CHURCH OF SCIENTOLOGY OF CALIFORNIA, Plaintiff-Appellant,
v.
UNITED STATES of America and Sandra Baker, Revenue Officer, Defendants-
Appellees.
No. 90-55514.
United States Court of Appeals,
Ninth Circuit.
Argued and Submitted Oct. 5, 1990.
Decided Dec. 12, 1990.
Church filed suit seeking an injunction against attempts by the Internal
Revenue Service (IRS) to collect deficiencies in employee withholding taxes
after revocation of the church's tax-exempt status. The United States District
Court for the Central District of California, James M. Ideman, J., denied the
request. Church appealed. The Court of Appeals, Alarcon, Circuit Judge, held
that: (1) the church's claim of allegedly unlawful or unconstitutional levies
did not fall within the judicial exception to the Anti-Injunction Act; (2) the
church failed to show that the Government had no possibility of prevailing or
that the church would suffer irreparable injury; and (3) the opportunity to
sue for relief was an adequate remedy at law, precluding injunctive relief.
Affirmed.
[1] INTERNAL REVENUE
Anti-Injunction Act contains no exception for allegedly unlawful or
unconstitutional levies. 26 U.S.C.A. s 7421(a).
[2] INTERNAL REVENUE
To fall within judicial exception to Anti-Injunction Act, taxpayer must show
that Government's claim is baseless and that taxpayer is entitled to equitable
relief; both prongs of test must be met or suit for injunctive relief must be
dismissed. 26 U.S.C.A. s 7421(a).
[3] INTERNAL REVENUE
Limitations imposed by Anti-Injunction Act on suits to enjoin collection of
taxes also apply to attempts to enjoin "wrongful disclosures" in form of bank
levies and individual assessments that could result in unauthorized disclosure
of taxpayer's returns or return information. 26 U.S.C.A. ss 6103,
6103(a), 7421(a).
[4] INTERNAL REVENUE
Existence of factual dispute over whether Internal Revenue Service (IRS) would
forebear collecting asserted deficiencies in withholding of employment taxes
for church employees deprived district court of jurisdiction to grant
injunction. 26 U.S.C.A. ss 7421(a), 7421 et seq.
[5] INTERNAL REVENUE
Church failed to show that any representation by Internal Revenue Service (IRS)
to forebear from collecting disputed deficiencies in employee withholding taxes
coerced or defrauded church in any manner and, therefore, church was not
entitled to injunction against collection of deficiencies after revocation of
church's tax-exempt status. 26 U.S.C.A. ss 7421(a), 7421 et seq.
[6] INTERNAL REVENUE
Internal Revenue Service (IRS) internal operating procedures to be used when
taxpayer raised question and presented information creating reasonable doubt
about accuracy or validity of assessments were not promulgated for express
benefit of taxpayers and, therefore, IRS's failure to comply with those
procedures did not form basis for injunction sought by church against
collection of deficiencies in employee withholding taxes after revocation of
church's tax-exempt status. 26 U.S.C.A. ss 7421(a), 7421 et seq.
[6] INTERNAL REVENUE
proceedings thereunder.
Internal Revenue Service (IRS) internal operating procedures to be used when
taxpayer raised question and presented information creating reasonable doubt
about accuracy or validity of assessments were not promulgated for express
benefit of taxpayers and, therefore, IRS's failure to comply with those
procedures did not form basis for injunction sought by church against
collection of deficiencies in employee withholding taxes after revocation of
church's tax-exempt status. 26 U.S.C.A. ss 7421(a), 7421 et seq.
[7] INTERNAL REVENUE
Church failed to show that First Amendment barred Government's attempts to
collect employee withholding taxes after revocation of church's tax-exempt
status and, therefore, church failed to meet "no possibility of success" prong
of judicial exception to Anti-Injunction Act. 26 U.S.C.A. ss 7421(a),
7421 et seq.; U.S.C.A. Const.Amend. 1.
[8] INTERNAL REVENUE
Church's claim that Internal Revenue Service (IRS) violated due process clause
when it sought to collect employee withholding taxes after revocation of
church's tax-exempt status did not show that Government had no possibility of
prevailing, for purposes of judicial exception to Anti-Injunction Act. 26
U.S.C.A. ss 7421(a), 7421 et seq.; U.S.C.A. Const.Amend. 5.
[9] INTERNAL REVENUE
Church's claim that assessment for deficiencies in employee withholding taxes
exceeded $9 million was insufficient to show irreparable harm, for purposes of
determining whether Anti-Injunction Act barred attempt to enjoin collection of
deficiencies after revocation of church's tax-exempt status. 26 U.S.C.A. ss
7421(a), 7421 et seq.
