Opposition Brief — W. C. Garcia & Associates, Inc. v. Miceli

»

_.) FILED

MAY 10 19%

No. 89-1293

| wesicid c see JR.

Jn the Supreme Court of the Unites States

OcTOBER TERM, 1989

W.C. GARCIA & ASSOCIATES, INC., PETITIONER

V.

FRANK S. Micect, District DIRECTOR,

INTERNAL REVENUE SERVICE

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

KENNETH W. STARR

Solicitor General

SHIRLEY D. PETERSON

Assistant Attorney neral

ROBERT S. POMERANCE

REGINA S. MORIARTY

Altorneys

Department of Justice

Washington, D.C. 20530

(202) 633-2217

me (DCCT AVALLADIC CODVEe

| QUESTIONS PRESENTED

|. Whether petitioner’s claim for injunctive relief to

restrain respondent from collecting a tax assessment was

) correctly dismissed as moot because the IRS had abated the

| assessment.

2. Whether petitioner’s request for an order directing

respondent to “return” petitioner’s payment of another

assessment was correctly denied on the ground that the

jurisdictional prerequisites of a suit for refund had not been

met.

(1)

TABLE OF CONTENTS

Page

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TABLE OF AUTHORITIES

Cases:

Bob Jones University v. Simon, 416 U.S. 725

re Os hs he setae Woe 2

Cool Fuel, Inc. v. Connett, 685 F.2d 309 (9th Cir.

En enw vv ww vs 6, 8

Enochs v. Williams Packing & Navigation Co., 370

A 2

Flora v. United States, 362 U.S. 145 (1960) 2

Hall v. Beals, 396 U.S. 45 (1969) ............. 7

King v. Commissioner, 857 F.2d 676 (9th Cir.

Cee ie asa e piece e's 8

Laing v. United States, 423 U.S. 161 (1976) .... 3

Little People’s School, Inc. v. United States, 842 ¥.2d

err y

Mills v. Green, 159 U.S. 651 -(1895) ........... 7

Mulder v. Commissioner, 855 F.2d 208 (Sth Cir.

rs aw be 8

Murphy v. Hunt, 455 U.S. 478 (1982) ........ 7

United States v. Dalm, 110 S. Ct. 1361 (1990). . y

Weinstein v. Bradford, 423 U.S. 147 (1975) .. 7

Constitution and statutes:

8 Ee 2 ; 6, 7

Anti-Injunction Act, 26 U.S.C. 7421(a) . 2

(111)

lV

Statutes — Continued: Page

Internal Revenue Code (26 U.S.C.):

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In the Supreme Court of the Cited States

OCTOBER TERM, 1989

No. 89-1293

W.C. GARCIA & ASSOCIATES, INC., PETITIONER

V.

FRANK S. MICELI, DISTRICT DIRECTOR,

INTERNAL REVENUE SERVICE

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

OPINIONS BELOW

‘he opinion of the court of appeals (Pet. App. la-3a)

is unpublished, but the decision is noted at 889 F.2d 1097

(Table). The order of the district court (Pet. App. 4a-7a)

is unreported.

JURISDICTION

The judgment of the court of appeals was entered on

November 16, 1989. The petition for a writ of certiorari

was filed on February 12, 1990. The jurisdiction of this

Court is invoked under 28 U.S.C. 1254(1)

(1)

te

STATEMENT

1. This is the second suit brought by petitioner with

respect to its personal holding company tax liability for

1975.' In 1984 petitioner brought suit in the United States

District Court for the Northern District of California against

an Internal Revenue Service (IRS) District Director, seek-

ing preliminary and permanent injunctive relief to restrain

the collection of a personal holding company tax assessment

of $82,834. Petitioner alleged that the assessment was In-

valid and must be enjoined because the IRS had failed to

send a notice of deficiency as required by Sections 6212 and

6213 of the Code.? The government disputed that the

assessment violated those provisions. It contended that peti-

tioner had executed a waiver of the restrictions On assess-

[he personal holding company tax is 4 surtax imposed by Section

$41 of the Internal Revenue Code (26 U.S.C.) on the passive income

of certain closely held corporations.

> The Anti-Injunction Act (26 U.S.C. 7421(a)) generally bars suits

to enjoin the assessment or collection of taxes. See Bob Jones Univer-

sity v. Simon, 416 U.S. 725 (1974); Enochs v. Williams Packing &

Navigation Co., 370 U.S. 1 (1962). But the Act is subject to several

exceptions, including the exception provided in Section 621 3(a) of the

Code. Section 6213(a) establishes a “Restriction on Assessment” of

taxes, Which generally precludes the IRS from assessing or atlempung

to collect an income tax unul wt has mailed a notice of deliciency to

the taxpayer in accordance with Section 6212, and tor 90 days thereafter.

