Grant v. United States

2003 WL 23847195 (S.D.Fla.)

For opinion see 95 A.F.T.R.2d 2005-1749, 289 F.Supp.2d 1361

United States District Court, S.D. Florida.

Raymond GRANT and Arline Grant, Plaintiffs,

UNITED STATES OF AMERICA, Defendant.

No. 02-61668-Civ-Jordan.

March 17, 2003.

Plaintiffs' Memorandum of Law in Response to Motion to Dismiss

Plaintiffs Raymond Grant ("Grant") and Arline Grant (collectively, the "Grants"), by and through their undersigned counsel, responds to the Motion to Dismiss as follows:

I. INTRODUCTION

The Grants have sued the government for: (i) unauthorized collection actions pursuant to 26 U.S.C. [FN1] §7433 ("§7433"); (ii) specific performance of the Installment Agreement; and (iii) release of levy and return of social security benefits. The government has moved to dismiss the Complaint on the grounds that the Grants: (i) have failed to comply with conditions precedent prior to filing a claim under §7433 and that claim is barred by the statute of limitations; (ii) cannot seek specific performance of the installment agreement because they have not alleged that government has waived sovereign immunity, and there is no contract to enforce; and (iii) are not entitled to the release of the levy on the social security benefits under the Anti-Injunction Act, and have failed to comply with conditions precedent prior to filing a claim for return of the social security benefits.

FN1. Unless specifically noted, all references to statutory sections shall be references to Title 26.

As shown below, the Motion to Dismiss ignores black letter law and has absolutely no merit. As such, the Motion should be denied.

II. UNDISPUTED FACTS.

The undisputed facts are as follows:

A. THE TAX SHELTERS AND THE INSTALLMENT AGREEMENT.

Beginning in 1977, upon the advice of accountants and attorneys, Grant and several other prominent businessmen formed what was then, totally legal limited partnerships structured around coal mining, real estate, plastics recycling equipment, and/or other matters, which had been planned to take advantage of certain tax credits and deductions. (Compl. at ¶8). Unfortunately for the Grants and the other investors, in 1992, about fifteen years after the fact, the U.S. Tax Court found that the partnerships did not qualify for the tax credits and deductions, and the IRS assessed tax deficiencies against the Grants and the other investors. (Compl. at ¶9).

At all times prior thereto, as well as subsequently, the Grants properly reported their income to the IRS and paid taxes as they became due. There are no allegations to the contrary anywhere in the IRS files. (Compl. at ¶ 10).

After unsuccessfully challenging the tax assessments for several years, on April 12, 1994, the Grants entered into a Form 433-D Installment Agreement ("Installment Agreement") with the IRS for the tax period covering 1977 through 1987, whereby they agreed to pay the sum of $3,000 per month by the 10th day of each month thereafter, until the total tax liability was paid in full. The Agreement was negotiated by IRS agent P. Smith, and was approved by his supervisor, P. Martin. A copy of the Installment Agreement is attached to the Complaint as Exhibit A. (Compl. at ¶ 11). Both the Installment Agreement and §6159(b)(1)-(4) provide that once an Installment Agreement is executed, the IRS is prohibited from altering, modifying or terminating the agreement during its term unless:

(i) the information which the taxpayer provided to the IRS before entering into the agreement was inaccurate or incomplete;

(ii) the IRS determines that collection of the tax is in jeopardy;

(iii) the taxpayer fails to pay an installment under the agreement, accrues additional tax liabilities or fails to provide the IRS with an updated statement of his financial condition when requested to do so; or

(iv) the IRS determines that the taxpayer's financial condition has significantly changed. (Compl. at ¶12).

Prior to terminating an installment agreement, pursuant to §6159(b)(5), the IRS is required to provide to the taxpayer 30 days' written notice of its intention to terminate the agreement, and that notice must include an explanation as to why the IRS intended to take such action. (Compl. at ¶ 13). At the time that the Grants entered into the Installment Agreement with the IRS, the Grants had fully disclosed to the IRS, and the IRS had full knowledge of, two irrevocable trusts established by Grant in 1983 and 1984, respectively, and the transfers made to the trusts. The Grants filed the appropriate forms with the IRS when the trusts were created and each time a transfer to the trusts was made. At the time of the creation of the trusts and when the transfers were made, there were no tax assessments made against the Grants. (Compl. at ¶ 14).