[10] INTERNAL REVENUE
Church's opportunity to sue for refund of allegedly wrongfully collected
employee withholding taxes was adequate remedy at law which barred injunction
against attempt to collect deficiencies after revocation of church's tax-exempt
status. 26 U.S.C.A. ss 7421(a), 7421 et seq.
[11] INTERNAL REVENUE
Church had adequate remedy at law for allegedly wrongful disclosure of tax
returns or return information and, therefore, any allegedly wrongful disclosure
in connection with attempts to collect deficiencies in employee withholding
taxes after revocation of church's tax-exempt status did not rise to level of
irreparable injury necessary to satisfy judicial exception to Anti-Injunction
Act. 26 U.S.C.A. ss 6103, 6672, 7421(a), 7431(a).
[12] FEDERAL COURTS
Church was not prejudiced by district court's allegedly erroneous refusal to
allow church to file reply to Government's response before court dissolved
temporary restraining order and denied preliminary injunction against attempt
to collect taxes where district court correctly ruled that Anti-Injunction Act
deprived court of jurisdiction; even if church was not allowed to reply to
Government's response to church's order to show cause, church had raised its
contentions about Anti-Injunction Act in its memorandum in support of
application for temporary restraining order. 26 U.S.C.A. s 7421(a).
*1483 William T. Drescher, Calabasas, Cal., and Kendrick L. Moxon, Bowles &
Moxon, Hollywood, Cal., for plaintiff-appellant.
Shirley D. Peterson, Asst. Atty. Gen., Gary R. Allen, William A. Whitledge,
and Teresa E. McLaughlin, Tax Div., U.S. Dept. of Justice, Washington, D.C.,
for defendants-appellees.
Appeal from the United States District Court for the Central District of
California.
Before ALARCON and NORRIS, Circuit Judges, and GEORGE, [FN*] District Judge.
FN* Honorable Lloyd D. George, United States District Judge for the
District of Nevada, sitting by designation.
ALARCON, Circuit Judge:
The Church of Scientology of California (Church) appeals from the denial
of its request for a preliminary injunction against the Internal Revenue
Service (IRS). The district court concluded it lacked subject matter
jurisdiction and, therefore, was precluded from granting this relief by the
Anti-Injunction Act, 26 U.S.C. s 7421. The Church contends that the record
demonstrates that the district court has the jurisdiction to grant equitable
relief pursuant to the judicial exception to the Anti-Injunction Act. We
disagree and affirm.
I
This case arises from an action filed by the Church against the IRS in which
it alleged:
1. Wrongful disclosure of taxpayer information under 26 U.S.C. s 6103 by
improperly issuing bank levies and individual assessments.
2. Violation of the First Amendment of the United States Constitution by
engaging in unlawful and arbitrary actions against the Church motivated "by an
impermissible hostility to the scientology religion."
3. Violation of the due process clause of the Fifth Amendment by treating the
Church and its parishioners differently from other religions.
4. Violation of the due process clause by failing to follow established IRS
policy.
5. Violation of the "Taxpayers Bill of Rights" by improperly assessing the
bank levies and individual assessments.
The Church presented the following version of the facts in its complaint and
supporting declarations: On March 9, 1989 the IRS issued a notice of proposed
adjustment of Federal Insurance Contribution Act (FICA) and Federal
Unemployment Tax Act (FUTA) taxes for the tax years of 1976-1986 based upon a
disallowance of the Church's tax exempt status. [FN1] On April 7, 1989, the
Church filed a protest with the IRS challenging each proposed adjustment. The
IRS rejected the protest. A supplemental protest filed on May 22, 1989, was
also rejected.
FN1. In 1987, in Church of Scientology of California v. Commissioner of
Internal Revenue, 823 F.2d 1310 (9th Cir.1987), cert. denied, 486 U.S.
1015, 108 S.Ct. 1752, 100 L.Ed.2d 214 (1988), we upheld a revocation of the
Church's tax exempt status for the years 1970-1972. Among the factual
findings in that case were that significant sums of Church money had inured
to the benefit of the Church's founder L. Ron Hubbard and his family during
the years in question. These benefits included the transfer of several
million dollars in Church funds to a sham corporation controlled by Hubbard
and a plan by which 10% of the gross income of all Scientology
congregations, franchises and organizations were to be paid directly to
Hubbard as "debt repayments." Id. at 1318-19.
Assessments were made by the IRS in July and August of 1989. Thereafter, the
Church entered into discussions with Stanley Kong, IRS Examinations Branch
Chief. Kong told the Church that if it made a token payment of the FICA and
FUTA taxes for one employee for the period in question and submitted claims for
refund and abatement the IRS would forbear attempting *1484 to collect the
balance of the assessment while such claims were being considered. On
September 22, 1989, the Church made payment of the FICA and FUTA taxes for one
employee for the period in question and submitted claims for refund and
abatement.
