Sixth Circuit Affirms Dismissal of Suit for Injunction, Damages

DAVID HENRY SYSWERDA,
Plaintiff-Appellant,
v.
STEVEN TERNER MNUCHIN,
Secretary of the Department of Treasury, et al.,
Defendants-Appellees.

NOT RECOMMENDED FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN

ORDER

Before: BATCHELDER, GIBBONS, and DONALD, Circuit Judges.

David Henry Syswerda, a pro se Michigan plaintiff, appeals the district court's judgment dismissing his first amended complaint without prejudice for lack of subject-matter jurisdiction. This case has been referred to a panel of the court that, upon examination, unanimously agrees that oral argument is not needed. See Fed. R. App. P. 34(a).

In 2014 and 2015, Syswerda filed federal Form 1040 income tax returns claiming that he owed no tax for those years. The Internal Revenue Service (IRS) concluded otherwise based on Form 1099s filed by third parties that reported that Syswerda had received approximately $170,000 in nonemployee compensation in 2014 and 2015. The IRS determined that Syswerda owed $119,931.35 in back taxes, penalties, and fines, and it ultimately levied 15% of his monthly Social Security income to satisfy that obligation.

Invoking the district court's federal-question jurisdiction, see 28 U.S.C. § 1331, Syswerda filed suit against former Secretary of the Treasury Steven Mnuchin, IRS Commissioner Charles Rettig, two former IRS Commissioners, the IRS, the Department of Treasury, and several John Doe defendants. Syswerda made two basic claims in his first amended complaint: 1) he did not have any taxable events in 2014 and 2015 because he was involved in nontaxable exchanges of labor for value; and 2) payment of federal income tax is voluntary. Syswerda sought damages of $119,935,500 for the allegedly unlawful seizure of his Social Security benefits, and he asked the district court to enjoin the defendants from levying those benefits.

The defendants moved to dismiss Syswerda's complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject-matter jurisdiction and/or pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim for relief. They argued that Syswerda's claim for injunctive relief was barred by the Anti-Injunction Act (AIA), 26 U.S.C. § 7421(a), which prohibits lawsuites filed "for the purpose of restraining the assessment or collection of any tax," and that his claim for money damages should be dismissed because he failed to comply with 26 U.S.C. § 7433, which provides the sole remedy against the United States when officers and employees of the IRS wrongfully collect taxes and which requires exhaustion of administrative remedies before filing suit.

Because the parties submitted materials outside of the complaint, the district court construed the defendants' motion as a raising factual attack on its subject-matter jurisdiction. The court held that Syswerda's claim for money damages against the defendants in their individual capacities was barred by 26 U.S.C. § 7422, which requires suits for the recovery of income taxes to be brought against the United States and not against individual officers and employees of the United States. The court agreed with the defendants that the AIA barred Syswerda's claim for injunctive relief and that there were no equitable exceptions to the Act because he has an adequate remedy at law, i.e., filing a petition in the Tax Court under 26 U.S.C. § 6330 for review of the levy. Finally, the court concluded that Syswerda's claim for money damages against the United States was subject to dismissal because he did not exhaust his administrative remedies by paying the tax and filing a claim with the IRS. The court therefore dismissed Syswerda's complaint without prejudice for lack of subject-matter jurisdiction.

We review de novo a district court's dismissal of a complaint for lack of subject-matter jurisdiction. See Cartwright v. Garner, 751 F.3d 752, 760 (6th Cir. 2014). As noted above, the district court found that the defendants had raised a factual attack on its subject-matter jurisdiction. If the defendant challenges the factual existence of subject-matter jurisdiction, "a court has broad discretion with respect to what evidence to consider in deciding whether subject matter jurisdiction exists, including evidence outside of the pleadings, and has the power to weigh the evidence and Id. at 759-60. In the case of a factual attack, we review the district court's factual findings for clear error and its  application of the law to those factual findings de novo. See id. at 760. The plaintiff bears the burden of establishing subject-matter jurisdiction. Id.

First, the district court correctly found that the AIA barred Syswerdas claims and that no equitable exception applied. The AIA "protects the Government's ability to collect a consistent stream of revenue, by barring litigation to enjoin or otherwise obstruct the collection of taxes." Nat'l Fed'n of Indep. Bus. v. Sebelius, 567 U.S. 519, 543 (2012). Consequently, "taxes can ordinarily be challenged only after they are paid, by suing for a refund." Id. The plaintiff may avoid the AIA if he shows that there are no circumstances under which the government can prevail against his claim for equitable relief and that equity jurisdiction otherwise exists. See Gaetano v. United States, 942 F.3d 727, 731, 734 (6th Cir. 2019). There is also an exception to the AIA if Congress has not provided the aggrieved party with an alternative remedy. See South Carolina v. Regan, 465 U.S. 367, 378 (1984). Syswerda does not contend that either of these exceptions applies to his claim for injunctive relief, however. And in any event, as the district court pointed out, Syswerda does have another adequate remedy — he can petition the Tax Court to review the levy. See Gaetano, 942 F.3d at 734 (noting that a party is not eligible for equitable relief if he has an adequate remedy at law). The district court was therefore correct that the AIA barred Syswerda's claim to enjoin the IRS from levying his Social Security benefits. See Nat'l Fed'n of Indep. Bus., 567 U.S. at 543.

Second, the district court correctly dismissed Syswerda's claims for money damages against the individual defendants. Pursuant to 26 U.S.C. § 7333(a), a "taxpayer may bring a civil action for damages against the United States in a district court of the United States" if, "in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of negligence, disregards any provision of" the Internal Revenue Code. the plain text of the statute makes it clear that the taxpayer's only remedy for allegedly illegal tax collection activities is against the United States: "Except as provided in section 7432, such civil action shall be the exclusive remedy for recovering damages resulting from such actions." Id. Thus, a taxpayer cannot recover damages against individual officers and employees of the IRS if they commit of a violation of the tax code when collecting taxes. Cf. Fishburn v. Brown, 125 F.3d 979, 982-983 (6th Cir. 1997) (holding that § 743 barred the plaintiff's constitutional claim against individual IRS agents arising out of their tax-collection activities), abrogated on other grounds by Arbaugh v. Y & H Corp., 546 U.S. 500 (2006); see also Dunlap v. Lew, No. 16-3658, 2017 WL 9496075, at *3 (6th Cir. June 2, 2017) ("[A]n action against the United States under 26 U.S.C. § 7433 is the exclusive remedy for recovering damages resulting from unauthorized tax collection action."). The district court therefore correctly dismissed Syswerda's complaint to the extent that he sought money damages against the individual defendants.

Finally, to the extent that Syswerda brought a claim against the United States for money damages arising out of the wrongful collection of taxes, the district court was correct that he was required to exhaust his administrative remedies before filing suit. See 26 U.S.C. § 7433(d)(1); Hoogerheide v. IRS, 637 F.3d 634, 636 (6th Cir. 2011). But the exhaustion requirement is not jurisdictional; instead, it is a mandatory claims-processing rule that must be enforced if properly raised by the government. See Hoogerheide, 637 F.3d at 636-39. And here, according to the government's undisputed evidence, Syswerda did not seek administrative  review of the IRS's levy on his Social Security benefits. The district court therefore properly dismissed Syswerda's claim against the United States for failure to exhaust administrative remedies.

We decline to address the tax-protestor arguments, which courts have repeatedly rejected as being frivolous, that Syswerda raises in his appellate brief.

We AFFIRM district court's judgment.

ENTERED BY ORDER OF THE COURT

Deborah S. Hunt, Clerk