Unpublished Disposition, 933 F.2d 1013 (9th Cir. 1990)

MEMORANDUM^** 

Plaintiff-appellant Peter C. Di Stephano, appearing pro se, appeals the district court's order dismissing his action to enjoin the collection of income taxes. The court based its dismissal on lack of jurisdiction and Di Stephano's failure to state a claim for which relief could be granted.

De Stephano and his wife, Joan Di Stephano, earned taxable income and interest totalling $132,105.00, for the years 1982, 1983, 1984 and 1985. However, they failed to file tax returns for those years. The Internal Revenue Service ("IRS") issued separate notices of deficiency for each year on November 14, 1988, declaring that Di Stephano and his wife had $132,105.00 in unreported income during that time and giving them 90 days from the date of the letter to file a petition with the Tax Court asking for a reassessment. The Di Stephanos failed to respond to the deficiency notices. On May 22, 1989, as a result of their unreported income, the taxpayers were assessed tax liabilities totaling $22,186.32. On June 12, 1989, the Di Stephanos were sent a final notice of demand for their outstanding tax liabilities. Still, no payment was made.

On August 29, 1989, Di Stephano filed suit against the defendants-appellees in the District Court for the District of Hawaii, seeking compensatory and punitive damages totaling $36,000 and requesting declaratory and injunctive relief. The same day, Di Stephano moved for a temporary restraining order and a preliminary injunction to prevent further collection activities by the IRS. The motion for the temporary restraining order was denied. A hearing was conducted on January 2, 1990, to determine the merits of the motion for injunctive relief. This request was denied 10 days later. Thereafter, Di Stephano filed a motion to vacate the district court's order denying the preliminary injunction. The motion to vacate was denied in due course and, on March 1, 1990, the government moved to dismiss Di Stephano's complaint for lack of subject matter jurisdiction or, in the alternative, for summary judgment.

Following a hearing on April 16, 1990, the district court granted the government's motion to dismiss. On May 17, 1990, Di Stephano timely appealed the district court's order.

The existence of subject matter jurisdiction is a question of law reviewed de novo. Kruso v. International Telephone and Telegraph Corp., 872 F.2d 1416, 1421 (9th Cir. 1989), cert. denied, 110 S. Ct. 3217 (1990). The dismissal of an action for failure to state a claim upon which relief can be granted is a ruling of law subject to de novo review by this court. Jensen v. I.R.S., 835 F.2d 196, 198 (9th Cir. 1987).

Di Stephano relies on several theories in his challenge of the district court's order dismissing his complaint. First, he claims that the government is not immune from suit under either the Anti-Injunction Act, 26 U.S.C. § 7421, or the Declaratory Judgment Act, 28 U.S.C. § 2201, because of procedural defects in its issuance of the notices of deficiency. Second, he claims that under 28 U.S.C. § 2410, the government waived its right to sovereign immunity in actions seeking to quiet title to property subject to tax liens by the government. Finally, he contends that the statute of limitations bars any action by the government to collect taxes and deficiencies from him since his employer filed W-2 forms during those years. He asserts that these W-2 forms constitute the filing of a return thereby triggering the running of the limitation statute. Because we find that the district court lacked jurisdiction to hear Di Stephano's claims, we do not address the merits of his statute of limitations argument.

Di Stephano claims that the district court erred in its refusal to grant him declaratory and injunctive relief. He contends that his action is not barred by either the Declaratory Judgment Act's exception for tax claims, 28 U.S.C. § 2201(a), or the Anti-Injunction Act, 26 U.S.C. § 7421. The underlying purpose of Di Stephano's suit is relief from the collection actions of the IRS. As a general rule, the federal courts are without jurisdiction to grant such relief. Blech v. United States, 595 F.2d 462, 467 (9th Cir. 1979).

Congress has established two alternative avenues by which a taxpayer may obtain review of his tax assessment by the federal courts. Under 26 U.S.C. § 6213, after receipt of a notice of deficiency, a taxpayer may challenge the assessment in tax court prior to the payment of taxes. Alternatively, he may pay the taxes and penalties and bring an action in the district court seeking a refund. 26 U.S.C. § 7422; Life Science Church v. Internal Revenue Service, 525 F. Supp. 399, 403 (N.D. Cal. 1981). "These two remedies constitute the exclusive means for contesting federal tax liability." Life Science Church, 525 F. Supp. at 403 (citing Flora v. United States, 362 U.S. 145 (1960)).

Two important legislative enactments support the exclusive nature of the prescribed method of review of tax claims. The first is the Declaratory Judgment Act, 28 U.S.C. § 2201, and the second is the Anti-Injunction Act, 26 U.S.C. § 7421. The Declaratory Judgment Act provides access to the federal courts for matters of actual controversy within its jurisdiction "except with respect to Federal taxes." 28 U.S.C. § 2201(a). A literal interpretation of this language demonstrates that Congress has "barred federal courts from granting declaratory relief in tax matters." Handeland v. C.I.R., 519 F.2d 327, 329 (9th Cir. 1975). Therefore, the lower court properly declined to permit declaratory relief. Declaratory relief would have required the district court to determine whether Di Stephano's tax liability had been properly assessed. Such a determination addresses the substance of the tax claim and therefore would contravene the exclusive remedy established by Congress for attacking the basis of tax liability. See Kent v. Northern California Regional Office of American Friends Service Committee, 497 F.2d 1325, 1328 (9th Cir. 1974).