For five years, the Grants timely made each and every payment due under the Installment Agreement and complied with all conditions of the Agreement and §6159. The Grants responded to each request of the IRS to furnish updated documents with respect to their assets, and at no time did the updated information reflect a change in their ability to make the monthly payments. Moreover, the Grants timely filed all Federal tax returns and paid Federal taxes that became due while the Agreement was in effect. At no time was collection of the tax in jeopardy. (Compl. at ¶ 15).

B. THE UNAUTHORIZED COLLECTION PRACTICES OF THE IRS.

Sometime in 1999, IRS agent P. Smith died, and Calvin Byrd ("Byrd") was assigned as the new IRS agent to handle the Grants' case. (Compl. at ¶ 16). The evidence will show that Byrd didn't like the deal his predecessor agent had agreed to with the Grants, which obviously had been approved by the IRS and then honored by the Grants' full performance for five years thereafter. Byrd wanted and pushed the Grants to distribute to the IRS the assets of their two irrevocable trusts that were formed in 1983 and 1984, at a time when no taxes were assessed and with the trust being fully disclosed to the IRS, both at the time of trust formation and when the Installment Agreement was executed in 1994. (Compl. at ¶ 17).

Thereafter, beginning in or about December 1999, the IRS, via Byrd, began a pattern of harassment and unauthorized collection actions against the Grants, which have not yet ceased. To begin with, in December 1999, Byrd advised Grant by telephone that he was terminating the Installment Agreement despite the Grants' timely, continued compliance with all of its terms. Byrd did not give the Grants 30 days' written notice prior to terminating the Agreement, nor did he provide an explanation why he was terminating the Agreement. Thus, because Byrd did not comply with §6159 when attempting to terminate the Agreement, the Agreement is still in effect. (Compl. at ¶ 18, 19).

Then, in violation of the terms of the Installment Agreement and §§ 6159 and 7402, the Chief Counsel of the IRS authorized the filing of an action against the Grants to obtain a judgment for unpaid federal income tax liabilities covering years 1977 through 1990, in the total sum of the $15,369,869.57, which included, on the face of the complaint at paragraph 5, "penalties and interest," without the slightest allegation or description of how this astronomical amount was computed, much less pleading even the date and amount of the original assessments! The action was filed in this Court and assigned Case No. 00-8986 ("Tax Case I"). The Grants first learned of the unauthorized collection of their taxes when they were served with the Complaint in Tax Case I on November 27, 2000. A copy of the Tax I Complaint is attached to the instant Complaint as Exhibit B. (Compl. at ¶20).

Next, in violation of the Installment Agreement, and §§6159, 6331, and 6343, on or about January 2, 2001, and each month thereafter, the IRS levied upon the Grants' monthly social security benefits. Then, during the course of Tax Case I, on February 28, 2001, the IRS illegally obtained a Default Judgment against the Grants in the amount of $31,527,848.71, twice the amount that it sought in the Complaint filed four months earlier. A copy of the Default Judgment is attached to the Complaint as Exhibit C. However, on November 5, 2002, the Court set aside the Default Judgment pursuant to Fed.R.Civ.P. 60(b)(4) because the IRS totally failed to prove up damages in the amount of $31 million, and more particularly, failed to follow the proper civil procedure in obtaining the Default Judgment with the Grants being denied due process of law. A copy of the Order is attached to the Complaint as Exhibit D. (Compl. at ¶¶21, 22, 23).

After the hearing on the Grants' motion for relief from judgment held on November 4, 2002, and knowing that Grant was represented by counsel and outside the presence of Grant's counsel, Byrd, proving bad faith, said to Grant, in a tone which sounded threatening and looked threatening, "Now we met, and we will meet again and again and again and again" in violation of §6304 [FN2] (Compl. at ¶24)..

