Injunction against IRS Assessment

 

      In general, you cannot sue the federal government on a tax related issue because of the Anti-Injunction Act. However, there are exceptions to this rule.  If you can prove the  IRS did not mail a deficiency notice, you have the chance to really pop them a good one.  However, remember that if you do win and you have not filed tax returns the IRS may redo their assessment and do it right the second time. 

 

      Actions to enjoin the collection of taxes are narrowly limited by the Anti-Injunction Act, 26 U.S.C. Section 7431.  The Act provides: "Except as provided in Section 6212(a) and (c), 6313(a), 6672(b), 6694(c) and 7426(a) and 9b)),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."  26 USC 7421(a).

 

      "The manifest purpose of 7421(a) is to permit the United States to assess and collect taxes alleged to be due without judicial intervention, and to require that the legal right to disputed sums be determined in a suit for refund.  In this manner the United States is assured prompt collection of its lawful revenue."  Enochs v. Williams Packing and Navigation Co, 370 U.S. 1, 7 (1962).  If the taxpayer fails to establish that his suit falls within one of the statutory or judicially created exceptions to the Act, then the district court lacks subject matter jurisdiction and must dismiss the complaint. See Jensen v. IRS, 835 F.2d 196, 198 (9th Cir. 1987).

 

      Section 6213(a) provides for an exception to the Anti-Injunction Act where the IRS has not mailed a required notice of deficiency or has otherwise not complied with the requirements of 6213(a).  The taxpayers may receive injunctive relief if they can show that a deficiency notice was required and that the defendant failed to provide a deficiency notice.  See Guthrie v. Sawyer, 970 F.2d 733 (10th Cir. 1992)(holding that the taxpayer may obtain injunctive relief under 6213(a) for failure to receive a deficiency notice.  Section 6213(a) of the Internal Revenue Code provides that "no assessment of a deficiency...and no levy or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer...", 26 U.S.C. 6213(a).  After a notice of deficiency has been mailed, the IRS must refrain from further action for ninety days during which time the taxpayer is authorized to file a petition for a redetermination in the United States Tax Court.

 

      Please note that many times the IRS sends a notice of mathematical or clerical error to the taxpayer.  The IRS is not required to send a deficiency notice to the individual when it sends the clerical error notice unless the taxpayer requests an abatement.  See 26 USC 6213(b)(2)(B).  If the taxpayer requests an abatement, then the IRS must send the statutory notice of deficiency and allow the taxpayer the opportunity to contest the deficiency in the Tax Court before it can make an assessment. Be sure that you request an abatement if the IRS sends you a notice of a clerical or mathematical error. 

Attacking the IRS' Lien

 

      A tax lien may be attacked through an adversary proceeding or complaint to determine the validity, priority, or extent of the lien. (11 U.S.C. 506; Bankruptcy Rule 700 (12).  The courts have ruled that a properly filed lien survives the bankruptcy if there was property to which the liens could attach at the time of the bankruptcy filing.  (In re Isom 901 F.2d 744 (9th Cir. 1990); United States v. Ura 180 B.R. 688 (D.S.D. Fla. 1995). 

 

      Tax liens may be found to be defective if they meet any of the following for the following reasons:

 

      Filed in the Wrong Office: See, In Re Aikin 128 B.R. 4 (D. Maine 1991).

 

      Incorrect Name On Notice of Lien: Davis v. U.S. ,705 F. Supp 446 (C.D.Ill. 1989) (notice was filed in the taxpayer's maiden name and the IRS neglected to refile when the taxpayer married and changed her name). Also see United States v. Clark 1981 WL 1790 (S.D. Fla 1981).  In Matter of De La Verge, 156 B.R. 773 (Bkrtcy.E.D.La 1993, the court ruled that the incorrect spelling of the taxpayer's name rendered the filing invalid.

 

      Filed in the Wrong County: If the lien is filed in the wrong county, it is invalid.  See In re Barnett, 62 B.R. 638 (Bkrtcy.D.Maryland 1986).

