Flynn v. U.S. By and Through Eggers

• Decision Date: 19 March 1986
• Docket Number: No. 85-5323,85-5323
• Citation: 786 F.2d 586
• Parties: -1022, 86-1 USTC P 9285 FLYNN, M. Rutledge, v. UNITED STATES of America by and through EGGERS, Roscoe Commissioner of Internal Revenue. Appeal of M. Rutledge FLYNN.
• Court: U.S. Court of Appeals — Third Circuit

Page 586

786 F.2d 586

57 A.F.T.R.2d 86-1022, 86-1 USTC P 9285

FLYNN, M. Rutledge, v. UNITED STATES of America by and through EGGERS, Roscoe Commissioner of Internal Revenue Appeal of M. Rutledge FLYNN.

No. 85-5323.

United States Court of Appeals Third Circuit.

Argued Jan. 6, 1986.

Decided March 19, 1986.

Patrick E. Dougherty, Dougherty, Mundy & Leventhal, Kingston, Pa., Edward J. Schoen, (argued), Reisinger & Associates, P.C., Wilkes-Barre, Pa., for appellant.

Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup, Wynette J. Hewett, Matthew J. Anderton, (argued), Washington, D.C., for appellee.

Before GARTH and STAPLETON, Circuit Judges, and BISSELL, District Judge ^*

OPINION OF THE COURT

STAPLETON, Circuit Judge:

M. Rutledge Flynn ("Taxpayer") brought this suit in the district court to enjoin collection by the Internal Revenue Service ("The Service") of federal income taxes, penalties, and interest purportedly owed for the taxable years 1974, 1975 and 1976. Jurisdiction was predicated on 28 U.S.C. Sec. 1340. The district court dismissed the complaint and Flynn appealed. Appellate jurisdiction exists by virtue of 28 U.S.C. Sec. 1291. We reverse the district court's decision and remand.

I

Taxpayer and his wife filed joint federal income tax returns for 1974, 1975 and 1976. Thereafter they were divorced. In August, 1981, the Service proposed certain adjustments to Taxpayer's tax liabilities for those years. He objected to the proposal and began negotiating with the Service in an attempt to reach a settlement. During the negotiations Taxpayer and his former spouse executed extensions of the limitations period for assessment of the taxes. The last of these extensions apparently expired on June 30, 1982.

The Taxpayer and a Service representative tentatively arrived at a satisfactory settlement, memorialized on Service Form 870-AD, which the Taxpayer signed. This form, labelled "Offer of Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and of Acceptance of Overassessment," includes the following provisions:

[T]he undersigned offers to waive the restrictions provided in section 6213(a) of the Internal Revenue Code ... and to consent to the assessment and collection of the following deficiencies with interest as provided by law.

* * *

This offer is subject to acceptance for the Commissioner of Internal Revenue. It shall take effect as a waiver of restrictions on the date it is accepted. Unless and until it is accepted, it shall have no force or effect.

* * *

If this offer is accepted ... the case shall not be reopened....

If this offer is executed with respect to a year for which a JOINT RETURN OF A HUSBAND AND WIFE was filed, it must be signed by both spouses unless one spouse, acting under a power of attorney, signs as an agent for the other.

* * *

Taxpayer's former spouse refused to sign the form. Nonetheless, Taxpayer mailed the form to the Service in June, 1983, allegedly to show his good faith. The Service signed it on September 8, 1983, but it is not clear when the Taxpayer was informed of this acceptance. Subsequently, the Service, without first issuing a formal notice of deficiency to Taxpayer, began to collect taxes, penalties and interest for years 1974, 1975 and 1976.

II

Before the district court, Taxpayer argued that the assessments should be restrained because he was not first issued a notice of deficiency as required by 26 U.S.C. Section 6213(a). ¹ Taxpayer further argued, citing Accardi v. Shaughnessy, 347 U.S. 260, 74 S.Ct. 499, 98 L.Ed. 681 (1954), that he was entitled to an injunction because the Service conduct violated its own procedural rules. Finally, Taxpayer argued that injunctive relief was justified under Enochs v. Williams Packing and Navigation Company, 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962), because the statute of limitations absolutely bars the assessments.

The district court ruled only on the Williams Packing claim, which it decided in favor of the Service. The district court apparently found it unnecessary to address Taxpayer's other arguments after it found that the parol evidence rule precluded Taxpayer from introducing certain evidence necessary to those claims.

III

A. THE ANTI-INJUNCTION ACT

The government argues that the Anti-Injunction Act, Section 7421(a), which proscribes most suits instituted to enjoin the collection of taxes, bars the instant suit. Section 7421(a) states:

Except as provided in sections 6212(a) and (c), 6213(a), 6672(b), 6694(c), 7426(a) and (b)(1) and 7429(b), 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 object of Section 7421(a) is to withdraw jurisdiction from the state and federal courts to entertain suits seeking injunctions prohibiting the collection of federal taxes." Williams Packing, 370 U.S. at 5, 82 S.Ct. at 1128. The Act thus insulates the collection of taxes in most cases from judicial intervention, and requires that the legal right to disputed sums be determined in a suit for refund. Id.

