that it has jurisdiction to adjudicate the "illegal exaction" claim alleged in the March 15, 2017 Complaint.
"[S]tanding is a threshold jurisdictional issue." Myers Investigative & Sec. Servs., Inc. v. United States, 275 F.3d 1366, 1369 (Fed. Cir. 2002). The party invoking federal jurisdiction bears the burden of establishing standing. See Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1547 (2016) ("The plaintiff, as the party invoking federal jurisdiction, bears the burden of establishing the[] elements [of standing]."); see also Myers Investigative & Sec. Servs., Inc., 275 F.3d at 1369 (quoting Lujan v. Defs. of Wildlife, 504 U.S. 555, 561 (1992) (same)). To meet this burden at the pleading stage, the complaint must clearly and specifically set forth facts sufficient to satisfy the standing requirements. See Spokeo, Inc., 136 S. Ct. at 1547 ("Where, as here, a case is at the pleading stage, the plaintiff must `clearly . . . allege facts demonstrating' each element."); see also McKinney v. U.S. Dep't of Treasury, 799 F.2d 1544, 1557 (Fed. Cir. 1986) ("The facts alleged in the complaint, taken as true for purposes of a standing analysis, must be sufficient to show that a party has suffered, or is likely to suffer, an injury in fact."); 15-101 MARTIN H. REDISH, MOORE'S FEDERAL PRACTICE § 101.31 (2018), LEXIS ("To meet its burden at the pleading stage, the litigant invoking federal jurisdiction must clearly and specifically set forth facts sufficient to satisfy the standing requirement.").
The standing requirements of Article III of the United States Constitution also apply to the United States Court of Federal Claims. See Anderson v. United States, 344 F.3d 1343, 1350 n.1 (Fed. Cir. 2003) (stating that the United States Court of Federal Claims, "though an Article I court, . . . applies the same standing requirements enforced by other federal courts created under Article III"). Therefore, to establish standing, a plaintiff must show:
Friends of the Earth, Inc. v. Laidlaw Envtl. Servs., Inc., 528 U.S. 167, 180-81 (2000); see also Figueroa v. United States, 466 F.3d 1023, 1029 (Fed. Cir. 2006) ("To establish standing, a plaintiff must show that he suffered an injury-in-fact that is both fairly traceable to the challenged conduct of the defendant and likely redressable by a favorable judicial decision.").
The March 15, 2017 Complaint alleges: (1) that the IRS Commissioner "improper[ly] fail[ed] . . . to rescind the penalty" assessed against Plaintiff under IRC Section 6707A; and (2) that IRC Section 6707A "violates the Due Process Clause of the Fifth Amendment," because IRC Section 6707A(d)(2) does not afford judicial review of an IRS Commissioner's determination not to rescind a penalty. 3/15/17 Compl. ¶¶ 12-13. The IRS Commissioner's authority to rescind penalties assessed under IRC Section 6707A is set forth in IRC Section 6707A(d)(1).
In this case, the IRS assessed a $100,000 penalty against Plaintiff for failing "properly [to] disclose" a "listed" transaction, i.e., the Plan. 9/18/17 Gov't Mot. Ex. 1 at 011, 015. Thereafter, the IRS applied $100,925 of Plaintiff's 2013 tax year overpayment toward the penalty, including interest and other "fees and . . . expenses. "3/15/17 Compl. Ex. A; 9/18/17 Gov't Mot. Ex. 3 at 001-002. As such, the March 15, 2017 Complaint alleges that Plaintiff has suffered an "injury in fact." See Hein v. Freedom From Religion Found., Inc., 551 U.S. 587, 599 (2007) ("Of course, a taxpayer has standing to challenge the collection of a specific tax assessment as unconstitutional; being forced to pay such a tax causes a real and immediate economic injury to the individual taxpayer." (emphasis in original)).
