Guthrie v. Sawyer

Decision Date21 July 1992
Docket NumberNos. 91-5010,91-5011,s. 91-5010
Citation970 F.2d 733
Parties-5390, 92-2 USTC P 50,391, 23 Fed.R.Serv.3d 645 James E. GUTHRIE; Beatrice M. Guthrie, Plaintiffs-Appellants, v. K.J. SAWYER, District Director; Gary L. Collins, Chief, Special Procedures; V. Regan, Chief, Collection Division; Karen Babcock, Internal Revenue Officer; Commissioner of the Internal Revenue Service; Internal Revenue Service, Defendants, and United States of America, Defendant-Appellee. Wayne E. WELLS; Dorothy R. Wells, Plaintiffs-Appellants, v. K.J. SAWYER, District Director; Gary L. Collins, Chief, Special Procedures; V. Regan, Chief, Collection Division; Karen Babcock, Internal Revenue Officer; Commissioner of the Internal Revenue Service; Internal Revenue Service, Defendants, and United States of America, Defendant-Appellee.
CourtU.S. Court of Appeals — Tenth Circuit

James E. Guthrie and Beatrice M. Guthrie, pro se.

Wayne E. Wells and Dorothy E. Wells, pro se.

Shirley D. Peterson, Asst. Atty. Gen., Tax Div., Dept. of Justice, Gary R. Allen, David I. Pincus, and Kimberly S. Stanley, Attys., Tax Div., Dept. of Justice, Washington, D.C., and Tony M. Graham, U.S. Atty., N.D. Okl., for defendant-appellee.

Before McKAY, Chief Judge, SEYMOUR and EBEL, Circuit Judges.

SEYMOUR, Circuit Judge.

In these consolidated cases, the pro se taxpayers appeal the district court's disposition of their suits challenging the proceedings by which the Internal Revenue Service (IRS) collected federal income taxes assessed against them. James and Beatrice Guthrie contend that (1) the tax liens filed against them and the levies on their wages are invalid because the IRS failed to exercise due diligence in mailing to them the statutorily-mandated notices of deficiency, and (2) that procedurally improper assessments were executed against them. They also claim the district court erred in failing to allow them additional discovery. Wayne and Dorothy Wells assert that the IRS failed to follow correct procedures in the assessment and levy process. For the reasons set out below, we affirm the summary judgment granted against the Guthries. We reverse the summary judgment granted against the Wellses and remand for further proceedings. 1

I.

We commence our consideration of the taxpayers' claims by reviewing the applicable statutory provisions. The notice of deficiency begins the interaction between the taxpayer and the IRS. Upon the determination that a tax deficiency exists, I.R.C. § 6212 (1988) authorizes the IRS to send a notice of the deficiency to the taxpayer at his last known address. Under I.R.C. § 6213, the taxpayer ordinarily has ninety days after the mailing of the notice of deficiency to file a petition in the Tax Court challenging the deficiency determination. If the taxpayer goes to Tax Court, he may obtain a redetermination of deficiency, which amount is not assessed or required to be paid until the Tax Court decision has become final. See I.R.C. §§ 6213(a), 6215. The notice of deficiency is thus the "ticket" to the Tax Court that allows the taxpayer to challenge the tax assessment before paying it.

If the taxpayer does not go to Tax Court within ninety days, the IRS is authorized to assess the deficiency against the taxpayer, who must pay upon notice and demand. See I.R.C. § 6213(c). The IRS must give this notice, containing the amount and a demand for payment, within sixty days of making the assessment. See I.R.C. § 6303(a). If the deficiency is not paid, a lien arises in favor of the United States on all real and personal property of the taxpayer, see I.R.C. § 6321, as of the time the assessment is made, see I.R.C. § 6322. The IRS is also authorized to levy upon the taxpayer's property, after notice, to recover unpaid taxes. See I.R.C. § 6331.

A taxpayer who wishes to challenge the activities of the IRS in sending a notice of deficiency or issuing a notice of assessment and demand for payment must bring suit under a statute that waives the sovereign immunity of the United States. See generally United States v. Dalm, 494 U.S. 596, 110 S.Ct. 1361, 108 L.Ed.2d 548 (1990). 2 The Anti-Injunction Act, 26 U.S.C. § 7421 (1988), prohibits suits restraining the assessment or collection of taxes, with a significant exception relevant to the Guthries. Section 6213(a) of the Act specifically authorizes an injunction prohibiting an assessment or levy when the taxpayer has not received a notice of deficiency.

