SHIPPENSBURG URBAN DEVELOPERS v. United States, 510 F.Supp.3d 284

Plaintiffs Shippensburg Urban Developers and Trinity Housing are Pennsylvania corporations that the IRS treated as alter-egos of taxpayer Troy A. Beam.
The IRS filed Notices of Federal Tax Lien in June 2019 and served Notices of Levy on counsel’s escrow account (holding plaintiffs’ funds) on September 26, 2019.
Plaintiffs filed suits to quiet title and for wrongful levy in October 2019 challenging the alter-ego determination and seeking return of levied funds and damages.
Plaintiffs filed administrative damage claims with the IRS on October 19, 2020 and, two days later (October 21, 2020), moved to amend their complaints to add claims under 26 U.S.C. § 7426(h) and § 7433.
The government opposed amendment as futile, asserting sovereign immunity/exhaustion defects for § 7426(h) and that § 7433 relief is available only to the taxpayer whose tax is being collected.
The court denied leave to amend as futile: § 7426(h) claims were barred for failure to exhaust administrative remedies per § 7433(d) and Treasury regulations; § 7433 claims were barred because plaintiffs are not the taxpayer targeted by collection.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether plaintiffs may add a § 7426(h) damages claim despite having just filed IRS administrative claims	Hassen permits district-court action to proceed and damages can be withheld until administrative exhaustion	Plaintiffs failed to exhaust administrative remedies required by § 7433(d) and Treasury regs, so sovereign immunity is not waived	Amendment futile; exhaustion is mandatory for § 7426(h) damages claims and plaintiffs filed too early (2 days after administrative claims)
Whether plaintiffs may add a § 7433 claim for wrongful collection when IRS sought to collect Beam’s taxes	Plaintiffs contend they were harmed by levy and may seek relief	§ 7433 provides a remedy only to the taxpayer whose tax is being collected (the direct target)	Amendment futile; plaintiffs are not the taxpayer targeted by the collection, so they cannot bring § 7433 claims
Whether judicial estoppel prevents the government from asserting exhaustion/regs here	Plaintiffs point to prior government positions (e.g., Politte) and urge estoppel	Government’s earlier positions are not irreconcilably inconsistent or relied on by plaintiffs to their detriment	Judicial estoppel not applicable; no clear, irreconcilable inconsistency shown

United States v. Dalm, 494 U.S. 596 (1990) (sovereign immunity principle: United States immune from suit except by unequivocal waiver)
Lane v. Pena, 518 U.S. 187 (1996) (waiver of federal sovereign immunity must be unequivocal and is strictly construed)
EC Term of Years Trust v. United States, 550 U.S. 429 (2007) (describing § 7426 as remedy for party whose property is confiscated to satisfy another’s tax)
Hassen v. Gov't of the Virgin Islands, 861 F.3d 108 (3d Cir. 2017) (exhaustion under § 7433(d) is mandatory though nonjurisdictional; treated as affirmative defense)
Venen v. United States, 38 F.3d 100 (3d Cir. 1994) (Treasury regulations specify administrative remedies to exhaust)
Fowler v. UPMC Shadyside, 578 F.3d 203 (3d Cir. 2009) (standard for plausibility on motion to dismiss governing futility analysis)
Gray v. United States, 723 F.3d 795 (7th Cir. 2013) (exhaustion is statutory requirement and condition to government’s waiver under § 7433(d))
Allied/Royal Parking L.P. v. United States, 166 F.3d 1000 (9th Cir. 1999) (§ 7433 applies only to the individual against whom the IRS is trying to collect)
Kanter v. Barella, 489 F.3d 170 (3d Cir. 2007) (futility alone is sufficient ground to deny leave to amend)
Foman v. Davis, 371 U.S. 178 (1962) (factors guiding leave to amend under Rule 15)