OPERATION CLAMBAKE: SCIENTOLOGY COURT FILES

Part of a public library containing court papers related to lawsuits involving Scientology in some way. Collected to help lawyers and critics of Scientology in future lawsuits from or against this cult. Please report back if this has been of help, or send new contributions to the collection. Thanks. Andreas Heldal-Lund (heldal@online.no)




                  CHURCH OF SCIENTOLOGY OF COLORADO, Plaintiff,
                                       v.
                      UNITED STATES of America, Defendant.
                             Civ. A. No. 79-C-1515.
                   United States District Court, D. Colorado.
                                 Oct. 24, 1980.
  Suit was brought for refund of FICA taxes on ground that plaintiff was an
 organization exempt from taxation. On the court's own motion, the District
 Court, Carrigan, J., held that: (1) complaint in action seeking refund of FICA
 taxes, which alleged at best only partial payment of deficiency assessed,
 revealed on its face a fatal jurisdictional defect, and (2) payment of the
 amount assessed in full some 22 months later failed to confer jurisdiction
 since district court lacked jurisdiction when the case was filed.
  Dismissed.

 [1] FEDERAL COURTS
 Federal district court has obligation to inquire on its own motion whether
 subject matter jurisdiction exists if it appears from complaint that
 jurisdiction is lacking.

 [2] INTERNAL REVENUE
 Jurisdiction of district court to hear tax refund suit must be alleged in
 complaint, and complaint must state that plaintiff paid the tax it wants
 refunded and filed a claim for refund prior to instituting suit.  28
 U.S.C.A. s 1346(a)(1).

 [3] INTERNAL REVENUE
 General rule is that taxpayer must pay full amount of income tax deficiency
 assessed before he may challenge assessment in suit for refund;
 exceptions are that partial payment may suffice if the assessment is for unpaid
 excise taxes and that partial payment may support suit by a "responsible
 person" who has been assessed with 100% penalty for failure to withhold and pay
 over employment taxes.  28 U.S.C.A. s 1346(a)(1);  26 U.S.C.A. s 6672.

 [4] INTERNAL REVENUE
 Complaint in action seeking refund of FICA taxes, which alleged at best only
 partial payment of deficiency assessed, revealed on its face a fatal
 jurisdictional defect.  28 U.S.C.A. ss 1346, 1346(a)(1).

 [5] FEDERAL COURTS
 Parties may not by stipulation confer subject matter jurisdiction on a federal
 court.

 [6] FEDERAL CIVIL PROCEDURE
 Defective jurisdictional allegation may be amended, but amendment is proper
 only as to matters of "form" in stating jurisdictional allegations, not of
 "substance" in creating these facts to confer jurisdiction nunc pro tunc.
 28 U.S.C.A. s 1653.

 [7] INTERNAL REVENUE
 Where district court lacked jurisdiction of FICA tax refund suit when case was
 filed because there had been, at best, a partial payment of the deficiency
 assessed, full payment some 22 months after the suit was filed failed to confer
 jurisdiction.  28 U.S.C.A. ss 1346, 1346(a)(1).
  *1086 Sander N. Karp, Karp, Goldstein & Stern, Denver, Colo., for
 plaintiff.
  Angelo I. Castelli, Atty., Tax Div., Dept. of Justice, Washington, D. C., for
 defendant.
                          MEMORANDUM OPINION AND ORDER

  CARRIGAN, District Judge.
                                       I.
  [1] THIS MATTER is before the Court on its own motion.[FN1] Plaintiff Church
 of Scientology of Colorado ("Scientology") brought this suit for refund
 claiming that it had been improperly assessed for failure to withhold and pay
 FICA taxes for the second quarter of 1974. See 26 U.S.C. s 3101, et seq.
 Scientology claims that it has no obligation to collect and pay over FICA taxes
 since it is an organization exempt from taxation under 26 U.S.C. s
 501(c)(3).

      FN1. The Court has the obligation to inquire on its own motion whether
     subject matter jurisdiction exists if it appears from the complaint that
     jurisdiction is lacking. This is so even if neither party questions subject
     matter jurisdiction. Clark v. Paul Gray, Inc., 306 U.S. 583, 588, 59
     S.Ct. 744, 748, 83 L.Ed. 1001 (1939); McNutt v. General Motors
     Acceptance Corp., 298 U.S. 178, 189, 56 S.Ct. 780, 789, 80 L.Ed. 1135
     (1936); Basso v. Utah Power and Light Co., 495 F.2d 906, 909 (10th Cir.
     1974).

  On January 20, 1975, the government levied upon Scientology's bank account,
 and seized $906.56 in partial satisfaction of the amount the IRS claims
 Scientology owes the United States. That $906.56 is the object of the instant
 suit for refund. The remaining FICA tax liability of $2,544.55, plus accrued
 interest and penalties, was not paid by Scientology until September 12, 1980,
 [FN2] more than 22 months after this suit was filed. Moreover, the latter
 amount was not paid until after a suggestion that this Court had no
 jurisdiction because of its nonpayment.