On October 23, 1989, Revenue Officer Sandra Baker contacted Church
representatives in order to commence collection of the claimed deficiency. The
Church alleges that Baker agreed that pursuant to IRS policy P-5-16, as set
forth in the Internal Revenue Manual, she would forbear from attempting to
collect additional funds while the administrative refund claims were pending.
On January 5, 1990, Baker wrote the Church's counsel and requested a list of
the Church's officers so that the IRS could make assessments for the asserted
tax deficiencies directly against the responsible Church officials as
authorized by 26 U.S.C. s 6672. [FN2] The Church informed Baker that it
challenged both the legitimacy of the individual assessments, and the
appropriateness of any other tax collection activities while its refund claim
was under consideration.
FN2. "Any person required to collect, truthfully account for, and pay over
any tax imposed by this title who willfully fails to collect any such
tax, ... or willfully attempts in any manner to evade or defeat any such
tax or payment thereof, shall ... be liable to a penalty equal to the total
amount of the tax evaded, or not collected, or not accounted for and paid
over."
On April 4, 1990, Baker served seven notices of levy to selected banks. On
April 6, 1990, the IRS mailed assessments against twenty-four individuals,
including the late L. Ron Hubbard, for the purported tax deficiencies. The
Church requested that the IRS release the levies. The IRS refused to do so.
On April 24, 1990, the Church filed this action in the district court. On the
same date, the district court granted the Church's ex parte request and issued
a temporary restraining order (TRO) to maintain the status quo of the parties
and an order to show cause (OSC). On May 5, 1990, the Government filed its
response to the OSC. The Government asserted that the district court lacked
subject matter jurisdiction to grant injunctive relief under the Anti-
Injunction Act, 26 U.S.C. s 7421. In support of its claim the Government
submitted a declaration signed by Baker. Baker declared that all applicable
IRS regulations were complied with in making the assessment against the
Church. She also declared that the Church was challenging only a part of the
asserted deficiency. She declared further that the Church did not dispute that
it owed $6,500,000 in taxes and interest to the Government. Baker's
declaration also sets forth the factual basis for levying on each bank and how
the identities of the individuals to be assessed were determined. The
declaration did not include any discussion of Baker's representations to the
Church concerning forbearance. The district court denied the Church's request
for injunctive relief before the date set for filing of the Church's reply to
the IRS's response to the OSC.
II
The Church contends that the Anti-Injunction Act does not apply when the
record shows an unlawful or unconstitutional levy and extraordinary
circumstances. The Church also asserts that it has met the judicial exception
to the Anti-Injunction Act.
[1] The Anti-Injunction Act, 26 U.S.C. s 7421(a) provides that "no suit
for the purpose of restraining the assessment or collection of any tax shall be
maintained in any court by any person, whether or not such person is the person
against whom such tax was assessed." The Anti-Injunction Act sets forth
specific exceptions which, if present, will support the granting of equitable
relief. The Church does not contend that the statutory exceptions are
applicable to this case.
The Supreme Court has explained that the principal purpose of the Anti-
Injunction Act is to preserve the Government's ability to assess and collect
taxes expeditiously with "a minimum of preenforcement judicial interference"
and "to require that the legal right to the disputed sums be
*1485 determined in a suit for refund." Bob Jones Univ. v. Simon, 416
U.S. 725, 736, 94 S.Ct. 2038, 2045, 40 L.Ed.2d 496 (1974) (citing, Enochs v.
Williams Packing & Navigation Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292
(1962)).
We review de novo the denial of a motion for preliminary injunction for lack
of subject matter jurisdiction. Elias v. Connett, 908 F.2d 521, 523 (9th
Cir.1990) (citing Jensen v. IRS, 835 F.2d 196, 198 (9th Cir.1987). The
district court's factual findings on jurisdictional issues must be accepted
unless clearly erroneous. Id.
The Church relies upon Singleton v. Mathis, 284 F.2d 616, 618-19 (8th
Cir.1960), Lassoff v. Gray, 266 F.2d 745, 747 (6th Cir.1959), and Monge
v. Smyth, 229 F.2d 361, 366 (9th Cir.), cert. denied, 351 U.S. 976, 76 S.Ct.
1055, 100 L.Ed. 1493 (1956) in support of the proposition that an injunction
may be ordered if the court finds that an unlawful or unconstitutional levy has
been issued and if extraordinary circumstances are shown. The Church's
reliance on the continued vitality of these decisions is misplaced. Each of
these cases was decided prior to the 1962 Supreme Court decision in Enochs
v. Williams Packing & Navigation Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292
(1962). Rather than providing a separate and independent exception to the
Anti-Injunction Act, the Supreme Court has instructed that these decisions are
part of an earlier generation of dissonant case law which was harmonized in
the Williams Packing decision. In Bob Jones University, the Supreme
Court stated that:
the Court's unanimous opinion in Williams Packing indicates that the case
was meant to be the capstone to the judicial construction of the Act. It
spells an end to a cyclical pattern of allegiance to the plain meaning of the
Act, followed by periods of uncertainty caused by a judicial departure from
that meaning, and followed in turn by the Court's rediscovery of the Act's
purpose.
