Government Seeks Dismissal of Appraisers’ Suit Against IRS

DENNIS BENSON et al.,
Plaintiffs,
v.
THE INTERNAL REVENUE SERVICE et al.,
Defendants.

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
GAINESVILLE DIVISION

MOTION TO DISMISS

Defendants move to dismiss all claims against them as follows:

1. To start, the claims for injunctive relief (under the Administrative Procedure Act and the Eighth Amendment) are prohibited by the Anti-Injunction Act and are so vaguely written that they fail to state a valid claim.

2. The APA claims do not fall within the APA's waiver of sovereign immunity: Plaintiffs do not challenge a final agency action, Plaintiffs have an adequate alternative remedy, and the IRS's choice to focus on syndicated conservation easements is a matter committed to its discretion by law.

3. The claims for damages under 42 U.S.C. § 1985 for alleged conspiracy to violate Plaintiffs' civil rights and to intimidate witnesses in a federal court proceeding fail to state a valid claim.

4. The claims for damages under Bivens v. Six Unknown Named Agents of the Federal Bureau of Investigation, 408 U.S. 388 (1971), fail to state a valid claim for relief, and the individual defendants are entitled to qualified immunity.

5. Even if the Court had jurisdiction to hear Plaintiffs' Eighth Amendment claims now, Plaintiffs also fail to state a claim under the Eighth Amendment because they do not allege how § 6695A appraiser penalties are facially unconstitutional.

6. In addition, Plaintiffs failed to timely serve the federal defendants and failed to properly serve one of the individually named defendants.

A memorandum in support accompanies this motion.

Dated: October 8, 2021Respectfully submitted,

DAVID A. HUBBERT
Acting Assistant Attorney General

JORDAN A. ESTEBAN
LAURA M. CONNER
Trial Attorneys, Tax Division
U.S. Department of Justice
P.O. Box 14198
Washington, D.C. 20044
202-514-6472 (Esteban)
202-514-6438 (Conner)
202-514-4963 (f)
Jordan.A.Esteban@usdoj.gov
Laura.M.Conner@usdoj.gov

Of Counsel:

KURT R. ERSKINE
Acting U.S. Attorney
Northern District of Georgia

MEMORANDUM IN SUPPORT OF MOTION TO DISMISS

Congress has tasked the Internal Revenue Service with enforcing the internal revenue laws of the United States. From its experience in that role, the IRS from time to time will identify certain transactions or practices that require special attention because of their propensity for abuse. The IRS has identified syndicated conservation easements as one such item. Congress shares the IRS's concern.

Most taxpayers claiming a deduction for donating a conservation easement must attach to their return a qualified appraisal of the value of the easement. Recognizing the potential for abuse, Congress has authorized the IRS to impose penalties against appraisers who know that their appraisals will be used to support a tax position and substantially or grossly inflate the amount of their appraisals.

Plaintiffs in this action are three licensed real estate appraisers who provide appraisals of conservation easements. But Plaintiffs do not contest the merits of the appraiser penalties that have been assessed against Plaintiffs Benson and Fletcher (but not Plaintiff Spears). Instead, they challenge the IRS's enforcement priorities and methods for investigating whether the IRS will assess appraiser penalties. This they may not do through any of the claims raised in their complaint:

1. To start, the claims for injunctive relief (under the Administrative Procedure Act and the Eighth Amendment) are prohibited by the Anti-Injunction Act and are so vaguely written that they fail to state a valid claim.

2. The APA claims do not fall within the APA's waiver of sovereign immunity: Plaintiffs do not challenge a final agency action, Plaintiffs have an adequate alternative remedy, and the IRS's choice to focus on syndicated conservation easements is a matter committed to its discretion by law.

3. The claims for damages under 42 U.S.C. § 1985 for alleged conspiracy to violate Plaintiffs' civil rights and to intimidate witnesses in a federal court proceeding fail to state a valid claim.

4. The claims for damages under Bivens v. Six Unknown Named Agents of the Federal Bureau of Investigation, 408 U.S. 388 (1971), fail to state a valid claim for relief, and the individual defendants are entitled to qualified immunity.

5. Even if the Court had jurisdiction to hear Plaintiffs' Eighth Amendment claims now, Plaintiffs also fail to state a claim under the Eighth Amendment because they do not allege how § 6695A appraiser penalties are facially unconstitutional.

6. In addition, Plaintiffs failed to timely serve the federal defendants and failed to properly serve one of the individually named defendants.

BACKGROUND

The tax laws restrict the charitable contribution deduction a taxpayer can take for donating less than the taxpayer's entire interest in a piece of real property. See 26 U.S.C. § 170(f)(3)(A). However, Congress provided an exception in §170(f)(3)(B)(iii) for a “qualified conservation contribution.” A qualified conservation contribution is a contribution of a qualified real property interest, such as a conservation easement, to a qualified organization exclusively for conservation purposes. 26 U.S.C. § 170(h)(1)(A)-(C); Treas. Reg. § 1.170A-14(a). Conservation easements are perpetually binding restrictions on the use and development of property such as parks, wetlands, farmland, forested land, scenic areas, historic lands, or historic structures. Treas. Reg. §§ 1.170A-14(b)(2) and 1.170A-14(d). For the taxpayer to qualify for a deduction of a conservation easement valued at more than $5,000, the taxpayer must obtain a qualified appraisal, as defined in Treas. Reg. §§ 1.170A-13(c)(3) and 1.170A-17(a), as applicable. 26 U.S.C. § 170(f)(11)(A), (C). The taxpayer uses the qualified appraisal to determine the value of the easement. The value of the conservation easement is the difference between the value of the property unencumbered (pre-easement value) and the value of the property encumbered with the conservation easement. To claim a deduction, there must be a reduction in the unencumbered property value due to the conservation easement. If there is no loss in value, the conservation easement is valued at zero and no deduction is allowed.

