Prisco v. Internal Revenue Serv.

• Decision Date: 13 November 2013
• Docket Number: 1:13-MC-0066 (LEK/CFH)
• Parties: RUDOLPH P. PRISCO, Plaintiff, v. INTERNAL REVENUE SERVICE, Defendant.
• Court: U.S. District Court — Northern District of New York

RUDOLPH P. PRISCO, Plaintiff, v. INTERNAL REVENUE SERVICE, Defendant.

1:13-MC-0066 (LEK/CFH)

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF NEW YORK

DATED: November 13, 2013

MEMORANDUM-DECISION and ORDER

I. INTRODUCTION

Plaintiff Rudolph P. Prisco ("Plaintiff")¹ has filed a Motion for an injunction pending his appeal of a bankruptcy court order dissolving a temporary restraining order prohibiting Defendant Internal Revenue Service ("IRS") from collecting certain tax liabilities. Dkt. No. 1 ("Motion"); No. 07-13408, Oct. 31, 2013 Text Order ("Dissolution Order") (Bankr. N.D.N.Y. Dec. 12, 2007).² For the following reasons, the Motion is denied.

II. BACKGROUND

On December 12, 2007, Plaintiff filed a bankruptcy petition pursuant to Chapter 13 of the United States Bankruptcy Code (the "Code"), 11 U.S.C. § 1301 et seq. Dkt. No. 1 ("Petition"). The IRS filed a proof of claim, and then amended that proof of claim twice. See Claims 7-1 to -3. Thefinal amended proof of claim submitted by the IRS asserted a $504.91 unsecured priority claim for 2005 and 2006 unpaid taxes as well as interest accruing through the filing date of the Petition. Claim 7-3. The IRS also asserted a $1,144.65 unsecured general claim: $256.72 for penalties for the unpaid 2005 and 2006 taxes, and the remainder for unpaid taxes, penalties, and interest for 2000. Id.

Plaintiff then submitted a series of proposed bankruptcy plans, the third of which was confirmed by the Bankruptcy Court. See Dkt. Nos. 3; 35; 63 ("Plan"); 70 ("Confirmation Order"). The Plan provided that the IRS would receive full payment for its $504.91 unsecured priority claim. Id. at 2. Plaintiff then submitted an amended plan after the Plan had been confirmed. See Dkt. No. 93 ("Amended Plan"). The Amended Plan, which also provided for full payment of the unsecured priority claim, was approved by the bankruptcy court. See Dkt. No. 92; Text Order of January 8, 2008. Plaintiff made all required payments, and by September 11, 2009, the bankruptcy trustee reported that the IRS had received full payment for its $504.91 unsecured priority claim and $8.46 for its unsecured general claim. See Dkt. No. 152. However, before the bankruptcy court issued Plaintiff a discharge pursuant to Chapter 13, it learned that he had failed to disclose a personal injury claim as an asset of his estate. See Dkt. No. 172 ("Conversion Order"). It therefore converted Plaintiff's bankruptcy case from one under Chapter 13 to one under Chapter 7. Conversion Order. On November 11, 2011, Plaintiff was granted a discharge pursuant to 11 U.S.C. § 727. Dkt. No. 208 ("Discharge").

On October 16, 2013, Plaintiff filed a motion seeking to enjoin the IRS's collection of debts that Plaintiff alleged had been "valued and addressed within the bankruptcy." Dkt. No. 249 ("Motion to Enjoin") at 1, 3, 6. Plaintiff then filed an application for a temporary restraining orderprohibiting the IRS from garnishing his Social Security payments, which IRS notices indicated would begin on November 1, 2013. Dkt. No. 252 ("TRO Application"). A hearing regarding Plaintiff's application was held a week later; the IRS did not attend. See Dkt. No. 253; Text Notice of October 23, 2013. The following day, the Bankruptcy Court issued a temporary restraining order prohibiting the IRS from its collection efforts until a November 4, 2013 hearing. Dkt. No. 256 ("TRO"). The IRS then responded to Plaintiff's Motion to Enjoin and moved to dissolve the TRO. See Dkt. Nos. 257 ("Response"); 258 ("Motion to Dissolve"). The IRS acknowledged that it was seeking to collect $370.98 attributable to interest or penalties on the 2005 and 2006 tax liabilities. See Resp. ¶ 6. Plaintiff filed a memorandum of law in opposition to the Response and Motion to Dissolve. Dkt. No. 261 ("Memorandum"). The bankruptcy court then granted the Motion to Dissolve and denied Plaintiff's Motion to Enjoin and TRO Application. See Dissolution Order.

Plaintiff filed his Motion with the Court the same day the TRO was dissolved. He seeks to "enjoin the IRS from any collection." Mot.³ The Bankruptcy court subsequently issued written opinions dissolving the TRO and denying Plaintiff's Motion to Enjoin and TRO Application. See Dkt. Nos. 262 ("Dissolution Opinion"); 263 ("Denial Opinion").

