Church of Scientology of California v. U.S.

Decision Date12 December 1990
Docket NumberNo. 90-55514,90-55514
Citation920 F.2d 1481
Parties-302, 91-1 USTC P 50,004, Unempl.Ins.Rep. CCH 15812A CHURCH OF SCIENTOLOGY OF CALIFORNIA, Plaintiff-Appellant, v. UNITED STATES of America and Sandra Baker, Revenue Officer, Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

William T. Drescher, Calabasas, Cal., and Kendrick L. Moxon, Bowles & Moxon, Hollywood, Cal., for plaintiff-appellant.

Shirley D. Peterson, Asst. Atty. Gen., Gary R. Allen, William A. Whitledge, and Teresa E. McLaughlin, Tax Div., U.S. Dept. of Justice, Washington, D.C., for defendants-appellees.

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

Before ALARCON and NORRIS, Circuit Judges, and GEORGE, * District Judge.

ALARCON, Circuit Judge:

The Church of Scientology of California (Church) appeals from the denial of its request for a preliminary injunction against the Internal Revenue Service (IRS). The district court concluded it lacked subject matter jurisdiction and, therefore, was precluded from granting this relief by the Anti-Injunction Act, 26 U.S.C. Sec. 7421. The Church contends that the record demonstrates that the district court has the jurisdiction to grant equitable relief pursuant to the judicial exception to the Anti-Injunction Act. We disagree and affirm.

I

This case arises from an action filed by the Church against the IRS in which it alleged:

1. Wrongful disclosure of taxpayer information under 26 U.S.C. Sec. 6103 by improperly issuing bank levies and individual assessments.

2. Violation of the First Amendment of the United States Constitution by engaging in unlawful and arbitrary actions against the Church motivated "by an impermissible hostility to the scientology religion."

3. Violation of the due process clause of the Fifth Amendment by treating the Church and its parishioners differently from other religions.

4. Violation of the due process clause by failing to follow established IRS policy.

5. Violation of the "Taxpayers Bill of Rights" by improperly assessing the bank levies and individual assessments.

The Church presented the following version of the facts in its complaint and supporting declarations: On March 9, 1989 the IRS issued a notice of proposed adjustment of Federal Insurance Contribution Act (FICA) and Federal Unemployment Tax Act (FUTA) taxes for the tax years of 1976-1986 based upon a disallowance of the Church's tax exempt status. 1 On April 7, 1989, the Church filed a protest with the IRS challenging each proposed adjustment. The IRS rejected the protest. A supplemental protest filed on May 22, 1989, was also rejected.

Assessments were made by the IRS in July and August of 1989. Thereafter, the Church entered into discussions with Stanley Kong, IRS Examinations Branch Chief. Kong told the Church that if it made a token payment of the FICA and FUTA taxes for one employee for the period in question and submitted claims for refund and abatement the IRS would forbear attempting On October 23, 1989, Revenue Officer Sandra Baker contacted Church representatives in order to commence collection of the claimed deficiency. The Church alleges that Baker agreed that pursuant to IRS policy P-5-16, as set forth in the Internal Revenue Manual, she would forbear from attempting to collect additional funds while the administrative refund claims were pending. On January 5, 1990, Baker wrote the Church's counsel and requested a list of the Church's officers so that the IRS could make assessments for the asserted tax deficiencies directly against the responsible Church officials as authorized by 26 U.S.C. Sec. 6672. 2 The Church informed Baker that it challenged both the legitimacy of the individual assessments, and the appropriateness of any other tax collection activities while its refund claim was under consideration.

to collect the balance of the assessment while such claims were being considered. On September 22, 1989, the Church made payment of the FICA and FUTA taxes for one employee for the period in question and submitted claims for refund and abatement.

On April 4, 1990, Baker served seven notices of levy to selected banks. On April 6, 1990, the IRS mailed assessments against twenty-four individuals, including the late L. Ron Hubbard, for the purported tax deficiencies. The Church requested that the IRS release the levies. The IRS refused to do so.