In addition, 28 U.S.C. § 2410 (1988) authorizes civil actions against the United States to, inter alia, quiet title to "real or personal property on which the United States has or claims a mortgage or other lien." While section 2410(a) thus waives sovereign immunity for quiet title actions involving tax liens, that section may "not be construed as permitting a collateral attack on the merits of a tax assessment." Schmidt v. King, 913 F.2d 837, 839 (10th Cir.1990). "When the taxpayer challenges the procedural regularity of the tax lien and the procedures used to enforce the lien, and not the validity of the tax assessment, sovereign immunity is waived and the district court does have jurisdiction over a quiet title action." Id.

Although the above-quoted language is consistent with unanimous federal authority on the issue, see, e.g., Hughes v. United States, 953 F.2d 531, 538 (9th Cir.1992); McCarty v. United States, 929 F.2d 1085, 1088 (5th Cir.1991), other language in Schmidt states, to the contrary, that "[s]ection 2410 does not extend to challenges for procedural irregularities in assessment or collection of taxes." Schmidt, 913 F.2d at 839. To eliminate confusion caused by this inconsistency, we now disapprove the latter statement and specifically hold that while a quiet title action may not be used to seek review of the amount of tax liability assessed, that statute does waive sovereign immunity with respect to procedural violations arising from assessment, levy, and seizure. 3

We also take this opportunity to discuss the interrelationship of the quiet title statute and the statutory exception to the Anti-Injunction Act, and to clarify those challenges that may properly be brought under each provision. Other courts that have addressed the issue have reached differing results. See Geiselman v. United States, 961 F.2d 1, 4 n. 1 (1st Cir.1992) (noting disagreement over whether alleged defect in notice of deficiency may be brought in quiet title action under section 2410). In Robinson v. United States, 920 F.2d 1157 (3d Cir.1990), the court considered a quiet title action under section 2410 challenging a tax lien on the ground that the taxpayer had failed to receive a notice of deficiency. Although recognizing that section 2410 cannot be used to challenge the existence or extent of substantive tax liability, see id. at 1159, the court nonetheless allowed the lack of a deficiency notice to be challenged in a quiet title action apparently upon concluding that the taxpayer had no other forum in which to raise the issue, see id. at 1160-61. This conclusion is troublesome.

As set out above, the statutory exception to the Anti-Injunction Act provided by I.R.C. § 6213(a) specifically authorizes an injunction prohibiting an assessment or levy when the taxpayer has not received a deficiency notice. The court in Robinson stated that notwithstanding this statutory language, an injunction would be unavailable if the taxpayer had an adequate remedy at law. The court further held that the option to pay the tax and then file a refund action is such a legal remedy. Whether a taxpayer must show the lack of a remedy at law to invoke the statutory exception to the Anti-Injunction Act is an issue on which the circuits are split. See Keado v. United States, 853 F.2d 1209, 1214 n. 13 (5th Cir.1988) (recognizing split without taking position on the issue and citing cases). One leading commentator has stated that "[s]ection 6213 does not require a showing of irreparable injury as a prerequisite to injunctive relief." J. Mertens, Jr., Mertens Law of Federal Income Taxation § 49E.39 (1991). This position appears to us to be the better view. The purpose of the statutory exception is to preserve the taxpayer's right to litigate his tax liability in Tax Court before paying the tax. If the availability of a refund suit after payment prohibits the taxpayer from obtaining an injunction to protect his right to litigate first, that right is virtually meaningless. Under this approach, this right would be available only upon a showing that the taxpayer could not pay the tax. We have difficulty believing that Congress intended to give with one hand and take back with the other.

We perceive another logical flaw in the Robinson court's position. The failure to receive a notice of deficiency is grounds for injunctive relief because lack of the notice prevents the taxpayer from going to Tax Court. The only reason a taxpayer wants to go to Tax Court is to challenge the amount of the deficiency. As we have noted, the law is clear that a challenge to the amount of the alleged deficiency cannot be raised in a quiet title action. Nevertheless, the court in Robinson granted relief in a quiet title action based on the taxpayer's failure to receive a notice of deficiency even though the taxpayer admitted he owed the taxes and thus had no reason to go to Tax Court.

The court in Elias v. Connett, 908 F.2d 521 (9th Cir.1990), contrary to the holding in Robinson, did not permit the taxpayer to raise in a quiet title action the failure to get a notice of deficiency, concluding as we do that this claim addressed "the merits of [the taxpayer's] assessment rather than the procedural validity of the IRS's lien." Id. at 527. Although we agree with Elias that a claim based on the failure to receive a notice of deficiency is in essence an attack on the amount of tax liability asserted, we do not agree with that court's apparent position that a taxpayer invoking the statutory ...

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