Elias v. Connett

• Decision Date: 16 July 1990
• Docket Number: Nos. 88-6232,89-55041,s. 88-6232
• Citation: 908 F.2d 521
• Parties: -5346, 90-2 USTC P 50,397 Louie N. ELIAS, Plaintiff-Appellant, v. W.H. CONNETT, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 521

908 F.2d 521

66 A.F.T.R.2d 90-5346, 90-2 USTC P 50,397

Louie N. ELIAS, Plaintiff-Appellant, v. W.H. CONNETT, et al., Defendants-Appellees.

Nos. 88-6232, 89-55041.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 4, 1990.

Decided July 16, 1990.

Louie N. Elias, Malibu, Cal., pro se.

William S. Estabrook, Tax Div., Dept. of Justice, Washington, D.C., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before ALARCON, BRUNETTI and O'SCANNLAIN, Circuit Judges.

ALARCON, Circuit Judge:

Louie N. Elias appeals pro se from the denial of his motion for preliminary injunction and from the dismissal of his first amended complaint for failure to state a claim upon which relief may be granted. ¹ Elias contends that the Internal Revenue Service (IRS) improperly assessed and collected taxes against him for the tax years 1974 through 1979, 1981, and 1982. He also contends that the United States waived its sovereign immunity to suit pursuant to 28 U.S.C. Sec. 2410. We have jurisdiction pursuant to 28 U.S.C. Secs. 1291 and 1292(a)(1). We affirm.

I

On December 19, 1984, the IRS sent Elias a statutory notice of deficiency for unpaid taxes, penalties, and interest for the tax years 1974 through 1979. On September 9, 1985, the IRS sent Elias notices on IRS Form 6641, setting forth his assessed tax deficiencies for the years 1974 through 1978. Elias failed to pay the assessments for any of the tax years in question. The IRS thus levied on Elias's funds held by Warner Brothers, Inc., Paramount Pictures Corp., Twentieth Century Fox, Universal Studios, Inc., A.S. Payroll Co., Inc., the Screen Actors Guild, and the Valley State Bank.

On March 31, 1988, Elias filed a complaint in the federal district court for the Central District of California. The complaint named W.H. Connett, District Director of the IRS in Van Nuys, California, W. Legare and James Keating, IRS revenue officers, and the United States as defendants. Elias sought (1) compensatory and punitive damages, and (2) injunctive relief to restrain the IRS from further attempting to collect the tax deficiencies assessed against him. The district court construed Elias's request for injunctive relief as a motion for preliminary injunction. The court held a hearing on the preliminary injunction issue, and on May 9, 1988, denied the motion on the ground that Elias was not entitled to equitable relief.

On May 25, 1988, the IRS filed a motion to dismiss Elias's complaint against the United States for lack of subject matter jurisdiction. A hearing was held, and on July 25, 1988, the complaint was dismissed with leave to amend to state a quiet title action under 28 U.S.C. Sec. 2410. ²

Elias filed an amended complaint on August 12, 1988 naming only the United States as defendant. On December 5, 1988, the district court dismissed the complaint without leave to amend for failure to state a claim upon which relief may be granted. The court found that because Elias failed to state a cause of action under 28 U.S.C. Sec. 2410, the United States had not waived its sovereign immunity to suit. Elias timely appeals both the denial of his motion for preliminary injunction and the dismissal of his first amended complaint.

II

We review de novo the district court's denial of a motion for preliminary injunction for lack of subject matter jurisdiction. Jensen v. IRS, 835 F.2d 196, 198 (9th Cir.1987). The district court's factual findings on jurisdictional issues must be accepted unless clearly erroneous. Id. We review the denial of a preliminary injunction on the merits for an abuse of discretion. Al-Kim, Inc. v. United States, 650 F.2d 944, 948 (9th Cir.1981).

Actions to enjoin the assessment and collection of taxes by the IRS are narrowly limited by the Anti-Injunction Act ("Act"), 26 U.S.C. Sec. 7421. Cool Fuel, Inc. v. Connett, 685 F.2d 309, 313 (9th Cir.1982). In pertinent part, the Act states that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person...." 26 U.S.C. Sec. 7421(a). There are, however, several statutory exceptions and one judicial exception to the Act. See id. Secs. 6212(a), (c), 6213(a), 6672(b), 6694(c), 7426(a), (b)(1), 7429(b); Bob Jones Univ. v. Simon, 416 U.S. 725, 736-37, 94 S.Ct. 2038, 2045-46, 40 L.Ed.2d 496 (1974).

The district court must dismiss for lack of subject matter jurisdiction any suit that does not fall within one of the exceptions to the Act. Alexander v. "Americans United" Inc., 416 U.S. 752, 757-58, 94 S.Ct. 2053, 2056-57, 40 L.Ed.2d 518 (1974); Jensen, 835 F.2d at 198. Thus, "[o]nce a taxpayer satisfies one of the exceptions to the Act, he is no longer jurisdictionally barred from seeking an injunction." Jensen, 835 F.2d at 198. The taxpayer, however, must, in addition to satisfying an exception to the Act, also allege sufficient grounds to warrant equitable relief. See id. at 198-99; Maxfield v. United States Postal Serv., 752 F.2d 433, 434 (9th Cir.1984).

