Unpublished Disposition, 919 F.2d 145 (9th Cir. 1990)

MEMORANDUM^** 

Douglas and Charlene Reimer appeal pro se the district court's judgment dismissing their action against the United States and the Commissioner of Internal Revenue (CIR) for lack of subject-matter jurisdiction pursuant to the Anti-Injunction Act, 26 U.S.C. § 7421, and the Declaratory Judgment Act, 28 U.S.C. § 2201. We have jurisdiction pursuant to 28 U.S.C. § 1291 and affirm.

* Dismissal

The Reimers did not file federal income tax returns for the tax years 1983, 1984, and 1985. The CIR issued notices of deficiency for these years. The Reimers did not petition the Tax Court for a redetermination of the CIR's assessment, but instead filed this action in district court seeking injunctive and declaratory relief.

We review de novo the district court's judgment of dismissal. See Wilcox v. Commissioner, 848 F.2d 1007, 1008 (9th Cir. 1988); Hartford Accident & Indem. Co. v. Continental Nat'l American Ins. Cos., 861 F.2d 1184, 1185 (9th Cir. 1988).

The Anti-Injunction Act prohibits a taxpayer from bringing a "suit for the purpose of restraining the assessment or collection of any tax...." 26 U.S.C. § 7421(a). This section of the Anti-Injunction Act is strictly enforced. See Maxfield v. United States Postal Serv., 752 F.2d 433, 434 (9th Cir. 1984); see also Bob Jones Univ. v. Simon, 416 U.S. 725, 736-37 (1974); Alexander v. "Americans United", Inc., 416 U.S. 752, 758 (1974). Thus, ordinarily taxpayers are limited in district court "to suits for refund." United States v. Condo, 782 F.2d 1502, 1506 (9th Cir. 1986).

The only exception to this bar is the two prong test announced in Enochs v. Williams Packing & Navigation Co. Inc., 370 U.S. 1, 7 (1962). Under Enochs, injunctive relief is available if the taxpayer can demonstrate that (1) under no circumstances could the government prevail and (2) the taxpayer will be irreparably harmed if the injunction is not granted. 370 U.S. at 7; see also Condo, 782 F.2d at 1506.

The Reimers argue that the Anti-Injunction Act does not apply to their action because the CIR cannot prevail in its claim for taxes against them. In support of this argument, the Reimers contend that (1) the notices of deficiency sent to them by the CIR were invalid because no valid substitute return had been filed by the CIR pursuant to 26 U.S.C. § 6020(b), (2) the CIR did not have delegated authority to issue the notices of deficiency because the Treasury Delegation Order ("TDO") No. 150-37 from the Secretary of the Treasury was never published in the Federal Register as required by the Federal Register Act, 44 U.S.C. § 1505(a) ("FRA"), and the Administrative Procedures Act, 5 U.S.C. § 552(a) (1) ("APA"), and (3) they are not required to file federal income tax returns because they are not persons liable for federal income tax. This last contention is based on their belief that wages are not "income" but rather are a "source of income" and thus are exempt from taxation. These contentions, however, do not establish that under no circumstance could the CIR prevail in its claim for taxes against the Reimers.

First, the CIR is not required to execute a substituted tax return before issuing a notice of deficiency. Roat v. Commissioner, 847 F.2d 1379, 1381-82 (9th Cir. 1988) (the CIR "need not prepare a return for the taxpayer before determining the taxpayer's deficiency;" if the taxpayer fails to file a return, the CIR calculates the deficiency as if the taxpayer had filed a return showing zero tax liability). Thus, this contention fails to establish that under no circumstances could the CIR prevail, as required under the first prong of the Enochs exception, and is wholly without merit. See id. at 1383.