416 U.S. at 742, 94 S.Ct. at 2048. The Court's decision in Bob Jones
forecloses any reliance on the pre-Williams Packing decisions cited by the
Church. In 1964, the Sixth Circuit disavowed its decision in Lassoff v.
Gray as being in conflict with the Williams Packing test. Vuin v.
Burton, 327 F.2d 967, 970 (6th Cir.1964). Similarly, in United States v.
Dema, 544 F.2d 1373, 1376 (7th Cir.1976), cert. denied, 429 U.S. 1093, 97
S.Ct. 1106, 51 L.Ed.2d 539 (1977), the Singleton case was only cited within
the context of requirements of the Williams Packing test. We have not
applied that portion of the Monge decision that recognized an exception to
the Anti-Injunction Act based on unusual and extraordinary circumstances since
the Williams Packing decision was published. [FN3]
FN3. In Monge, we followed the line of cases which stated that an
injunction may be granted where "unusual and extraordinary circumstances
appear." 229 F.2d at 366. While Monge has been cited four times by
this court since Williams Packing, it has never been for that
proposition. See, Whitney v. United States, 826 F.2d 896, 897 (9th
Cir.1987) (whether Form 870-AD standing alone estops taxpayer from seeking
a refund); Meridian Wood Prod. Co. v. United States, 725 F.2d 1183,
1186 (9th Cir.1984) (waiver obviated need for sending formal deficiency
notice); Wood v. Sargeant, 694 F.2d 1159, 1161 (9th
Cir.1982) (inability to pay tax is not a basis for invoking equity
jurisdiction); Richmond v. Weiner, 353 F.2d 41, 45 (9th
Cir.1965) (court cannot consider issue concerning pleadings that had not
been raised in district court), cert. denied, 384 U.S. 928, 86 S.Ct.
1447, 16 L.Ed.2d 531 (1966).
The Supreme Court now recognizes a single, narrow judicial exception to
the Anti-Injunction Act.
[A]n injunction may be obtained against the collection of any tax if (1) it
is "clear that under no circumstances could the government ultimately prevail"
and (2) "equity jurisdiction" otherwise exists, i.e., the taxpayer shows that
he would otherwise suffer irreparable injury.
Commissioner v. Shapiro, 424 U.S. 614, 627, 96 S.Ct. 1062, 1070, 47 L.Ed.2d
278 (1976) (quoting Enochs v. Williams Packing & Navigation Co., 370 U.S. 1,
7, 82 S.Ct. 1125, 1129, 8 L.Ed.2d 292 (1962)).
[2] Under the first prong of the Williams Packing test, the district
court must determine the possibility of success of the Government's assessment
based upon the information available to the court *1486 at the time of the
filing of the action. "Only if it is then manifest, under the most liberal
view of the law and the facts, that the government cannot prove its claim" is
the first part of the test satisfied. Thrower v. Miller, 440 F.2d 1186,
1187 (9th Cir.1971). The burden of showing that the Government's claim is
baseless is on the taxpayer. Schildcrout v. McKeever, 580 F.2d 994, 997
(9th Cir.1978) (citing Shapiro, 424 U.S. at 627-29, 96 S.Ct. at 1070-72.)
To meet the second prong of the Williams Packing test, the taxpayer must
demonstrate that it is entitled to equitable relief. "The taxpayer must show
that he has no adequate remedy at law and that the denial of injunctive relief
would cause him immediate, irreparable harm." Jensen v. IRS, 835 F.2d 196,
198 (9th Cir.1987) (citing Cool Fuel, Inc. v. Connett, 685 F.2d 309, 313-14
(9th Cir.1982)). Both prongs of the test must be met or a suit for injunctive
relief must be dismissed. Alexander v. "Americans United" Inc., 416 U.S.
752, 758, 94 S.Ct. 2053, 2057, 40 L.Ed.2d 518 (1974).
[3] The limitations imposed by the Anti-Injunction Act also apply to the
Church's attempt to enjoin "wrongful disclosures" in the form of the bank
levies and individual assessments claimed to be made in violation of 26
U.S.C. s 6103. [FN4] In Blech v. United States, 595 F.2d 462 (9th
Cir.1979), we stated that where the underlying action was one to enjoin
assessment and collection activities, it fell within the scope of the Anti-
Injunction Act's prohibitions. Id. at 466.
FN4. Section 6103(a) states that returns and return information are
confidential, "and except as authorized by this title-(1) no officer or
employee of the United States, ... shall disclose any return or return
information." It is not disputed that "return information" can include the
fact that a taxpayer's liability is or has been under investigation.