      FN2. This was the date argument was heard on the question of jurisdiction.
     Payment was made a few minutes before the hearing started.

  In preparing to hear Scientology's motion for summary judgment, the
 government's cross-motion for summary judgment, and the government's motion to
 compel discovery, the Court reviewed the pleadings filed to date in this case.
 It then became apparent from the pleadings that Scientology had brought this
 suit without paying the full amount assessed against it. Accordingly, the Court
 gave notice to counsel several hours before the hearing that they should
 address the question of the Court's jurisdiction. After argument, the Court
 invited counsel for both parties to submit supplemental *1087 briefs, and
 counsel for Scientology filed an additional memorandum.
                                       II.
  [2] Jurisdiction of district courts to hear refund suits derives from 28
 U.S.C. s 1346(a)(1).[FN3] This jurisdiction must be alleged in the complaint.
 The complaint must state that the plaintiff has paid the tax it wants refunded
 and has filed a claim for refund prior to instituting suit. Freeman v.
 United States, 46 AFTR 2d 80-5399, 5400 (E.D.Va.1980). Scientology alleged in
 its complaint that it had filed a claim for refund. However, it also alleged
 that the government had seized $906.56 by levy on its bank account, and that
 the total assessment against it for the second and third quarters of 1974
 amounted to $3,515.63. Scientology did not allege that it paid any part of the
 balance remaining after the levy.

      FN3. Title 28, U.S.C. s 1346 provides in part:
     "(a) The district courts shall have original jurisdiction, concurrent with
     the Court of Claims, of:
     (1) Any 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
     authority or any sum alleged to have been excessive or in any manner
     wrongfully collected under the internal-revenue laws...."

  [3] The general rule is that a taxpayer must pay the full amount of an
 income tax deficiency assessed by the IRS before he may challenge the
 assessment in a suit for refund under Section 1346(a)(1). Flora v. United
 States, 357 U.S. 63, 78 S.Ct. 1079, 2 L.Ed.2d 1165 (1958), aff'd on rehearing,
 362 U.S. 145, 80 S.Ct. 630, 4 L.Ed.2d 623 (1960).
  An exception to this general rule has been constructed from two footnotes to
 the Supreme Court's second Flora opinion. See 362 U.S. at 171-75, 80 S.Ct.
 at 644-46, notes 37 and 38. This exception provides that a taxpayer may pay
 only the assessment for part of the tax if the tax is a "divisible" one.
 Fidelity Bank, N.A. v. United States, 616 F.2d 1181, 1182 n.1 (10th Cir.
 1980); Psaty v. United States, 442 F.2d 1154, 1159 (3d Cir. 1971); Steele
 v. United States, 280 F.2d 89, 90 (8th Cir. 1960). However, the exception
 applies in only two situations: (1) partial payment may suffice if the
 assessment is for unpaid excise taxes,[FN4] or, (2) partial payment may support
 suit by a "responsible person" who has been assessed with a 100% penalty
 pursuant to 26 U.S.C. s 6672 for failure to withhold and pay over employment
 taxes.[FN5] The instant refund suit involves neither exception. Scientology
 complains that it was improperly assessed for failure to pay FICA taxes: no
 excise taxes are involved. And, although FICA taxes are employment taxes for
 which a "responsible person" may be assessed pursuant to Section 6672,
 Marvel v. United States, 548 F.2d 295, 298 (10th Cir.), cert. denied, 431
 U.S. 967, 97 S.Ct. 2924, 53 L.Ed.2d 1062 (1977), this case does not involve a
 Section 6672 assessment.

      FN4. See Higginbotham v. United States, 556 F.2d 1173 (4th Cir. 1977);
     Lucia v. United States, 474 F.2d 565 (5th Cir. 1973) (en banc); Drake
     v. United States, 355 F.Supp. 710 (E.D.Mo.1973); Pizzarello v. United
     States, 285 F.Supp. 147 (S.D.N.Y.1968), rev'd on other grounds, 408 F.2d
     579 (2d Cir.), cert. denied, 396 U.S. 986, 90 S.Ct. 481, 24 L.Ed.2d 450
     (1969); Tysdale v. United States, 191 F.Supp. 442 (D.Minn.1961);
     Dowie v. United States, 37 F.R.D. 229 (N.D.N.Y.1964).

      FN5. Fidelity Bank, N. A. v. United States, 616 F.2d 1181 (10th Cir.
     1980); Boynton v. United States, 566 F.2d 50 (9th Cir. 1977); Marvel
     v. United States, 548 F.2d 295 (10th Cir.), cert. denied, 431 U.S. 967,
     97 S.Ct. 2924, 53 L.Ed.2d 1062 (1977); Psaty v. United States, 442 F.2d
     1154 (3d Cir. 1971); Steele v. United States, 280 F.2d 89 (8th Cir.
     1960); Marquis v. United States, 348 F.Supp. 987 (C.D.Cal.1972);
     Spivak v. United States, 254 F.Supp. 517 (S.D.N.Y.1966); Ruby v.
     Mayer, 194 F.Supp. 594 (D.N.J.1961).