The IRS has identified as potentially abusive a particular variety of conservation easement transactions, in which taxpayers use passthrough entities to purchase a property for the purpose of donating an easement — commonly known as syndicated conservation easements. See I.R.S. Notice 2017-10, 107-4 I.R.B. 544, 545. The Senate Finance Committee likewise recently concluded that “syndicated conservation-easement transactions appear to be highly abusive tax shelters.” Senate Finance Comm., Syndicated Conservation-Easement Transactions: Bipartisan Investigative Report As Submitted By Chairman Grassley and Ranking Member Wyden (Aug. 2020). Accordingly, the Report confirmed that “the IRS has strong reason for taking enforcement action against syndicated conservation-easement transactions as it has to date.” Id.

As part of its strategy for combatting abuses of conservation easement deductions, the IRS must evaluate the appraisals underpinning the claimed deductions. When the IRS finds that an appraisal gives a value of at least 150 percent of the correct value of the easement and that the appraiser knew or should have known that the appraisal would be used in connection with a return or claim for refund, it may assess a penalty against the appraiser. 26 U.S.C. § 6695A.

It is the § 6695A penalty that is the main target of Plaintiffs' complaint. But Plaintiffs do not challenge the merits of particular § 6695A penalties that the IRS has assessed against them. Instead, they take on the IRS's decision to treat syndicated conservation easements as an enforcement priority. For example, Plaintiffs allege that the IRS press release announcing the agency's commitment to syndicated conservation easement enforcement (IR 2019-182) is an “unauthorized expansion of [the IRS's] regulatory powers.” See ECF No. 1 at 37, ¶ 30.

Plaintiffs also target the IRS's method of investigating § 6695A penalties. By statute, the examining agent must obtain approval from his or her immediate supervisor before the IRS may assess a § 6695A penalty. Plaintiffs complain that the IRS is not going beyond what the law requires, but fail to state any legally cognizable reason why it should be required to do so.

DISCUSSION

I. Plaintiffs' claims for injunctive relief are precluded by the Anti-Injunction and fail to state a valid claim.

Plaintiffs' claims under the APA (Count I) and the Eighth Amendment (Count V), which seek injunctive relief, are barred by the Anti-Injunction Act. Plaintiffs ask the Court to broadly enjoin “the further collection of §6695A penalties and/or assessment of same.” ECF No. 1 at 56, Prayer for Relief part f. They also ask the Court to enjoin other IRS actions that may lead to the assessment and collection of § 6695A penalties. ECF No. 1 at 55, Prayer for Relief parts d and e. But Congress prohibits those types of pre-enforcement interferences with the tax assessment and collection process.

With exceptions not relevant here, the Anti-Injunction Act prohibits lawsuits filed “for the purpose of restraining the assessment or collection of any tax.” 26 U.S.C. § 7421(a). The principal purpose of the Anti-Injunction Act is “the protection of the Government's need to assess and collect taxes as expeditiously as possible with a minimum of preenforcement judicial interference, 'and to require that the legal right to the disputed sums be determined in a suit for refund.'” Bob Jones Univ. v. Simon, 416 U.S. 725, 736-37 (1974) (quoting Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 7 (1962)). Declaratory relief is likewise barred. See 28 U.S.C. § 2201(a).

Plaintiffs' request to enjoin the assessment of the § 6695A penalty runs afoul of the Anti-Injunction Act's prohibition. Even though the liability under § 6695A is called a “penalty,” it falls under Chapter 68 of the Internal Revenue Code and thus is “assessed, collected, and paid in the same manner as taxes.” 26 U.S.C. §6665(a)(1); see also id. § 6671(a) (dealing specifically with subchapter 68B penalties, of which § 6695A is one). Penalties that are assessed as taxes are subject to the Anti-Injunction Act's bar to suits that seek to restrain the assessment or collection of taxes. See Nat'l Fed'n of Indep. Bus. v. Sebelius, 567 U.S. 519, 544-45 (2012) (noting that Congress may describe a liability as a penalty but direct that it shall be treated as a tax for purposes of the Anti-Injunction Act, as it has done in Chapter 68, although finding that the Anti-Injunction Act did not bar a pre-enforcement challenge to § 5000A because that penalty does not appear in Chapter 68).

In addition to the direct injunction to prohibit the assessment and collection of § 6695A penalties, Plaintiffs also ask the Court to enjoin “the unauthorized expansion of regulatory powers” and require the IRS to follow the investigation methods that were in place before the January 2020 Memo, as well as enjoin the IRS “from any further action that is not consistent with the mandates of EO 13891 and EO 13982 and the Administrative Practices [sic] Act.” ECF No. 1 at 55, Prayer for Relief parts e and d. The precise scope of those additionally requested injunctions is unclear. To this extent, Plaintiffs' claim for injunctive relief also fails to state a plausible cause of action. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (the pleading standard of Rule 8 “demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation”). Plaintiffs cannot demand an injunction that requires the IRS to follow the law without identifying the specific relief that is necessary to do so. Also, Plaintiffs do not explain how Executive Orders 13,891 and 13,892, which address notice and transparency in agency guidance documents, pertain to its claims. Regardless, both Executive Orders, by their own terms, do not create enforceable rights. EO 13,891 § 7(c); EO 13,892, § 11(c). And both were revoked in January 2021 through Executive Order 13,992.

Similarly, Plaintiffs complain that the IRS's process for approving § 6695A penalties is flawed, but fail to state a valid cause of action to attack its process. Before the IRS assesses certain types of penalties, including the § 6695A penalty, the examining agent must obtain supervisory approval. 26 U.S.C. § 6751(b). In December 2017, the IRS revised its process to require, for the first time, proposed §6695A penalties to go through a three-tiered approval structure. The IRS made that change through a revision to Internal Revenue Manual 20.1.12. That structure required multiple levels of review that were not required by statute.