To hold otherwise would enable ingenious counsel to so frame complaints as to
frustrate the policy or purpose behind the Anti-Injunction Statute....
Likewise, this statutory ban against judicial interference with the assessment
and collection of taxes "is equally applicable to activities which are intended
to or may culminate in the assessment or collection of taxes."
Id. (quoting United States v. Dema, 544 F.2d 1373, 1376 (7th Cir.1976),
cert. denied, 429 U.S. 1093, 97 S.Ct. 1106, 51 L.Ed.2d 539 (1977)).
Accord, Lowrie v. United States, 824 F.2d 827, 830 (10th Cir.1987). The
Fifth Circuit has also held that an injunction sought under s 6103 was
barred by the Anti-Injunction Act. Kemlon Products & Development Co. v.
United States, 638 F.2d 1315, 1320 (5th Cir.), modified, 646 F.2d 223 (5th
Cir.), cert. denied, 454 U.S. 863, 102 S.Ct. 320, 70 L.Ed.2d 162 (1981).
The Church relies on Husby v. United States, 672 F.Supp. 442
(N.D.Cal.1987) for the proposition that an injunction may issue to prevent
further disclosure of tax return information through collection activities.
In Husby however, the Government agreed with the taxpayer that no taxes were
in fact owing. The Government further admitted in court, prior to the issuance
of the injunction, that the assessment and all collection activity pursuant to
it were due to computer error. Id. at 444. No challenge under the Anti-
Injunction Act was made, and the court expressly stated that "[t]he case at
hand presents no problem as to collateral attack of a levy or assessment."
Id. at 445. The only issue before the district court was whether the
statutory remedies of 26 U.S.C. s 7431 applied to the erroneous levy.
Id. at 442.
[4] To avoid the bar of the Anti-Injunction Act, the Church has the burden
of establishing that "under the most liberal view of the law and the facts, the
United States cannot establish its claim...." Schildcrout v. McKeever, 580
F.2d 994, 998 (9th Cir.1978) (quoting Enochs v. Williams Packing &
Navigation Co., 370 U.S. 1, 7, 82 S.Ct. 1125, 1129, 8 L.Ed.2d 292 (1962)). As
noted above, the declaration of Baker is in conflict with that relied upon by
the Church concerning the appropriateness of the levy, and whether wrongful
disclosures were made, as well as the circumstances surrounding the issuance of
the individual *1487 assessments. Baker declared that since $6,500,000 in
assessed taxes were not challenged by the Church, it was determined that
efforts to collect the amount were thought to be appropriate.
Where the record presents "material issues of disputed fact" the district
court lacks jurisdiction to grant an injunction. Kaestner v. Schmidt, 473
F.2d 1294, 1296 (9th Cir.1973) (Anti-Injunction Act bars jurisdiction where
evidence in Government affidavits established material issues of disputed
fact.) Accord, Thrower v. Miller, 440 F.2d 1186, 1187-88 (9th
Cir.1971) (Anti-Injunction Act barred relief where affidavits of appellee and
his attorney conflicted with affidavit of IRS officer.)
[5] The Church asserts that because the IRS represented that it would
forbear collecting the asserted deficiencies pending IRS determination of the
Church's refund claim, the Government's attempts to levy an assessment
thereafter constituted "fraudulent coercion" or "fraudulent representations" as
a means of tax collection. This contention cannot be supported under the most
liberal view of the record in favor of the Government.
The cases cited by the Church in which injunctive relief was granted based on
proof of coercion or fraud are distinguishable from the facts in the record
before us. In Mitsukiyo Yoshimura v. Alsup, 167 F.2d 104 (9th Cir.1948) the
taxpayer was coerced into signing incriminating documents and falsely
threatened with internment. Id. at 105. No showing of similar misconduct
appears in the record. The Church has not demonstrated how the representation
that the IRS would temporarily forbear collecting the disputed deficiencies
coerced or defrauded the Church in any manner.
In Miller v. Standard Nut Margarine Co., 284 U.S. 498, 52 S.Ct. 260,
76 L.Ed. 422 (1932), the taxpayer commenced its business acting in reliance
upon assurances from the Commissioner of Internal Revenue of the nontaxable
nature of its product. Id. at 510, 52 S.Ct. at 263. No showing has been
made that the IRS assured the Church that no taxes were owing. Likewise, there
has been no showing that the Church relied on the claimed assurance to its
detriment. Viewing the facts and law in the most liberal light as required by
Williams Packing, the Church has failed to demonstrate that the Government
cannot succeed on its claim on the basis of the cited authority.
The Church next argues that it has met the first prong of the Williams
Packing test because the Government has conceded that it could not prevail on
the merits regarding the alleged violations of the rule set forth in United
States ex rel. Accardi v. Shaughnessy, 347 U.S. 260, 74 S.Ct. 499, 98 L.Ed.