The Anti-Injunction Act, the second statutory prohibition of federal court review of federal tax liability, states in relevant part: "Except as provided ... no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person...." 26 U.S.C. § 7421(a). The purpose of this section of the Act is to permit the prompt lawful collection of revenue with a minimum of judicial interference. Bob Jones University v. Simon, 416 U.S. 725, 736 (1974). "Therefore, a suit to enjoin the collection of taxes triggers the literal terms of Sec. 7421(a)." Alexander v. "Americans United" Inc., 416 U.S. 752, 760 (1974). The Anti-Injunction Act bars a suit for injunctive relief if the results of the intended relief would act to prevent the assessment of taxes. Blech, 595 F.2d at 907. The sweeping language of the Act is not accidental but was intended to encompass all actions which would delay or hobble the collection of revenue.

A narrow exception to this rule was created by the Supreme Court and set out in Enochs v. Williams Packing Co., 370 U.S. 1, 7 (1962). There the court said that injunctive relief was available where it was "clear that under no circumstance could the government ultimately prevail and if equity jurisdiction otherwise exists." Id.; see also Alexander, 416 U.S. at 758 (affirming the two-part test of Enochs v. Williams); Roat v. Commissioner, 847 F.2d 1379, 1383 (9th Cir. 1988) (applying test). Clearly, when a taxpayer willfully declines to pay his taxes, or even to file a claim displaying some recognition of his obligation to pay, it cannot be established with the certainty required that under no circumstances whatsoever could the government prevail. See Thrower v. Miller, 440 F.2d 1186, 1188 (9th Cir. 1971) (denying preliminary injunction where government had a chance of prevailing based on undisputed facts).

Here, if the court had granted the requested injunctive relief, it would have effectively prevented the assessment and collection of taxes from Di Stephano. Thus, as the district court properly concluded, the Anti-Injunction Act specifically bars claims such as Di Stephano's. Even assuming arguendo that there was no possibility that the government would prevail, Di Stephano fails to overcome the remaining hurdle. He still maintains an adequate remedy at law. Although the time has passed during which he could have challenged the tax without being required to pay, Di Stephano may still maintain an action for refund once he has paid. See Alexander, 416 U.S. at 762.¹ 

However, as Di Stephano asserts, a court may enjoin the collection activities of the IRS where the agency has failed to serve a notice of deficiency as required by I.R.C. Sec. 6212. See Elias v. Connett, 908 F.2d 521, 523 (9th Cir. 1990). The IRS must issue the taxpayer a notice of assessment and demand for payment within 60 days after the date of assessment. 26 U.S.C. § 6303(a). The form of the notice is irrelevant as long as it provides the taxpayer with the assessment, penalties, interest and the message that prompt payment will avoid further liability. Elias, 908 F.2d at 525.

A notice of deficiency mailed to the taxpayer's last known address serves to satisfy this requirement. 26 U.S.C. § 6212(b) (1); see also United States v. Zolla, 724 F.2d 808, 810 (9th Cir. 1984), cert. denied, 469 U.S. 830 (1984); Gibson v. United States, 761 F. Supp. 685 (C.D. Cal. 1991) (notice deficient where IRS failed to mail to last known address). Di Stephano's notice of deficiency was mailed to his last known address, in New Jersey. As the government notes, Di Stephano may not claim nonreceipt of the notices because he attached copies of them to his complaint. Gibson, 91 D.A.R. at 4401 (notice requirement excused where taxpayer had actual notice). Therefore, he will not find relief under this exception.

Di Stephano claims alternatively that even if he received the notice it was deficient because the IRS failed to include a "substitute for return" as required by 26 U.S.C. § 6020(b) (1).²  Such an argument is without merit. Ninth Circuit law is clear, there is no rule requiring the commissioner to prepare a substitute return when the taxpayer does not file one. Roat, 847 F.2d at 1381-82.

Di Stephano contends that 28 U.S.C. § 2410, which permits quiet title actions against the government, provides the necessary waiver of sovereign immunity entitling him to bring this action. Section 2410 states that " [t]he United States may be named a party in any civil action or suit in any district court ... to quiet title to ... real or personal property of which the United States claims ... a lien." 28 U.S.C. § 2410(a) (1). Waivers of sovereign immunity are not easily established and actions brought under Sec. 2410 will be strictly construed. Elias, 908 F.2d at 527.

A taxpayer may not use Sec. 2410 to collaterally attack the substantive merits of the assessment against him. United States v. Polk, 822 F.2d 871, 872 n. 1 (9th Cir. 1987). However, where it is determined that there exists a procedural defect that undermines the validity of the tax lien, an action under Sec. 2410 may be maintained. Elias, 908 F.2d at 527. A failure by the IRS to send a notice of deficiency constitutes sufficient grounds to permit a taxpayer to bring suit under this section because a lien may not attach to a person's property without prior notice and demand. Id.

Di Stephano claims that his suit attacks a procedural defect because he was not sent the notice of assessment and demand for payment as required by 26 U.S.C. § 6303(a). While this form of defect is a proper challenge under Sec. 2410, Di Stephano's claim is without merit because he in fact had notice of the assessment against him. These notices informed him of the amounts of taxes and penalties due the IRS as well as a demand for payment. This court will not accept his assertion of procedural default when it is undisputed that he attached the notices to his district court complaint. Therefore, the government has not waived sovereign immunity and Di Stephano's claim was properly dismissed.

For the reasons set forth above, the judgment of the District Court for the District of Hawaii is AFFIRMED. Each party shall bear its own costs on appeal.