Marvel v. U.S.

• Decision Date: 13 January 1977
• Docket Number: No. 75-1825,75-1825
• Citation: 548 F.2d 295
• Parties: 77-1 USTC P 9145 Fred MARVEL and Angela Marvel, dba Marvel Photo, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 295

548 F.2d 295

77-1 USTC P 9145

Fred MARVEL and Angela Marvel, dba Marvel Photo, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.

No. 75-1825.

United States Court of Appeals, Tenth Circuit.

Submitted Sept. 21, 1976.

Decided Jan. 13, 1977.

James L. Edgar and Stephen A. Milligan of Edgar, Manipella & Hinds, Tulsa, Okl., for appellants.

Scott P. Crampton, Asst. Atty. Gen., Gilbert E. Andrews, Crombie J. D. Garrett, Francis J. Gould, Attys., Dept. of Justice, Washington, D.C., and Nathan G. Graham, U. S. Atty., Tulsa, Okl., of counsel, for appellee.

Before LEWIS, Chief Judge, and BREITENSTEIN and SETH, Circuit Judges.

LEWIS, Chief Judge.

Appellants Fred and Angela Marvel (taxpayers) seek review of a district court order denying their motion for a temporary restraining order and preliminary injunction enjoining the Internal Revenue Service (IRS) from levying on taxpayers' assets during the pendency of their suit for refund and abatement of allegedly unpaid FICA, federal withholding, and federal unemployment taxes. The issue presented is whether the relief sought is barred by the Anti Injunction Act, 26 U.S.C. § 7421(a).

I

Taxpayers, doing business as Marvel Photo, operate a general photographic studio in Tulsa, Oklahoma. On February 5, 1974, the IRS issued a notice of assessment to Marvel Photo for unpaid FICA, federal withholding, and federal unemployment taxes for the period of January 1, 1966 through December 31, 1971. On November 1, 1974, the IRS issued a series of "Final Notices Before Seizure" stating that within ten days, and without further notice, any bank accounts, receivables, commissions, or other income or property belonging to taxpayers would be levied upon or seized. On November 6, 1974, taxpayers paid the employment taxes of one alleged employee for each of the periods in question. On November 8, 1974, a claim for refund of this partial payment was filed with the IRS.

On May 29, 1975, a period of six months having elapsed without a determination of their refund claim by the IRS, taxpayers filed suit in federal district court for refund of the taxes paid and abatement of the remainder of the assessments. In conjunction with this suit taxpayers moved for a temporary restraining order and preliminary injunction enjoining the IRS from levying on taxpayers' assets during the pendency of the litigation. The district court, finding its jurisdiction to grant injunctive relief curtailed by the Anti Injunction Act, 26 U.S.C. § 7421(a), denied the motion.

II

The issue presented is one of first impression and requires us to construe the provisions of the Anti Injunction Act, 26 U.S.C. § 7421(a):

Except as provided in sections 6212(a) and (c), 6213(a), and 7426(a) and (b) (1), no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person . . . .

Despite the seemingly absolute language of the statute, it has enjoyed a long and variable history of judicial construction ranging from strict enforcement to equation with the ordinary judicial standard for equitable relief. Cf. "State Railroad Tax Cases," 92 U.S. 575, 23 L.Ed. 663, with Miller v. Standard Nut Margarine Co., 284 U.S. 498, 52 S.Ct. 260, 76 L.Ed. 422. The most recent pronouncements by the Supreme Court on this subject, however, must be read as putting an end to this cyclical pattern of construction.

But the Court's unanimous opinion in Williams Packing (Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292) indicates that the case was meant to be the capstone to judicial construction of the (Anti Injunction) 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.

Bob Jones University v. Simon, 416 U.S. 725, 742, 94 S.Ct. 2038, 2048, 40 L.Ed.2d 496. Thus, "the Court in its most recent reading (Williams Packing, supra ) gave the Act almost literal effect," subject only to a narrowly construed exception. Id. at 737, 94 S.Ct. at 2046. The parties agree that in order to invoke this judicial exception the taxpayer must clearly demonstrate "that under no circumstances could the Government ultimately prevail" and that "equity jurisdiction otherwise exists." (See discussion in part III, infra.) Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 7, 82 S.Ct. 1125, 8 L.Ed.2d 292.