 

      Mistake in Filing:  A state tax lien was invalid because notice was mailed to the wrong address; In re Hill, 166 B.R. 444 (Bkrtcy.D.N.M. 1993). The IRS failed to perfect its lien by failing to note the lien on the certificate of title covering motor vehicles and the IRS had not taken possession of the vehicle, see In re Southern Transfer and Storage Co. 157 B.R. 691 (Bkrtcy.M.D.Fla 1993).

 

      Failure to File Tax Lien:  A tax lien is valid only if it is properly filed in the taxpayer's county of residence.  See IRC 6321, In re HDI Partners 202 B.R. 524 (Bkrtcy.S.D.Fla 1996). 

 

      The information on the tax lien document must be specific and complete enough to give adequate notice. Check to be sure that the lien notice shows the identity of the lienor, the property subject to lien and the amount of the lien.  See: In re B & B Printing Co. 164 B.R. 273 (Bkrtcy.S.D. Ohio 1993).

 

      Expired tax lien: A recorded tax lien has an expiration date of ten years plus 30 days after the initial filing.  The date is found on the notice of the tax lien.  Once the lien has expired, it is no longer a secured claim.  Many times the IRS makes a mistake and does not take measures to protect the lien.  If a bankruptcy petition is filed after the expiration of the lien, the taxes would not be secured.  A tax lien cannot be refiled unless there has been some event that  extends the statute of limitations.  The taxpayer may extend the statute of limitations by signing a waiver or extension of the statute (IRC Section 6323(g)(3).

 

      Lien filed during bankruptcy: Also be aware that the federal tax lien does not attach to property that is acquired by the debtor after a bankruptcy petition is filed.  When the tax is dischargeable in all other respects, the lien is good only as to property owned by the debtor on the date of filing and it is not valid against after acquired property.  See, for example:  In re Braud, 289 F. Supp 604 (9th Cir. 1970). And see U. S. v. Sanabra, 424 F.2d 1121 (7th Cir. 1970): "...in our opinion...the dominant purpose of the change (in bankruptcy law) was to relieve the debtor of the burden of these older taxes after bankruptcy.  The government's interpretation would permit it to enforce (to the extent of assets acquired by the discharged debtor) collection of all its taxes, regardless of their age, if a lien has been filed.  This would to so substantial a degree frustrate the real purpose of the amendment that Congress must not have intended the result."

 

      Lien based on invalid  assessment: The lien is also invalid if it is based on an invalid assessment. (U.S. v. Janis 96 S.Ct. 3021 (1976).  In the case of In re Swartz, 954 F.2d 569 (9th Cir. 1992), the court ruled that a debtor in a Chapter 13 can avoid an otherwise properly filed tax lien where the lien arose from an assessment which occurred during an automatic stay and was therefore void).

 

      And a lien is invalid on non-levyable property.  If property is exempt under Internal Revenue Code Section 6334, you can argue that the lien is not valid.  See In re Voelker, 164 B.R. 308 (W.D. Wis. 1993), the court stated: "...it defies common sense to argue that the IRS is nevertheless secured by and entitled to payment for property that it cannot levy upon to satisfy its lien."  See also In re Ray, 48 B.R. 534 (Bankr.S.D. Ohio 1988): In re Riley, 88 B.R. 906 (Bankr. W.D. Wis 1987); In re Driscoll, 57 Bankr, 322 (Bankr. W.D. Wis. 1986).

 

      The court has ruled that  the retirement account could not be liened, since a lien is a transfer and that a transfer on qualified retirement accounts is prohibited by 26 U.S.C. 401(a) See In re Thomas and Hattie Taylor, 1991 Baknr, LEXIS 711 (Bankr.D. MD. 1991).