The IRS simplified the three-tiered approval structure for appraiser penalties when it issued Interim Guidance Memo LB&I-20-0120-001 on January 22, 2020 (“January 2020 Memo”). See Doc. 1-1. The IRS replaced the multi-tiered structure with a requirement for a single supervisory approval at both the referral stage and the penalty assertion stage. In other words, under the new procedures, the IRS employee who refers an appraisal for penalty consideration must obtain approval, and so must the individual who asserts the penalty. Even though the approval process comports with the requirements of § 6695A and the requirement that a manager approve the initial determination of a penalty assessment under § 6751(b), Plaintiffs say it should be overturned. They fail to state a single reason why.

No matter how Plaintiffs have phrased the scope of their requested injunctions, the tenor of the Complaint shows that Plaintiffs' aim is to thwart the assessment and collection of § 6695A penalties, which are treated as taxes for purposes of the Anti-Injunction Act. The Supreme Court recently reaffirmed that the Anti-Injunction Act bars suits that aim to stop the gears of tax assessment and collection, confirming that a suit's purpose is determined from its “objective aim.” See CIC Services, LLC v. IRS, 141 S. Ct. 1582, 1589 (2021). And while the Supreme Court found in that case that the Anti-Injunction Act did not prohibit the pre-enforcement challenge to a reporting requirement, that opinion confirms the application of the Anti-Injunction Act here.

CIC Services dealt with an information-reporting requirement for “material advisors” that assist companies in setting up in-house (captive) insurers. As the Supreme Court explained, that reporting requirement was not for the purpose of determining or calculating a tax liability. CIC Services, 141 S. Ct. at 1591. The information reporting requirement was just that, a requirement to report information. Failure to report was subject to penalty, but otherwise there was no tax liability connected to the information return. Id. And the penalties were both civil tax penalties and criminal tax and non-tax penalties. Id. at 1591-92. Furthermore, CIC itself “[stood] nowhere near the cusp of any tax liability,” and indeed, the only pertinent tax consequence for CIC ― in the form of a non-reporting penalty characterized as a tax ― was far “downstream” of the requirement it challenged. Id. at 1591.

In this case, in contrast, Plaintiffs ask the Court to enjoin the assessment and collection of a tax penalty that might apply to them, as well as to the IRS's methods for prioritizing cases and investigating whether the penalty is owed and thus will be assessed. Those are not “reporting obligations” that are “separate and apart from [a] statutory tax penalty.” Id.

Indeed, since CIC Services, another judge in this district has applied the Anti-Injunction Act to bar a pre-enforcement suit that sought to interfere with various steps leading to the assessment of a tax liability. See Hancock Co. Land Acquisitions v. United States, No. 1:20-cv-3096-AT, 2021 WL 3197336 (N.D. Ga. July 7, 2021), appeal docketed, No. 21-12508 (11th Cir. July 22, 2021). Among other reasons for dismissal, the court found the Anti-Injunction Act barred a suit to interfere with the issuance of a final partnership administrative adjustment, which was necessary before tax based on an adjustment to a claimed partnership deduction for the donation of a conservation easement could be assessed. Id. at *5. The court similarly concluded that a request to require the IRS to give administrative review in its Office of Appeals “is an attempt to restrain 'activities which are intended to or may culminate in the assessment or collection of taxes,' and therefore implicates the Anti-Injunction Act.” Id. at *10 (quoting Kemlon Products Development Co. v. United States, 638 F.2d 1315, 1320 (5th Cir.), modified on other grounds, 646 F.2d 223 (5th Cir. 1981)).

Here, too, the Anti-Injunction Act should be allowed to serve its purpose: to prevent pre-enforcement interference with the assessment and collection of tax and to require that plaintiffs who wish to challenge a tax liability do so through a refund suit. And each Plaintiff here may do just that, if the IRS has assessed §6695A penalties against him, or in the event the IRS does so in the future. If the IRS assesses a § 6695A penalty against any of the Plaintiffs, he may pay the penalty and file a claim for refund with the IRS. 26 U.S.C. § 6696(c); see also Treas. Reg. 1.6696-1(j). If the IRS denies the claim or does not act on it within six months, the appraiser may file a refund suit in U.S. district court. 26 U.S.C. §§ 6532(a), 7422; Treas. Reg. 1.6696-1(j). That legal remedy is an appropriate, adequate vehicle for Plaintiffs to raise their challenges to the § 6695A penalty.

It is not, however, the only one. An appraiser who is assessed a § 6695A penalty may challenge the penalty with the Independent Office of Appeals. See IRM 20.1.12.10, Appeal Rights — IRC 6695A Cases. An appraiser who does not take such an appeal can also contest the assessment if the IRS attempts to collect the § 6695A penalty by levy or issues a notice of federal tax lien. In that situation, the appraiser may have the opportunity for a collection due process hearing that permits a challenge to the underlying liability. 26 U.S.C. §§ 6330(a), (c)(2)(B); 6320(a)-(c).

Because Plaintiffs have an alternative legal remedy available, limited judicial exceptions to the Anti-Injunction Act do not apply to them. Under one exception, a court may grant a pre-enforcement injunction only if there are no circumstances whatsoever under which the government might ultimately prevail and if equity jurisdiction otherwise exists. Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 7 (1962). Under another, the plaintiff may proceed where there is no other means of litigating its claims. South Carolina v. Regan, 365 U.S. 367 (1984). Neither of these exceptions apply, given the legal remedy available to Plaintiffs. In addition, Plaintiffs cannot establish that there are no circumstances whatsoever under which Defendants might prevail as to the APA and Eighth Amendment claims. The discussions below in part II (regarding the APA) and part V (regarding the Eighth Amendment) show why.

