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Chenette v. United States

United States District Court, N.D. California

October 16, 2019





         Plaintiff 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 is DENIED.[1]


         A. Allegations in Complaint

         Chenette's 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.

         Chenette 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”)).

         In the 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.

         Chenette 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.

         Subsequently, 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.

         On June 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. ¶ 58.

         In her Complaint, filed on May 30, 2019, Chenette asserts a claim for a refund pursuant to 26 U.S.C. § 7422.

         B. Statutory Framework Governing Claims for a Tax Refund

         Under 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 the ...

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