FN2. The Grants inadvertently cited to §6301 instead of §6304 in the Complaint.

Prior to the Default Judgment being set aside, and in violation of the Installment Agreement and §§6159, 7402, on October 22, 2001, the government filed a motion for entry of order requiring defendants to repatriate assets ("Repatriation Motion"), in which it sought to repatriate to the United States the Grants' two irrevocable trusts, and use the assets of the trusts to pay down the tax liability. This Motion was denied on November 5, 2002 (Compl. at ¶25).

III. ARGUMENT.

A. STANDARD FOR A MOTION TO DISMISS.

"When considering a motion to dismiss, all facts set forth in the plaintiff's complaint 'are to be accepted as true and the court limits its consideration to the pleadings and exhibits attached thereto.' " Grossman v. Nationsbank, N.A., 225 F.3d 1228,1231 (11th Cir. 2000) (quoting GSW, Inc. v. Long County, 999 F.2d 1508, 1510 (11th Cir.1993)). A complaint may not be dismissed unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. Grossman, 225 F.3d at 1232. In ruling on a motion to dismiss, the court must construe the facts alleged in the complaint in the light most favorable to the plaintiff. ICA Const. Corp. v. Reich, 60 F.3d 1495 (11th Cir. 1995); Hunnings v. Texaco, Inc., 29 F.3d 1480 11th Cir. 1994).

B. COUNT I STATES A CLAIM FOR RELIEF FOR UNAUTHORIZED COLLECTION PRACTICES.

1. Statute of Limitations.

The government claims that the Grants "are seeking relief beyond the statute of limitations." (Motion at p.2, 3). The statute of limitations for bringing unauthorized collection actions under §7433 is within two years after the date that the cause of action accrues. §7433(d)(3); 26 C.F.R. §301.7433- 1 (g)(1). This cause of action accrues when the taxpayer has a reasonable opportunity to discover all essential elements of a possible cause of action. 26 C.F.R. §301.7433-1(g)(21). Ranchiato v. United States, 87 A.F.T.R. 2d 2001-947 at *3 (D. Conn. 2001) (limitations begins to run when taxpayer learns of the collection activity, i.e. when IRS served levies on the taxpayer).

The Grants plainly alleged in the Complaint that they learned of the unauthorized collection actions on November 27, 2000 when they were served with the complaint in Tax Case I (Compl. at ¶20), and on or about January 2, 2001 when the IRS levied upon their monthly social security benefits (Compl. at ¶21). As evidenced by the docket sheet, this action was filed on November 25, 2002, within the two years statute of limitations (D.E.1). Accordingly, Count I is not barred by the statute of limitations, and the Motion to Dismiss as to Count I should be denied.

Even if the government was correct (which it is not!) that the cause of action accrued in December 1999, when the IRS attempted to terminate the Installment Agreement, the statute of limitations was tolled under the "continuing wrong" doctrine, which provides the statute is tolled if the IRS continues to engage in repeated collection actions. Gottlieb v. IRS, 4 Fed.Appx. 355, 356 (9th Cir. Feb. 9, 2001) ("to toll the limitations person under the 'continuing wrong' doctrine, Gottlieb must establish that the IRS engaged in repeated collection efforts, occurring after November 7, 1995.")

As stated above, after the IRS attempted to terminate the Installment Agreement in December 1999, it continued to engage in unlawful collection activity by serving the complaint on the Grants on November 27, 2000, and levying the social security benefits in January 2001, while the Installment Agreement was still in effect. Thus, the statute of limitations was tolled under the continuing wrong doctrine and the Grants timely filed this action. Accordingly, the Motion to Dismiss as to Count I should be denied.

2. The Grants Properly Alleged Compliance With, and Complied, With All Conditions Precedent Prior To Filing This Action.

a. The Grants Alleged Compliance with Conditions Precedent.

Fed.R.Civ.P. 9(c) provides:

Conditions Precedent: In pleading the performance or occurrence of conditions precedent, it is sufficient to aver generally that all conditions precedent have been performed or have occurred. A denial of performances or occurrence shall be made specifically and with particularity.