It the taxpayer tiles a petition with the Tax Court during the 90-day

period, the stay upon assessment and collection continues unul the dect-

sion of the Tax Court becomes final. The stay ts designed to permit

a taxpayer to pursue prepayment litigation in the Tax Court. See Flora

v. United States, 362 U.S. 145, 158-163 (1960). If the IRS makes an

assessment that violates Section 6213(a), or institutes a levy or pro

ceeding in court seeking to collect such an assessment, then “[n]ot-

withstanding the provisions ef section 7421(4), the making of such

assessment or the beginning of such proceeding or levy during the me

ment imposed by Section 6213 (see 26 U.S.C. 6213(d)), so

that a notice of deficiency was not required. See CR 9, Exh.

B33

The district court denied petitioner’s request for a

preliminary injunction, and granted the government’s mo-

tion for summary judgment (CR 9, Exhs. B, C, D). Peti-

tioner appealed, but while the appeal was pending, petitioner

paid the assessment in full without seeking a stay of the

district court’s judgment. The court of appeals thereafter

granted the government’s motion to dismiss the appeal as

moot (CR 9, Exh. E). The court explained that, the entire

tax having been paid, petitioner’s “appeal from the dismissal

of its action for an injunction against the collection of taxes

is therefore moot” (/bid.). This Court denied certiorari. 475

U.S. 1010 (1986).

2. The IRS thereafter made a second assessment of ap-

proximately $3,000 with respect to petitioner’s personal

holding company tax for 1975 (see CR 15, Exh. A). When

the IRS sought to collect that assessment, petitioner filed

this suit in the same district court against respondent, the

IRS District Director. The complaint described the action

as One to enjoin the collection of tax, invoking jurisdiction

under Section 6213 of the Code (CR 1, at 1). It asserted

that both the first assessment (which petitioner had paid)

and the second assessment (which petitioner had not paid)

were in violation of Secticn 6213 because the IRS had not

issued a notice of deficiency to petitioner before making

{the} prohibition [of Section 6213(a)] 1s in force may be enjoined by

a proceeding in the proper court” (26 U.S.C. 6213(a)). See Laing v.

United States, 423 U.S. 161, 184 & n.27 (1976).

’'CR” reters to the docket control numbers assigned to the

documents tn the original record by the clerk of the district court.

4

either assessment (CR 1, at 2-4). The complaint requested

that respondent (1) “be enjoined and restrained from tak-

ing any action to collect or otherwise enforce” the

assessments, and (2) “be ordered to return” to petitioner any

part of the assessments that had already been collected (id.

at 4). Although requesting the return of these funds, the

complaint did not invoke the statutes that provide jurisdic-

tion over a tax refund suit nor did it allege the precondi-

tion for such a suit—namely, that petitioner had filed an

administrative claim for refund of the tax paid.?

While this suit was pending in the district court, the IRS

abated the second assessment. A declaration executed on

May 25, 1988, by an IRS employee who had custody of

records relating to petitioner averred that the assessment

was abated as erroneous because the IRS had determined

that petitioner’s tax liability for 1975 had been paid in full.

The declaration further stated that all liens and levies aris-

ing from that assessment had been released or would be

released forthwith, and that no further collection activity

#28 U.S.C. 1346(a)(1) provides a district court with jurisdichion over

a “civil action against the United States for the recovery of any internal-

revenue tax alleged to have been erroneously or illegally assessed or

collected, or any penalty claimed to have been collected without authori-

ty or any sum alleged to have been excessive or in any Manner wrong-

fully collected under the internal-revenue laws.” Tracking the language

of that statute, Section 7422(a) of the Code limits a taxpayer’s right

to bring a refund suit by specitying that:

No suit or proceeding shall be maintained in any court tor the

recovery of any internal revenue tax alleged to have been erroneous-

ly or iNegally assessed or collected, or of any penalty claimed to

have been collected without authority, or of any sum alleged to

have been excessive or in any manner wrongfully collected, unul

a claim tor refund or credit has been duly tiled with the Secretary

fot the Treasury], according to the provisions of law in that regard,

and the regulations of the Secretary established in pursuance

thereot.

would be undertaken regarding petitioner’s 1975 income

taxes. Pet. App. Sa; CR 21. Petitioner adduced nothing to

contradict the representations in that deciaration.

On cross-motions for summary judgment, the district

court entered judgment for the government (Pet. App.

4a-7a). The court held that petitioner’s claim to restrain the

collection of tax was moot, because the unpaid assessment

had been abated and the IRS had agreed that petitioner’s

tax liability for 1975 had been paid in full. The court re-

jected petitioner’s arguments that there remained a

justiciable controversy respecting the validity of that assess-

ment. The court observed that “[flailure to provide a defi-

clency notice in violation of 26 U.S.C. § 6212(a) is not a

case within a class normally incapable of appellate review

because of the lapse of time” (/d. at 6a). The court stated

that “[t}here 1s no evidence that an assessment is likely to

occur again, let alone an assessment in violation of section

6212(a)” (ibid.).