681 (1954). We find no such concession by the Government in its brief before
this court or in the record of the proceedings before the district court.
[6] Pursuant to the Accardi doctrine, an administrative agency is
required to adhere to its own internal operating procedures. Id. at 268, 74
S.Ct. at 504. The Church alleges that the IRS violated Policy Statement P-5-
16, Policies of the IRS Handbook, reprinted in 1 Administration Internal
Revenue Manual (CCH) at 1305-11, which states that when a taxpayer raises a
question or presents information creating reasonable doubt about the accuracy
or validity of an assessment "reasonable forbearance will be exercised with
respect to collection provided (1) adjustment of the taxpayers claim is within
the control of the service, and (2) the interests of the Government will not be
jeopardized." Id.
The Church argues that United States v. Heffner, 420 F.2d 809 (4th
Cir.1969) provides that when the IRS publicizes a policy that it has
promulgated for the express benefit of taxpayers, the Government must act in
compliance with that policy. The Church's reliance on Heffner is
misplaced. Heffner is a criminal case. It does not involve an application
of the Anti-Injunction Act. Id. at 810. The IRS regulation applied in
Heffner concerned the requirement that Miranda warnings be given to
suspects in criminal tax fraud investigations. Id. at 811. The remedy
invoked in Heffner was reversal of the criminal conviction. Id. at 814.
*1488 The Church asserts that it is undisputed that IRS Policy Statement P-
5-16, is a "procedural safeguard" which bars any collection activities until
its claims for refund are resolved. The Government argues that P-5-16
indicates on its face that collection will be made if it is in the Government's
interest. Accordingly, the policy was not promulgated for the express benefit
of taxpayers. The Government further argues that it has not violated the
forbearance policy. It is the Government's position that IRS Policy Statement
P-5-16 does not require it to forbear collection of approximately $6,500,000 as
to which there is no dispute. These conflicting contentions readily
demonstrate that the Church's representation that the Government has made a
concession concerning the application of the Accardi doctrine is without
merit.
Viewing this conflict of law in the most liberal light, it cannot be
said that there is no possibility that the Government will prevail on this
issue. Thus, the Church has failed to demonstrate that it has met the burden
imposed by the Williams Packing test.
III
The Church argues that the levies violate the establishment clause of the
First Amendment and the due process clause of the Fifth Amendment, and that
therefore irreparable injury to the Church is presumed as a matter of law.
[7] The Church relies on Elrod v. Burns, 427 U.S. 347, 96 S.Ct. 2673, 49
L.Ed.2d 547 (1976) in support of this argument. In Elrod, the Supreme Court
stated that the "loss of First Amendment freedoms, for even minimal periods of
time, unquestionably constitutes irreparable injury." Id. at 373, 96 S.Ct.
at 2689. Elrod did not involve an attempt to restrain tax assessments.
Instead, the court was concerned with the free speech rights of public
employees threatened with discharge because of political party affiliation.
Id. at 349, 96 S.Ct. at 2678. A more important distinction, however, is the
different standard that is applicable in granting injunctive relief in cases
where that remedy is not barred by the Anti-Injunction Act. The test
applicable in Elrod was "probability of success on the merits." Id. at
374, 96 S.Ct. at 2690. As noted above, under Williams Packing, a person
seeking injunctive relief must demonstrate "under the most liberal view of the
law and the facts, [that] the United States cannot establish its claim."
Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 7, 82 S.Ct. 1125,
1129, 8 L.Ed.2d 292 (1962).
[8] The Church also argues that it has established violations of the due
process clause of the Fifth Amendment. The Church asserts that when "an
alleged deprivation of a constitutional right is involved, most courts hold
that no further showing of irreparable injury is necessary." Mitchell v.
Cuomo, 748 F.2d 804, 806 (2nd Cir.1984).
In Mitchell, in affirming an order granting an injunction preventing a
prison closure, the Second Circuit stated: "[g]iven the evidence of increasing
overcrowding ... which constitute[s] the alleged threat to plaintiffs' eighth
amendment rights, the district judge's finding of irreparable harm is not
clearly erroneous." Id. at 806. The issuance of an injunction to prevent
the closure of a prison is not expressly barred by the Anti-Injunction Act.
Furthermore, the Second Circuit concluded an award of damages would be
inadequate to remedy the harm that would flow from the closure of a 1000-bed
facility and the transfer of its 475 inmates to other over-crowded prisons.
Id. at 805. As discussed below, the Church has adequate remedies at law for
all of its tax related claims.
In Bob Jones University v. Simon, 416 U.S. 725, 94 S.Ct. 2038, 40 L.Ed.2d
496 (1974), the Supreme Court stated that the Williams-Packing test was
applicable to First Amendment and Due Process claims raised by the taxpayer.