II. Plaintiffs' APA claims do not fall within the APA's waiver of sovereign immunity.

As described above, the Anti-Injunction Act precludes Plaintiffs' claims for injunctive relief, which includes Plaintiffs' claims under the Administrative Procedure Act in Count I. But that is not the only reason that compels dismissal of Plaintiffs' APA claims. Under the APA, “[a] person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof.” 5 U.S.C. §702. But that seemingly broad grant of judicial review is limited to “final agency action for which there is no other adequate remedy in a court.” Id. § 704 (emphases added). The APA's waiver of sovereign immunity also does not apply when “agency action is committed to agency discretion by law.” Id. § 701(a)(2) (emphasis added). Each of those elements — lack of finality, the availability of an alternative legal remedy, and commission of penalty enforcement to the IRS's discretion — preclude Plaintiffs' APA claims.

A. Plaintiffs do not challenge any final agency action.

To qualify as a “final” agency action, two conditions must be met. “First, the action must mark the consummation of the agency's decisionmaking process” and, “second, the action must be one by which rights or obligations have been determined, or from which legal consequences will flow.” Bennett v. Spear,  520 U.S. 154, 177-78 (1997) (internal quotations and citations omitted). Here, Plaintiffs challenge steps in the investigation of appraiser penalties, not any assessments themselves (i.e., whether Plaintiffs are liable for any § 6695A penalties that have been assessed against them).

The assessment of penalties marks the consummation of the IRS's action. Until the IRS assesses an appraiser penalty under § 6695A, no legal obligations have been set. But even for the two named Plaintiffs who have been assessed penalties, they do not challenge the merits of the particular assessments against them. Although the aim of the Complaint is to broadly prevent the assessment and collection of § 6695A penalties (without regard to whether any appraiser, including Plaintiffs, has engaged in conduct that gives rise to the penalties), Plaintiffs try to disguise their goal by focusing on procedural steps that may lead to assessment. They complain about the enforcement priorities the IRS has set regarding syndicated conservation easements. They also challenge the methods the IRS uses to investigate and determine whether appraisers have made substantial or gross valuation misstatements in preparing appraisals to support their clients' claimed conservation easement deductions, which could subject appraisers to penalties under § 6695A. But those items that Plaintiffs complain about are not final agency actions because they do not mark the consummation of the agency action and do not establish the rights between the parties.¹ That does not happen until assessment.

B. Plaintiffs have an adequate alternative remedy.

Even if Plaintiffs' APA claims challenged a final agency action (which, as described above, they do not), they still would fail because they have an adequate alternative remedy. The APA's waiver of sovereign immunity does not apply when a plaintiff has an adequate alternative remedy in court. 5 U.S.C. § 704; U.S. Army Corps of Engineers v. Hawkes Co., 136 S. Ct. 1807, 1813-14 (2016). “[T]he alternative remedy need not provide relief identical to relief under the APA, so long as it offers relief of the same genre.” Elec. Prov. Info. Ctr. v. IRS, 910 F.3d 1232, 1244 (D.C. Cir. 2018). “Thus, for example, relief will be deemed adequate where a statute affords an opportunity for de novo district-court review of the agency action.” Garcia v. Vilsack, 563 F.3d 519, 522-23 (D.C. Cir. 2009) (internal quotation omitted). That is what Plaintiffs have here. As described above in part I, Plaintiffs have an adequate alternative remedy in the form of a refund suit, where the district court reviews de novo the § 6695A liability, and sometimes through a due process hearing before enforced collection action, which is reviewable in Tax Court, see 26 U.S.C. §§ 6330(d)(1), 6320(c).

C. The IRS's investigatory decisions are committed to IRS discretion by law.

The APA provides the framework for determining when a court may review an agency decision, but such review is precluded to the extent that “agency action is committed to agency discretion by law.” 5 U.S.C. § 701(a)(2). In other words, review is precluded “if the statute is drawn so that a court would have no meaningful standard against which to judge the agency's discretion.” Heckler v. Chaney, 470 U.S. 821, 830 (1985). This is just such a case.

Broadly, Plaintiffs challenge the IRS's decision to create a program to carry out its enforcement mandate by focusing on syndicated conservation easements and the appraisals that are submitted to support the related deductions. That is a policy decision that is committed to the IRS's discretion. Congress has granted the Commissioner of the IRS the authority to “administer, manage, conduct, direct, and supervise the execution and application of the internal revenue laws.” 26 U.S.C. § 7803(a)(2). That broad grant of authority gives no meaningful standard against which a court may judge the IRS's exercise of prosecutorial discretion in those matters. See Heckler v. Chaney, 470 U.S. 821, 832-35 (finding FDA decision not to take enforcement action is not reviewable); Baltimore Gas & Elec. Co. v. FERC, 252 F.3d 456, 459 (D.C. Cir. 2001) (“Chaney sets forth the general rule that an agency's decision not to exercise its enforcement authority, or to exercise it in a particular way, is committed to its absolute discretion.”).

No other provision of the Internal Revenue Code provides a “meaningful standard” for review of this decision either. Indeed, decisions about how to allocate agency resources are exactly the kind of decisions that courts have long recognized are within the purview of an agency. As the Supreme Court has “repeated time and again, an agency has broad discretion to choose how best to marshal its limited resources and personnel to carry out its delegated responsibilities.” Massachusetts v. EPA, 549 U.S. 497, 527 (2007). Plaintiffs' APA claims regarding the IRS's decision to establish an enforcement program should be dismissed for this reason, as well as each of those discussed above in part I and parts II.A and B.