Second, while neither this court nor any other appellate court has ruled on the issue of whether TDOs must be published in the Federal Register to be valid, the presence of this issue does not demonstrate that under no circumstances could the government prevail. See id. In fact, numerous lower courts which have considered this issue, including the district court here, have held that the TDOs need not be published to be valid. See Murdock v. United States, 90-2 U.S. Tax Cas. (CCH) p 50,420 (D. Utah July 2, 1990) (rejecting argument that under the FRA and APA, TDOs must be published in order to be valid); United States v. National Commodity & Barter Ass'n, 90-1 U.S. Tax Cas. (CCH) p 50,284 (D. Colo. Apr. 17, 1990) ("validity of [TDO] ... does not depend on publication"); Van Sant v. United States, 90-1 U.S. Tax Cas. (CCH) p 50,179 (D. Colo. Mar. 1, 1990); United States v. McCall, 727 F. Supp. 1252, 1253 (N.D. Ind. 1990). But see Hatcher v. United States, 733 F. Supp. 218, 219-21 (M.D. Pa. 1990) (citing to 44 U.S.C. § 1501 et seq., court stated that TDOs must be published in Federal Register; court held that failure to publish, however, does not invalidate the TDO against persons who had actual knowledge of TDO). Accordingly, the Reimers cannot rely on this issue to satisfy the first prong of the Enochs test.

Finally, the Reimers' contention that they are not required to file federal income tax returns or pay federal income tax because wages are not "income," but a "source of income" and thus exempt from taxation is wholly without merit. See Wilcox, 848 F.2d at 1008 ("wages are income ... [and] paying taxes is not voluntary").

Thus, we hold that the district court correctly concluded that the Reimers' action did not fall within the Enochs exception to the Anti-Injunction Act. Accordingly, the Reimers' action, to the extent it seeks injunctive relief, is barred by the Anti-Injunction Act. See, e.g., Bob Jones Univ., 416 U.S. at 738; Stonecipher v. Bray, 653 F.2d 398, 401 (9th Cir. 1981), cert. denied, 454 U.S. 1145 (1982).

The district court also held that the Reimers had failed to establish the second prong of the Enochs exception to the Anti-Injunction Act, irreparable harm. Because we conclude that the Reimers failed to establish the first prong, we need not address this issue.

The Reimers also sought declaratory relief from the district court. The Declaratory Judgment Act, however, contains an exception which bars declaratory relief with respect to federal taxes. See 28 U.S.C. § 2201(a); Hutchinson v. United States, 677 F.2d 1322, 1326-27 (9th Cir. 1982). Moreover, we have held that " [t]he federal tax exception to the Declaratory Judgment Act is 'at least as broad as the Anti-Injunction Act.' " California v. Regan, 641 F.2d 721, 723 (9th Cir. 1981) (quoting Bob Jones Univ., 416 U.S. at 733 n. 7).

Therefore, because the Reimers' action is barred by the Anti-Injunction Act, the district court correctly held that, to the extent the action also sought declaratory relief, it also was barred under the federal tax exception in the Declaratory Judgment Act. See, e.g., Hutchinson, 677 F.2d at 1326-27.

The Reimers also contend that due process requires the CIR to grant them a formal administrative hearing. This contention lacks merit. See Stonecipher, 653 F.2d at 403. The Reimers' "due process rights are adequately protected by the statutory scheme which allows [them] to contest [their] tax liability in the Tax Court prior to paying the disputed tax or to sue for a refund in federal district court or in the Court of Claims." Id. (citing Phillips v. Commissioner, 283 U.S. 589, 595-97 (1931)).

II

Sanctions

The CIR requests sanctions against the Reimers for bringing this appeal. This court has discretion to impose damages against litigants, even pro se, as a sanction for bringing a frivolous appeal. Fed. R. App. P. 38; 28 U.S.C. § 1912; Wilcox, 848 F.2d at 1008-09 ($1,500 sanction imposed on pro se litigant for bringing a frivolous appeal). An appeal is frivolous if the results are obvious, or the arguments of error are wholly without merit. Wilcox, 848 F.2d at 1009 (citation omitted).

The Reimers' contention that the district court erred in finding that it did not has subject-matter jurisdiction over is wholly without merit. Accordingly, we impose sanctions of $500.

AFFIRMED.