Id. at 749, 94 S.Ct. at 2052. The Court held that the taxpayer had an
adequate remedy at law in an action for a refund. Id. at 746, 94 S.Ct. at
2050. No special consideration is granted to injunctions against tax
collection sought on constitutional grounds. "[D]ecisions of *1489 this
Court make it unmistakably clear that the constitutional nature of a taxpayer's
claim, as distinct from its probability of success, is of no consequence under
the Anti-Injunction Act." Alexander v. "Americans United" Inc., 416 U.S.
752, 759, 94 S.Ct. 2053, 2058, 40 L.Ed.2d 518 (1974) (claim that statutory
prohibition against lobbying by tax exempt organization is unconstitutional);
accord, United States v. American Friends Serv. Comm., 419 U.S. 7, 11, 95
S.Ct. 13, 15, 42 L.Ed.2d 7 (1974) (claim that withholding tax interfered with
Quaker's free exercise of religion).
[9] The Church also argues that the fact that the assessment exceeds
$9,000,000 demonstrates irreparable harm. Mere allegations of financial
hardship are insufficient to support a finding of irreparable harm. Bob
Jones Univ., 416 U.S. at 745, 94 S.Ct. at 2050. See, Cool Fuel, Inc. v.
Connett, 685 F.2d 309, 314 (9th Cir.1981).
The Church further argues that the levies and assessments constitute injuries
to the Church's privacy and reputational interests. The only case cited in
support of this proposition is Husby v. United States, 672 F.Supp 442
(N.D.Cal.1987). As discussed above, the applicability of the Anti-Injunction
Act was not an issue in Husby. The district court stated in Husby that
the "sole question" before it was whether the statutory remedies of 26
U.S.C. s 7431 applied to the erroneous levy. Id. at 442.
In Kemlon Products & Development Co. v. United States, 638 F.2d 1315
(5th Cir.), modified, 646 F.2d 223 (5th Cir.), cert. denied, 454 U.S.
863, 102 S.Ct. 320, 70 L.Ed.2d 162 (1981), the taxpayer also claimed that an
injunction should issue because, without that remedy, it would suffer a "loss
of business reputation." Id. at 1318. The Fifth Circuit rejected the
taxpayer's argument that a mere conclusory allegation of reputational harm
demonstrates irreparable harm. Id. at 1322-23. The same result was reached
in Church of Scientology Celebrity Centre v. Egger, 539 F.Supp 491
(D.D.C.1982). "As is well settled in the tax field, irreparable injury cannot
be established by an allegation of injury to reputation.... [T]o establish
irreparable injury, plaintiffs must allege that the financial penalties likely
would cause Scientology ministers, churches or members financial ruin or other
serious consequences." Id. at 496 (citations omitted).
[10] The courts have repeatedly held that the opportunity to sue for a
refund is an adequate remedy at law which bars the granting of an injunction.
[P]etitioner may pay income taxes, or, in the their absence, an installment
of FICA or FUTA taxes, exhaust the Service's internal refund procedures, and
then bring suit for a refund. These review procedures offer petitioner a full,
albeit delayed, opportunity to litigate the legality of the Service's
revocation of tax-exempt status and withdrawal of advance assurance of
deductibility.
Bob Jones Univ., 416 U.S. at 746, 94 S.Ct. at 2050; see also Americans
United, 416 U.S. at 762, 94 S.Ct. at 2059 (taxpayer has adequate remedy in a
refund suit following FUTA payment); American Friend Serv. Comm., 419 U.S.
at 11, 95 S.Ct. at 15 (full opportunity to litigate tax liability in a refund
suit bars equitable relief); Zimmer v. Connett, 640 F.2d 208, 210 (9th
Cir.1981) ("Tax assessments must be contested ... in an action for a refund in
the Federal District Courts.... Absent a clear and explicit congressional
mandate, we shall not depart from these well marked pathways.") (citations
omitted); Cool Fuel, Inc. v. Connett, 685 F.2d 309, 314 (9th Cir.1981) (
"Since the Supreme Court decision in Bailey v. George, 259 U.S. 16, 42 S.Ct.
419, 66 L.Ed. 816 (1922), it has been established law that payment of the tax
followed by a suit for refund constitutes an adequate remedy at law.")
The Government challenges the Church's standing to seek relief for the Church
officials who have been assessed under 26 U.S.C. s 6672. The Church argues
that the section 6672 claims are derivative from the Government's main claim
against the Church for the FICA and FUTA taxes since the Government may only
satisfy the tax liability once. Wollman v. United States, 571 F.Supp. 824,
826 (S.D.Fla.1983). *1490 The Church further asserts that, since the
individuals assessed can seek indemnity from the Church, standing exists.