III. LEGAL STANDARD

A. Injunction Pending Appeal

Plaintiff does not offer a specific procedural basis for his Motion. See Mot. However, he states that the bankruptcy court "issued a TRO and dismissed same today" and that he "is seeking to enjoin the IRS from any collection . . . [p]ending appeal." Id. The Court therefore construes the Motion as a Federal Rule of Civil Procedure 62(c) motion to enjoin the IRS's collection effortspending Plaintiff's appeal of the Dissolution Order. See FED. R. CIV. P. 62(c) ("While an appeal is pending from an interlocutory order or final judgment that grants, dissolves, or denies an injunction, the court may suspend, modify, restore, or grant an injunction."); In re Miller, 263 B.R. 183 (N.D.N.Y. 2001) (Kahn, J.) (ruling on debtor's request, pursuant to Federal Rule of Civil Procedure 62(c), to enjoin actions against his estate pending resolution of his appeal of the bankruptcy court's dismissal of his petition).

"The standard in this circuit for a stay or injunction pending appeal is (1) whether the movant will suffer irreparable injury absent a stay, (2) whether a party will suffer substantial injury if a stay is issued, (3) whether the movant has demonstrated a substantial possibility, although less than a likelihood, of success on appeal, and (4) the public interests that may be affected." LaRouche v. Kezer, 20 F.3d 68, 72 (2d Cir. 1994) (quotation marks omitted); see also In Re Miller, 263 B.R. at 185. "The probability of success that must be demonstrated is inversely proportional to the amount of irreparable injury plaintiff will suffer absent the stay. Simply stated, more of one excuses less of the other." Mohammed v. Reno, 309 F.3d 95, 101 (2d Cir. 2002) (quotation marks and alteration omitted). Nevertheless, even significant irreparable injury will not support an injunction where a plaintiff does not demonstrate the requisite substantial possibility of prevailing. Id. at 103. Thus, if a plaintiff fails to make such a demonstration, a court may deny her motion without considering other factors. See In re Miller, 263 B.R. at 187 ("[Plaintiff] needed to provide evidence indicating a substantial possibility of success in his appeal of the Bankruptcy Court's . . . determination. Since he has not done so, his request for a stay pending appeal must, as a matter of law, be denied.").

IV. DISCUSSION

A. The Anti-Injunction Act

The Anti-Injunction Act, 26 U.S.C. § 7421(a) (the "Act"),⁴ provides that, except for certain enumerated exceptions inapplicable here, "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person." "The object of § 7421(a) is to withdraw jurisdiction from the state and federal courts to entertain suits seeking injunctions prohibiting the collection of federal taxes." Enochs v. Williams Packing & Nav. Co., 370 U.S. 1, 5 (1962). "Under the Anti-Injunction Act, the United States is permitted 'to assess and collect taxes alleged to be due without judicial intervention, and to require that the legal right to the disputed sums be determined in a suit for refund. In this manner the United States is assured of prompt collection of its lawful revenue.'" Follum v. United States, No. 98-CV-0126A, 1999 WL 250746, at *3 (W.D.N.Y. Mar. 5, 1999) (quoting Enochs, 370 U.S. at 7).

The IRS asserts that the bankruptcy court lacked jurisdiction under the Act to issue the TRO. Mot. to Dissolve at 3. If the Act applies, Plaintiff's Motion must be denied for two related reasons. First, his appeal of the Dissolution Order would have no likelihood of success, because the bankruptcy court had no jurisdiction to issue or maintain the TRO and thus was compelled to dissolve it. Second, the Court would not have jurisdiction to grant the injunctive relief Plaintiff seeks.

The IRS and Plaintiff suggest three possible grounds for the Act's inapplicability. Plaintiffargues that the Act does not apply because: (1) the interest and penalties the IRS is seeking to collect do not constitute "taxes" covered by the Act; and (2) the Act is inapplicable to bankruptcy courts. See Mem at 10. The IRS points to a narrow judicially created exception to the Act. See Mot. to Dissolve at 2-3.

1. Penalties and Interest as "Taxes" Under the Act

Plaintiff correctly notes that the Act applies only to "taxes." Mem at 10. He therefore concludes that it is inapplicable to the penalties and interest that the IRS is now seeking to collect. Id. But an exaction described by the Internal Revenue Code as a "penalty" or "interest" may constitute a "tax" for purposes of the Act if Congress has so indicated. See Nat'l Fed'n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566, 2584 (2012); Seven-Sky v. Holder, 661 F.3d 1, 7 (D.C. Cir. 2011), abrogated on other grounds by Sebelius, 132 S. Ct. 2566. Here, the IRS seeks late-filing and -payment penalties pursuant to 26 U.S.C. § 6651. See Resp. ¶ 5. 26 U.S.C. § 6651 is contained in subchapter A of Chapter 68 of the Internal Revenue Code. This subchapter provides that "any reference in [Title 26] to 'tax' imposed by [Title 26] shall be deemed also to refer to the additions to the tax, additional amounts, and penalties provided by this chapter." 26 U.S.C. § 6665. The Act is found in Title 26. See 26 U.S.C. § 7421(a). The penalties the IRS is seeking therefore constitute "taxes" under the Act. See Thomas More Law Ctr. v. Obama, 651 F.3d 529, 540 (6th Cir. 2011) (noting that Chapter 68 penalties "count as 'taxes' for purposes of the Anti-Injunction Act"), abrogated on other grounds by Sebelius, 132 S. Ct. 2566; Seven-Sky, 661 F.3d at 7 ("Congress expressly defined taxes to include penalties for nonpayment of taxes imposed...