Koger v. U.S., 84-1315

• Decision Date: 26 February 1985
• Docket Number: No. 84-1315,84-1315
• Citation: 755 F.2d 1094
• Parties: -925, 85-1 USTC P 9220 Douglas B. KOGER and Palma Koger, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1094

755 F.2d 1094

55 A.F.T.R.2d 85-925, 85-1 USTC P 9220

Douglas B. KOGER and Palma Koger, Appellants, v. UNITED STATES of America, Appellee.

No. 84-1315.

United States Court of Appeals, Fourth Circuit.

Argued Oct. 31, 1984.

Decided Feb. 26, 1985.

William H. Thomas, III, Greenville, S.C. (Dobson & Dobson, Greenville, S.C., on brief), for appellants.

Nancy Morgan, Tax Div., Dept. of Justice, Washington, D.C. (Glenn L. Archer, Jr., Asst. Atty. Gen., Washington, D.C., Charles R. Brewer, U.S. Atty., Asheville, N.C., Michael L. Paup, William S. Estabrook, Tax Div., Dept. of Justice, Washington, D.C., on brief), for appellee.

Before WIDENER, PHILLIPS and ERVIN, Circuit Judges.

WIDENER, Circuit Judge:

This is an appeal of an order entered by the district court dismissing a complaint filed by the taxpayers seeking to enjoin the government from collecting assessed income tax deficiencies. The taxpayers' complaint also sought a release of a federal tax lien which the Internal Revenue Service (IRS) had filed against the taxpayers' property after deficiency assessments had been made. The government moved to dismiss the taxpayers' complaint for failure to state a claim upon which relief could be granted, and the district court dismissed the case on that ground pursuant to FRCP 12(b)(6). It is from this dismissal order that the taxpayers took their appeal. We agree that the complaint should be dismissed, but on a different ground.

Douglas B. Koger and Palma Koger (taxpayers) were residents of Cocoa Beach, Florida in 1978 and 1979, and, for the years at issue here, the taxpayers' income tax returns indicated a Cocoa Beach address. In 1981, the taxpayers became residents of Blowing Rock, North Carolina and indicated this new address on their 1981 income tax return. Despite their change in address, when the IRS, Florida District, determined that deficiencies existed for the Kogers' tax years of 1978 and 1979, a statutory notice of deficiency was sent by certified mail to the Kogers in 1982 at their Cocoa Beach, Florida address. Although this notice was returned undeliverable, the IRS assessed deficiencies against the taxpayers for tax years 1978 and 1979. The taxpayers claim that they first received notice of the tax deficiencies in April 1983, after the IRS had already made the deficiency assessments. They also assert that they never received actual notice of the proposed deficiency. ¹ While the Kogers maintain that they have not received the statutory notice of deficiency, see IRC Sec. 6212, ² upon receiving notice of the assessments, taxpayers through their accountant informed the IRS that no notice of the proposed deficiency had been received prior to the deficiency assessments. Additionally, the Kogers allege that, after the IRS notified them of the 1978 and 1979 assessments, they requested the IRS to send actual notice of deficiency, but that the IRS failed to do so prior to its filing of a federal tax lien against the taxpayers in October 1983.

A few weeks after the IRS filed its tax lien, the taxpayers brought suit in the district court seeking to enjoin the IRS from collecting the assessments for 1978 and 1979 and to require release of the federal tax lien. Essentially, the Kogers' complaint alleged that any assessment or collection effort by the IRS in respect of tax deficiencies for 1978 and 1979 would be improper because the IRS failed to provide an adequate notice ³ of the proposed deficiency, prior to assessment, as required by IRC Secs. 6212, 6213. As a result of this failure to comply with IRC provisions, the taxpayers alleged that they would suffer irreparable injury if the court failed to issue the injunction because further illegal collection activity by the IRS would continue to impair their business reputation and ability to transact business. The complaint further alleged that since payment of the illegally assessed taxes would damage the taxpayers' business interests irreparably, no adequate remedy at law existed to preclude the issuance of an injunction.

As stated, the government filed a motion to dismiss the Kogers' complaint under FRCP 12(b)(6), which the district court granted, and taxpayers appealed. While this appeal was pending, however, the taxpayers fully paid the assessed income tax deficiencies, as well as the penalties and interest thereon, and thereby effected a release of the federal tax lien.

Because the taxpayers have paid fully the assessed deficiencies as well as the penalties and interest thereon, we must consider whether such payment, during the pendency of this appeal, has rendered the case moot. Article III of the Constitution limits our power to hear only those cases involving an actual case or controversy. Furthermore, actual controversy must exist at all stages of review rather than only at the time of the filing of the complaint. Steffel v. Thompson, 415 U.S. 452, 459 n. 10, 94 S.Ct. 1209, 1215 n. 10, 39 L.Ed.2d 505 (1974). Therefore, even if a controversy existed at the time the Kogers filed their complaint, we are without jurisdiction to hear their appeal if payment of the deficiencies has rendered the case moot during the appeal. State of California v. San Pablo & Tulare Railroad, 149 U.S. 308, 13 S.Ct. 876, 37 L.Ed. 747 (1893). Accordingly, only upon a finding that the case is not moot may we reach the merits of the case.

Generally, subject only to quite limited exceptions, when a court denies a taxpayer's request for an injunction to prohibit his government from collecting taxes, an appeal of this denial presents a moot question over which an appellate court has no jurisdiction, if the taxpayer has paid the taxes during the pendency of the appeal. Singer Manufacturing Co. v. Wright, 141 U.S. 696, 12 S.Ct. 103, 35 L.Ed. 906 (1891); Little v. Bowers, 134 U.S. 547, 10 S.Ct. 620, 33 L.Ed. 1016 (1890); R.J. Reynolds Tobacco Co. v. Robertson, 80 F.2d 966 (4th Cir.), cert. denied, 297 U.S. 719, 56 S.Ct. 596, 80 L.Ed. 1004 (1936); see also Harvey v. Early, 160 F.2d 836, 837 (4th Cir.1947).

Notwithstanding the fact that payment of the taxes and release of the tax lien have been accomplished during the pendency of this appeal, the taxpayers argue that the appeal of the dismissal order nevertheless is not moot. While we in no way condone the fact that the taxpayers have been denied a prepayment forum in the Tax Court because they did not receive the statutory notice of deficiency, this denial of a prepayment forum does not obviate the fact that the deficiencies have been fully paid, and whatever our concerns with the government's method, we nonetheless lack jurisdiction to hear the case unless an actual controversy exists.

Turning to their contentions, we first consider two interrelated arguments which, essentially, ask us to find this case not moot for policy reasons. More specifically, the taxpayers claim that since Congress drafted an explicit exception to the Anti-Injunction Act ⁴ to enable taxpayers to contest alleged deficiencies, prior to payment, by filing a petition in the Tax Court within 90 days of receiving notice of a proposed deficiency, the procedure employed here by the IRS in failing to give effective notice within this 90-day period defeats Congressional intent to provide a prepayment forum. Thus, taxpayers claim that this procedure, maintained as proper by the IRS, presents an important public issue inasmuch as the IRS has frustrated Congressional intent and has undermined the jurisdiction of the Tax Court. Because, the argument goes, this is a significant public issue with a likelihood of repetition, public interests would be undermined if the appeal were held moot. We...