Ed & Sharon Schwartz

[Dr. Caligari]

Anyone ever hear of these two? They have a blog up describing their "persecution" by the ebil IRS:

http://www.edsharonschwartz.blogspot.com/

[Cobalt Shiva]

The key event:

In January of 1994 we purchased a Trust for estate planning purposes. Our intentions were to protect our assets for our children and grandchildren upon our death.

They probably got sold one of those "Constitutional Pure Trusts" and assumed they'd never have to pay taxes.

They want Tommy Cryer to represent them.

Newsflash for the Schwartzes: Cryer is in a world of hurt, too.

[Famspear]

This might be the same people:

Schwartz v. Kempf, 2004-1 U.S. Tax Cas. (CCH) paragr. 50, 171 (W.D. Mich. 2004).

Edward James Schwartz and Sharon Diane Schwartz, Plaintiffs
v.
Donald A. Kempf, Carol A. Emery, John Doe, Supervisor of Donald A. Kempf, John Doe, Director of IRS, 20 John/Jane Does, Commissioner Charles A. Rossotti, and Internal Revenue Service, Defendants.

U.S. District Court, West. Dist. Mich., So. Div.; 4:02-cv-198, January 22, 2004.

ORDER ON PENDING MOTIONS


MILES, Senior District Judge: The pro se plaintiffs filed this action against the Internal Revenue Service ("IRS") and miscellaneous other federal defendants, complaining that the IRS and its agents engaged in certain alleged wrongful attempts to collect taxes. The matter is currently before the court on the following motions: Defendants' Motion to Dismiss (docket no. 32); Plaintiffs' Motion for Leave to File Amended Complaint (docket no. 39); and Plaintiffs' Motion for Summary Judgment (docket no. 42). For the reasons to follow, the court DENIES plaintiffs' motions and GRANTS the defendants' motion.

I

In their complaint, plaintiffs allege that they have been "assessed monies from prior tax years[,]" which include 1996, 1997, and 1998. Complaint, ¶1. Plaintiffs further allege that in an attempt to collect the taxes they allegedly owe, defendant Donald Kempf, an IRS agent, has been "harassing" them and their business customers, using "extortionate means, "intimidation," and "outrageous" tactics, including "issuing summons, subpoenas for records and issuing false statements." Id., ¶s 2-4. Plaintiffs allege that these actions have harmed them and their business, and damaged their reputations and their relationships with friends, business suppliers and/or customers, and others who have been contacted regarding plaintiffs' tax problems.

Plaintiffs' complaint does not identify the specific alleged collection activities at issue. However, attached to a proposed "Amended Complaint" which plaintiffs have submitted with their "Motion for Leave to Amend Complaint" are IRS summonses not for the tax years 1996, 1997, and 1998 --years for which plaintiffs allege taxes have already been assessed --but for the years 1999, 2000, 2001 --years for which the government contends no assessment has yet been made. Copies of IRS letters which plaintiffs have submitted indeed reflect that the IRS was in the process of investigating the tax years 1999 through 2001. None of the summonses which plaintiffs have submitted reflect attempts to collect taxes assessed for the years 1996 through 1998.

Plaintiffs' complaint alleges that the actions of Kempf and the various other defendants violate plaintiffs' rights under the Fourth Amendment, the Privacy Act, various provisions of the Internal Revenue Code --26 U.S.C. §§7602, 7213, and 6103 --as well as state common law. As relief, plaintiffs seek not only a declaratory judgment that their rights were violated, but also $20 million in damages.

Defendants moved to dismiss the complaint based on Fed.R.Civ.P. 12(b)(1), (2), (3), (5), and (6). Plaintiffs subsequently filed a written response to the motion, in addition to filing their own "Motion for Summary Judgment" and "Motion for Leave to File Amended Complaint."

II

Jurisdiction

One basis for the defendants' motion is Fed.R.Civ.P. 12(b)(1) --lack of subject matter jurisdiction. "Whenever it appears by the suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action." Fed.R.Civ.P. 12(h)(3). Because the court must first be convinced of its jurisdiction before taking any other action in the case, the court will address the issue of subject matter jurisdiction at the outset.

Sovereign immunity bars an action against the United States unless specifically abrogated by an act of Congress. United States v. Testan, 424 U.S. 392, 399, 96 S.Ct. 948, 953-54 (1976). The United States may be sued only insofar as it consents to be sued, and the terms of that consent to be sued in any court define that court's jurisdiction to entertain the suit. United States v. Dalm, 494 U.S. 596, 608, 110 S.Ct. 1361, 1368 (1990). A suit against the IRS or its officers or employees in their official capacity is essentially a suit against the United States and is barred by sovereign immunity absent statutory consent. Atkinson v. O'Neill, 867 F.2d 589, 590 (10th Cir. 1989); Gilbert v. Da Grossa, 756 F.2d 1455, 1458 (8th Cir. 1985). Therefore, substitution of the United States as the sole defendant is proper.