Reid v. United States, 558 F.Supp. 686, 688-89 (N.D.Miss.1983). Inasmuch as
one of the injuries claimed by the Church is the wrongful disclosure of
taxpayer information to the third parties who received the assessments, the
Church has asserted a direct injury from the issuance of the assessments.
Likewise, to the extent that an individual who pays a penalty assessment may be
indemnified by the Church, the Church has standing to challenge the validity of
the claim because it will be injured economically, albeit indirectly. However,
as discussed supra, the fact that the Church or the individuals may challenge
the correctness of the assessment in a court action for refund provides an
adequate remedy as a matter of law. Bob Jones Univ. v. Simon, 416 U.S. at
746, 94 S.Ct. at 2050; Cool Fuel, 685 F.2d at 314.
[11] Remedies at law for wrongful disclosure in violation of 26
U.S.C. s 6103 are found in 26 U.S.C. s 7431(a). Section 7431(a) provides
for damages for knowing or negligent disclosure of tax return information. We
have previously stated our "reluctance to imply a judicial remedy for
violations of s 6103 given Congress' explicit provision of a remedy."
United State v. Michaelian, 803 F.2d 1042, 1049 (9th Cir.1986). See also,
South Carolina v. Regan, 465 U.S. 367, 374, 104 S.Ct. 1107, 1112, 79 L.Ed.2d
372 (1984) (the Anti-Injunction Act prohibits injunctions in the context of a
statutory scheme which provides an alternative remedy).
The Church has not met its burden under Williams Packing to demonstrate
that it will suffer irreparable injury unless an injunction is issued. Thus,
neither prong of the Williams Packing test has been satisfied.
IV
[12] The Church argues that the district court violated its right to due
process of law by dissolving the TRO and denying the preliminary injunction
before the Church had the opportunity to file its reply to the Government's
response as permitted by the local rules. The Government argues that there was
no violation of due process as the district court must dismiss an action sua
sponte if it lacks subject matter jurisdiction, even if the parties do not
raise the issue. Bender v. Williamsport Area School Dist., 475 U.S. 534,
541, 106 S.Ct. 1326, 1331, 89 L.Ed.2d 501 (1986).
The district court granted the Church's request for a TRO on April 24, 1990
and issued a minute order setting a hearing date for the OSC for May 21, 1990.
The parties were directed to follow the local rules regarding the timely filing
of their documents. Simultaneously, the district court ordered that no
appearance would be necessary. The Church alleges, and the Government does not
contest, that the briefing schedule established by these dates under Local Rule
7 required that the Government file its response to the OSC by May 7, 1990.
The Church's reply was due on May 14, 1990. The district court received the
Government's response to the Order to Show Cause on May 7, 1990. Prior to the
filing of the Church's reply, the district court issued its order on May 10,
1990, vacating the TRO and dismissing the request for a preliminary injunction.
Whether the district court had subject matter jurisdiction is a question of
law which this court considers de novo. Kruso v. International Tel. & Tel.
Corp., 872 F.2d 1416, 1421 (9th Cir.1989), cert. denied, 496 U.S. 937, 110
S.Ct. 3217, 110 L.Ed.2d 664 (1990). The Church has had a full opportunity to
present its legal arguments in the briefs filed in this court. The Church does
not contend that it was denied the opportunity to present facts showing that
the court had subject matter jurisdiction under the Williams Packing test,
but rather that, to "the extent that the District Court's denial of the
preliminary injunction was based on 'the reasons and legal authorities cited in
the Government's response to OSC,' it relied upon erroneous legal premises."
Appellants Op.Br. at 20.
Assuming arguendo that the district court erred in not allowing the
Church an opportunity to file a reply to the Government's response to the OSC,
the Church must show that it has been prejudiced. Patel v. I.N.S., 790 F.2d
786, 789 (9th Cir.1986) ("Because the petitioners can demonstrate *1491 no
prejudice, we reject their due process claim.") The Church presented its
contention that the Anti-Injunction Act was inapplicable in its Memorandum of
Points and Authorities in Support of Application for Temporary Restraining
Order and Order to Show Cause Re Preliminary Injunction. It does not claim
before this court that a remand is required so that it may present additional
facts in response to the issues raised by the Government. Because the district
court was correct in ruling that it lacked subject matter jurisdiction, the
rights of the Church were not prejudiced by the dismissal of the action without
permitting it to file its reply to the Government's response to the OSC.
CONCLUSION
The Anti-Injunction Act precludes the granting of an injunctive relief unless
the requirements of the Williams Packing test are met. The Church has not
demonstrated that under no circumstances could the Government prevail. The
Church has also failed to establish that it will suffer irreparable harm unless
an injunction is issued. Thus, the district court correctly determined that it
lacked subject matter jurisdiction to restrain the tax assessments in issue.
AFFIRMED.