The district court further ruled that petitioner was not

entitled to injunctive relief directing the IRS to “return” the

taxes that had been paid in response to the first assessment

(Pet. App. 6a). The court'explained that the appropriate

procedural channel for seeking recovery of a tax is a refund

suil. The court stated that the present action could not be

maintained as a tax refund suit because the jurisdictional

requirements for such a suit were not met, /.e., petitioner

“has not brought this action under section 7422(a) nor has

[petitioner] made the necessary allegations to state a sec-

tion 7422(a) claim” (/bid.). The court concluded that peti-

tioner “cannot use these proceedings in lieu of an action

for retund and avoid its jurisdictional prerequisites under

26 U.S.C. § 7422(a)” (ibid.).

3. The court of appeals affirmed by unpublished order

(Pet. App. la-3a). The court agreed with the district court

that petitioner’s claim to restrain the collection of the

6

unpaid assessment “was rendered moot by the IRS’s dect-

sion to abate the assessment and to release all liens” (id.

at 2a). The court observed that, although the IRS had made

{WO assessments against petitioner without mailing a notice

of deficiency, “there has been no showing that the event

will likely occur again” (/bid.). Citing its prior decision in

Cool Fuel, Inc. v. Connett, 685 F.2d 309 (9th Cir, 1982),

the court further stated that, even if the controversy were

not Moot, petitioner would not be entitled to injunctive relief

because it had not demonstrated irreparable injury and that

it could not pursue an adequate remedy at law (Pet. App.

2a). The court of appeals also agreed with the district court

that, although petitioner could have brought a refund suit

under 26 U.S.C. 7422 to try to recover the funds paid in

response to the first assessment, petitioner could not “seek

such a refund in this action and thereby avoid the jurisdic-

tional prerequisites of section 7422(a)” (ibid.).’

ARGUMENT

1. The courts below correctly ruled that petitioner's

claim to enjoin the collection of the unpaid tax assessment

was moot, and that determination raises no issue warran-

ting review by this Court. The uncontroverted declaration

of an IRS employee established that the IRS had abated

that assessment and would make no turther effort to col-

lect it (Pet. App. Sa; CR 21). There ts no reason to ad-

judicate the validity of a tax assessment that has been

abated, and we are aware of no case that has done so. Under

the limitations imposed by Article IIL of the Constitution,

it isthe duty of a federal court “to decide actual controver-

’ The court abo rejected petitioner's claim tor litigation costs undes

Section 74480 of the Code, stating that petitioner had not shown “that

the government's position throughout these proceedings was not

substantially justified” (Pet. App. 2a-3a)

sies by a judgment which can be carried into effect, and

not LO give Opinions ON MOO questions or abstract proposi-

tions, or to declare principles or rules of law which cannot

atfect the matter in issue in the case before it.” Mills v.

Green, 189 U.S. 651, 653 (1895). The IRS’s abatement of

the assessment has already given petitioner the relief that

it would obtain if collection of that assessment were en-

joined; accordingly, there remains no live Article Ill

“case[ ]” or “controvers[y]” over whether the assessment was

valid when issued. To adjudicate that question now would

be to render an advisory opinion in violation of the con-

suitutional limitations on the authority of the federal courts.

See, ¢.g., Hall v. Beals, 396 U.S. 45, 48 (1969).

Petitioner argues (Pet. 20-23) that the question whether

the tax assessment violated the procedu: al requirements of

26 U.S.C. 6212 and 6213 is not moot, on the theory that

the assessment is an act “capable of repetition, yet evading

review.” The courts below correctly rejected that argument.

The phrase “capable of repetition” connotes “a ‘reasonable

expectation’ or a ‘demonstrated probability’ that the same

controversy will recur involving the same complaining par-

ty.” Murphy v. Hunt, 455 U.S. 478, 482 (1982) (quoting

Weinstein v. Bradford, 423 U.S. 147, 149 (1975)). Petitioner

presented nothing to contradict the IRS’s declaration that

the assessment had been permanently cancelled and would

not be revived, and thus the courts below correctly stated

that “there has been no showing that the event will likely

occur again” (Pet. App. 2a; see id. at 6a).°

* Petitioner suggests (Pet. 20, 23) that a future invalid assessment

is likely because the IRS has twice made assessments against petitioner

without psumng 4 notice of deficiency. This suggestion ts misconceived

lhe IRS demed that there was any procedural defect in the titst assess-

ment, because petitioner had waived its right to a notice of deliciency.

