Robinson v. U.S.

• Decision Date: 23 January 1991
• Docket Number: No. 90-1242,90-1242
• Citation: Robinson v. U.S., 920 F.2d 1157 (3rd Cir. 1991)
• Parties: -393, 91-1 USTC P 50,001 Albert E. ROBINSON and Rose M. Robinson, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Third Circuit

Page 1157

920 F.2d 1157

67 A.F.T.R.2d 91-393, 91-1 USTC P 50,001

Albert E. ROBINSON and Rose M. Robinson, Appellants, v. UNITED STATES of America, Appellee.

No. 90-1242.

United States Court of Appeals Third Circuit.

Argued Aug. 21, 1990.

Decided Dec. 21, 1990.

As Amended Jan. 23, 1991.

Mark E. Cedrone (argued), Thomas W. Ostrander, Duane, Morris & Heckscher, Philadelphia, Pa., for appellants.

Shirley D. Peterson, Asst. Atty. Gen., Gary R. Allen, David English Carmack, David A. Hubbert (argued), Tax Div., Dept. of Justice, Washington, D.C. (Michael M. Baylson, U.S. Atty., of counsel), for appellee.

Before STAPLETON, COWEN and WEIS, Circuit Judges.

OPINION OF THE COURT

WEIS, Circuit Judge.

Asserting a procedural defect, taxpayers challenged an Internal Revenue Service lien via a suit under 28 U.S.C. Sec. 2410(a). The district court dismissed for lack of jurisdiction concluding that the taxpayers' attack necessarily struck at the underlying assessment, a result it believed was barred by this Court's precedent. We reverse. Our prohibition against assaults on the "merits of an assessment" applies to the amount of tax due and does not prevent scrutiny of procedural lapses by the IRS.

In 1971 the Internal Revenue Service assessed plaintiffs for unpaid income taxes for the years 1968 and 1969. Because of taxes assertedly due for those years, the IRS filed liens in Montgomery County, Pennsylvania against the home that plaintiffs own.

Plaintiffs filed this action to quiet title under 28 U.S.C. Sec. 2410(a). The complaint alleged that the government failed to comply with the statutory procedures for creating a lien, specifically that the IRS never issued a notice of deficiency to plaintiffs before assessing the tax due. For the purposes of its motion to dismiss, the IRS conceded that a notice of deficiency was not sent, but asserted that jurisdiction was lacking because sovereign immunity barred plaintiffs from attacking the merits of the assessment under section 2410(a). The district court agreed that the suit was essentially a challenge to the assessments, and dismissed for lack of jurisdiction.

I.

In the Internal Revenue Code Congress has specified steps for the creation of a lien arising out of unpaid taxes. After preliminary steps, when the IRS believes that the taxpayers have not paid all or any part of their income tax due, the following procedures apply. ¹

1. The IRS mails a notice of deficiency to the taxpayers by certified or registered mail. 26 U.S.C. Sec. 6212(a). Once this notice has been mailed, the taxpayers have ninety days in which to file a petition for redetermination in the Tax Court. ² 26 U.S.C. Sec. 6213.

The notice of deficiency, sometimes called a "ninety day" letter, is the taxpayers' "ticket to the Tax Court" to litigate the merits of the deficiency determination, Delman v. Commissioner, 384 F.2d 929, 934 (3d Cir.1967), cert. denied, 390 U.S. 952, 88 S.Ct. 1044, 19 L.Ed.2d 1144 (1968), and is a jurisdictional prerequisite to a suit in that forum. Laing v. United States, 423 U.S. 161, 165 n. 4, 96 S.Ct. 473, 477 n. 4, 46 L.Ed.2d 416 (1976). Until ninety days have passed, the IRS can neither make an assessment nor utilize Court procedures for collection. Holof v. Commissioner, 872 F.2d 50, 53 (3d Cir.1989). If the taxpayers file in the Tax Court within that period, the restraint on the IRS continues until the decision of the Court becomes final. 26 U.S.C. Sec. 6213(a).

2. If the taxpayers do not file a petition in the Tax Court within the specified time, the IRS makes an assessment. 26 U.S.C. Sec. 6213(c). A duly designated official for the district or regional tax center signs the summary record of the assessment, which identifies the taxpayers, the type of tax owed, the taxable period and the amount of the assessment. 26 U.S.C. Sec. 6203; Treas. Reg. Sec. 301.6203-1.

3. As soon as practicable and within sixty days after making the assessment, the IRS must issue a "notice and demand letter" to the taxpayers, specifying the amount due and demanding payment. 26 U.S.C. Sec. 6303.

4. If the taxpayers do not pay after demand, the IRS may file a lien against their property. 26 U.S.C. Sec. 6321. See generally Wilkens & Matthews, A Survey of Federal Tax Collection Procedure: Rights and Remedies of Taxpayers and the Internal Revenue Service, 3 Alaska L.Rev. 269 (1986).

