United States District Court, N.D. California
ORDER DENYING MOTION TO DISMISS AND VACATING OCTOBER
25, 2019 MOTION HEARING RE: DKT. NO. 11
C. SPERO CHIEF MAGISTRATE JUDGE.
Susanna Chenette brings this action against Defendant the
United States seeking a tax refund pursuant to 26 U.S.C.
§ 7422. The United States does not dispute that Chenette
overpaid her taxes. Nonetheless, it brings a Motion to
Dismiss (“Motion”) in which it seeks dismissal of
the Complaint on the basis that the claim that Plaintiff
filed with the Internal Revenue Service was untimely and
therefore there is no subject matter jurisdiction over this
action. The Court finds that the Motion is suitable for
determination without oral argument and therefore
vacates the motion hearing scheduled for October 25,
2019 at 9:30 a.m. The Case Management Conference set for the
same date will remain on calendar but will be conducted at
2:00 p.m. rather than 9:30 a.m. as originally
scheduled. For the reasons stated below, the Motion
Allegations in Complaint
claim for a tax refund in this case relates to taxes she paid
in connection with sales of stock in 2012. Complaint
¶¶ 18-21. In particular, she alleges that she sold
some stock that had been given to her by her grandfather and
that when she did so, she took a loss on many of the shares.
Id. ¶ 18. She alleges that she kept a detailed
spreadsheet listing “the stock certificate numbers, her
exact bases in all the shares, details of all splits, some
price history, and gifting dates for all of the stock
sold.” Id. & Ex. 6 (Stock Spreadsheet).
She also kept “detailed personal accountings and
updated her spreadsheet to identify which stock she sold at
the time she filed her taxes.” Id. ¶ 21.
Chenette alleges that she reported the loss she took and the
stock sale to the IRS properly in her 2012 tax return.
Id. ¶ 22.
alleges that in September 2014, she received a letter from
the IRS (“the September 2014 Letter”) accusing
her of underreporting income for the tax period that ended in
2012 and demanding payment in the amount of $24, 384.00,
which included almost $5, 000 in penalties. Id.
¶¶ 2, 22. According to the Complaint, the September
2014 Letter did not actually make changes to Chenette's
account but merely proposed the additional assessment.
Id. ¶ 23. The allegedly underreported taxes
were not formally assessed until December 8, 2014. Complaint
¶ 2. With interest, the assessment was $18, 000.21.
Id.; see also Complaint, Ex. 1 (IRS Account
Transcript for Chenette for tax period ending December 31,
2012 (“IRS Account”), showing that on December 8,
2014 Chenette was assessed $17, 219 in additional taxes and
late payment interest in the amount of $781.21
(“December 8 Assessment”)).
meantime, on October 14, 2014, Chenette responded to the
September 2014 Letter informing her of the proposed
assessment with a letter to the IRS (“October 2014
Letter”) in which she “politely and respectfully
explain[ed] her tax calculations, complete with detailed
spreadsheets and equations.” Complaint ¶ 24 &
Ex. 3 (October 2014 Letter); see also United
States' Motion to Dismiss at 2 (stating that
Chenette's October 2014 Letter “provide[d] a
detailed explanation as to why Ms. Chenette did not agree
with the proposed additions to her federal income tax
liability”). Chenette signed the October 2014 Letter
under penalty of perjury. Complaint, Ex. 3. Chenette further
alleges that “[b]ecause of the threatening nature of
the large sum of money the IRS was seeking in its September
2014 Letter, including penalties and interest, [she] also
submitted a sum of money ($19, 445.00) to stop the accrual of
fines, interest, or penalties.” Id. ¶ 25.
Chenette states in the October 2014 Letter that her check
remitting this amount was enclosed with the letter.
Complaint, Ex. 3. An entry dated October 14, 2014 on
Chenette's IRS Account describes this sum as
“[a]dvance payment of tax owed” and it is
reflected as a credit of $19, 445. Id. ¶ 26
& Ex. 1. On December 8, 2014 the IRS used the credit to
satisfy the December 8 Assessment. Id. ¶ 3.
alleges that on December 22, 2014 the IRS “internally
reviewed [the] additional assessment and confirmed the
IRS's position.” Id. ¶ 29 & Ex.
1. On the same date, the IRS issued a refund in the amount of
$1, 450.68 on Chenette's advance payment. Id.
¶ 30. Chenette alleges that in January 2015 she received
a notice that the IRS had “processed her October 2014
letter and adjusted her tax liability[, ]” resulting in
the $1, 450.68 refund she had been sent on December 22, 2014.
Id. ¶ 30 & Ex. 1. According to Chenette,
this was the first time she was given notice that the IRS had
increased her tax liability for 2012. Id. ¶ 31.
Chenette alleges, she continued to challenge the IRS's
calculation of her 2012 tax liability. Id. ¶
33. She alleges that “[a]lthough she had no new
information to provide, [she] decided to submit the
information in a different form.” Id. In
particular, “as the two-year statute of limitations to
request a refund of her overpayment approached, Ms. Chenette
decided to file an amended return for 2012.”
Id. ¶ 34. She alleges she filed a 1040x for
2012 on November 11, 2016. Id. ¶ 35. She
further alleges that as an attachment to this filing she
“submitted the same information she submitted
in her October 2014 Letter explaining her bases calculations
and providing the Stock Spreadsheet.” Id.
(emphasis in Complaint) & Exhibit 2. In February 2017,
the IRS requested additional information in response to
Chenette's 1040x, asking her to complete Form 8949.
Id. ¶ 36. Chenette completed the form and
returned it to the IRS around February 27, 2017. Id.
¶ 37. Form 8949 is a “formal spreadsheet”
that contained the same information Chenette had provided in
her October 2014 Letter and her 1040x. Id.
12, 2017, the IRS notified Chenette that it had decreased her
tax liability and that the IRS owed her a refund of $18,
000.12. Id. ¶ 38 & Ex. 4 (June 12, 2017
notice). However, Chenette never received a refund, despite
formal protests and repeated attempts to obtain the refund.
Id. ¶¶ 41-61. Rather, the IRS refused to
issue the refund and ultimately told Chenette after almost
two years of failing to respond to her requests that her
November 2016 claim for a refund was untimely under 26 U.S.C.
§ 6511(a) and 26 U.S.C. § 7422(d). Id.
Complaint, filed on May 30, 2019, Chenette asserts a claim
for a refund pursuant to 26 U.S.C. § 7422.
Statutory Framework Governing Claims for a Tax
the Tax Code, a civil action for a tax refund may not be
brought until the taxpayer has filed an administrative claim
with the Internal Revenue Service (“IRS”).
See 26 U.S.C. § 7422(a) (no civil action for
tax refund may be maintained “until a claim for refund
or credit has been duly filed with the Secretary, according
to the provisions of law in that regard, and the regulations
of the Secretary established in pursuance thereof.”).
Further, in order for the civil action to be considered
timely, the administrative claim must have been filed with
the IRS within the time period allowed for administrative
claims. Omohundro v. United States, 300 F.3d 1065,
1067 (9th Cir. 2002) (“A taxpayer's failure to file
an administrative claim within the time periods imposed by
statute divests the district court of jurisdiction over an
action for a refund or credit”). That time period is
set forth in 26 U.S.C. § 6511(a), which provides that