United States District Court, D. Connecticut
SEAN P. MCNAMEE, Plaintiff,
THE UNITED STATES, Defendant.
RULING ON DEFENDANT'S MOTION TO DISMISS
A. BOLDEN, UNITED STATES DISTRICT JUDGE.
McNamee (“Mr. McNamee” or
“Plaintiff”), a certified public accountant, has
sued the United States Department of Treasury Internal
Revenue Service (“United States”), claiming an
unconstitutional denial of his right to appeal a proposed
penalty assessed against him. Compl. at 2, ECF No. 1. Mr.
McNamee does not seek damages-only “his constitutional
right to an appellant hearing.” Am. Compl. at 1, ECF
United States moves to dismiss the Complaint because the
United States did not waive its sovereign immunity in 28
U.S.C. § 6320 or § 6330, and argues that the Court
therefore lacks jurisdiction over this case. Mot. Dismiss at
1, ECF No. 8. The Court agrees.
Court does not have jurisdiction over this matter. 28 U.S.C.
§ 6330(d)(1) grants jurisdiction to the Tax Court, and
there is no explicit waiver under any of the provisions that
Mr. McNamee cited for the government to be sued in the
District Court. As a result, for the reasons discussed more
fully below, Defendant's motion to dismiss is
GRANTED and this case is dismissed.
FACTUAL AND PROCEDURAL BACKGROUND
McNamee, a certified public accountant, has helped clients
prepare their tax forms for many years. See, e.g.,
Compl. at 1, 13. This lawsuit involves tax preparer penalties
issued against Mr. McNamee, and his attempts to appeal those
penalties within the Internal Revenue Service
arose from tax filings that Mr. McNamee helped his clients
prepare from 2007 until at least 2013. In a letter to the
Internal Revenue Service (IRS), Mr. McNamee explains that, in
late 2012, two representatives from the IRS and an individual
from the U.S. Attorney's Office interviewed him, while
assessing penalties based on sixteen audits of his clients.
Opp. Mot. Dismiss Ex. 9 at 1, ECF No. 12-9.
the IRS's investigation focused on whether Mr. McNamee
had understated the salaries and overstated the expenses of
several clients. See Compl. at 7. For example, Mr.
McNamee apparently advised at least one client that the
client could qualify as a “traveling or city
salesman” under I.R.C. § 3121(d)(3)(D).
Id. As a “traveling salesman” or
independent contractor, Mr. McNamee advised, the client could
claim certain business expenses as exempt from income tax.
Id. The client reported his wage income on Form 1040
as $178, 000 for 2009 and $165, 000 for 2010. Id. at
19. The client reported “no gross receipts for both
years” but listed “expenses of $9, 600 and $10,
310 for 2009 and 2010, respectively.” Id.
determined, however, that the client was not an independent
contractor but rather a wage earner and “one of the
owners of the corporation in which he received wages.”
Compl. at 19. The IRS explained that Mr. McNamee had
“treated the taxpayer as a statutory employee and
created false expenses.” Id. The IRS stated
that Mr. McNamee had estimated his client's expenses
based on Mr. McNamee's theory that “a real estate
developer has to incur expenses, like travel and meals and
entertainment to conduct his business, ” and therefore
“anyone who works on a commission based earning
should be entitled to match the expenses they incur to carry
[out] their employment responsibilities, dollar for dollar,
and not subject to limitations . . . .” Id.
But, the IRS noted, Mr. McNamee had failed to include
“supporting documentation . . . to substantiate the
expenses on [the client's] schedule C.”
Id. The IRS found that Mr. McNamee knew that the
expenses listed in the client's schedule C had not been
reimbursed by the corporation, and explained that
“actual unreimbursed expenses do not belong on schedule
C.” Id. at 20. The IRS concluded that Mr.
McNamee “willfully disregarded rules and regulations in
preparation of the return.” Id. at 24.
March 5, 2013, Mr. McNamee “received approximately 30
penalty notices” of proposed penalties against him for
tax years 2007 through 2010, all contained a claim that Mr.
McNamee had violated I.R.C. § 6694(b)(1). Opp. to Mot.
Dismiss Ex. 9 at 1; Compl. at 11; Am. Compl. at 2. That
Any tax return preparer who prepares any return or claim for
refund with respect to which any part of an understatement of
liability is due to a conduct described in paragraph 2 [i.e.,
willful or reckless conduct] shall pay a penalty with respect
to each such return or claim in an amount equal to the
greater of-(A) $5, 000, or (B) 75 percent of the income
derived (or to be derived) by the tax return preparer with
respect to the return or claim.
