Hadsell v. United States of America, the Department of Treasury

Background

Christopher Hadsell, representing himself, sued the United States, the Department of Treasury through its agency, and the Internal Revenue Service. He asserted a claim under 26 U.S.C. § 7433, which allows damages for certain unauthorized tax-collection actions, and a claim under the Federal Tort Claims Act, a law that waives the United States’ immunity from some damages claims.

According to the complaint, Hadsell reported a $9,547 overpayment on his 2016 tax return and elected to have it applied to his 2017 tax liability. He alleged that the Internal Revenue Service instead treated the overpayment as a refund subject to offsets. He also alleged that he paid $2,448 connected to a healthcare tax for 2017 and asked that the payment be applied to his 2018 tax liabilities, but that the Internal Revenue Service later determined that he had overpaid and applied part of the amount to a 2017 debt before refunding the rest. He sought $13,253.13, plus interest, fees, and costs.

The United States moved to dismiss under Federal Rule of Civil Procedure 12(b)(1), which concerns the court’s subject-matter jurisdiction. It argued that the Internal Revenue Service had authority to offset overpayments and that the court could not review those offsets. It also argued that the Federal Tort Claims Act excluded Hadsell’s claim and that he had not completed the required administrative process.

Section 7433 claim

The court agreed that 26 U.S.C. § 6402(g), on its face, generally prevents federal courts from reviewing certain reductions of tax overpayments, including offsets for past-due child support. The court also stated that offsets for non-tax debts generally do not support a claim under § 7433 for damages connected with federal tax collection, and that challenges to those offsets may need to be directed to the relevant agency or state.

The court concluded, however, that those points did not resolve the entire § 7433 claim. Hadsell’s allegations also concerned the alleged erroneous assessment of the healthcare tax and the timing of the Internal Revenue Service’s treatment of his 2016 credit election. The court noted that the parties had not adequately addressed when the Internal Revenue Service could be considered to have accepted the credit election, how that acceptance might affect jurisdiction, or how the relevant statutes and regulations applied to the facts alleged.

Because the motion was presented without the complete Internal Revenue Service record and the briefing was insufficient to resolve the jurisdictional questions, the court deferred further consideration of jurisdiction over the § 7433 claim. It denied the United States’ motion with respect to that claim without prejudice to renewing the motion on a more fully developed record.

Federal Tort Claims Act claim

Hadsell based his Federal Tort Claims Act claim on negligence, conversion, and breach of contract under California law. The court rejected the United States’ argument that one exception, covering claims involving listed intentional torts and related conduct, applied because the argument was too cursory and did not clearly explain why Hadsell’s claims fit those categories.

The court accepted the United States’ separate argument that the tax-collection exception applied. That exception excludes claims arising from the assessment or collection of any tax. The court reasoned that Hadsell’s alleged injury arose from the Internal Revenue Service’s tax-assessment and tax-collection mechanisms, including the filing of tax returns and the agency’s treatment of his credit elections. The court therefore concluded that the United States was immune from Hadsell’s Federal Tort Claims Act claim and that the claim had to be dismissed for lack of subject-matter jurisdiction.

Disposition

The court granted in part and denied in part the United States’ Rule 12(b)(1) motion. It denied the motion without prejudice as to Hadsell’s claim under 26 U.S.C. § 7433. It granted the motion as to Hadsell’s Federal Tort Claims Act claim and dismissed that claim without leave to amend.