(emphasis added). In paragraph 6 of the Complaint, the Grants alleged:

All conditions precedent to bringing this lawsuit have been performed, waived, excused or otherwise have occurred. Specifically, the Grants have filed an administrative claim with the Chief, Special Procedures Function of the IRS pursuant to 26 C.F.R. § 301.7433-1(d)(1) and (2), 301.6343-1(c), 301.6343-2(b).

(Compl. at ¶6). Because: (i) this Court is required to take all allegations as true and its consideration is limited to the pleadings; and (ii) the Grants clearly alleged compliance with conditions precedent, the Grants full complied with Fed. R. Civ. P. 9(c). Whether or not the Grants in fact exhausted administrative remedies becomes a proof issue, not appropriate for a motion to dismiss. Nevertheless, as shown below, the Grants complied with all conditions precedent under 26 C.F.R. §301.7433-1(d)(1) and (2).

b. The Government Failed to Inform the Court of the Exception to 26 C.F.R. § 301.7433-1(d)(1).

The government is correct that prior Oto filing a suit under §7433, a taxpayer must file an administrative claim with the IRS as set forth in 26 C.F.R. § 301.7433-1(e). Moreover, that regulation provides that "Except as provided in paragraph (d)(2)," no action can be maintained in any federal district court before the earlier of: (i) the date the decision is rendered on the administrative claim; or (ii) the date six months after the date an administrative claim is filed. 26 C.F.R. § 301.7433-1(d)(1)(i), (ii). The government conveniently fails to inform the Court of the exception to this rule found in subsection (d)(2):

If an administrative claim is filed in accordance with paragraph (e) of this section during the last six months of the period of limitations described in paragraph (g) of this section [2 years after the cause of action accrued], the taxpayer may file an action in federal district court any time after the administrative claim is filed and before the expiration of the period of limitations.

26 C.F.R. § 301.7433-1(d)(2). Thus, the taxpayer need not wait to file an action until a decision is rendered on the administrative claim or 6 months after the claim is made if the administrative claim is filed during the last six months of the limitations period.

Here, the Grants' administrative claim was properly sent to the District Director of the IRS on November 25, 2002, during the last six months of the statute of limitations. This lawsuit was filed on the same day, prior to the expiration of the period of limitations. Pursuant to 26 C.F.R. § 301.7433- 1(d)(2), the Grants properly exhausted their administrative remedies prior to filing this action, and the Motion to Dismiss as to Count I should be denied.

3. The Grants Properly Alleged Unauthorized Collection Activities.

The government complains that the unauthorized collection practices alleged by the Grants fail to state a claim upon which relief can be granted. (Motion at p.3). In the Complaint, the Grants alleged that the IRS engaged in unauthorized collection activities by: (i) authorizing and filing Tax Case I against the Grants; (ii) filing the Repatriation Motion; (iii) levying on the social security benefits. These actions were taken by the IRS for one purpose - to collect the alleged outstanding tax liability of the Grants. However, the law is clear that the government is precluded from collecting the unpaid balance of a tax liability when an installment agreement is in effect.

a. Tax Case I and the Repatriation Motion.

26 C.F.R. § 301.6159-1(d) states:

(d) Actions by the Internal Revenue Service during the term of the installment agreement. Except as otherwise provided by the installment agreement, during the term of the agreement the director may take actions to protect the interests of the government with regard to the unpaid balance of the tax liability to which the installment agreement applies (other than actions pursuant to subchapter D of chapter 64 of subtitle F of the Internal Revenue Code against a person that is a party to the agreement), including any actions enumerated in the agreement. The actions include, for example--

(1) Requesting updated financial information from any party to the agreement;

(2) Conducting further investigations (including the issuance and enforcement of summonses) in connection with the tax liability to which the installment agreement applies;

(3) Filing or refiling notices of federal tax lien; and

(4) Taking collection action against any person who is not a party to the agreement but who is liable for the tax to which the agreement applies.