I.R.C. § 6694(b)(1). The notice also allegedly stated
that Mr. McNamee had thirty days to appeal the proposed
penalties, and explained that if Mr. McNamee disagreed with
the findings, he could request a meeting or a telephone call
with a representative from the IRS, and if he disagreed
again, he could request a conference with the Appeals Office
within the IRS. Compl. at 11. The IRS enclosed a document
titled “Your Appeal Rights and How to Prepare a Protest
If You Don't Agree, ” and explained the procedures
to protest the assessment. Id. Finally, the letter
stated that if Mr. McNamee did not respond by April 4, 2013,
the IRS would “assess the penalty and begin enforced
collection actions.” Id.
March 19, 2013, Mr. McNamee received statutory notices that
penalties had been assessed against him. Compl. at 2.
31, 2013, the IRS informed Mr. McNamee that a complaint had
been filed against him alleging “a lack of due
diligence” and “disreputable conduct” as a
result of treating commission-based taxpayers “as
statutory employees as opposed to common law
employees.” Id. at 25. Mr. McNamee responded
on June 4, 2013, and the IRS replied that he
“thoroughly researched and documented the basis for the
position [he] took, ” but “failed to advise [his]
clients of the potential penalties that were reasonably
likely to apply to the client.” Id.
McNamee's case was also sent to the Office of
Professional Responsibility (OPR) in the Department of
Treasury. See Compl. at 25. On March 5, 2014, OPR
sent Mr. McNamee a reprimand letter based on
“information that called into question [his] fitness to
practice before the Internal Revenue Service . . . .”
Id. The letter concluded that Mr. McNamee had
erroneously treated taxpayers as statutory employees, rather
than common law employees, despite audits that should have
corrected the error. Id. OPR found that Mr. McNamee
had “thoroughly researched and documented the basis for
the position [he] took” but “failed to advise
[his] clients of the potential penalties that were reasonably
likely to apply to the client.” Id. OPR
concluded that Mr. McNamee's conduct fell “below
that of the standards of a competent practitioner” but
declined to “initiate a proceeding for [Mr.
McNamee's] censure, suspension, or disbarment from
practice before the Internal Revenue Service at this
time” and instead reprimanded Mr. McNamee for the
McNamee alleges that he and his original counsel wrote
protest letters, and attaches one to the Complaint that
explains that Mr. McNamee “conducted substantial
research into the legislative history and interpretation
of” the applicable tax provisions, and “acted out
of a good faith belief” that his reading of the tax
code was correct. Compl. at 7. Mr. McNamee claims that, as of
the filing of the Amended Complaint in July 2017, despite his
repeated requests for one, no appellate hearing had taken
place. Ex. 2-1 to 2-6. Mr. McNamee did attach to his
Complaint a letter from an Appeals Officer at the IRS, who
indicated that he received Mr. McNamee's file, including
his objections to the proposed assessment of his penalties,
on August 1, 2016, and Mr. McNamee could expect a review of
the matter in about six months of that date. Id. at
27-28. In addition, the United States indicated in its motion
to dismiss that, at some point, the tax return preparer
penalties proposed or assessed against Mr. McNamee for 2012
and 2013 were reversed by the IRS Office of Appeals. Mot.
Dismiss at 5; Mot. Dismiss Ex. A, ECF No. 8-2.
initial Complaint, Mr. McNamee sought to remove any and all
liens against him until those liens are appealed or
cancelled. Compl. at 3. He asked the Court to “direct
the Internal Revenue Service [to] immediately restore [his]
PTIN and . . . immediately process and approve an
electronical filing code number so that [his] clients may
properly file the taxes they are required to file by
law.” Id. In addition, he asked the Court to
“immediately suspend any and all audits or appeals
being conducted in the State of Connecticut and moved to an
independent jurisdiction so that [his] clients may get fair
representation in an audit” and “direct the
Internal Revenue Service to cease their continued harassment
of [Mr. McNamee and his] clients.” Id. In the
Amended Complaint, he reduces his “original claim to
the sole position of the Treasury denying [him] his
constitutional right to an appellant hearing.” Am.
Compl. at 1. He does not seek damages. Am. Compl. at 3.
first Complaint, ECF No. 1, Mr. McNamee named the
“Department of the Treasury Internal Revenue Service
Appeals Office CT-RI Appeals Office 333 East River Drive,
Suite 200, East Hartford CT 06108” as the defendant.
The Amended Complaint, ECF No. 11, replaces that defendant
with the “United States.”
STANDARD OF REVIEW
United States moves to dismiss Mr. McNamee's Amended
Complaint based on a lack of subject-matter jurisdiction.
“A case is properly dismissed for lack of subject
matter jurisdiction under Rule 12(b)(1) when the district
court lacks the statutory or constitutional power to
adjudicate it.” Makarova v. United States, 201
F.3d 110, 113 (2d Cir. 2000); Fed.R.Civ.P. 12(b)(1). The
plaintiff bears the burden ...