III. Plaintiffs fail to state a claim under 42 U.S.C. § 1985(2) and (3).

In Count II, Plaintiffs accuse IRS employees of conspiring to violate their right to equal protection of the laws — but fail to allege any cognizable equal protection violation. In Count III, they claim that IRS employees conspired to intimidate witnesses in a federal proceeding — but fail to identify the proceeding affected by the purported intimidation. And both Counts fail to state an actionable conspiracy, because all they allege is that IRS employees were doing their jobs.

To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a well-pleaded complaint “must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A plaintiff must allege more than labels, conclusions, and speculative facts. Horne v. Soc. Sec. Admin., 359 F. App'x 138, 142–43 (11th Cir. 2010) (citing Twombly, 550 U.S. at 555). This Plaintiffs fail to do.

A. Plaintiffs have not alleged the existence of a protected class.

The Court should dismiss Count II of the Complaint because Plaintiffs have not alleged the existence of a protected class or violation of a constitutional right. 42 U.S.C. § 1985(3) permits damage suits when at least two people conspire to deprive “any person or class of persons of the equal protection of the laws.” For a conspiracy to be actionable under § 1985(3), it must “be motivated by some racial, or perhaps otherwise class-based, invidiously discriminatory animus.” Park v. City of Atlanta, 120 F.3d 1157, 1161 (11th Cir. 1997) (internal quotation omitted).

Plaintiffs have alleged neither the existence of a protected class nor a violation of any constitutional right. Rather, Plaintiffs claim that they were discriminated against as “citizens of the United States [who seek] to group together and purchase a qualified real property interest and donate same to a qualified charity for conservation purpose.” ECF No. 1 at 40, ¶ 34. Plaintiffs are not of the type of class protected against discrimination under § 1985. “[T]he term unquestionably connotes something more than a group of individuals who share a desire to engage in conduct that the § 1985(3) defendant disfavors.” Bray v. Alexandria Women's Health Clinic, 506 U.S. 263, 269 (1993) (finding that women seeking an abortion did not qualify as a protected class under § 1985(3)). Simply put, § 1985(3) does not protect Plaintiffs' purported membership in a “class” of conservation easement appraisers.

Moreover, § 1985(3) only applies to conspiracies that seek to curtail rights “protected against private, as well as official, encroachment.” Bray, 506 U.S. at 278. “Examples of such rights are the rights guaranteed by the Thirteenth Amendment . . . and the right of interstate travel.” Park, 120 F.3d at 1162 (internal citations omitted). Section 1985(3) does not protect against any “right” to be free from the imposition of civil penalties for giving appraisals to support charitable contributions that are substantially overvalued. That is not a “right” that is subject to either public or private protection.

B. Plaintiffs have not alleged the existence of a pending federal proceeding.

The Court should also dismiss Count III because Plaintiffs have not alleged the existence of a pending federal proceeding. 42 U.S.C. § 1985(2) permits damage suits when at least two people conspire to deter any party or witness from attending or testifying in any U.S. court. To state a claim under § 1985(2), Plaintiffs must allege the existence of a conspiracy and that the purpose of the conspiracy was to deter a witness by force, intimidation, or threat from attending or testifying before a U.S. court and that the conspiracy caused Plaintiffs' injury. Higdon v. Tusan, 746 F. App'x 805, 813 (11th Cir. 2018). Plaintiffs must also allege the existence of a pending federal court proceeding related to the intimidation. Alhallaq v. Radha Soami Trading, LLC, 484 F. App'x 293, 297 (11th Cir. 2012); see also Higdon, 746 F. App'x at 813. A proceeding before an administrative agency is not a federal court proceeding for purposes of the witness intimidation clause. See Alhallaq, 484 F. App'x at 297 (dismissing witness intimidation claim because § 1985(2) “applies only to federal court proceedings, and “not to administrative proceedings,” in that case before the Equal Employment Opportunity Commission); Morast, 807 F.2d at 930 (dismissing witness intimidation claim where the witness was to testify before the Office of the Comptroller of Currency, which is an administrative agency, not a federal court).

Plaintiffs have not identified any pending federal court proceeding in which they were deterred from testifying. Rather, Plaintiffs allege generally that “[t]he misconduct of the Defendants clearly involved a conspiracy to intimidate arguably the most critical witness in an action regarding 26 U.S.C. § 170(h) litigation — the appraiser.” ECF No. 1 at 43, ¶ 41. Plaintiffs' failure to identify any specific, pending federal court proceeding is fatal to their claim.

C. Plaintiffs do not allege a cognizable conspiracy against either the federal defendants or the individual defendants.

Plaintiffs cannot allege a cognizable conspiracy against the IRS and the Department of Treasury as to Counts II and III. As noted above, § 1985 imposes civil liability against “persons” who conspire to interfere with an individual's civil rights. Federal agencies are not suable entities. See Lowe v. IRS, 1995 WL 420817, No. 93-1421-Civ.-J-20, at *2 (M.D. Fla. May 25, 1994) (dismissing § 1985 claim against the IRS) (citing Blackmar v. Guerre, 342 U.S. 512, 514 (1952) (“Congress has not constituted the Treasury Department or any of its subdivisions or bureaus as a body corporate and has not authorized either or any of them to be sued eo nomine.”)); Biase v. Kaplan, 852 F. Supp. 268, 280 (D.N.J. 1994) (“[N]either section 1985 nor any other provision of the Civil Rights Act may provide the basis for an action against the United States or a Federal agency.”).

Also, Plaintiffs do not allege cognizable conspiracy claims against the individual defendants. Plaintiffs do not make clear which individual Defendants took which particular actions, beyond alleging that some of them took part in investigating and assessing § 6695A penalties. See ECF No. 1 at 17 20, ¶¶ 7 9. Plaintiffs' conclusory allegations as to the individual Defendants should be dismissed. See Iqbal, 556 U.S. at 678.

