STATE OF CAL. BY & THROUGH YOUNGER v. Blumenthal

Decision Date03 October 1978
Docket NumberCiv. No. S-78-356-TJM.
Citation457 F. Supp. 1309
PartiesThe STATE OF CALIFORNIA By and Through Evelle J. YOUNGER, Attorney General of the State of California, Plaintiff, v. The Honorable W. Michael BLUMENTHAL, Secretary of the Treasury of the United States, Defendant.
CourtU.S. District Court — Eastern District of California

William J. Power, Deputy Atty. Gen., Sacramento, Cal., for plaintiff.

Solomon Robinson, Asst. U. S. Atty., Sacramento, Cal., Richard A. Scully, U. S. Dept. of Justice, Washington, D. C., for defendant.

MEMORANDUM OF OPINION DENYING PLAINTIFF'S MOTION FOR DECLARATORY RELIEF AND DISMISSING THE COMPLAINT

WILLIAM W SCHWARZER, District Judge.

Plaintiff filed this action on July 10, 1978, seeking broad declaratory and injunctive relief against the application of the Employee Retirement Income Security Act of 1974 ("ERISA"), 88 Stat. 829, 29 U.S.C. § 1001 et seq., to pension and retirement plans maintained by the State of California or any of its agencies. Plaintiff asserts that Congress did not intend the Act to apply to governmental plans, and that even if Congress intended otherwise, its application to such plans would violate the tenth amendment. ERISA requires, among other things, the filing of an annual information return by every employer maintaining a pension plan described in part I of subchapter D of chapter 1 of the Internal Revenue Code, 26 U.S.C. § 401 et seq.1 An unexcused failure to file may result in penalties of $10 for each day during which the failure continues up to a maximum of $5,000. 26 U.S.C. § 6652(f).

Plaintiff has moved for a preliminary injunction to prevent defendant "from imposing . . . or threatening to impose a fine upon plaintiff . . . for plaintiff's refusal to file with defendant the return mentioned in Section 6058 . . ." Defendant takes the position that the declaratory and injunctive relief sought by plaintiff is prohibited by the federal tax exception of the Declaratory Judgments Act, 28 U.S.C. §§ 2201-2202, and by the Anti-Injunction Act, 26 U.S.C. § 7421(a). Even if those statutory prohibitions were inapplicable, defendant contends, plaintiff has failed to establish that it is threatened with irreparable harm, a prerequisite to the granting of equitable relief, and on the merits is not entitled to declaratory relief.

I Case or Controversy

The documents filed in support of plaintiff's motion show that beginning about April, 1977, the Internal Revenue Service ("IRS") issued a series of News Releases announcing that governmental units maintaining employee pension benefit plans must file annual returns with the IRS pursuant to Code Section 6058(a), regardless of whether there has been a determination that the plans are qualified. In subsequent releases, the IRS reduced the amount of information required of governmental plans and extended the filing date. Under regulations promulgated by the IRS and published on July 7, 1978, 43 Fed.Reg. 29291, returns for the years 1975-1977 are to be filed by September 1, 1978, and penalties waived for all returns filed by that date. The reporting requirements for governmental plans were limited to items one through seven, nine, ten (a)-(d), eleven and seventeen of Form 5500.

The parties agree that there is a present controversy over defendant's authority to require plaintiff and its agencies to file annual information returns with respect to employee pension plans maintained by them. While plaintiff's request for preliminary injunctive relief is directed primarily at the imposition of penalties, it does not appear necessary to reach that issue. No penalties having been imposed, that issue is not ripe for decision. Instead, the Court will treat plaintiff's motion as one for declaratory relief directed to defendant's power to require plaintiff to file annual information returns pursuant to Code Section 6058(a).2 With respect to that requirement, the Court finds that a justiciable controversy exists over which the Court has jurisdiction to grant declaratory relief, 28 U.S.C. §§ 1331(a), 1340, 2201; Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 57 S.Ct. 461, 81 L.Ed. 617 (1937); Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 61 S.Ct. 510, 85 L.Ed. 826 (1941), unless barred by the federal tax exception of the Declaratory Judgments Act.3

None of the other issues raised in the complaint presents a justiciable case or controversy. Plaintiff argues that the threat of future taxation, with the possibility of retroactive application, creates a present controversy under Lake Carriers' Assn. v. MacMullan, 406 U.S. 498, 92 S.Ct. 1749, 32 L.Ed.2d 257 (1972). Even assuming the argument to have merit, it proves too much. If the threat of taxation created a controversy, that controversy, unlike that over the required filing of information returns, would clearly be one with respect to the assessment and imposition of federal taxes and subject to the usual assessment and refund procedures. Thus, the case would fall within the tax exception of the Declaratory Judgments Act and would also be barred by the Anti-Injunction Act. All claims except those related to the Section 6058(a) filing requirement must therefore be dismissed without prejudice for lack of jurisdiction.

II Applicability of the Federal Tax Exception of the Declaratory Judgments Act

By amendment adopted in 1935,4 Congress excluded controversies "with respect to Federal taxes" from the scope of the Declaratory Judgments Act of 1934.5 The Court must therefore determine whether the controversy over the requirement under Code Section 6058(a) that annual information returns be filed is a controversy with respect to federal taxes.

