United States District Court, D. Utah
Magistrate Judge Evelyn J. Furse
MEMORANDUM DECISION AND ORDER ADOPTING  REPORT
& RECOMMENDATION AND OVERRULING  PLAINTIFF'S
Nuffer United States District Judge
Judge Evelyn J. Furse's Report and
Recommendation under 28 U.S.C. § 636(b)(1)(B)
recommends that Defendant United States of America's
motion to dismiss be granted and that Plaintiff Kenneth
Riter's claims be dismissed without prejudice for lack of
subject matter jurisdiction. More specifically, the
Magistrate Judge found that (1) Mr. Riter failed to pay the
full amount of penalties generally required in order to
maintain suit in federal district court under 28 U.S.C.
§ 1346; and (2) Mr. Riter did not satisfy the timing
requirements of 26 U.S.C. § 6694(c) to be able to
proceed under Section 6694(c)'s limited exception to the
full payment rule. Mr. Riter objected to the Report and
Recommendation, asserting that dismissal was improper because
(1) 26 U.S.C. § 6694(c) is a claim processing rule,
subject to equitable tolling; (2) the United States had the
burden of showing that Section 6694(c) is jurisdictional and
failed to meet that burden; and (3) equitable tolling should
apply because the tax penalty was not legally assessed by the
Internal Revenue Service (“IRS”). The United States
responded to the objection.
review has been completed of those portions of the report,
proposed findings and recommendations to which objection was
made, including the record that was before the Magistrate
Judge and the reasoning set forth in the Report and
Recommendation. The analysis and conclusion of the
Magistrate Judge are correct. Therefore, the analysis and
conclusion of the Magistrate Judge are accepted and the
Report and Recommendation is adopted.
Magistrate Judge's analysis of jurisdiction is correct.
Federal district courts “have limited subject matter
jurisdiction and may only hear cases ‘when empowered to
do so by the Constitution and by act of
Congress.'” 28 U.S.C. § 1346 grants federal
district courts subject matter jurisdiction to hear tax
refund suits, such as Mr. Riter's lawsuit. However, the
exercise of jurisdiction is subject to what is generally
known as the full payment rule, which requires that a party
fully pay the assessed liabilities before suit can be
maintained in federal district court.This “pay first and
litigate later” principle is
U.S.C. § 6694(c) provides a limited exception to the
full payment rule, allowing a taxpayer to pay only 15% of the
penalty before filing suit in district court. However, the
taxpayer must file a refund claim with the IRS and initiate
suit in district court “within 30 days after the day on
which his claim for refund of any partial payment of any
penalty . . . is denied (or, if earlier, within 30 days after
the expiration of 6 months after the day on which he filed
the claim for refund)[.]” Contrary to Mr.
Riter's assertion, Section 6694(c) is neither a claim
processing rule nor a jurisdictional bar to suit. 28 U.S.C.
§ 1346 is the applicable statutory provision that
provides subject matter jurisdiction over tax refund suits.
The Magistrate Judge's recommendation follows clearly
established law that (1) the failure to pay the full penalty
precludes suit; and (2) 26 U.S.C. § 6694(c) is a limited
exception to the full payment rule that ceases to apply if
suit is not filed within the time period
the facts relevant to jurisdiction are undisputed. The United
States, through the IRS, assessed penalties against Mr. Riter
for tax years 2010-2014. Notice of the penalties was sent to
Mr. Riter on June 27, 2016. On July 22, 2016, Mr. Riter
filed a claim for refund and paid $750 for each tax
year. This amount constituted 15% of the total
penalty. On November 16, 2017, the United States
denied Mr. Riter's refund claim. Mr. Riter initiated his
lawsuit on December 8, 2017, seeking a refund of the
penalties paid and other related relief.
Riter did not pay the full penalty as required to maintain
suit in federal district court under 28 U.S.C. §
1346(a). Mr. Riter also failed to meet the requirements of 26
U.S.C. § 6694(c), which would have provided a limited
exception to the full payment rule. As a result, the court
lacks jurisdiction over the tax refund suit.
subject matter jurisdiction, equitable considerations and the
merits of the case cannot be addressed. Although the
allegations made by Mr. Riter are concerning, including the
IRS's lack of communication,  Mr. Riter is not without
relief. He can pay the full penalty to cure the deficiency in
jurisdiction or pursue his right to challenge the penalty in
the United States Tax Court. Regardless, as the party
invoking federal jurisdiction, Mr. Riter has the burden of
establishing a basis for federal subject matter
jurisdiction. Having failed to do so, the United
States' motion to dismiss is granted.
HEREBY ORDERED that the Report and
Recommendation is ADOPTED and that Mr. Riter's
Objection is OVERRULED.
FURTHER ORDERD that this case is DISMISSED without prejudice.
The clerk ...