And Plaintiffs cannot allege a cognizable conspiracy claim under § 1985(3) against the individual defendants as to Count II for an additional reason: the intracorporate conspiracy doctrine.² A conspiracy “requires an agreement — and in particular an agreement to do an unlawful act — between or among two or more separate persons.” Ziglar v. Abbasi, 137 S. Ct. 1843, 1867 (2017). The intracorporate conspiracy doctrine “holds that acts of corporate agents are attributed to the corporation itself, thereby negating the multiplicity of actors necessary for the formation of a conspiracy.” Energy Supreme LLC v. Supreme Energy Res., Inc., No. 0:15-CV-60034-UU, 2015 WL 11198012, at *7 (S.D. Fla. Sept. 9, 2015) (quoting McAndrew v. Lockheed Martin Corp., 206 F.3d 1031, 1036 (11th Cir. 2000)). This doctrine is “derived from the nature of the conspiracy prohibition,” Ziglar, 137 S. Ct. at 1867, and “applies to public entities,” Denney v. City of Albany, 247 F.3d 1172, 1190 (11th Cir. 2001).

Thus, “[w]hen two agents of the same legal entity make an agreement in the course of their official duties . . . as a practical and legal matter their acts are attributed to their principal.” Ziglar, 137 S. Ct. at 1867. It follows that there cannot be an agreement, then, between two or more separate people. Id. Accordingly, “[t]here is no unlawful conspiracy when officers within a single corporate entity consult among themselves and then adopt a policy for the entity.” Id.

Here, the alleged conspiratorial actions that Plaintiffs complaint about — such as the IRS's enforcement policy surrounding syndicated conservation easements and the use of subpoenas to investigate the accuracy of the appraisals submitted in support of the claimed tax deductions, see ECF No. 1 at 40-44, ¶¶ 34, 35, 40, 42 — were undertaken as part of official duties to collect taxes and enforce the internal revenue laws. See 26 U.S.C. §§ 6301 (“The Secretary shall collect the taxes imposed by the internal revenue laws.”); 7803(a)(2) (the Commissioner of the IRS has the authority to “administer, manage, conduct, direct, and supervise the execution and application of the internal revenue laws”). Any such actions taken by the individually named Defendants were undertaken on behalf of and attributable to the IRS. The intracorporate conspiracy doctrine bars the equal protection claims in Count II against the individually named Defendants.  See McAndrew, 206 F.3d at 1037-38 (in the 11th Circuit, doctrine bars claims against corporate employees under § 1985(3) but not § 1985(2)); Denny, 247 F.3d at 1190 (barring claims against governmental entity based on doctrine).

IV. Plaintiffs fail to state a Bivens claim.

Plaintiffs' Bivens claims fail for multiple independent reasons. First, Plaintiffs have not shown that each individual defendant's actions violated the Constitution. Next, Congress already has provided an adequate remedial scheme. Finally, the individual defendants are entitled to qualified immunity.³

A. Plaintiffs have not demonstrated that each individual defendants' actions violated the Constitution.

To assert a private cause of action against government employees under Bivens, “a plaintiff must plead that each Government-official defendant, through the official's own individual actions, has violated the Constitution.” Stevens v. Osuna, 877 F.3d 1293, 1309 (11th Cir. 2017) (citation and emphasis omitted). Plaintiffs' Bivens claims fail because they do not allege any violation of a constitutional right under the Fourth, Fifth, or Fourteenth Amendments.

First, although Plaintiffs suggest in passing that the individual defendants violated their Fourth Amendment rights, the Complaint fails to set forth any specific claim of a Fourth Amendment violation. Indeed, it only invokes the Fourth Amendment in referring to “the Fourth, Fifth, and Fourteenth Amendment protections for due process and equal protection under the law.” ECF No. 1, at 11; see also id. at 47, ¶ 48. Due process and equal protection claims against the federal government or federal employees belong under the Fifth Amendment, not the Fourth. See U.S. Const. Amend. IV.

The Court must also dismiss Plaintiffs' Fourteenth Amendment Due Process and Equal Protection claims. The Fourteenth Amendment does not apply to actions by federal officers. See, e.g., Rosado v. Curtis, 885 F. Supp. 1538, 1543 (M.D. Fla. 1995), aff'd, 84 F.3d 437 (11th Cir. 1996), cert. denied, 519 U.S. 1058 (1997).

Finally, Plaintiffs do not allege the violation of any rights under the Fifth Amendment. As discussed above in part III.A, Plaintiffs do not state any equal protection violation. Also, the comprehensive procedural remedies available to Plaintiffs foreclose their ability to allege facts sufficient to state a valid procedural due process claim. The Internal Revenue Code's broad mechanisms described above bar Plaintiffs from plausibly asserting that the IRS failed to afford them “notice and an opportunity to be heard” before or after it allegedly seized their property. See Burlison v. Rogers, 311 F. App'x 207, 208 (11th Cir. 2008); McKinney v. Pate, 20 F.3d 1550, 1556–57 (11th Cir. 1994) (explaining that the government “may cure a procedural deprivation by providing a later procedural remedy”). Plaintiffs could have paid the penalties, filed an administrative claim for refund with the IRS, and then sought de novo review for a refund in the district court. And to the extent Plaintiffs believe they suffered damages, they can file suit under 26 U.S.C. § 7433, as discussed below.

