Unpublished Disposition, 940 F.2d 1535 (9th Cir. 1991)

No. 89-16459.

United States Court of Appeals, Ninth Circuit.

Before SCHROEDER, BRUNETTI, Circuit Judges, and BREWSTER^* , District Judge.

MEMORANDUM^** 

Henry Kersting appeals from an order of the District Court for the District of Hawaii dismissing sua sponte, for lack of subject matter jurisdiction, his action against the Internal Revenue Service and the United States. We have jurisdiction under 28 U.S.C. § 1291 and affirm.

In October 1989 the Internal Revenue Service ("IRS") assessed penalties against Kersting for promoting abusive tax shelters. Appellant was assessed $1,545,201 under 26 U.S.C. § 6700 and $2,330,000 under 26 U.S.C. § 6701. The procedures in the Internal Revenue Code allowing a taxpayer to contest income or estate assessments in tax court without first paying the tax, Secs. 6211-6213, do not apply to Sec. 6700 and 6701 penalties. Under Sec. 6703, a taxpayer's sole remedy in the case of Secs. 6700 and 6701 assessments is to pay fifteen percent of the penalty within thirty days and then to file a claim for refund with the IRS, and upon disallowance of that claim, to bring a refund action in district court. For Sec. 6700 penalties, the taxpayer is required to pay fifteen percent of the entire penalty to reach federal court. For Sec. 6701 penalties, the taxpayer may pay fifteen percent of a single assessment (i.e., $150) and then file a refund action to determine the legality of all the Sec. 6701 penalties.¹ 

Instead of complying with the procedures set out in Sec. 6703, Kersting filed suit in federal district court. His complaint alleged (a) that the Sec. 6703 procedural requirements violate due process and equal protection, and (b) that Secs. 6700 and 6701 violate due process and equal protection. Kersting asked the court to declare the Code provisions unconstitutional and to issue an injunction enjoining the IRS from collecting the assessments.² 

The district court denied Kersting's motion for preliminary injunction and dismissed sua sponte the action in its entirety for lack of subject matter jurisdiction. Under the provisions of the Anti-Injunction Act, 26 U.S.C. § 7421, the court held that Kersting could not maintain a suit to restrain the assessment or collection of the section 6700 or 6701 penalties. Therefore, the court found that it was without jurisdiction to consider the case.

The court rejected Kersting's argument that it should hear the case under a judicially created exception to the Anti-Injunction Act. That exception permits an action to restrain the assessment or collection of a tax when a taxpayer demonstrates a certainty of success on the merits and that irreparable injury will result if the action is precluded. Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 6-7 (1962); Elias v. Connett, 908 F.2d 521, 526 (9th Cir. 1990). The court found Kersting made no showing the assessment would cause him irreparable injury. The court also held Kersting failed to demonstrate a certainty of success on the merits.

We review the district court decision to dismiss for lack of subject matter jurisdiction de novo. Kruso v. International Tel. and Tel., 872 F.2d 1416, 1421 (9th Cir. 1989).

We need not reach the question whether Kersting was certain to succeed on the merits because we agree with the district court he provided no evidence irreparable injury would result. To demonstrate irreparable harm for the purpose of avoiding the strictures of the Anti-Injunction Act, it is necessary to demonstrate something more than "mere monetary harm or financial hardship...." Elias, 908 F.2d at 526. Indeed, to satisfy this prong of the Enochs exception, it is necessary to demonstrate that the harm resulting from forcing Kersting to protest the assessments in accordance with the procedure set out in 26 U.S.C. § 6703 is not capable of redress. As the Supreme Court has observed:

The key word in this consideration is irreparable. Mere injuries, however substantial, in terms of money, time and energy necessarily expended in the absence of a stay, are not enough. The possibility that adequate compensatory or other corrective relief will be available at a later date, in the ordinary course of litigation, weighs heavily against a claim of irreparable harm.

Sampson v. Murray, 415 U.S. 61, 90 (1974) (quoting Virginia Petroleum Jobbers Ass'n. v. FPC, 259 F.2d 921, 925 (1958)) (emphasis original in Virginia Jobbers) .

In this case, the district court stated, "Plaintiff has failed to show irreparable injury if the penalties are assessed. Plaintiff claims only that the penalties will cause 'financial ruin forever,' but he has submitted no supporting documentation to prove his financial status." Order Denying Preliminary Injunction at 2. Our independent review of the record has revealed no evidence of harm beyond "mere financial hardship." Indeed, at best Kersting alleged that he did not have, and was unable to raise sufficient funds to comply with Sec. 6703. Affidavit of Henry Kersting, Excerpt of Records at B, paragraphs 13-14. We therefore conclude the Anti-Injunction Act properly was applied in this case, and thus the district court was without jurisdiction to consider the matter.

AFFIRMED.