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Claim for Damages |
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(CA-9), U.S. Court of Appeals, 9th Circuit, 97-55408,
10/27/98, 159 F3d 425, Affirming an unreported District Court
decision Michael
C. Cohen, De Castro, West, Chodorow & Burns, Inc., Before:
BROWNING, PREGERSON and HAWKINS, Circuit Judges. OPINION PREGERSON,
Circuit Judge: Plaintiff-Appellant
Pacific Coast Coin Exchange ("taxpayer" 1)
challenges the government's tax and interest assessments for tax
years 1974 and 1978, as well as its tax liens. The Tax Court
entered a stipulated judgment in which the parties agreed as to
the amount taxpayer owed. The district court determined the
assessments and liens to be valid. On
appeal taxpayer does not argue that the government assessed these
tax and interest deficiencies too heavily. Instead, taxpayer
complains that because the government assessed the deficiencies
too soon under 26 U.S.C. §6213(a), the assessments and the
related liens are invalid. Because the district court lacked
jurisdiction of taxpayer's claims, we affirm without reaching the
merits of taxpayer's appeal. FACTS I. Facts For
its 1974 tax year, taxpayer owed the government $4,711,616. At the
end of the 1975 tax year, taxpayer had suffered a net operating
loss. Pursuant to the Internal Revenue Code, the government
permitted taxpayer to "carry back" its 1975 loss to the
prior year, granting PCCE a tentative carryback allowance of
$3,118,629. In
tax year 1978, taxpayer declared a tax liability of
"zero" on its return, even though taxpayer actually owed
$1,742,830. But in tax year 1979, taxpayer again suffered a net
operating loss. On that occasion the government granted taxpayer a
tentative carryback allowance of $1,737,400, which taxpayer used
as a credit to absorb virtually all of its unpaid liability for
tax year 1978. By
1990, the government realized that it had miscalculated the
carrybacks, both times in taxpayer's favor. The government then
issued to taxpayer a notice of deficiency for tax years 1974 and
1978. II. Prior Proceedings A. Tax Court Taxpayer
petitioned the United States Tax Court to contest the government's
deficiency determinations. 2
The parties settled before the Tax Court could try the case. In a
stipulated judgment entered by the Tax Court on March 9, 1995,
taxpayer agreed that the government was entitled to recover
$1,266,322 of the carryback for tax year 1974, which resulted from
the government's overestimation of taxpayer's carryback allowance.
The parties also agreed that the government was entitled to
recover $5,430 of unpaid taxes for tax year 1978, the amount owed
less the carryback. Finally, the parties agreed that the
government was entitled to increased restricted interest on
$1,737,400, the amount that had been extinguished by the carryback
for tax year 1978. On
June 5, 1995, the government assessed the tax deficiencies for tax
years 1974 and 1978, and assessed interest on the amount
extinguished by the carrybacks for tax year 1978. Although the
amounts of these assessments were consistent with the stipulation,
the timing of at least one of these assessments was premature
because the government assessed two days before the Tax Court's
decision became final. B. District Court Taxpayer
then filed suit in district court. Only two of the many claims
taxpayer raised there are relevant to this appeal. First, taxpayer
sought to quiet title with respect to the tax assessments for 1974
and 1978, and the interest assessments for those same years.
Specifically, taxpayer argued that the underlying tax and interest
assessments were invalid because they were made before the Tax
Court decision became final, a violation of 26 U.S.C. §6213(a).
Second, pursuant to the waiver of sovereign immunity contained in
28 U.S.C. §7432, taxpayer sought damages against the government
for its failure to release the tax lien. The
government moved for summary judgment. As to taxpayer's §6213(a)
claim, the government conceded that its assessment for tax year
1978 was premature and abated that assessment. But the government
refused to abate the assessment for tax year 1974, arguing that
that assessment was valid under §6213(b)(3), a provision which
exempts carryback adjustments from the requirements of §6213(a).
The government also stood by its interest assessments for 1974 and
1978, arguing that the deficiency procedures set forth in
§6213(a) were inapplicable. As to taxpayer's §7432 claim, the
government argued that--because the underlying assessments were
valid--so were the liens. The
district court granted the government's summary judgment motion.
Accordingly, the court upheld the tax assessment for 1974, the
interest assessments for 1974 and 1978, and the liens. Taxpayer
timely appeals. STANDARD OF REVIEW We
review grants or denials of summary judgment de novo. Schwartz
v. United States [95-2 USTC ¶50,538], 67 F.3d 838, 839 (9th
Cir. 1995). We also determine subject matter jurisdiction de novo.
