United States District Court, D. Maryland, Southern Division
J. HAZEL UNITED STATES DISTRICT JUDGE
Tiffany Washington Davis, the founder of a tax preparation
business called Washington Accounting Service, Inc., was
penalized $115, 000 by the Internal Revenue Service
(“IRS”) pursuant to 26 U.S.C. § 6694(b) for
the understatement of tax due to willful or reckless conduct
occurring during the tax years of 2010, 2011, and 2012.
Plaintiff filed this lawsuit challenging the validity of
these penalties. Defendant United States of America filed a
Motion to Dismiss for lack of subject matter jurisdiction,
claiming that Plaintiff's failure to make full payment of
her tax penalties bars her from bringing a lawsuit in federal
court. ECF No. 10. Plaintiff opposes this motion, claiming
that her full-payment of a divisible tax establishes
jurisdiction or, alternatively, that she has cured her
jurisdictional defects. ECF No. 11. No. hearing is necessary.
See Loc. R. 105.6 (D. Md. 2016). For the following reasons,
Defendant's Motion to Dismiss is granted.
April 10, 2017, the IRS assessed penalties of $55, 000, $50,
000, and $10, 000 against Plaintiff for the tax years of
2010, 2011, and 2012, respectively. ECF No. 1 ¶ 10. On
May 7, the IRS filed a levy on Plaintiff's bank account,
and subsequently seized her income tax refunds for tax years
2016 and 2017. Id. ¶¶ 13, 15. In September
2017, Plaintiff filed a claim for a refund of the amount of
the penalty paid pursuant to § 6694(c). Id.
¶ 12. On August 14, 2018, the IRS denied the claim for a
refund. Id. ¶ 17.
federal court must have subject-matter jurisdiction to decide
a matter before it. Lightfoot v. Cendant Mortg.
Corp., 137 S.Ct. 553, 562 (2017). If it does not, then
the court must dismiss the case. Fed.R.Civ.P. 12(b)(1). In a
facial challenge to subject-matter jurisdiction such as this
one, a court must determine if the complaint fails to allege
facts upon which subject-matter jurisdiction can be based.
See Kerns v. United States, 585 F.3d 187, 192 (4th
Cir. 2009). The Court is to “regard the pleadings'
allegations as mere evidence on the issue, ” and
applies “the standard applicable to a motion for
summary judgment, under which the nonmoving party must set
forth specific facts beyond the pleadings to show that a
genuine issue of material fact exists.”
Richmond, 945 F.2d at 768.
United States is immune from suit except when Congress has
“unequivocally expressed” its consent to be sued.
United States v. Nordic Village, Inc., 503 U.S. 30,
33 (1992). Where that consent is absent, federal courts have
no jurisdiction to consider claims against the United States.
United States v. Mitchell, 463 U.S. 206, 212 (1983).
Congress has granted consent to be sued by those seeking a
refund of return preparer penalties. 28 U.S.C. §
1346(a)(1) (granting jurisdiction to district courts over
“any penalty claimed to have been collected without
authority or any sum alleged to have been excessive or in any
manner wrongfully collected under the internal-revenue
laws”). But generally speaking, Congress has not
consented to be sued over the abatement of unpaid penalties;
full payment of a tax penalty is typically a jurisdictional
prerequisite to suit. See Flora v. United States,
362 U.S. 145, 146 (1960). Congress has enacted a specific
exception to the full-payment rule where: (1) “within
30 days after the day on which notice and demand of any
penalty . . . is made against a person who is a tax return
preparer, such person pays an amount which is not less than
15 percent of the amount of such penalty and files a claim
for refund of the amount so paid, ” and (2) the refund
suit is filed within thirty days of the earlier of either the
denial of the claim or six months from the filing of the
claim. 26 U.S.C. § 6694(c)(1-2). Plaintiff did not file
her claim with the IRS until September of 2017, more than
four months after the tax penalty was assessed against her.
Furthermore, the refund suit was filed on September 13, 2018,
approximately one year after the filing of the claim.
Therefore, Plaintiff meets neither of the statutory
conditions for the exception to the full-payment
Plaintiff contends that the tax at issue is divisible,
meaning the Flora full-payment rule would be
satisfied in this case. In Flora, the Supreme Court
suggested that where a tax assessment is “divisible,
” such as an excise tax that is levied on multiple
transactions or events, payment of a single instance of this
tax may be sufficient to satisfy the full-payment rule.
Flora, 362 U.S. at 175 n 38; see also Anglemyer
v. United States, 115 B.R. 510, 512 (D. Md. 1990)
(“Hence, jurisdiction for a tax refund suit may be
obtained by paying only the liability with regard to any
divisible part of the total assessment.”). No. court
has determined whether penalties assessed pursuant to §
6694(b) are divisible, and the Fourth Circuit has provided no
guidance on what constitutes a divisible tax.
Circuit Courts of Appeals have articulated that the purpose
behind the divisible tax exception is to settle the question
of the validity of the entire tax assessment against the
taxpayer. See Cencast Servs., L.P. v. United States,
729 F.3d 1352, 1366 (Fed. Cir. 2013); University of Chi.
v. United States, 547 F.3d 773, 785 (7th Cir. 2008);
Boynton v. United States, 566 F.2d 50, 52 (9th Cir.
1977); Lucia v. United States, 474 F.2d 565, 576
(5th Cir. 1973); Steele v. United States, 280 F.2d
89, 91 (8th Cir. 1960). Therefore, a tax is only divisible
where the resolution of one tax dispute will necessarily
determine the outcome for each of the other tax disputes.
See Cencast, 729 F.3d at 1366.
the tax penalties levied on Plaintiff assert that she
willfully or recklessly prepared separate tax returns that
contained understatements of liability. ECF No. 1 ¶ 8.
The merits of each of these penalties must be evaluated
individually as to understatement, willfulness, and/or
recklessness. Therefore, the penalties cannot be said to be
divisible; resolving one on the merits would still leave each
remaining penalty to be resolved. Therefore, Plaintiff's
tax penalties remain subject to Flora's
full-payment rule. Because Plaintiff has not made
full-payment, no statute waives the United States'
sovereign immunity from suit, and the Court lacks
jurisdiction to consider Plaintiff's claims.
Motion to Dismiss, ECF No. 10, is granted. A separate order