And although Plaintiffs complain about a “taking” without due process in violation of the Fifth Amendment and its alleged effect on their ability to make a living, their principal grievance focuses on the IRS's enforcement priority and methods for investigating § 6695A penalties. Nowhere do Plaintiffs allege the actual seizure of property that might constitute a taking. Instead, Plaintiffs simply challenge the IRS's ability to assess and collect penalties related to overvalued conservation easements. The IRS's ability to assess a penalty does not prevent them from valuing real property interests; it merely imposes consequences if the appraisers significantly overstate the value of the property, knowing that the overstatement will be used on a tax return. There is no basis to claim a taking of their livelihood. Furthermore, the duties of the named defendants in performing their responsibilities as IRS employees fall precisely within the authority Congress conferred upon the IRS. Performing their duties under the comprehensive scheme of tax administration is simply not actionable. See, e.g., Al-Sharif v. United States, 296. F. App'x 740, 741-42 (11th Cir. 2008).

B. Plaintiffs have an adequate alternative statutory remedy.

Damages are available in a Bivens action only when (1) the plaintiff has no alternative means of obtaining redress and (2) no “special factors counseling hesitation” are present. Stephens v. Dep't of Health & Hum. Servs., 901 F.2d 1571, 1575-76 (11th Cir. 1990), cert. denied, 498 U.S. 998 (1990); see also Ziglar, 137 S. Ct. at 1857-58. “Those special factors 'include an appropriate judicial deference' toward the will of Congress.” Hardison v. Cohen, 375 F.3d 1262, 1264 (11th Cir. 2004) (quoting Schweiker v. Chilicky, 487 U.S. 412, 423 (1988)). Plaintiffs have adequate alternative statutory remedies in a damages suit under 26 U.S.C. § 7433(a) and a refund suit under § 7422.

A Bivens action may only survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) in the “complete absence of alternative remedies.” Alvarez v. U.S. Immigration & Customs Enf't, 818 F.3d 1194, 1205 (11th Cir. 2016). Where there exist “sufficiently protective” processes to remedy the citizen's alleged injury, courts refrain from providing “a new and freestanding remedy in damages.” Id. Even if the alternative does not provide complete relief for the plaintiff, courts will not allow a Bivens remedy to supplement Congress's “elaborate, comprehensive scheme governing a particular type of claim” because “a decision to create a private right of action is one better left to legislative judgment” in most cases. Id. (quoting Schweiker v. Chilicky, 487 U.S. 412, 423 (1988), and Sosa v. Alvarez-Machain, 542 U.S. 692, 727 (2004)) (internal quotation marks omitted); see also Ziglar, 137 S. Ct. at 1865.

“Courts . . . have repeatedly held that a Bivens remedy should not be available for damages against agents of the Internal Revenue Service for assessment and collection activities” because “Congress has created adequate procedures to address any constitutional violations that may occur in the course of assessing and collecting taxes.” Curry-Bey v. United States, No. 01-0062-CIV-UNGARO-B, 2001 WL 1103230, at *3 (S.D. Fla. Aug. 6, 2001); see Al-Sharif, 296 F. App'x at 741-42. “To that end, 26 U.S.C. § 7433(a) by its terms provides the exclusive remedy for recovering damages against an IRS employee for wrongful collection activities, and 28 U.S.C. § 1346(a)(1) permits suits against the United States 'for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected.'” Al-Sharif, 296 F. App'x at 741-42; see also Hudson Valley Black Press v. IRS, 409 F.3d 106, 113 (2d Cir. 2005) (“Because of the complex remedial scheme that Congress has created, and the plain indication that the failure of Congress to provide a remedy for injuries arising from tax assessment was not inadvertent, every circuit that has considered the appropriateness of a Bivens remedy in the taxation context has uniformly declined to permit one.”); Vennes v. An Unknown Number of Unidentified Agents of U.S., 26 F.3d 1448, 1454 (8th Cir. 1994). A refund suit is equally the alternative remedial measure to recover alleged illegally collected civil penalties. Lawrence v. Halker, 2015 WL 5601957, *1 (M.D. Fla. 2015).⁴

Because of the Internal Revenue Code's comprehensiveness “and the many explicit remedial provisions that the Code contains for aggrieved taxpayers,” courts routinely hold that “Bivens relief is not available for alleged constitutional violations by IRS officials involved in the process of assessing and collecting federal taxes.” United States v. Korman, No. 07-80998-CIV, 2008 WL 5662165, at *4 (S.D. Fla. Nov. 5, 2008). Here, Plaintiffs have failed to avail themselves of Congress's comprehensive statutory scheme to remedy their alleged injury (if any). Because Congress has created a detailed remedial scheme through the Internal Revenue Code to redress Plaintiffs' alleged injuries, their Bivens claims must fail. See Alvarez, 818 F.3d at 1206.

C. The individual defendants otherwise enjoy qualified immunity with respect to their investigations of the Plaintiffs' appraisal practices.

Even if this Court finds that the Internal Revenue Code provides insufficient procedures to remedy Plaintiffs' alleged injury and that Plaintiffs have stated a claim upon which relief can be granted, the claims against individual defendants are barred by qualified immunity. “The doctrine of qualified immunity protects government officials from liability for civil damages insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known.” Pearson v. Callahan, 555 U.S. 223, 231(2009) (internal quotations omitted). Courts should rule on qualified immunity “early in the proceedings so that the costs and expenses of trial are avoided where the defense is dispositive.” Saucier v. Katz, 533 U.S. 194, 200 (2001).

Initially, the officials must show that they acted “within the scope of their discretionary authority.” Lopez v. United States, 656 F. App'x 957, 964 (11th Cir. 2016). To defeat the officials' entitlement to qualified immunity, the plaintiff must show (1) that the officials violated a constitutional right and (2) that right was “clearly established” in a particularized sense at the time of the alleged misconduct. Pearson, 555 U.S. at 232; Saucier, 522 U.S. at 202. “The relevant, dispositive inquiry in determining whether a right is clearly established is whether it would be clear to a reasonable officer that his conduct was unlawful in the situation he confronted.” Saucier, 522 U.S. at 202.