Plaintiffs have the burden of showing a waiver of sovereign immunity and establishing the court's subject matter jurisdiction over their claim. Whittle v. United States, 7 F.3d 1259, 1262 (6th Cir. 1993); Baker v. United States, 817 F.2d 560, 562 (9th Cir. 1987); see Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 377, 114 S.Ct. 1673, 1675 (1994) ("It is to be presumed that a cause lies outside [federal courts'] limited jurisdiction ... and the burden of establishing the contrary rests upon the party asserting jurisdiction"); Rogers v. Stratton Indus., Inc., 798 F.2d 913, 915 (6th Cir. 1986) ("where subject matter jurisdiction is challenged under Rule 12(b)(1) ... the plaintiff has the burden of proving jurisdiction in order to survive the motion"). If the United States has not consented to the suit, subject matter jurisdiction is lacking and the complaint must be dismissed. United States v. Mitchell, 463 U.S. 206, 212, 103 S.Ct. 2961, 2965 (1983). "General jurisdiction statutes such as 28 U.S.C. §1331 and 28 U.S.C. §1340 do not waive sovereign immunity and therefore cannot be the basis for jurisdiction over a civil action against the federal government." Berman v. United States, 264 F.3d 16, 20 (1st Cir. 2001) (citations omitted).

A

Bivens

Plaintiffs's complaint asserts that the court has jurisdiction over this action under Bivens v. Six Unknown Federal Narcotics Agents, 403 U.S. 388, 91 S.Ct. 1999 (1971). To the extent that plaintiffs sue IRS employees in their individual capacity for damages, 28 U.S.C. §1331 --the source of so-called Bivens jurisdiction --is not a waiver of sovereign immunity. Section 1331 only gives the district court jurisdiction to hear federal claims not otherwise barred. Arvanis v. Noslo Eng'g, 739 F.2d 1287, 1290 (7th Cir. 1984). Even if plaintiffs had alleged a colorable constitutional violation, federal courts have consistently declined to create Bivens remedies in the context of claims arising from the administration of the tax laws. See, e.g., Judicial Watch, Inc. v. Rossotti, 317 F.3d 401, 409-413 (4th Cir. 2003); Vennes v. Unknown Number of Unidentified Agents, 26 F.3d 1448, 1453-54 (8th Cir. 1994), cert. denied, 513 U.S. 1076, 115 S.Ct. 721 (1995); McMillen v. United States Dept. of Treasury, 960 F.2d 187, 191 (1st Cir. 1991); Wages v. IRS, 915 F.2d 1230, 1235 (9th Cir. 1990), cert. denied, 498 U.S. 1096, 111 S.Ct. 986 (1991). The remedies provided by Congress, particularly the right to sue the government for a refund of taxes improperly collected, foreclose a damages action under Bivens against the individual defendants.[fn1]

Plaintiffs also seek leave to amend their complaint, ostensibly to add allegations of another Bivens-based First Amendment claim: that the IRS has "retaliated" against plaintiffs, since the filing of this lawsuit, by serving additional summonses on other parties without notice to plaintiffs, effectively depriving plaintiffs of the opportunity to move to quash under 26 U.S.C. §7609 (more about this below). However, even if plaintiffs's proposed amended pleading could be construed to allege a colorable First Amendment violation, the law has not recognized creation of a Bivens remedy in the context of administration of the tax laws. Under the circumstances, the proposed amendment would be futile insofar as it would not provide a basis for subject matter jurisdiction.

B

Federal Tort Claims Act

The Federal Tort Claims Act ("FTCA") likewise does not provide a basis for jurisdiction over any claims for money damages here. The plaintiffs claims arise out of the assessment of taxes, and the FTCA does not waive immunity for such claims. 28 U.S.C. §2680(c); Fishburn v. Brown, 125 F.3d 979, 982 (6th Cir. 1997).

C

Taxpayer Bill of Rights

The court has also considered whether 26 U.S.C. §7433 may provide a basis for jurisdiction. This statute, known as the "Taxpayer's Bill of Rights," provides in relevant part as follows:
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 this title, or any regulation promulgated under this title, such taxpayer may bring a civil action for damages against the United States in a district court of the United States. Except as provided in section 7432, such civil action shall be the exclusive remedy for recovering damages resulting from such actions.