  [4] Scientology brought this suit because the IRS disallowed its claim for
 exempt status when processing Scientology's FICA tax return for the second
 quarter of 1974. The IRS eventually assessed Scientology for a deficiency,
 apparently under 26 CFR s 31.6205-1(a)(6), which was promulgated pursuant
 to 26 U.S.C. s 6205(a)(1). There is no reason to extend the partial payment
 rule to cover the facts in this case, *1088 since a Section 31.6205-
 1(a)(6) assessment, unlike a Section 6672 assessment, is not a penalty
 directed at third parties. A Section 31.6205-1(a)(6) assessment is more akin
 to an assessment made pursuant to the Secretary's general assessment power.
 See 26 U.S.C. s 6201. These "garden variety" assessments are those to which
 the Flora full-payment rule applies. Therefore, the complaint in this action,
 which alleges at best only a partial payment [FN6] of the deficiency assessed
 against Scientology, reveals on its face a fatal jurisdictional defect.

      FN6. Since the partial-payment exception to the Flora rule does not apply
     in this case, it is unnecessary to discuss whether the levy made in this
     case would suffice as partial payment. Cf. Kabbaby v. Richardson, 520
     F.2d 334, 335 (5th Cir. 1975).

                                        III.
  After being advised of the Court's concern regarding its jurisdiction,
 Scientology wrote a check for the unpaid balance of the assessment and tendered
 it to the government. The government accepted this check minutes before the
 hearing on the jurisdiction issue. At that hearing, counsel for Scientology and
 for the government orally stipulated that Scientology had paid the full
 assessment. Both parties then urged that this payment, made twenty-two months
 after this lawsuit was filed, is sufficient to confer jurisdiction on this
 Court.
  [5][6] It is fundamental that parties may not, by stipulation, confer
 subject matter jurisdiction on a federal court. California v. LaRue, 409
 U.S. 109, 112-13, n. 3, 93 S.Ct. 390, 394, 34 L.Ed.2d 342 (1972); United
 States ex rel. Burnette v. Driving Hawk, 587 F.2d 23, 24 (8th Cir. 1978);
 Potomac Passengers Association v. Chesapeake and Ohio Railway Company, 520
 F.2d 91, 95 n. 22 (D.C.Cir.1975); Rincon Band of Mission Indians v. County
 of San Diego, 495 F.2d 1, 8 (9th Cir. 1974). Of course, defective
 jurisdictional allegations may be amended pursuant to 28 U.S.C. s 1653.
 Schlesinger v. Councilman, 420 U.S. 738, 744 n. 9, 95 S.Ct. 1300, 1306, 43
 L.Ed.2d 591 (1975). Amendment, however, is proper only as to matters of "form"
 in stating jurisdictional allegations, not of "substance" in creating these
 facts to confer jurisdiction nunc pro tunc. Cf. Brennan v. University of
 Kansas, 451 F.2d 1287, 1289 (10th Cir. 1971).
  [7] Even if the proposed stipulation is treated as a stipulated motion for
 leave to amend the complaint, it fails to confer jurisdiction since this Court
 lacked jurisdiction when the case was filed. Facts occurring after the
 complaint is filed cannot confer jurisdiction on a federal court if sufficient
 jurisdictional facts did not exist at the time the complaint was filed. See
 Farmers' Alliance Mutual Ins. Co. v. Jones, 570 F.2d 1384, 1387 (10th Cir.
 1978); Lyons v. Weltmer, 174 F.2d 473 (4th Cir. 1949); Seaboard Finance
 Co. v. Davis, 276 F.Supp. 507, 509 (N.D.Ill.1967); Hagen v. Payne, 222
 F.Supp. 548, 553 (W.D.Ark.1963); Wright, Miller and Cooper, Federal Practice
 and Procedure Section 3608, vol. 13, pp. 661-62 (1975); Hart and Wechsler, The
 Federal Courts and the Federal System 1063, 1102 (2d ed. 1973).
  Most of the cases discussing this question involve diversity jurisdiction.
 However, these cases require that the subject matter jurisdiction be
 established as having existed at the time the suit is filed. This principle is
 especially applicable in tax refund suits, since Congress has determined that
 the taxpayer who elects to contest liability in the district court rather than
 the tax court must pay the assessment before commencing suit for refund.
 Flora v. United States, 357 U.S. 63, 69-70, 78 S.Ct. 1079, 1083, 2 L.Ed.2d
 1165 (1958), aff'd on rehearing, 362 U.S. 145, 80 S.Ct. 630, 4 L.Ed.2d 623
 (1960). Therefore, this action must be dismissed for lack of jurisdiction.
  IT IS ORDERED that the plaintiff's action is dismissed for lack of subject
 matter jurisdiction.

End of file...