Ihe distract court declined to enjoin collection, and the court of ap-

peals’ Consideration of petitioner's objections was mooted by petitioner's

Moreover, the making of a tax assessment ts clearly not

an action of such inherently short duration or effect that

it must “evad[e] review.” To the contrary, there are many

cases addressed to the question whether the IRS complied

with the deficiency procedures of Sections 6212 and 6213

in making a tax assessment. See, @.g., Aing v. Commis-

sioner, 857 F.2d 676 (9th Cir. 1988); Mulder v. Commis-

sioner, 855 F.2d 208 (Sth Cir. 1988) (deficiency notice not

mailed to “last known address” as required by Section 6212).

Thus, the district court correctly observed that “[fatlure to

provide a deficiency notice in violation of 26 U.S.C.

§ 6212(a) ts not a case within a class normally incapable of

appellate review because of the lapse of time” (Pet. App.

6a). The only reason that petitioner’s objection here

“evad[ed] review” was because the IRS determined that the

assessment was erroneous and abated it on its own without

the need for the district court to consider whether to order

such reliet.’

2. There is no merit to petitioner’s contention (Pet.

19-20) that the courts below erred in failing to order

respondent to “return” the taxes paid in response to the first

assessment. Such a claim ts not cognizable under Section

6213. That statute provides authority in certain cir-

payment of the assessed amount. The IRS concluded that the second

assessment, however, was erroneous because petitioner did not Owe any

more tax. In the two years since that assessment was abated and the

IKS avesred that ut would not commence any turther collection efforts

because # regarded the 1975 lability as fully paid, petitioner has been

given no reason to doubt that the IRS will adhere to that representation

Because petitioner's claim to enjomn collection of the assessment ts

moot, this Court has no occasion to consider the tssuc to which peti

toner devotes most of its attention (Pet. 7-18) — namely, whether the

Nioth Circun correctly held in Cool Fuel, Inc. v. Connett, 685 &.2d

OY (1982), that such a request for injunctive rchel should be granted

only Wf the plamutt demonstrates wreparable injury and that there ts

no adequate remedy at law

ee

9

cumstances for a court to enjoin the IRS from making a

premature assessment or from beginning a levy or collec-

tion action to enforce such an assessment. See note 2, supra.

lt does not provide jurisdiction, however, over a claim to

recover taxes that have already been paid. The correct pro-

cedure for pursuing such a claim is in a refund suit, after

the taxpayer duly files an administrative claim tor refund

of the tax and meets other jurisdictional requirements. See

note 4, supra.

Section 7422(a) unequivocally states that “([nJo suit or pro-

ceeding shall be maintained in any court for the recovery

of any internal revenue tax alleged to have been erroneously

or illegally assessed or collected, * * * until a claim for re-

fund or credit has been duly filed with the Secretary [of the

lreasury], according to the provisions of law in that regard,

and the regulations of the Secretary established in pursuance

thereot.” See, e.g., United States v. Dalm, 110S. Ct. 1361

(1990); Little People’s School, Inc. v. United States, 842

b.2d 570, 573 (1st Cir. 1988). Here, petitioner is seeking

to “recover[ |] [a] * * * tax alleged to have been erroneous-

ly or illegally assessed” (26 U.S.C. 7422(a)), and therefore

the courts below correctly ruled that it cannot maintain this

suit “in lieu of an action for refund and avoid its jurisdic-

tional prerequisites under 26 U.S.C § 7422(a)” (Pet. App.

6a; see id. at 2a).*

* Petitioner elected to discharge its liability for the first tax assess-

ment during its appeal from the district court’s dismissal of its first suit

tor myunctive rehet under Section 6213, thereby mooting the appeal.

Petitioner cannot revive that injunctive action merely by appending to

ity present complaint against the second assessment a claim for the

“return” of the tax previously paid. Rather, its post-payment remedy

tor any detect m the first assessment was a timely refund sun, which

ut did not undertake

10

This suit clearly fails to meet the jurisdictional prere-

quisites of an action for refund. Petitioner’s complaint was

brought for injunctive relief under Section 6213 against an

officer of the IRS. The complaint invoked none of the

Statutes that provide subject matter jurisdiction Over a re-

fund suit, and it made no allegation that petitioner had duly

filed with the IRS an administrative claim for refund of the

tax paid. As the district court observed, petitioner “has not

brought this action under section 7422(a) nor has [petitioner]

made the necessary allegations to state a section 7422(a)

claim” (Pet. App. 6a). Thus, the court lacked jurisdiction

to award petitioner a refund of the tax that it paid in

response to the first assessment.

CONCLUSION

The petition tor a writ of certiorart should be denied.

Respectfully submitted.

KENNETH W. STARR

Solicitor General

SHIRLEY Do PETERSON

Assistant Attorney General

ROBERTI S. POMERANGE

REGINA S. MIORIARTY

tfforneyvs

May 1990