26 U.S.C. §7433(a). However, §7433(a), by its express terms, only applies to collection activities, and not to actions undertaken during the assessment process. Wise v. Comm'r of Internal Revenue, 168 F.Supp.2d 649, 653 (S.D. Tex. 2001). In addition, §7433 provides only a limited waiver of sovereign immunity in suits by taxpayers for unauthorized collection activities. Even where the statute applies, exhaustion of administrative remedies is a jurisdictional prerequisite to suit thereunder. 26 U.S.C. §7433(d); Fishburn, 125 F.3d at 982; Devore v. United States, 110 F.Supp.2d 1320, 1323-1324 (D. Nev. 2000).[fn2] Because plaintiffs have neither alleged nor shown that they have exhausted their administrative remedies, the court has no jurisdiction over any claims plaintiffs might have sought to bring under §7433.

D

Privacy Act

Plaintiffs generally allege that the IRS violated the Privacy Act by contacting persons regarding plaintiffs' tax situation. The Privacy Act, 5 U.S.C. §§552a et seq., "regulates the collection, maintenance, use, and dissemination of information concerning individuals." Cardamone v. Cohen, 241 F.3d 520, 524 (6th Cir. 2001) (quotations omitted). The Act "attempts to strike a balance between the government's need to collect and maintain information and the privacy interests of the person to whom such information pertains." Id. However, the Internal Revenue Code plainly states that the provisions of the Privacy Act do not apply, either directly or indirectly, to assessing the possibility of a tax liability. 26 U.S.C. §7852(e); United States v. McAnlis, 721 F.2d 334, 336 (11th Cir. 1983) (compliance with Privacy Act not a prerequisite to enforcement of IRS summons), cert. denied, 467 U.S. 1227, 104 S.Ct. 2681 (1984); Pham v. United States, 84 A.F.T.R.2d 99-5760 (N.D. Ohio 1999). In addition, the provisions of the Privacy Act are in this instance trumped by the more specific provisions of the Internal Revenue Code found in 26 U.S.C. §6103. See, e.g., Gardener v. United States, 213 F.3d 735, 740-742 (D.C. Cir. 2000) (Internal Revenue Code preempts Privacy Act for remedies for disclosure of tax information). Under the circumstances of this case, the Privacy Act does not supply a source of subject matter jurisdiction.

E

26 U.S.C. §7602

Plaintiffs also allege that the IRS violated violated [ sic] section 26 U.S.C. §7602 by contacting third parties without giving plaintiffs proper advance notice. IRS contends that section 7602(c) has no application to this case. Section 7602(c) provides in pertinent part as follows:
(c) Notice of Contact of Third Parties. --
(1) General notice. --An officer or employee of the Internal Revenue Service may not contact any person other than the taxpayer with respect to the determination or collection of the tax liability of such taxpayer without providing reasonable notice in advance to the taxpayer that contacts with persons other than the taxpayer may be made.
(2) Notice of specific contacts. --The Secretary shall periodically provide to a taxpayer a record of persons contacted during such period by the Secretary with respect to the determination or collection of the tax liability of such taxpayer. Such record shall also be provided upon request of the taxpayer.

Assuming that plaintiffs's allegation that they were not provided with the notice required in §7602, neither that statute, nor §7609 (applying to third-party summonses), provides waives the United States' sovereign immunity to the extent contemplated by plaintiffs' claims in this action. A close reading of both §§7602 and 7609 reveals that if proper notice if not provided, the taxpayer has the right to intervene in any proceeding involving enforcement of the summons, see §7609(b)(1), and may also begin a proceeding to quash the summons. §7609(b)(2)(A). Nothing in either statute gives a taxpayer the right to seek a declaratory judgment or damages based on the failure to provide notice of the issuance of a summons to investigate the taxpayer's liability.[fn3] The statutes do not provide a waiver of sovereign immunity allowing parties to seek declaratory relief and damages. Therefore, in this instance neither §7602 nor §7609 provides a basis for subject matter jurisdiction over this action.

F

26 U.S.C. §7213

Plaintiffs's complaint seemingly alleges that the IRS has violated 26 U.S.C. §7213(a)(1), which makes it unlawful for any United States employee "willfully to disclose to any person," except as authorized in Title 26, "any return or return information (as defined in section 6103(b))." However, this is a criminal statute. Nothing in this statute authorizes plaintiffs to bring a civil cause of action against either the United States or its employees. Section 7213(a)(1) does not provide a basis for subject matter jurisdiction.

G

26 U.S.C. §6103

Plaintiffs have also, in their complaint, relied on 26 U.S.C. §6103, seemingly as support for their position that "return information" is not subject to disclosure by the IRS. However, 26 U.S.C. §6103(k)(6) permits the IRS to disclose return information "to the extent that such disclosure is necessary in obtaining information, which is not otherwise reasonably available, with respect to the correct determination of tax, liability for tax, or the amount to be collected[.]" Plaintiffs have neither alleged nor shown that the limited disclosure made by the IRS was unnecessary. Section 6103(b) does not provide the court with subject matter jurisdiction over plaintiffs' action.