Notwithstanding the literal wording of the statute and the strict construction adopted by the Supreme Court, taxpayers correctly note that the Supreme Court has never ruled directly on the availability of injunctive relief in suits for refund and that all of the reported decisions have involved suits for injunctive relief prior to any payment of the assessed tax. This absence of authority is primarily attributable to the bifurcated nature of the tax litigation system devised by Congress. In the great majority of tax cases the taxpayer has the option of paying the assessment in full and suing for a refund in district court or of litigating the assessment in the Tax Court prior to payment. In either case injunctive relief from seizure by the IRS during the pendency of the proceedings is unnecessary because the assessment has been paid in full or because seizure is ordinarily barred by statute during litigation in the Tax Court, 26 U.S.C. § 6213(a).

In cases such as the present involving employment or excise taxes, the Tax Court is without jurisdiction and ordinarily the only remedy available to the taxpayer would be full payment of the assessment followed by a suit for refund in district court. In Flora v. United States, 362 U.S. 145, 80 S.Ct. 630, 4 L.Ed.2d 623, however, the Supreme Court noted that excise taxes are divisible per transaction or event with the result that the jurisdiction of the district courts may be invoked by payment of the assessed taxes for any one transaction or event without payment of the full assessment. Id. at 175 n.38, 80 S.Ct. 630. This "partial payment" rule has been interpreted by the lower federal courts to include other assessments of "divisible" taxes, including employment and social security taxes, and the IRS has acquiesced in this interpretation. Steele v. United States, 8 Cir., 280 F.2d 89, 90-91. Thus only in this exceptional class of "partial payment" refund suits is there a possibility of IRS seizure during the pendency of district court refund proceedings.

The essence of taxpayers' arguments in support of injunctive relief from seizure during these "partial payment" refund suits is that without such relief this recognized exception to the full payment rule is rendered meaningless since the IRS could unilaterally require "full payment" at any time by levying on taxpayers' assets. ¹ Such action would not only "deprive" taxpayers of their "only available remedy," it being stipulated that they are unable to pay the full amount of the assessment without irreparable injury to their business, but would do nothing to further the purposes of the Act.

Although the Act has essentially no legislative history,

The Court has interpreted the principal purpose of (the Act) to be the protection of the Government's need to assess and collect taxes as expeditiously as possible with a minimum of preenforcement judicial interference, "and to require that the legal right to the disputed sums be determined in a suit for refund." Enochs v. Williams Packing & Navigation Co., supra, 370 U.S. at 7, 82 S.Ct. (1125) at 1129. . . .

Bob Jones University, supra, 416 U.S. at 736-37, 94 S.Ct. at 2046 (emphasis added) (citations omitted). Similarly, the Supreme Court has identified a "collateral objective" of the Act as "protection of the collector from litigation pending a suit for refund." Williams Packing, supra, 370 U.S. at 7-8, 82 S.Ct. at 1129 (emphasis added). Since their motion for injunctive relief was made only after a suit for refund had been filed, taxpayers maintain they have complied with the congressionally prescribed procedure for determining "the legal right to the disputed sums" and that both the principal and the collateral purposes of the Act have been satisfied.

Taxpayers seek support for this contention in two statements by the Supreme Court that the range of remedies available in refund suits has not been determined. In Bob Jones, supra, the Supreme Court denied petitioner's suit for injunctive relief enjoining the IRS from withdrawing its 501(c)(3) status as a tax-exempt organization prior to collection or payment of the tax, but noted:

Petitioner did not bring this case as a refund action. Accordingly, we have no occasion to decide whether the Service is correct in asserting that a district court may not issue an injunction in such a suit, but is restricted in any tax case to the issuance of money judgments against the United States. . . . We note, however, that the Service's position with regard to the range of relief available in a refund suit raises several considerations not presented by a pre-enforcement suit for an injunction. For example, it may be possible to conclude that a suit for a refund is not "for the purpose of restraining the assessment or collection of any tax . . . ," and thus that neither the literal terms nor the principal purpose of § 7421(a) is applicable. Moreover, such a suit obviously does not clash with what the Court referred to in Williams Packing, supra, as a "collateral objective of the Act protection of the collector from litigation pending a suit for refund." 370 U.S. at 7-8, 82 S.Ct. (1125) at 1129. . . .

Id., 416 U.S. at 748 n.22, 94 S.Ct. at 2051 (citations omitted). The same conclusion was reached in Commissioner of Internal Revenue v. "Americans United" Inc., 416 U.S. 752, 94 S.Ct. 2053, 40 L.Ed.2d 518, another 501(c)(3) case decided the same day as Bob Jones :

. . . As noted in Bob...