The information called for by Form 5500 is general rather than financial in nature. The filing requirement is a part of a broad federal scheme of pension plan reform incorporated in ERISA. The legislative history of ERISA indicates that one purpose of requiring employers to file annual information returns, which are open to public inspection, was to enable plan participants and beneficiaries to obtain information needed to enforce their plan rights and to oversee the obligations owed by fiduciaries to the plans generally.6 Another purpose mentioned in the history, and stressed by defendant, is to provide the IRS with annual statistical data for its evaluation and to provide information to the Department of Labor.7 Whatever the primary purpose of the requirement, however, the statutory authority for it is found in the Internal Revenue Code. See, Bob Jones University v. Simon, 416 U.S. 725, 740, 94 S.Ct. 2038, 40 L.Ed.2d 496 (1974). The information return moreover, provides the IRS with information which will assist it in keeping track of governmental plans and determining the taxability of benefits paid and income incurred by governmental plans. Lewis v. Sandler, 498 F.2d 395, 399 (4th Cir. 1974). An order relieving plaintiff from having to file Form 5500 would to some extent hamper the Government's ability to assess and collect taxes, and to protect its revenue in general. It follows that plaintiff's claim for declaratory relief would be barred by the federal tax exception of the Declaratory Judgments Act unless special circumstances make it inapplicable.

No taxes or penalties have been assessed against plaintiff nor is assessment imminent or threatened. Plaintiff is therefore subject to the reporting requirement, without having access to any assessment and refund procedures in which the requirement can be challenged.

The question whether the Anti-Injunction8 and Declaratory Judgment Acts will bar relief in a tax controversy when the plaintiff has no adequate alternative forum in which to challenge the validity of IRS action was explicitly left open in Bob Jones, above, 416 U.S. at 746 and 747, n. 21, 94 S.Ct. 2038. The Court of Appeals relied upon this exception in Eastern Kentucky Welfare Rights Org. v. Simon, 165 U.S.App. D.C. 239, 506 F.2d 1278 (1974), vacated, 426 U.S. 26, 96 S.Ct. 1917, 48 L.Ed.2d 450 (1975) (on the ground that plaintiffs failed to establish their standing to sue, without reaching the question whether the action was barred by the Declaratory Judgments or Anti-Injunction Acts). The district court had granted summary judgment to plaintiffs (various health and welfare organizations and indigent persons), holding that private nonprofit hospitals seeking tax exempt status as charitable organizations must provide free or low cost treatment to individuals unable to pay for such services, and invalidating the revenue ruling which modified that requirement. Defendant-appellant argued that the district court lacked jurisdiction because the action was barred by the Anti-Injunction Act and by the tax exception of the Declaratory Judgments Act. The Court of Appeals held, however, that the action was not barred since plaintiffs were seeking to force the Government to impose a tax on the contributors to certain hospitals, not to prevent assessment of a tax, and had no other adequate legal remedy.9

Defendant argues that because plaintiff may refuse to file Form 5500, incur a penalty under Code Section 6652, and then contest payment of that penalty, plaintiff has an adequate legal remedy. That argument was rejected by Judge Bryant in National Restaurant Ass'n v. Simon, 411 F.Supp. 993 (D.D.C.1976), where a group of trade associations sought to enjoin the IRS from implementing a ruling requiring employers to include on the employee's W-2 form the amount shown by the employer's records to have been paid to the employee in charge tips. Plaintiffs claimed that the requirement conflicted with other provisions of the Internal Revenue Code and that the IRS failed to follow proper rule-making procedures. Defendants moved to dismiss on the ground the action was barred by the Anti-Injunction Act. The court decided that the action was within the Anti-Injunction Act but that because it would have left the aggrieved party without...

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5 cases
  • In re New York City Municipal Securities Litigation
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • 25 Enero 1980
    ...of the Earth v. Carey, 552 F.2d 25 (2d Cir.), cert. denied, 434 U.S. 902, 98 S.Ct. 296, 54 L.Ed.2d 188 (1977); California v. Blumenthal, 457 F.Supp. 1309 (E.D.Cal.1978); Colorado v. Veterans Administration, 430 F.Supp. 551 (D.Colo.1977), aff'd, 602 F.2d 906 (10th Cir. 1979). This raises the......
  • Feinstein v. Lewis, 79 Civ. 2204 (HFW).
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • 12 Octubre 1979
    ...example, must file annual information returns as required by section 1031 of ERISA, 26 U.S.C. § 6058. State of California v. Blumenthal, 457 F.Supp. 1309, 1316-17 & n. 14 (E.D.Cal.1978). See generally Leibig & Kalman, Federal Policies Toward State and Local Pensions, Employee Benefits J., F......
  • Perlowin v. Sassi, C-81-3541 RFP.
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Northern District of California
    • 26 Julio 1982
    ...grounds sub nom. Lugo v. Miller, 640 F.2d 823 (6th Cir. 1981). See also State of California by and through Younger v. Blumenthal, 457 F.Supp. 1309, 1314-15 n.10 (E.D.Cal.1978). Accordingly, since we have jurisdiction to enjoin the termination assessment in the instant case, we also have jur......
  • Burke v. Blumenthal, Civ. A. No. 3-79-0685-H.
    • United States
    • United States District Courts. 5th Circuit. United States District Courts. 5th Circuit. Northern District of Texas
    • 26 Marzo 1980
    ...The Court can find only one other court outside the District of Columbia that has followed this line of cases. Cal. v. Blumenthal, 457 F.Supp. 1309 (E.D.Cal. 1978). ...
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