To establish standing, the March 15, 2017 Complaint also must "clearly . . . allege facts demonstrating" that Plaintiff's injury is "fairly traceable to the challenged action of the [Government]." See Spokeo, Inc., 136 S. Ct. at 1547 ("Where, as here, a case is at the pleading stage, the plaintiff must `clearly . . . allege facts demonstrating' each element."); see also Friends of the Earth, Inc., 528 U.S. at 180-81 (holding that, to establish standing, a plaintiff must show that the alleged injury is "fairly traceable to the challenged action of the defendant"). Specifically, the March 15, 2017 Complaint must clearly demonstrate that IRC Sections 6707A(d)(1) and (2) were, in fact, applied to Plaintiff so as to cause his injury. See Davis, 468 U.S. at 189 n.7 (observing, where a "statute was never applied to [an] appellee, he lacks standing to question its constitutionality"); see also New York Civil Serv. Comm'n, 425 U.S. at 458 (holding that, because "appellee's claim . . . amount[ed] to a request for a determination of the constitutionality of a statute which, . . . ha[d] never in fact been properly applied . . . to her[,] . . . she ha[d] no standing to assert such a challenge").
IRC Sections 6707A(d)(1) and (2) only apply to "other than listed" transactions. See 26 U.S.C. § 6707A(d)(1)(A) (providing that the IRS Commissioner "may rescind all or any portion of any penalty . . . with respect to a reportable transaction other than a listed transaction" (emphasis added)). In this case, however, the IRS assessed a penalty against Plaintiff for failing "properly [to] disclose" a "listed" transaction. 9/18/17 Gov't Mot. Ex. 1 at 011, 015. Accordingly, the penalty assessed against Plaintiff was not eligible for rescission under IRC Section 6707A(d)(1). See 26 U.S.C. § 6707A(d)(1) (permitting rescission only of "other than . . . listed transaction" penalties); see also H.R. Rep. No. 108-548 (Part 1), at 262 (2004) ("The penalty cannot be waived with respect to a listed transaction."). As a result, IRC Section 6707A(d)(2), prohibiting judicial review of the an IRS Commissioner's rescission determinations under IRC Section 6707A(d)(1), also does not apply to Plaintiff in this case. In any event, the IRS apparently did not apply IRC Sections 6707A(d)(1) and (2) to Plaintiff. First, Plaintiff never requested rescission of the penalty as required by Revenue Procedure 2007-21,
Finally, since the March 15, 2017 Complaint fails to demonstrate traceability, whether Plaintiff's injury may be "redressed by a favorable decision" in this case is irrelevant and therefore, need not be addressed by the court.
For these reasons, the court has determined that Plaintiff does not have standing to seek an adjudication of the "illegal exaction" claim alleged in the March 15, 2017 Complaint or the others alleged therein.
For these reasons, the Government's September 18, 2017 Motion To Dismiss is granted. The Clerk of the United States Court of Federal Claims is directed to enter judgment accordingly.
REV. PROC. 2007-21 § 4.02.
26 U.S.C. § 6501(c)(10).
26 U.S.C. § 7422(a).
26 U.S.C. § 6511(a).
26 U.S.C. § 6532(a)(1).
Revenue Procedure 2007-21 provides that "[f]urther guidance will be issued providing pre[-]assessment administrative appeal rights to persons against whom the IRS proposes to assess a penalty under [IRC S]ection . . . 6707A." REV. PROC. 2007-21 § 3. Plaintiff's CPA states, however, that no such procedures were "received prior to the penalty assessment on December 30, 2013." 12/13/17 Pl. Resp. Ex. A. Therefore, without "further guidance" from the Secretary as to the filing of pre-assessment rescission requests, a post-assessment rescission request in accordance with Revenue Procedure 2007-21 was the "exclusive method of requesting rescission." REV. PROC. 2007-21 § 4.01. Accordingly, not only was Revenue Procedure 2007-21 applicable to Plaintiff, but his alleged requests, which were not in accordance with the requirements of Revenue Procedure 2007-21, were improper, because they failed to include information required by Revenue Procedure 2007-21 (REV. PROC. 2007-21 § 4.02) and were not sent to the appropriate location (REV. PROC. 2007-21 § 4.08).