 

      One can also argue that under Internal Revenue Code Section 6323(b), the code makes a lien on certain categories of personal property invalid as against a bona fide   purchaser and may avoid the lien.  If the trustee does not avoid the lien, the debtor may do so on his own behalf. See: In re Robinson 166 B.R. 812 (Bkrtcy.D.Vt. 1994); In re Christison, 960 F.2d 613, 614 n.3 (7th Cir. 1992); In re Goebel 153 B.R. 593 (Bkrtcy.M.D.Fla. 1993); In re Larson 1993 Bankr LEXIS 1518 (D.N.Dak.); In re Barnett 62 B.R. 638 (Bkrtcy.D.M.D. 1986); In re Larson 19 1993); In re F93 Bankr. LEXIS 1518 (Bkrtcy.D.N.Dak, 1993); In re Federation of Puerto Rican Org 155 B.R. 44 (E.D.N.Y. 1993).  Also see In re Branch 170 B.R. 577 (E.D.N.Carolina 1994); In re Guyana Development Corporation, 189 B.R. 393 (Bkrtcy.S.D.Tex. 1995) (tax lien on securities could be avoided under IRC Section 6323(b).

 

          There are three levels of administrative review through which a criminal tax case passes. These levels include conferences at the District Director level, District Counsel level and Tax Division of the Criminal Section at the Department of Justice.

 

          The process of review in criminal tax cases has been established by a series of regulations promulgated by the IRS and DOJ.  If the IRS denies administrative conferences that are provided by regulation, there is a denial of due process.  (Einhorn v. DeWitt, 44 AFTR 2d 79- 5266 (S.D. Fla. 1979, aff'd, 618 F.2d 347 at 350 (5th Cir. 1980), rev'g, Continental Electric Co. v.  Kurtz, 44 AFTR 2d 79-5267 (N.D. Ala. 1979); John Doe Corp. v. Miller, 499 F. Supp.  378 (E.D.N.Y. 1980).

 

          An administrative agency must abide by its own regulations or there is a violation of due process and equal protection guaranteed by the Constitution. (See United States ex. rel. Accardi v.Shaughnessy, 347 U.S. 260 (1954); United States v . Heffner, 420 F.2d 809 (4th Cir. 1969).

 

          A criminal tax investigation is conducted by a special agent of the CID.  The special agent may decide at any point in the course of the investigation that he does not wish to proceed criminally.  It is good to be aware that a high percentage of special agent investigations will result in a return of the case to the civil division rather than recommendation for criminal prosecution. The IRS has become more selective in choosing cases to investigate criminally.  In 1979, the CID completed 8,077 criminal investigations.  Prosecution was recommended in 2,267 of the cases, and in 1984, only 5,925 investigations were completed, but prosecution was recommended in 2,990 cases. Commr. Int Rev Ann Rep 18 (1985).

 

          Once the agent finishes an investigation, he will prepare a report detailing the facts of the case.  His report and recommendation are reviewed.  The target then has a right to a conference in front of the CID under Regulations Section 601.107(b)(2).  If the individual can prove the IRS facts are wrong, it might be advantageous to attend the conference.  However, anything said at the conference may be used against the target. Also anything said by the target's attorney may be used against the target.

 

          After the CID conference, the case will be referred to District Counsel (providing the CID decides to prosecute).  District Counsel will review the issues and a conference will be granted. It is not a good idea for the target to attend the conference.  Once again, this conference must be attended with much care if it is attended at all.

 

          District Counsel may reject the recommendation, return the case to CID with a request for more investigation or approve the recommendation and forward the case to DOJ.

 

          The Tax Division, Criminal Section will take the case; the DOJ will consider the case and if they decide to prosecute a conference will be offered to the target. Remember that the only successful presentation is one that convinces the government that they cannot obtain a conviction.

 

          DOJ has three possible avenues. They can forward the case to the local U.S. Attorney for prosecution; they can forward it to the local U.S. Attorney with a direction to conduct a Grand Jury Investigation or they can decline prosecution.  The U.S. Attorney can refuse the prosecution. If he decides to take it, the appropriate indictment or information will be issued.

 

          As you can see, it might take a long time for the development of a criminal case; and many things can happen to it along the way.  Remember that just because the CID knocks on your door, it does not automatically follow that you will be indicted.  Good Luck!