A. Statutory Exceptions

Elias contends that the district court erred in denying his motion for preliminary injunction because the statutory exceptions under 26 U.S.C. Secs. 6212(a) and 6213(a) are applicable. Upon determining a deficiency against a taxpayer, the IRS is authorized to send the taxpayer a notice of deficiency. 26 U.S.C. Sec. 6212(a); Cool Fuel, Inc., 685 F.2d at 312. A statutory exception to the Act is available where the IRS: (1) assesses a deficiency before a deficiency notice is mailed; or (2) assesses, levies, or collects any deficiencies during the ninety-day period after the notice is sent. 26 U.S.C. Sec. 6213(a); Commissioner v. Shapiro, 424 U.S. 614, 616-17, 96 S.Ct. 1062, 1065-66, 47 L.Ed.2d 278 (1976); Meridian Wood Prods. Co. v. United States, 725 F.2d 1183, 1186 (9th Cir.1984). ³

1. 1974 through 1979

Elias does not dispute that the IRS sent him deficiency notices for the years 1974 through 1979. The record, moreover, demonstrates that the IRS did not assess, levy, or collect any of these deficiencies either before the notices were sent or during the ninety-day period after the notices were sent. Because the IRS complied with the requirements of sections 6212(a) and 6213(a), the exception to the Act under those sections is inapplicable for 1974 through 1979. See Shapiro, 424 U.S. at 616-17, 96 S.Ct. at 1065-66; Meridian Wood Prods. Co., 725 F.2d at 1186. ⁴ The district court therefore lacked subject matter jurisdiction to grant Elias's request for injunctive relief for those years. See Jensen, 835 F.2d at 198-99.

2. 1981 and 1982

The IRS had also assessed tax liabilities against Elias for the years 1981 and 1982. Elias alleges that the IRS failed to send him a statutory notice of deficiency for those years. He contends that he therefore could not petition the tax court for relief and that the IRS may be enjoined from continuing its collection proceedings. ⁵

The record contains no evidence that the IRS sent Elias a notice of deficiency for 1981 and 1982. On appeal, however, the IRS contends that this case presents no issue regarding Elias's taxes for 1981 and 1982. The IRS argues that the only assessments against Elias for those years were for penalties imposed under 26 U.S.C. Sec. 6682. ⁶ For that reason, the IRS contends, deficiency notices for those years were not required.

The deficiency notice requirements of sections 6212 and 6213 are limited to taxes imposed under subtitles A and B of the Internal Revenue Code ("Code"). Shaw v. United States, 331 F.2d 493, 494-96 (9th Cir.1964); accord Souther v. Mihlbachler, 701 F.2d 131, 132 (10th Cir.1983) (per curiam). Section 6682(c), a part of subtitle F of the Code, provides that "[s]ubchapter B of chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes) shall not apply in respect to the assessment or collection of any penalty imposed by subsection [6682(a) ]." 26 U.S.C. Sec. 6682(c).

The record lends some support to the IRS's argument. The clerk's record contains certificates of assessment indicating that the only assessments against Elias for 1981 and 1982 were for section 6682 penalties. At the May 9, 1988 hearing, however, the district court noted that the IRS assessed both taxes and penalties against Elias for 1981 and 1982. Moreover, the IRS itself stated that "[a]pparently the Internal Revenue Service also assessed against the taxpayer, Louie Elias, income taxes for 1981, 1982 and 1983, in the approximate amount of $11,000, together with a 100-percent penalty in the approximate amount of $6,000." Government's Opposition to Application for Injunction, CR 11 at 2.

We are thus faced with a factual dispute over whether the assessments for 1981 and 1982 were solely for section 6682 penalties or for both taxes and penalties. If the IRS is correct, then the district court lacked subject matter jurisdiction to consider Elias's claim for injunctive relief because the deficiency procedures under sections 6212 and 6213 were inapplicable. See 26 U.S.C. Sec. 6682(c). If Elias is correct then the court did have jurisdiction to consider his claim. We need not resolve this dispute, however, for even assuming that the district court had subject matter jurisdiction for 1981 and 1982, we find, as discussed in section IIC, infra, that Elias has failed to allege sufficient grounds to warrant equitable relief. ⁷

B. Judicial Exception

Elias also contends that the judicial exception to the Act applies in this case. The judicial exception to the Act requires the taxpayer to demonstrate that: (1) under no circumstances can the government ultimately prevail on the merits; and (2) the taxpayer will suffer irreparable injury without injunctive relief. Maxfield, 752 F.2d at 434. The taxpayer bears the burden of pleading and proving facts to show that the government cannot ultimately prevail. Shapiro, 424 U.S. at 628-29, 96 S.Ct....