Here, the individual defendants acted within the scope of their authority because they are IRS employees authorized and required to assess and collect taxes, see 26 U.S.C. § 6301, and to enforce the internal revenue laws, see id. §7803(a)(2). Indeed, the premise of Plaintiffs' complaint is that the individual defendants were taking actions within the scope of their discretionary authority as IRS employees. Plaintiffs cannot show that any individual defendant violated any constitutional right because no authority clearly establishes a constitutional right to participate in transactions that include federal tax deductions, but avoid any IRS scrutiny. As Plaintiffs admit, the individual defendants executed their duties with respect to their appraisal practices by investigating and, as to two Plaintiffs, assessing penalties under § 6695A. Plaintiffs simply challenge their authority to do so and disagree with their conclusion. Plaintiffs' dissatisfaction with the penalties assessed against them does not (and cannot) raise grounds for an intrusion into their constitutional rights.

Similarly, even if those rights existed, they were not “clearly established” such that the individual defendants, as reasonable IRS agents, would know that their conduct was unlawful under the circumstances. Saucier, 522 U.S. at 202; see also Curry-Bey, 2001 WL, at *6 (dismissing plaintiffs' Fourth Amendment Bivens claims under Rule 12(b)(6) because the IRS employees enjoyed qualified immunity with respect to their efforts to assess taxes, file notices of federal tax lien, levy against the plaintiffs' property, and require plaintiffs to answer questions about their finances). The individual defendants were simply doing their jobs, and Plaintiffs provide only conclusory allegations that they somehow unlawfully conspired in investigating whether Plaintiffs would be assessed appraiser penalties.

Thus, this Court should dismiss Plaintiffs' Bivens claims because the individual defendants are entitled to qualified immunity in performing their assessment and collection duties.

V. Even if the Court had jurisdiction to hear Plaintiffs' Eighth Amendment claim now, Plaintiffs also fail to state a claim under the Eighth Amendment because they do not allege how § 6695A appraiser penalties are facially unconstitutional.

Plaintiffs' Eighth Amendment claim seeks to enjoin the assessment or collection of § 6695A penalties before Plaintiffs challenge the penalties in a refund suit. As described above in part I, the Anti-Injunction Act forbids that relief. If Plaintiffs wish to challenge any penalties assessed against them based on the Eighth Amendment, they must do so in the context of a refund suit. But even if Plaintiffs brought their Eighth Amendment claim in an appropriate manner, they still fail to state a claim because they do not allege how § 6695A appraiser penalties are facially unconstitutional.

Plaintiffs do not challenge any particular penalty assessed against them. Accordingly, they must show that § 6695A penalties facially violate the Eighth Amendment. In other words, they “must establish that no set of circumstances exists under which the [penalties] would be valid.” United States v. Salerno, 481 U.S. 739, 745 (1987). Plaintiffs do not, and cannot, allege that such penalties would never be valid under any set of circumstances. Their Eighth Amendment claim, therefore, must fail.

VI. Plaintiffs failed to timely serve the United States and failed to properly serve one of the individually named defendants.

Plaintiffs' claims against the federal defendants and Melissa Ishee fail because they did not comply with the service requirements under Federal Rule of Civil Procedure 4. This Court lacks personal jurisdiction because a plaintiff must satisfy “the procedural requirement of service” for a federal court to exercise personal jurisdiction over a defendant. Managed Care Advis. Grp., LLC v. CIGNA Healthcare, Inc., 939 F.3d 1145, 1156 (11th Cir. 2019).

A plaintiff must serve a summons and the complaint within 90 days of filing the complaint. Fed. R. Civ. P. 4(m). Plaintiffs filed this action on April 2, 2021, but did not serve the U.S. Attorney's office until more than 90 days later, on August 9, 2021. ECF Nos. 1, 19. Plaintiffs also have not served the U.S. Attorney General. See Fed. R. Civ. P. 4(i).

Further, Plaintiffs have not properly served Melissa Ishee, a former IRS employee sued in her individual capacity. Plaintiffs failed to serve Ms. Ishee personally or leave the summons and complaint at her home with a person of suitable age and discretion who also resides there, or server her in a manner allowed by state law in the state where the district court is located or where service is made. See Fed. R. Civ. P. (4)(i)(3), 4(e)(1)-(2). Instead, they served Maria Keyser, an alleged authorized representative of the IRS. See ECF No. 16. Neither the Federal, Georgia, nor Florida Rules of Civil Procedure permit service on Ms. Ishee through Ms. Keyser. See Fed. R. Civ. P. (4)(i)(3), 4(e)(1)-(2); Ga. Code Ann. §9-11-4(e)(7); Fla. Stat. § 48.031(1)(a). Accordingly, this Court should dismiss the Complaint under Federal Rules of Civil Procedure 12(b)(2), (4), and (5).

CONCLUSION

Plaintiffs' various claims to thwart the IRS's enforcement efforts revolving around syndicated conservation easements fail for multiple reasons. For the reasons described above, the Court should dismiss all Plaintiffs' claims.

Dated: October 8, 2021

DAVID A. HUBBERT
Acting Assistant Attorney General

JORDAN A. ESTEBAN
LAURA M. CONNER
Trial Attorneys, Tax Division
U.S. Department of Justice
P.O. Box 14198
Washington, D.C. 20044
202-514-6472 (Esteban)
202-514-6438 (Conner)
202-514-4963 (f)
Jordan.A.Esteban@usdoj.gov
Laura.M.Conner@usdoj.gov

Of Counsel:

KURT R. ERSKINE
Acting U.S. Attorney
Northern District of Georgia