(e) Termination. If an installment agreement is terminated by the director, the director may pursue collection of the unpaid balance of the tax liability.

(emphasis added).

Clearly, the government may undertake a collection action against a non-party to the installment agreement under subparagraph (d)(4), but is precluded from pursuing a collection against the party while the installment agreement is in effect under subparagraph (e). What would be the point of the installment agreement if the government could pursue collection of the tax liability at any time?

Here, the Grants alleged that the IRS did not properly terminate the Installment Agreement in accordance with §6159(b)(5). (Compl. at ¶ 19). Thus, the agreement was in effect at the time that the government attempted to collect the taxes from the Grants. Accordingly, pursuant to 26 C.F.R. § 301.6159-1(d), the filing of Tax Case I, the Repatriation Motion, and the levies constitute unauthorized collection activities.

The fact that the Department of Justice filed Tax Case I or the Repatriation Motion does not bar the Grants from filing suit against the government under §7433. As alleged in the complaint in Tax Case I, "This action has been authorized by the Chief Counsel, Internal Revenue Service, a delegate of the Secretary of the Treasury." Clearly, the Chief Counsel of the IRS is an employee of the IRS. Accordingly, the filing of Tax Case I and the Repatriation Motion constitutes unauthorized collection activities, and the Motion to Dismiss as to Count 11 should be denied.

b. Levy of Social Security Benefits.

Pursuant to §6343(a)(1)(C):

the Secretary shall release the levy upon all, or part of, the property or rights to property levied upon and shall promptly notify the person the person upon whom such levy was made that such levy has been released if ... the taxpayer has entered into an agreement under section 6159 to satisfy such liability by means of installment payments, unless such agreement provides otherwise

(emphasis added).

At the time of the levy by the IRS in January 2001, the Installment Agreement had not properly been terminated by the IRS, and was still in effect [FN3]. (Compl. at §19). There are no provisions in the Installment Agreement allowing the IRS to levy upon the Grants' assets. Moreover, at no time was the collection of the tax in jeopardy. Clearly, if the IRS is required to release a levy if the taxpayer had entered into an installment agreement, the levy was improper in the first place. Accordingly, the levy constituted an unauthorized collection activity under §7433, and the Motion to Dismiss as to Count II should be denied.

FN3. No where in the Complaint did the Grants allege that the levy occurred after the Installment Agreement was terminated, as alleged by the government. (Motion at p.5). It is the Grants' position that because the IRS improperly attempted to terminate the Agreement, it is still in effect. The Grants' need not cite to any cases for that obvious proposition. Attempted murder does equate to the death of the victim.

C. COUNT II STATES A CLAIM FOR RELIEF.

In Count II, the Grants are seeking to have the Installment Agreement honored by the IRS, specifically, they are seeking permission to commence making the monthly payments in the amount of $3,000. The government claims that Count II is barred by sovereign immunity, the Grants have failed to identify a statutory waiver of sovereign immunity and the Installment Agreement is not contract capable of being enforced. (Motion at p.5, 6). Once again, the government is ignoring the allegations of the Complaint.

1. The Grants Properly Alleged Jurisdiction of this Court.

Inparagraph 5 of the Complaint, the Grants alleged that "This Court has jurisdiction over this dispute pursuant to §§7433, 6159, 6331 and 6343 and 28 U.S.C. §§ 1340,1346." (emphasis added). In particular, 28 U.S.C. §1346 contains the waiver of sovereign immunity entitling the Grants to bring the claims set forth in Count II. Accordingly, the Motion to Dismiss Count II should be denied.

