Dewees v. United StatesDewees v. United States
Donald DEWEES, Plaintiff,
v.
UNITED STATES of America, Defendant.
Case No. 16-cv-01579 (CRC)
United States District Court, District of Columbia.
Signed 08/08/2017
Christopher James Williamson, U.S. Department of Justice, Washington, DC, for Defendant.
MEMORANDUM OPINION
CHRISTOPHER R. COOPER, United States District Judge
The arm of the U.S. tax man is long, but in this case it needed extend only over our northern border to find Plaintiff Donald Dewees. Dewees is a U.S. citizen living in Canada, where he operates a consulting business. Because the business is incorporated abroad, Dewees was required to furnish certain annual information about the company to the IRS.
Enter the tax man. After Dewees voluntarily disclosed his failure to file the required informational returns, the IRS assessed a statutory penalty of $120,000, $10,000 for each year of non-compliance. Dewees challenged the penalty before the IRS without success and refused to pay it. But what Dewees likely did not anticipate is that, pursuant to the U.S.-Canada tax treaty, the Canadian tax authority would hold Dewees’ domestic tax refund in abeyance until the IRS penalty was paid in full. After paying the penalty, Dewees filed suit in this Court challenging the relevant treaty provisions as unconstitutional under the Eighth Amendment and both the Due Process and Equal Protection Clauses of the Fifth Amendment. The Government now moves to dismiss. Finding that Dewees has failed to state a claim for relief on his Eighth Amendment and due process claims, and lacks standing to bring his equal protection claim, the Court will grant the Government‘s motion and dismiss the case.
I. Background
U.S. citizens who hold controlling interests in foreign corporations must annually file IRS Form 5471, which discloses certain ownership and financial information about the corporation. In addition, U.S. citizens living abroad must disclose holdings in foreign bank accounts over certain thresholds by filing a Report of Foreign Bank and Financial Accounts (FBAR). See Def.‘s Mot. to Dismiss (MTD) 7; Compl. ¶ 12. In 2009, Dewees learned that he had failed to comply with these requirements,
In September 2011, the IRS notified Dewees that it had assessed a different penalty of $120,000 against him for failing to file Form 5471 from 1997 to 2008. See id. ¶¶ 1, 29.
Well after Dewees’ appeal had been rejected, the IRS introduced another program to encourage taxpayers to voluntarily disclose offshore assets—the Streamlined Filing Compliance Procedures (SFCP). The SFCP differs from the OVDP in several respects: The SFCP involves less paperwork and imposes lower penalties than the OVDP, but only covers three years of non-compliance as opposed to the OVDP‘s eight-year coverage period. See Def.‘s MTD 3-4; Compl. ¶ 50; Maze v. IRS, 862 F.3d 1087, 1089 (D.C. Cir. 2017) (Maze II). And, unlike the OVDP, the SFCP does not offer immunity from criminal prosecution. See id. at 1092 n.2. Transferring between the two programs is generally disfavored, but taxpayers who are otherwise eligible for the SFCP and made their OVDP submissions before July 1, 2014, may remain in the OVDP while requesting the more favorable terms available under the SFCP. See Maze I, 206 F. Supp. 3d at 7-8.
In May 2015, the Canadian Revenue Agency notified Dewees that it was holding his Canadian tax refund in abeyance due to his outstanding $120,000 debt to the IRS. See Compl. ¶ 37. This international collection assistance is permitted by Article XXVI(A) of the United States-Canada Income Tax Convention. See Def.‘s MTD 9-10; Compl. ¶ 37. Dewees promptly sent the Canadian Revenue Agency a check for $134,116.34, representing the $120,000 penalty plus interest. See Compl. ¶ 38. In September 2015, he filed a claim seeking a refund of that amount, which was rejected in May 2016. See Compl. ¶ 5. He then brought this action, requesting that the Court find the collection assistance provisions of the United States-Canada Tax Convention unconstitutional for violating
II. Standards of Review
The Government moves to dismiss for failure to state a claim upon which relief can be granted with respect to all three of Dewees’ claims. See Def.‘s MTD 1. Alternatively, it asks that Dewees’ equal protection claim be dismissed for lack of subject matter jurisdiction. See id. at 18. Under
To survive a
III. Analysis
A. Excessive Fines Claim
Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.
