Shannon v. United States

¶5OPINION

¶6EUGENE A. WRIGHT, Circuit Judge:

¶7The government appeals from two orders by which the district court (1) denied the defendant’s motion to dismiss for lack of jurisdiction and (2) granted a preliminary injunction against the Inter*58nal Revenue Service (IRS) enjoining the enforcement of a levy against Shannon’s assets. This court has jurisdiction under 28 U.S.C. § 1292(a)(1).1

¶8FACTS

¶9On August 1, 1973 a jeopardy assessment was made against C. Arnholt Smith for over $22.8 million for unpaid 1969 income taxes. On October 3 of that year a notice of levy was served upon Carol Smith Shannon, appellee, as the alleged nominee, agent, or transferee of Mr. Smith.

¶10The notice of levy for approximately $23.3 million sought to attach all of Smith’s interest in $478,366.35 allegedly withdrawn by Shannon from an account in the United California Bank about August 3, 1973.

¶11About October 19, 1973, pursuant to 26 U.S.C. §§ 6861(a) and 6901 (I.R.C.1954),2 a jeopardy transferee assessment was made against Shannon for over $2.6 million, a notice of levy was served and a lien filed against Shannon’s property in the county recorder’s office. The amount of the transferee assessment was later reduced to $630,635.90 and on December 11 a statutory notice of deficiency in the amount of the transferee assessment was issued to Shannon.

¶12She then sought an injunction against the enforcement of the levy and other relief. The United States, appellant, moved for dismissal. The district court denied the motion to dismiss and granted the preliminary injunction pending a determination of the action on its merits.

¶13ISSUES

¶14(1) Did the district court have jurisdiction under 28 U.S.C. § 1346(e)?

¶15(2) If not, did the district court have jurisdiction on any other basis? We answer both questions in the negative.

¶16DISCUSSION

¶17The provisions of 26 U.S.C. § 7421 (I.R.C.1954) provide the backdrop against which both issues must be discussed.3 Section 7421 not only prohibits suits to restrain the assessment or collection of a tax, but also prevents the district court from granting such equitable relief. Enochs v. Williams Packing Co., 370 U.S. 1, 5, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962). Unless one seeking to enjoin the IRS brings herself within a statutory or judicially-created exception to § 7421, the district court has no jurisdiction and the suit for injunction is barred. 370 U.S. at 7, 82 S.Ct. 1125.

¶18The district court based jurisdiction on 28 U.S.C. § 1346(e), the jurisdictional counterpart of U.S.C. § 7426 (I.R.C.1954). Applicable provisions of § 7426 give a civil action against the United States to *59third persons whose assets have been wrongfully levied against by the IRS.4

¶19Shannon argues that despite being assessed as a transferee she comes within the provisions of § 7426 and the district court thus has jurisdiction under § 1346(e). She reasons that: the prohibition of § 7421(b)(1) applies only to an actual transferee; the IRS was wrong in assessing her as such and the district court should therefore find that she is not a transferee; and once found not to be a transferee the injunction should be granted under § 7421(a) with its § 7426 exception.5

¶20The fatal flaw in this analysis is that it fails to take into account the literal language of § 7426. Clearly, the section was not intended for those assessed as transferees.

¶21First, the § 7426 remedies are denied to “the person against whom is assessed the tax out of which such levy arose.” 6 The undeniable fact is that the October 19 jeopardy transferee assessment was made against Shannon herself. That assessment is the one out of which the levy arose.

¶22Shannon argues that it is Smith, not she, contemplated by § 7426 when it speaks of “the person against whom is assessed the tax . . ..” This may have been true at the time of the first levy (October 3).7 It certainly was not true of the second (October 23), made after she was assessed in her own right as a transferee. One who has been assessed as a transferee cannot argue that the assessment was not made against her.

¶23Second, one who sues under § 7426 cannot challenge the validity of the assessment. 26 U.S.C. § 7426(c) (I.R. C.1954).8 Shannon sought to enjoin the levy as wrongful under § 7426 because she was “not the transferee of C. Arnholt Smith,” i. e., she had been improperly assessed as such. She was thus challenging the validity of the transferee assessment which is foreclosed by § 7426(c).9

¶24*60Finally, legislative history indicates that it was not the intent of Congress to make § 7426 available to persons assessed as transferees.10

¶25Our decision does not leave Shannon without a remedy. On the contrary, a transferee has available the same avenues as a taxpayer who seeks judicial review to challenge the government’s collection efforts against him. She may bring a refund suit in district court or a petition to the Tax Court for a redetermination of the deficiency. Philips v. Commissioner, 283 U.S. 589, 597—598, 51 S.Ct. 608, 75 L.Ed. 1289 (1931).

¶26Having decided that § 7426 is not available to a transferee, we conclude that the district court did not have jurisdiction under § 1346(e).11

¶27Since § 1346(e) did not confer jurisdiction on the district court in the circumstances of this case, it did not have jurisdiction to entertain this action unless the bar of § 7421(b) was inapplicable.12 However, that section is applicable unless the plaintiff establishes two factors: (1) certainty of success on the merits and (2) irreparable injury. Bob Jones University v. Simon, 416 U.S. 725, 737, 94 S.Ct. 2038, 40 L.Ed.2d 496 (1974); see also Enochs v. Williams Packing Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962); Miller v. Standard Nut Margarine, 284 U.S. 498, 52 S.Ct. 260, 76 L.Ed. 422 (1932); Westgate-California Corp. v. United States, 496 F.2d 839, 842-43 (9th Cir. 1974).13 Shannon failed to establish certainty of success on the merits.

¶28*61When the district court granted the preliminary injunction the record was limited to the complaint and three unil-luminating affidavits. Shannon’s complaint made a number of conclusory allegations (e. g., that “she is not the transferee of [Smith]” and that she is “the true owner of all assets levied upon by Defendant”) which were neither supported by any factual allegation nor established by any evidence.

¶29This was insufficient to meet the stringent Miller-Enochs-Bob Jones test. The burden of proof was on the plaintiff (Westgate, supra, at 843) and was not met by mere bald assertions. See, e. g., Cole v. Cardoza, 441 F.2d 1337, 1341—1342 (6th Cir. 1971), Collins v. Daly, 437 F.2d 736, 739 (7th Cir. 1971), Williams v. Wiseman, 333 F.2d 810, 811 (10th Cir. 1964), and Cooper Agency, Inc. v. McLeod, 235 F.Supp. 276, 284 (E.D.S.C. 1964, aff’d per curiam 348 F.2d 919 (4th Cir. 1965) (complaint alleged that plaintiffs were not transferees because at no time were transfers made without full, fair, and adequate consideration). Thus, the court could not have inferred a complete lack of merit in the government’s case.14

¶30Because Shannon did not establish certainty of success on the merits, we need not inquire whether she established irreparable injury.15United States v. American Friends Service Com., 419 U.S. 7, 10, 95 S.Ct. 13, 42 L.Ed.2d 7 (1974).

¶31Shannon did not demonstrate that the district court had jurisdiction and the motion to dismiss should have been granted. The order granting the preliminary injunction is reversed and the cause is remanded to the district court to dismiss the complaint for want of jurisdiction.