521 F.2d 56 (9th Cir. 1975), 74-1922, Shannon v. United States
|Citation:||521 F.2d 56|
|Party Name:||Carol Smith SHANNON, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.|
|Case Date:||July 29, 1975|
|Court:||United States Courts of Appeals, Court of Appeals for the Ninth Circuit|
Rehearing and Rehearing En Banc Denied Sept. 15, 1975.
Harry D. Steward, U. S. Atty., San Diego, Cal., Scott P. Crampton, Gilbert E. Andrews, Tax Div., Dept. of Justice, Washington, D.C., for defendant-appellant.
William P. Shannahan, LaJolla, Cal., Higgs, Fletcher & Mack, San Diego, Cal., for plaintiff-appellee.
Before TUTTLE [*], HUFSTEDLER and WRIGHT, Circuit Judges.
EUGENE A. WRIGHT, Circuit Judge:
The government appeals from two orders by which the district court (1) denied the defendant's motion to dismiss for lack of jurisdiction and (2) granted a preliminary injunction against the Internal
Revenue Service (IRS) enjoining the enforcement of a levy against Shannon's assets. This court has jurisdiction under 28 U.S.C. § 1292(a)(1). 1
On August 1, 1973 a jeopardy assessment was made against C. Arnholt Smith for over $22.8 million for unpaid 1969 income taxes. On October 3 of that year a notice of levy was served upon Carol Smith Shannon, appellee, as the alleged nominee, agent, or transferee of Mr. Smith.
The notice of levy for approximately $23.3 million sought to attach all of Smith's interest in $478,366.35 allegedly withdrawn by Shannon from an account in the United California Bank about August 3, 1973.
About October 19, 1973, pursuant to 26 U.S.C. §§ 6861(a) and 6901 (I.R.C.1954), 2 a jeopardy transferee assessment was made against Shannon for over $2.6 million, a notice of levy was served and a lien filed against Shannon's property in the county recorder's office. The amount of the transferee assessment was later reduced to $630,635.90 and on December 11 a statutory notice of deficiency in the amount of the transferee assessment was issued to Shannon.
She then sought an injunction against the enforcement of the levy and other relief. The United States, appellant, moved for dismissal. The district court denied the motion to dismiss and granted the preliminary injunction pending a determination of the action on its merits.
(1) Did the district court have jurisdiction under 28 U.S.C. § 1346(e)?
(2) If not, did the district court have jurisdiction on any other basis? We answer both questions in the negative.
The provisions of 26 U.S.C. § 7421 (I.R.C.1954) provide the backdrop against which both issues must be discussed. 3 Section 7421 not only prohibits suits to restrain the assessment or collection of a tax, but also prevents the district court from granting such equitable relief. Enochs v. Williams Packing Co., 370 U.S. 1, 5, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962). Unless one seeking to enjoin the IRS brings herself within a statutory or judicially-created exception to § 7421, the district court has no jurisdiction and the suit for injunction is barred. 370 U.S. at 7, 82 S.Ct. 1125.
The district court based jurisdiction on 28 U.S.C. § 1346(e), the jurisdictional counterpart of U.S.C. § 7426 (I.R.C.1954). Applicable provisions of § 7426 give a civil action against the United States to
third persons whose assets have been wrongfully levied against by the IRS. 4
Shannon argues that despite being assessed as a transferee she comes within the provisions of § 7426 and the district court thus has jurisdiction under § 1346(e). She reasons that: the prohibition of § 7421(b)(1) applies only to an actual transferee; the IRS was wrong in assessing her as such and the district court should therefore find that she is not a transferee; and once found not to be a transferee the injunction should be granted under § 7421(a) with its § 7426 exception. 5
The fatal flaw in this analysis is that it fails to take into account the literal language of § 7426. Clearly, the section was not intended for those assessed as transferees.
First, the § 7426 remedies are denied to "the person against whom is assessed the tax out of which such levy arose." 6 The undeniable fact is that the October 19 jeopardy transferee assessment was made against Shannon herself. That assessment is the one out of which the levy arose.
Shannon argues that it is Smith, not she, contemplated by § 7426 when it speaks of "the person against whom is assessed the tax . . .." This may have been true at the time of the first levy (October 3). 7 It certainly was not true of the second (October 23), made after she was assessed in her own right as a transferee. One who has been assessed as a transferee cannot argue that the assessment was not made against her.
Second, one who sues under § 7426 cannot challenge the validity of the assessment. 26 U.S.C. § 7426(c) (I.R.C.1954). 8...
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