H

Declaratory Judgment

Finally, plaintiffs seek a declaratory judgment that their rights have been violated. However, as the defendants have correctly observed, the Declaratory Judgment Act, 28 U.S.C. §2201, expressly exempts federal tax disputes from its terms. See Flora v. United States, 362 U.S. 145, 164-165, 80 S.Ct. 630 (1960). In any event, "[t]he Declaratory Judgment Act does not create an independent basis for federal subject matter jurisdiction." Heydon v. MediaOne of Southeast Michigan, Inc., 327 F.3d 466, 470 (6th Cir. 2003). Therefore, the court does not have jurisdiction under the Declaratory Judgment Act to grant declaratory relief in this case.

Conclusion

For the reasons discussed, the court GRANTS the motion to dismiss. The court also denies plaintiffs' motion to amend and motion for summary judgment. This action is DISMISSED without prejudice for lack of subject matter jurisdiction.

So ordered.

[fn1]In addition, issuance of the summonses did not violate the Fourth Amendment in any event because plaintiffs could have no reasonable expectation of privacy in documents which are in the possession of a third party. Reimer v. United States, 43 F.Supp.2d 232, 237 (N.D. N.Y. 1999) (citing cases).

[fn2]Title 26 U.S.C. §7433(d)(1) provides as follows:

A judgment for damages shall not be awarded under subsection (b) unless the court determines that the plaintiff has exhausted the administrative remedies available to such plaintiff within the Internal Revenue Service.

[fn3]Insofar as plaintiffs' seek a declaratory judgment --an equitable remedy --this remedy would not be available to plaintiffs in any event; a petition to quash provides an adequate remedy at law.

Edit: I guess the family Schwartz is not gonna get the 20 million dollars in "damages."

[Disilloosianed]

I wish, just for once, some judge would say "Look, no matter what the IRS did to you, you and your wife combined would never be worth $20 million."

[webhick]

I wish, just for once, some judge would say "Look, no matter what the IRS did to you, you and your wife combined would never be worth $20 million."

That will only confirm that the government keeps bonds on each of us which is created when they certify our birth, and its value increases or decreases depending on how much the government thinks we're worth at any given point in time. So, the truth is that the government pre-determines at birth our true value and structures our existence so that we'll never be worth more or less than what they think we should be. And when you die, the government cashes in the bond and uses it to bribe the international bankers into increasing the national debt and inflating the dollar. So, what you have to do to escape this viscous cycle is send me $500 in FRNs, and I'll give you directions on how to destroy the government bond and reclaim your worth. It's worked for thousands of people. Since these people need to fly under the radar, I can't freely post their information. But if you send me $100 in FRNs, then I might be persuaded into providing their BOP registration number.

Just in case anyone's confused...yeah, it's all bull-pucky.

[LPC]

Ed and Sharon Schwartz are also the subject of the "Why send money to the IRS" thread.

[LPC]

They don't say, or maybe I did not read far enough, but I did not see what type of trust account they opened to protect their assets. That's a biggie right there. If they set up a prohibited trust, or what is classified as a "sham trust" that is what put them on the IRS' radar.

The indictment describes the trusts as a series of shams to which they deposited money with the intent to defraud the U.S.

See http://www.cheatingfrenzy.com/schwartz1.pdf

How quickly you all forget. Demo posted that link less than a month ago, on 2/27.

Secondly, according to their blog, they are retaining Tommy Cryer. What is his track record in these matters?

As far as I know, the sum total of Cryer's experience to date in defending criminal tax cases is from watching Larry Becraft defend him in his own case.

[Mr. Mephistopheles]

...

They want Tommy Cryer to represent them.

Newsflash for the Schwartzes: Cryer is in a world of hurt, too.

Well, according to Cryer (as of yesterday), his balance with the IRS is $0.

[Quixote]

...

They want Tommy Cryer to represent them.

Newsflash for the Schwartzes: Cryer is in a world of hurt, too.

Well, according to Cryer (as of yesterday), his balance with the IRS is $0.

Is that because his delinquent taxes have not yet been assessed?

[Mr. Mephistopheles]

...

They want Tommy Cryer to represent them.

Newsflash for the Schwartzes: Cryer is in a world of hurt, too.

Well, according to Cryer (as of yesterday), his balance with the IRS is $0.

Is that because his delinquent taxes have not yet been assessed?

I don't know. He stated that one of his YouTube videos and hasn't been back since. I wonder if there's anyone here who actually knows?