The prohibition against injunctions is not, however, absolute. In certain circumstances, the Internal Revenue Code provides for the issuance of an injunction, notwithstanding Section 7421(a). Taxpayer claims that one such statutory exception, Section 6213(a), applies here. ²

Under Section 6213(a), if the Service discovers a tax deficiency, it must give notice to the taxpayer before it can initiate collection proceedings. The taxpayer may, within ninety days after mailing of the notice, petition the Tax Court for redetermination of the deficiency. During the ninety day period, and if the taxpayer seeks redetermination, until the final decision of the Tax Court, no assessment, levy or court proceeding for the collection of the deficiency may be made or brought. A suit to enjoin the assessment of a deficiency is permissible if the taxpayer has not been mailed a notice of deficiency and afforded the opportunity for review in the Tax Court. See Commissioner v. Shapiro, 424 U.S. 614, 618, 96 S.Ct. 1062, 1066, 47 L.Ed.2d 278 (1976); Sherman v. Nash, 488 F.2d 1081, 1083-84 (3d Cir.1973); see also Perlowin v. Sassi, 711 F.2d 910, 911 (9th Cir.1983); Cool Fuel, Inc. v. Connett, 685 F.2d 309 (9th Cir.1982); Philadelphia & Reading Corporation v. Beck, 676 F.2d 1159 (7th Cir.1982).

A separate, judicially-created exception to Section 7421(a) was formulated by the Supreme Court in Williams Packing:

[I]f it is clear that under no circumstances could the government ultimately prevail, the central purpose of the [Anti-Injunction] Act is inapplicable and ... the attempted collection may be enjoined if equity jurisdiction otherwise exists. In such a situation the exaction is merely "in the guise of a tax."

Williams Packing, 370 U.S. at 7, 82 S.Ct. at 1129 (citations omitted).

Taxpayers must meet two independent requirements before Williams Packing will support a claim for injunctive relief. First, when the facts and law are examined in the light most favorable to the government, it must appear that the government cannot prevail on the merits. Williams Packing, 370 U.S. at 7, 82 S.Ct. at 1129. Second, because Williams Packing did not alter the long-established prerequisites for equitable relief, there must also be an independent basis for the court to exercise its equitable jurisdiction. Id. See South Carolina v. Regan, 465 U.S. 367, 374, 104 S.Ct. 1107, 1112, 79 L.Ed.2d 372 (1984); Bob Jones University v. Simon, 416 U.S. 725, 737, 94 S.Ct. 2038, 2046, 40 L.Ed.2d 496 (1974).

The Williams Packing exception to the Anti-Injunction Act is distinct from and in addition to those exceptions contained in the text of Section 7421(a) itself. Williams Packing recognized that where there is no basis for the government position, the government exaction is merely in the "guise of a tax." The exceptions listed in Section 7421(a), e.g., Section 6213(a), address the obverse situation where the government attempts to collect what admittedly is a tax. Thus, a taxpayer proceeding under Section 6213(a) need not satisfy Williams Packing in addition to the requirements imposed by Section 6213(a).

Thus, contrary to the government's position in this litigation, the Williams Packing prerequisite--that under the most liberal view of the law and the facts, it is apparent that the Service cannot justify its position--only applies to the judicially-crafted exception and need not be met when a taxpayer is proceeding under one of the statutory exceptions to Section 7421(a). Accordingly, a court, when assessing a Section 6213(a) claim, may not view the facts and law in the light most favorable to the Service, as required when reviewing a Williams Packing claim. Rather, the court is required to make findings of facts and law.

Finally, Taxpayer argues that there is a third relevant exception to the Anti-Injunction Act. He cites Accardi v. Shaughnessy, 347 U.S. 260, 74 S.Ct. 499, 98 L.Ed. 681 (1954), for the proposition that an administrative agency's failure to adhere to its own internal operating procedures may justify injunctive relief to prevent injury to one who has relied on those procedures. While the teaching of the Accardi case provides a basis for injunctive relief in some circumstances, it does not address the issue of whether the Anti-Injunction Act may be circumvented by pointing to procedural errors in the Service's collection efforts. We find it unnecessary to resolve that issue in this case. The only procedural defect that Taxpayer has alleged in the collection proceedings and, accordingly, the only possible basis for an injunction barring collection, is the failure of the Service to issue a notice of deficiency. ³ If the form Taxpayer signed did not waive the right to this notice, Taxpayer will be entitled to injunctive relief pursuant to the express provisions of ...