2. The Installment Agreement Is A Contract.

As to the government's argument that the Installment Agreement is not a contract, the government again ignores the case law. "It has long been settled that an agreement compromising unpaid taxes is a contract, and, consequently, that it is governed by the rules applicable to contracts generally." United States v. Lane, 303 F.2d 1, 4 (5th Cir. [FN4] (Fla) 1962). "An agreement is an agreement and that the taxpayer is bound by its terms. So too is the government." In re Jones, 208 B.R. 935, 941 (9th Cir. BAP 1997) (offer in compromise is a contract, and is governed by contract law) (citing Timms v. U.S., 678 F.2 831 (9th Cir. 1982)). See also S&O Liquidating P'ship v. C.I.R., 291 F.3d 454, 459 (7th Cir. 2002) (settlement agreement with the IRS pursuant to §7121(b), if accepted by the Commissioner and signed by the taxpayer is a contract that is governed by federal common law and is to be interpreted under standard principles of contract law). If the agreement's terms are clear and unambiguous, the court must enforce the agreement as written, without resort to extrinsic evidence or interpretive devices. S&O, 291 F.3d at 459. In addition, the law is clear that the government is treated like a private party in its contractual dealings and will be held liable for breach of contract. See LaSalle Talman Bank v. United States, 317 F.3d 1363 (Fed. Cir. 2003) (United States found liable to respondents for breach of contract) (citing United States v. Winstar Corp., 116 S.Ct. 2432 (1986) (same)). Specific performance is a remedy for breach of contract especially where damages are inadequate. Kroblin Refrigerated Xpress, Inc. v. Pitterich, 805 F.2d 96 (3d Cir. 1986).

FN4. Fifth Circuit decisions handed down prior to October 1, 1981, are binding precedent upon this Court. Bonner v. City of Pritchard, 661 F.2d 1206, 1209 (11th Cir. 1981).

Here, the Installment Agreement under §6159 should be treated no different from other settlement agreements under the Tax Code and Regulations. Indeed, an Installment Agreement is clearly a contract supported by consideration. Form 433-D states on its face that it is an "Agreement," and the Tax Code and Regulations clearly empower the Secretary to enter into an "Agreement" with a taxpayer for a definite term to facilitate the collection of the tax liability. §6159(a). Importantly, in the Installment Agreement, the Grants agreed to conditions over and above the liability framed by the underlying taxes. For instance, in exchange for the IRS to forebear collection on the entire tax liability, the Grants agreed to: (i) make specified payments on specified dates; (ii) give the IRS updated financial information upon request; (iii) forego the right to file an extension for future Federal tax returns or seek an extension to pay future taxes; (iv) authorize the IRS to automatically deduct payments from their checking account. Moreover, the Agreement gave the government the specific right to terminate the Agreement only if the conditions stated therein were not met. Accordingly, both the IRS and the Grants agreed to forego certain rights in exchange for entering into the Installment Agreement. It is clearly supported by consideration.

Moreover, case law holds that in a case to compromise a tax liability, if the taxpayer agrees to perform in a different form (i.e. monthly payments as oppose to one lump sum), and the overall payments are not less in amount than the original liability, the agreement for substituted performance is supported by sufficient consideration. United States v. Saladoff, 233 F. Supp. 255 (E.D. Pa. 1964) (offer in compromise is a contract). Here, the Grants' agreed to make monthly payments until the liability was paid in full. Under Saladoff, the Installment Agreement is supported by consideration.

To the extent that the government cited to United States v. Ullman, No.Civ.A. 01-0272 2002 WL 987998 (E.D. Pa., May 8, 2002), to support that an installment agreement is not a contract, that case is distinguishable. First, in Ullman, the taxpayer lowered his monthly payments based upon an oral contract with the revenue officer. Under that scenario, because the taxpayer did not make the monthly payments set forth in the agreement, the court found that the IRS was justified in terminating the agreement.

Here, there was no reduction in the payments originally bargained for by the Grants and no oral agreements by the IRS. As alleged in the Complaint, the Grants made each and every payment under the Installment Agreement and the government was not justified in attempting to terminate the Agreement. (Compl. at ¶15).

Second, Ullman did not take into consideration any conditions, over and above the underlying tax obligation, that the taxpayer may have agreed to in exchange for entering into the installment agreement. Third, Ullman did not address the plethora of cases holding that settlement agreements with the IRS are contracts to be enforced according to its terms. Fourth, Ullman did not cite to any authority when making its ruling, and nevertheless, this Court is not bound by a decision from the Eastern District of Pennsylvania. Accordingly, Ullman is not applicable here and the Court should not rely on it.

