Pascoe v. IRS

• Decision Date: 17 February 1984
• Docket Number: Civ. A. No. 83CV-6472-AA.
• Parties: Don C. PASCOE, Plaintiff, v. INTERNAL REVENUE SERVICE and I.R.S. Agent H. Novy, and Zantop International Airlines and Zia Agent H. Zantop, Defendants.
• Court: U.S. District Court — Western District of Michigan

580 F. Supp. 649

Don C. PASCOE, Plaintiff, v. INTERNAL REVENUE SERVICE and I.R.S. Agent H. Novy, and Zantop International Airlines and Zia Agent H. Zantop, Defendants.

Civ. A. No. 83CV-6472-AA.

United States District Court, E.D. Michigan, S.D.

February 17, 1984.

Don C. Pascoe, Ypsilanti, Mich., for plaintiff.

James H. Loree, Ypsilanti, Mich., Charles H. Fash, Tax Div., Dept. of Justice, Washington, D.C., Lynn K. Richardson, Asst. U.S. Atty., Detroit, Mich., for defendants.

MEMORANDUM OPINION AND ORDER

JOINER, District Judge.

This case is before the Court on plaintiff's motion for a preliminary injunction, and on the motions of all four defendants to dismiss and for attorney's fees. For the reasons stated herein, plaintiff's motion is denied, and the motions of the defendants are granted.

The facts in this case are undisputed. Plaintiff filed a W-4 form indicating that he would not incur any federal income tax liability for the year 1983. The I.R.S. has regulatory authority to disregard the W-4 form if it has reason to believe that the information contained therein is false, and to order the employer to withhold taxes from the taxpayer's wages, 26 C.F.R. § 31.3402(f)(2)-(1)(g)(5).¹ Plaintiff's employer, Zantop International Airlines (ZIA) consequently began to withhold taxes from plaintiff's wages according to the schedule established for a person claiming a single exemption.

Plaintiff filed suit in this Court against ZIA, ZIA agent H. Zantop, the I.R.S., and I.R.S. agent H. Novy, alleging that the conduct of the defendants amounted to an "illegal distraint" upon plaintiff's property, seeking declaratory and injunctive relief, and an award of money damages.

PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION

Plaintiff has moved for a preliminary injunction, prohibiting the defendants from continuing to withhold taxes from his wages, and ordering them to return to plaintiff taxes already withheld.

Ordinarily, a party seeking preliminary injunctive relief must demonstrate four things: (1) that there is a substantial likelihood that he will prevail on the merits; (2) that failure of the Court to grant the requested relief will result in irreparable injury (also described as a showing that the party seeking relief is without an adequate remedy at law); (3) that the balance of hardships, taking into account the hardship that will result to the party seeking relief if relief is denied, and the hardship that will result to the party opposing the relief if relief is granted, tips decidedly in favor of the party seeking relief; and (4) that public policy militates in favor of granting the requested relief, see e.g. Lundgrin v. Claytor, 619 F.2d 61, 63 (10th Cir.1980). In a case such as this in which a person is seeking to enjoin the Internal Revenue Service from collecting taxes however, the plaintiff must meet a much stiffer burden. Section 7421(a) of the Internal Revenue Code provides in pertinent part that:

No suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person.

The Supreme Court has determined that this prohibition is somewhat less than absolute. In Enochs v. Williams Packing and Navigation Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962) the Court indicated that a taxpayer could obtain an injunction against collection of taxes only if he could demonstrate that (1) the government could not possibly prevail on the merits, and (2) failure to grant injunctive relief would result in irreparable harm to the taxpayer.

Plaintiff has failed to demonstrate either of these requirements in this case. As the following discussion of the government's motion to dismiss indicates, plaintiff has not prevailed on the merits of this case, let alone demonstrated that the government could not prevail. Second, even if the plaintiff could have made the required showing with respect to the merits, he is not irreparably injured by the refusal of the Court to grant his request for injunctive relief. Plaintiff has a perfectly adequate remedy at law, a suit for refund as authorized by 26 U.S.C. § 7422, see Flowers v. Commissioner of I.R.S., 573 F.Supp. 21, 22 (W.D.Mich.1983).

For the foregoing reasons, the plaintiff's motion for preliminary injunction is denied.

MOTION OF DEFENDANTS INTERNAL REVENUE SERVICE AND NOVY TO DISMISS

The governmental defendants have advanced several separate grounds for dismissal of this case. The Court concludes that two of these grounds justify dismissal of the entire action against those defendants and therefore grants the motion.