Hughes v. United States [92-1 USTC ¶50,086], 953 F.2d 531,
535 (9th Cir. 1992). "Our review is not limited to a consideration of the
grounds upon which the district court decided the issues; we can
affirm the district court on any grounds supported by the
record." Weiser v. United States [92-1 USTC ¶50,169],
959 F.2d 146, 147 (9th Cir. 1992). For that reason, and because
jurisdiction is a constitutional prerequisite, we may consider
whether the district court had subject matter jurisdiction to
reach the merits of the case, "even if it is not raised in
the district court. " Westlands Water Dist. v. ANALYSIS I. Taxpayer's §6213(a) Claim Taxpayer
only appeals the district court's ruling as it pertains to two of
its assessments: the 1974 tax assessment, and the 1978 interest
assessment. Taxpayer seeks abatement because these assessments,
like the now-abated 1978 tax assessment, were made two days before
the Tax Court's decision became final under §6213(a). The
government argues for the first time on appeal that the district
court lacked jurisdiction of taxpayer's §6213(a) claim because
the relevant waiver of sovereign immunity does not cover
challenges to the validity of assessments. The pertinent part of
28 U.S.C. §2410(a) states: "the 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 on which the United
States has or claims a mortgage or other lien." The
district court properly exerted jurisdiction only if taxpayer's
§6213(a) claim presents a procedural challenge to a lien. See
Arford v. United States [92-1 USTC ¶50,229], 934 F.2d 229,
232 (9th Cir. 1991) (stating that §2410 permits "quiet title
actions challenging the procedural aspects of tax liens, but not
the merits of the underlying tax assessments"). In Elias
v. Connett [90-2 USTC ¶50,397], 908 F.2d 521, 527 (9th Cir.
1990), we held that the district court lacked jurisdiction of a
taxpayer's claim that "his assessment is invalid because he
was not issued a notice of deficiency" as §6212 directs. Here
taxpayer argues that the 1974 tax and 1978 interest assessments
were made prematurely under §6213(a), which bars assessments
until the Tax Court decision becomes final. Whether §2410 waives
sovereign immunity in a taxpayer's §6213(a) claim is a question
of first impression. Although taxpayer's claim arguably may be
conceived as a procedural challenge, it is unmistakably an attack
on the government's assessments, rather than its liens. 3
After Elias, it is plain that the district court lacked
jurisdiction of taxpayer's §6213(a) claim. 4 For
these reasons, we conclude that the district court lacked
jurisdiction of taxpayer's challenge to his tax and interest
assessments under §6213(a). We need not and do not reach the
merits of this claim. Whereas
Guthrie had the blessing of a higher authority, in that case an en
banc panel, the proposition advanced by taxpayer does not. Until
the same happens in our circuit, Elias remains good law. II. Taxpayer's §7432 Claim Taxpayer
renews its argument that 26 U.S.C. §7432 entitles him to damages
for the government's alleged wrongful failure to release its tax
lien for 1974, and its interest liens for 1974 and 1978. We hold
that the district court lacked jurisdiction of taxpayer's claim. Section
7432 waives sovereign immunity when the In
this case, nothing in the record suggests that the assessment has
been "fully satisfied." The root of this requirement is
the long-standing "pay first and litigate later"
principle explained in Flora v. United States [60-1 USTC
¶9347], 362 U.S. 145, 159-62 (1960). Instead of pleading the
elements of itsS 7432 damages claim, taxpayer attempts to
bootstrap that claim onto the merits of its §6213(a) claim for
injunctive relief, arguing that the liens are invalid if the
assessments were premature. As we already have explained, the
district court could not reach the merits of taxpayer's §6213(a)
claim; thus, the taxpayer has hitched its wagon to a
jurisdictional falling star. Section 7432(a) simply was not
enacted to allow taxpayers to litigate the merits of assessments,
let alone assessments that could not be challenged under the
jurisdictional grant ofS 6213(a). To allow the taxpayer to proceed
with his damages claim would ignore the clear language of
§7432(a), offend the "pay first" principle implicit in
that statute, and "invite taxpayers to circumvent the refund
action process by litigating the merits of the assessments against
them in the collateral setting of a suit for damages allegedly
cause by the CONCLUSION For these reasons, the judgment of the district court is AFFIRMED. 1 A company called Monex Int'l, Ltd. was the original
taxpayer. Plaintiff-Appellant Pacific Coast Coin Exchange, Inc. is
the successor in interest to Monex. 2 Pursuant to 26 U.S.C. §6213(a), a taxpayer can seek relief
in Tax Court without first paying a tax assessment. See Commissioner
v. Lundy [96-1 USTC ¶50,035], 116 S. Ct. 647, 656 (1996). 3 Taxpayer's attack on the liens is confined to its §7432
claim, discussed infra. 4 The out-of-circuit authorities cited by taxpayer were
decided under special circumstances not present in this case. As
taxpayer points out, two other circuits have held that the
district court had jurisdiction because §6213(a) claims are
procedural in nature. Guthrie v. Sawyer [92-2 USTC
¶50,391], 970 F.2d 733, 735 (10th Cir. 1992); Johnson v.
United States [93-1 USTC ¶50,201], 990 F.2d 41, 43 (2d Cir.
1993). But the holding in Guthrie (and Johnson,
which adopted Guthrie on this issue) was made possible by the
Tenth Circuit's specific holding that §2410 "does waive
sovereign immunity with respect to procedural violations arising
from assessment, levy, and seizure." Guthrie [92-2
USTC ¶50,391], 970 F.2d at 735 (emphasis added). Guthrie took
pains to note that the emphasized language was "submitted to
and unanimously approved by the court en banc." |