The terms of the Installment Agreement are clear and unambiguous. The government is prohibited from terminating the Agreement only if the conditions set forth in the Agreement or in §6159 are not met. As shown by the Complaint, the Grants complied with every condition set forth in the Agreement and in §6159 and at no time was the tax in jeopardy. (Compl. at ¶ 15). The Installment Agreement, by its own terms, prohibits the government from terminating the Agreement. Because the terms of the Agreement are clear and unambiguous, this Court has the power to enforce the Agreement as written. S&O, 291 F.3d at 459. Accordingly, the Grants stated a claim for relief in Count II and the Motion to Dismiss as to Count II should be denied.

D. THE GRANTS PROPERLY STATED A CLAIM FOR RELEASE OF LEVY AND RETURN OF SOCIAL SECURITY BENEFITS.

As stated above, the law is clear that the IRS cannot impose a levy if the taxpayer entered into an Installment Agreement under §6159 and in such a case, the IRS is required to release the levy and return of the levied property to the taxpayer. See §6343. Because the IRS imposed the levy on the Grants' social security benefits without properly terminating the Installment Agreement, its actions were improper and the IRS is required to release the levy and return the amount of money equal to the amount of money levied upon, including interest. Id.

1. Return of Social Security Benefits.

The government complains that the Grants did not allege in the Complaint that they filed with the IRS a timely administrative claim for a refund prior to filing this action. The government ignores paragraph 6 of the Complaint where the Grants specifically pled that they have filed an administrative claim with the Chief, Special Procedures Function of te IRS pursuant to 26 C.F.R. §301.6343-1(c), 301.6343-2(b), which regulations are the mechanism for seeking a return of wrongfully levied upon property.

As to the government's argument that "a taxpayer must pay a full amount of the tax assessment for the period at issue before bringing a suit for refund," under §7422, there is no such requirement under §6343. Instead, §6343(b) plainly states that if the "property has been wrongfully levied upon, it shall be lawful for the Secretary to return ... (2) an amount of money equal to the amount of money levied upon." Accordingly, the Motion to Dismiss as to Count III should be denied.

2. Release of Levy.

The government alleges that seeking a release of a levy is prohibited by the Anti-Injunction Act, §7421. As noted by the government, the Anti-Injunction Act contains a judicial exception the plaintiff must show that: (i) under no circumstances can the government prevail; and (ii) equity jurisdiction otherwise exists.

As alleged in the Complaint, the IRS levied upon the Grants' social security benefits at the time when the Installment Agreement was still in effect. Neither in Tax Case I nor in the instant case has the government refuted this fact. Section 6343(a)(1)(C) clearly prohibits the levy and mandates that the IRS release the levy. 26 C.F.R. § 301.6343-1 (b)(3). Under the most liberal view of the law, the government cannot establish its claim, and the Grants are entitled to the release of the levy.

Moreover, it is clear that equity jurisdiction exists here. First, §6343 clearly provides for the relief that the Grants are seeking. Second, the Grants will undoubtedly be irreparably harmed if the levy is not released. Every month, the IRS is levying upon the Grants' social security benefits during the existence of the Installment Agreement in clear violation of the law. If not restrained, the Grants will be required to run into court every month to seek a return of the wrongfully levied benefits. Clearly, the regulations do not contemplate this scenario. Taxpayers, such as the Grants, should be able to rely on agreements with the IRS.

IV. CONCLUSION

The Grants entered into a legally binding contract for the payment of their taxes, and at all times, fully complied with each condition under the Agreement and §6159. The government breached the contract and violated the Grants' rights in direct violation of the Tax Code and Regulations. The government should be not be allowed to railroad over and bully innocent taxpayers. As shown herein, the Grants properly stated claims for relief for: (i) unauthorized collection activities; (ii) specific enforcement of the Installment Agreement; and (iii) release of levy and return of social security benefits. Accordingly, the Motion to Dismiss should be denied in its entirety.