The governmental defendants urge that this action is barred by operation of the Anti-Injunction Act, 26 U.S.C. § 7421(a). Insofar as plaintiff is requesting injunctive relief against the I.R.S. and Novy, i.e. an order prohibiting them from withholding taxes in the future, and compelling those defendants to return to plaintiff taxes already withheld, the Court refers to its holding supra that plaintiff has failed to make the requisite showing of virtual certainty of victory on the merits and of irreparable harm. His claim for injunctive relief against the I.R.S. and Novy is therefore dismissed by operation of the Anti-Injunction Act.

The Anti-Injunction Act, however, cannot serve as a bar to plaintiff's action at law for damages against Novy, see Graham v. United States, 528 F.Supp. 933, 938 (E.D.Pa.1981). Such a claim, broadly construed, is one for violation of constitutional rights against a federal official acting beyond the scope of his statutory authority, cf. Bivens v. Six Unknown Named F.B.I. Agents, 403 U.S. 388, 91 S.Ct. 1999, 29 L.Ed.2d 619 (1971).

The government defendants urge as an alternative ground for dismissal the failure of plaintiff to state a cause of action upon which relief can be granted. Plaintiff has alleged that the withholding of his federal income taxes is neither authorized by federal statute, nor is the taking of such income prior to a judicial determination of liability consonant with the due process clause of the Fifth Amendment.

THE STATUTORY CLAIMS

As an initial matter, plaintiff asserts that the wages that he received from ZIA did not constitute "income" as that term is used in 26 U.S.C. § 61, and that such wages are therefore not subject to taxation. This argument is, of course, wholly without merit. Although § 61 does not by its terms define income, the courts have repeatedly stated that the term is broad enough to include as compensation any economic or financial benefit from any source, conferred in any form on any employee, see e.g. Ritter v. United States, 393 F.2d 823 (Ct.Cls.), cert. denied 393 U.S. 844, 89 S.Ct. 127, 21 L.Ed.2d 115 (1968). Such a broad definition of "income" certainly would encompass the primary and perhaps only source of compensation that plaintiff receives from his employer, his wages.

Plaintiff next contends that the I.R.S. cannot disregard a taxpayer's statement concerning exempt status on his W-4 form, citing 26 U.S.C. § 3402(n). The relevant portion of that statute provides:

Notwithstanding any other provision of this section, an employer shall not be required to deduct and withhold any tax under this chapter upon a payment of wages to an employee if there is in effect with respect to such payment a withholding exemption certificate ... furnished to the employer by the employee certifying that the employee—

(1) incurred no liability for income tax imposed under subtitle A for his preceding taxable year, and (2) anticipates that he will incur no liability for income tax imposed under subtitle A for his current taxable year.

Nothing in this section prohibits an employer from voluntarily complying with a letter from the I.R.S., issued pursuant to 26 C.F.R. 31.3402(f)(2)-(1)(g)(5), directing the employer to withhold taxes. Rather, the statute, by its terms, confers upon the employer a right to respect the claim of exemption by one of its employees without subjecting itself to liability or official compulsion to do otherwise. In other words, the statute governs the relationship between the employer, who is obligated under § 3402 to withhold taxes, and the I.R.S. It says nothing about the legal rights and responsibilities that arise between the employer and the employee. Further, the statute does not by its terms prevent the I.R.S. from issuing a letter to the employer, indicating that the employee's withholding exemption certificate is invalid.

The question of whether or not an employer could disregard a directive from the I.R.S. to withhold taxes in contravention of an employee's claim of exemption is not before the Court in this case. The Court reiterates its holding that § 3402(n) does not confer upon the employee the right to be free from withholding merely because he has filed a W-4 certificate indicating that he will incur no tax liability, see Stefanelli v. Sylvestri, 524 F.Supp. 1317, 1320 (D.Nev.1981), aff'd 698 F.2d 1232 (9th Cir. 1982). This Court will not impute to Congress the purpose of undermining the elaborate procedure for withholding of taxes established by § 3402 by permitting the taxpayer to avoid withholding with a mere unsupported, undocumented claim of exemption that is not subject to administrative review.

Next, plaintiff contends that the Internal Revenue Code does not compel him to file an income tax return, and that the Internal Revenue Service must submit a bill of assessment upon each person before that person becomes liable for income taxes. This position is of questionable relevance to this case, insofar as plaintiff has not been charged with failure to file an income tax return. Rather, plaintiff is complaining that the defendants have wrongfully withheld taxes.

In any event, plaintiff's argument that he is not required to file a return flies in the face of the plain language of 26 U.S.C. § 6012(a), which states:

(a) General Rule—Returns with respect to income taxes under Subtitle A shall be

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