On April 24, 1990, the Church filed this action in the district court. On the same date, the district court granted the Church's ex parte request and issued a temporary restraining order (TRO) to maintain the status quo of the parties and an order to show cause (OSC). On May 5, 1990, the Government filed its response to the OSC. The Government asserted that the district court lacked subject matter jurisdiction to grant injunctive relief under the Anti-Injunction Act, 26 U.S.C. Sec. 7421. In support of its claim the Government submitted a declaration signed by Baker. Baker declared that all applicable IRS regulations were complied with in making the assessment against the Church. She also declared that the Church was challenging only a part of the asserted deficiency. She declared further that the Church did not dispute that it owed $6,500,000 in taxes and interest to the Government. Baker's declaration also sets forth the factual basis for levying on each bank and how the identities of the individuals to be assessed were determined. The declaration did not include any discussion of Baker's representations to the Church concerning forbearance. The district court denied the Church's request for injunctive relief before the date set for filing of the Church's reply to the IRS's response to the OSC.

II

The Church contends that the Anti-Injunction Act does not apply when the record shows an unlawful or unconstitutional levy and extraordinary circumstances. The Church also asserts that it has met the judicial exception to the Anti-Injunction Act.

The Anti-Injunction Act, 26 U.S.C. Sec. 7421(a) provides that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed." The Anti-Injunction Act sets forth specific exceptions which, if present, will support the granting of equitable relief. The Church does not contend that the statutory exceptions are applicable to this case.

The Supreme Court has explained that the principal purpose of the Anti-Injunction Act is to preserve the Government's ability to assess and collect taxes expeditiously with "a minimum of preenforcement judicial interference" and "to require that the legal right to the disputed sums be We review de novo the denial of a motion for preliminary injunction for lack of subject matter jurisdiction. Elias v. Connett, 908 F.2d 521, 523 (9th Cir.1990) (citing 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.

                determined in a suit for refund."    Bob Jones Univ. v. Simon, 416 U.S. 725, 736, 94 S.Ct. 2038, 2045, 40 L.Ed.2d 496 (1974) (citing, Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962))
                

The Church relies upon Singleton v. Mathis, 284 F.2d 616, 618-19 (8th Cir.1960), Lassoff v. Gray, 266 F.2d 745, 747 (6th Cir.1959), and Monge v. Smyth, 229 F.2d 361, 366 (9th Cir.), cert. denied, 351 U.S. 976, 76 S.Ct. 1055, 100 L.Ed. 1493 (1956) in support of the proposition that an injunction may be ordered if the court finds that an unlawful or unconstitutional levy has been issued and if extraordinary circumstances are shown. The Church's reliance on the continued vitality of these decisions is misplaced. Each of these cases was decided prior to the 1962 Supreme Court decision in Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962). Rather than providing a separate and independent exception to the Anti-Injunction Act, the Supreme Court has instructed that these decisions are part of an earlier generation of dissonant case law which was harmonized in the Williams Packing decision. In Bob Jones University, the Supreme Court stated that:

the Court's unanimous opinion in Williams Packing indicates that the case was meant to be the capstone to the judicial construction of the Act. It spells an end to a cyclical pattern of allegiance to the plain meaning of the Act, followed by periods of uncertainty caused by a judicial departure from that meaning, and followed in turn by the Court's rediscovery of the Act's purpose.

416 U.S. at 742, 94 S.Ct. at 2048. The Court's decision in Bob Jones forecloses any reliance on the pre-Williams Packing decisions cited by the Church. In 1964, the Sixth Circuit disavowed its decision in Lassoff v. Gray as being in conflict with the Williams Packing test. Vuin v. Burton, 327 F.2d 967, 970 (6th Cir.1964). Similarly, in United States v. Dema, 544 F.2d 1373, 1376 (7th Cir.1976), cert. denied, 429 U.S. 1093, 97 S.Ct. 1106, 51 L.Ed.2d 539 (1977), the Singleton case was only cited within the context of requirements of the Williams Packing test. We have not applied that portion of the Monge decision that recognized an exception to the Anti-Injunction Act based on unusual and extraordinary circumstances since the Williams Packing decision was published. 3

The Supreme Court now recognizes a single, narrow judicial exception to the Anti-Injunction Act.

[A]n injunction may be obtained against the collection of any tax if (1) it is "clear that under no circumstances could the government ultimately prevail" and (2) "equity jurisdiction" otherwise exists, i.e., the taxpayer shows that he would otherwise suffer irreparable injury.

Commissioner v. Shapiro, 424 U.S. 614, 627, 96 S.Ct. 1062, 1070, 47 L.Ed.2d 278 (1976) (quoting Enochs v....

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