The first of these procedures--the provision requiring the IRS to issue a notice of deficiency--is the focal point of this case.

The notice is a "pivotal feature of the Code's assessment procedures," Holof, 872 F.2d at 53, because it serves as a prerequisite to a valid assessment by the IRS. The Internal Revenue Code is clear that "no assessment of a deficiency ... and no levy or proceeding in court for its collection shall be made, begun, or prosecuted until such notice [of deficiency] has been mailed to the taxpayer, nor until the expiration of such 90-day ... period." 26 U.S.C. Sec. 6213(a). By providing an opportunity to litigate the merits of the deficiency in the Tax Court without requiring payment of the full amount allegedly owed, the statute provides substantial benefits to taxpayers.

Because this is an appeal from an order granting a motion to dismiss, we accept the plaintiffs' allegations that the IRS did not send a notice of deficiency but did file a lien in the county courthouse. See Matthews v. Freedman, 882 F.2d 83, 84 (3d Cir.1989). Although these facts present a seemingly straightforward case of the IRS's failure to comply with the Code, the jurisdictional aspect of the suit in the district court must be resolved.

II.

In this appeal the IRS maintains that taxpayers' remedies are restricted to injunctive relief, refund actions or petitions to the Tax Court. Having "provided for situations such as this, and dictated the manner in which taxpayers should proceed," IRS Brief at 23, Congress did not intend to waive sovereign immunity in such cases brought under 2410(a). Plaintiffs point out that the absence of a notice of deficiency barred their right to proceed in the Tax Court, and that injunctive relief is not available.

III.

28 U.S.C. Sec. 2410(a) provides that "the United States may be named a party in any civil action or suit in any district court ... (1) to quiet title to ... real or personal property on which the United States has or claims a mortgage or other lien."

Despite the broad wording of section 2410(a), courts have been cautious in permitting its use in tax cases. Recognizing that Congress has provided an elaborate system for litigating tax claims in the Tax Court before payment and in District Court and the Court of Claims for refunds, courts have hesitated to add to the remedies provided by the Internal Revenue Code. Section 2410(a) is a statute of general applicability, applying to all liens and not limited to those created by tax delinquencies, and therefore the courts have favored the specific procedures of the Code. See e.g., Flora v. United States, 362 U.S. 145, 157, 80 S.Ct. 630, 636, 4 L.Ed.2d 623 (1960).

This attitude is reflected in the oft-cited opinion of Falik v. United States, 343 F.2d 38 (2d Cir.1965). There, the IRS placed a lien on the taxpayer's home after determining that, as a responsible corporate officer, she was liable for social security and withholding taxes. The taxpayer attempted to use section 2410(a) to contest the validity of the lien on the ground that the IRS erred in holding her liable. The Court of Appeals concluded that Congress did not intend section 2410(a) to overturn the long-standing principle that except as to matters within the jurisdiction of the Tax Court, "a person whose sole claim is that a federal tax assessment was not well grounded in fact and law must 'pay first and litigate later.' " Id. at 42. Significantly, however, access to the Tax Court was not available to the taxpayer in that case.

The principle that a taxpayer cannot use section 2410(a) to challenge the extent of, or existence of, substantive tax liability is well-settled. In Yannicelli v. Nash, 354 F.Supp. 143, 151 (D.N.J.1972), the district court noted that our Court has interpreted section 2410(a) to confer subject matter jurisdiction "provided that the plaintiff refrains from collaterally attacking the merits of the Government's tax assessment itself." In ruling on a motion for reconsideration, the district judge emphasized that "[t]he 'merits' which the district court may not review in such an action include any issue touching upon the actual extent of the taxpayer's federal tax liability." Id. at 157 n. 4.

The most significant case addressing the issue before us is Aqua Bar & Lounge, Inc. v. United States, 539 F.2d 935 (3d Cir.1976). There, we confronted a challenge to the legality of the IRS's seizure and sale of a taxpayer's property because of non-payment of taxes. The taxpayer admitted that the tax was due, but asserted that the IRS had failed to comply with the statutory requirements for a sale. We concluded that section 2410(a) waived sovereign immunity to a suit "which challenges the validity of a federal tax lien and sale so long as the taxpayer refrains from contesting the merits of the underlying tax assessment itself." Id. at 939-40.

In several instances in the Aqua Bar opinion the Court referred to disputes over the "merits of the underlying tax assessment" and determined that so long as no such attack was made, a suit under section 2410(a) did not "undermine the established administrative and judicial framework for resolving an individual's tax liability." Id. at 939. Significantly, the panel said "[i]n the absence of a Congressional directive to the contrary, we refuse to place such a narrowing construction on Sec. 2410 and thus deprive a taxpayer of any remedy against arbitrary administrative action." Id.

Other Courts of Appeals have cited Aqua Bar with approval. See Estate of Johnson, 836 F.2d 940, 944 (5th Cir.1988) ("Several circuits have held...