Tax penalties, by contrast, having been held to fulfill a remedial purpose are therefore not subject to the Excessive Fines Clause. The Supreme Court first articulated this principle almost 80 years ago in Helvering v. Mitchell, 303 U.S. 391 (1938), reasoning that tax penalties are remedial because they exist as a safeguard for the protection
Dewees nonetheless attempts to scale this insurmountable wall of precedent by arguing that a smaller penalty would have achieved the same objective of making the Government whole. See Pl.‘s Opp‘n 3. But that is beside the point. Congress authorized a $10,000 penalty for every instance of non-compliance because it recognized the expenses and loss that could result if U.S. taxpayers no longer felt obligated to disclose their foreign assets. The IRS strictly applied that statutorily authorized amount across Dewees’ twelve years of non-compliance, resulting in a total penalty of $120,000—an amount designed to mitigate the harm suffered by the Government. Because Congress authorized this penalty for a legitimate remedial purpose, Dewees’ Eighth Amendment claim fails.
B. Due Process Claim
Dewees likewise fails to establish a due process violation because he has been afforded an adequate opportunity to be heard at a meaningful time and in a meaningful manner. Mathews v. Eldridge, 424 U.S. 319, 333 (1976) (quoting Armstrong v. Manzo, 380 U.S. 545, 552 (1965)). Courts judge procedural due process challenges to property deprivations by weighing (1) the private interest that will be affected by the official action; (2) the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and (3) the Government‘s interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail. Id. at 335.
Mere postponement of an opportunity to challenge the imposition of a tax penalty is not a denial of due process, if the opportunity given for the ultimate judicial determination of the liability is adequate. Phillips v. Comm‘r of Internal Revenue, 283 U.S. 589, 596-97 (1931). Such delays are an inevitable consequence of disputes between taxpayers and the IRS, and are not unconstitutional. Bob Jones Univ. v. Simon, 416 U.S. 725, 747 (1974). Federal district courts
Dewees claims that he was denied adequate due process because he had no opportunity to appeal his penalty through administrative means or the U.S. Tax Court before it was collected. Compl. ¶ 67. But the absence of Dewees’ requested avenue of relief does not mean his due process rights have been violated. The ability to challenge tax penalties in district courts under
C. Equal Protection Claim
Finally, the Government moves to dismiss Dewees’ equal protection claim for lack of subject matter jurisdiction and failure to state a claim upon which relief can be granted. See Def.‘s MTD 18. The Court must start with the jurisdictional issue. In order to have standing to litigate a claim in federal court, a plaintiff must establish an injury in fact, which is traceable to the defendant, and which is likely to be redressed by prevailing in court. Lujan, 504 U.S. at 560-61. A sufficient injury in fact is concrete and particularized, and actual or imminent as opposed to merely hypothetical. Id. at 560. It is the plaintiff‘s burden to demonstrate that his claim satisfies all of these elements. Id. at 561. In considering a motion to dismiss for lack of standing, the Court must assume the truth of the plaintiff‘s factual allegations but not his legal conclusions, which must be supported by more than mere conclusory statements. Williams v. Lew, 819 F.3d 466, 472 (D.C. Cir. 2016) (quoting Iqbal, 556 U.S. at 663).
Dewees bases his equal protection claim on the contention that he was not allowed to participate in the SFCP while other similarly situated taxpayers were, and thus he was denied the opportunity to have a lower penalty imposed. See Compl. ¶¶ 52-53. This argument suffers from a fatal flaw because, as the Government points out, Dewees has not pled that he sought entrance into the SFCP or that his application was denied. See Def.‘s MTD 18. And because Dewees has not shown (or attempted to show) that the IRS ever denied him the opportunity to participate in the SFCP, he cannot establish that he suffered an actual injury. By failing to show that he was injured, Dewees lacks standing and this Court lacks jurisdiction to hear his claim.1
For the reasons discussed above, the Court finds that Dewees has failed to state a viable claim with respect to his excessive fines and due process claims, and that it lacks subject matter jurisdiction over Dewees’ equal protection claim. Accordingly, it will grant the Government‘s motion to dismiss. A separate Order accompanies this Memorandum Opinion.
CHRISTOPHER R. COOPER
United States District Judge