Why The "Anti-Injunction" Act Is Irrelevant To CtC-Educated Filers

At 26 USC 7421(a), Congress has provided that,

...[N]o 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.

This language has been used many times over the years to thwart lawsuits and other legal actions launched or argued by litigants in connection with various IRS activities.  In most cases, the application of the act has been proper.  Fears (or hopes) that the act could be used to hinder refund claims or lawsuits brought by the CtC-educated are misplaced, however.

The reason this is so is that, just as it plainly says, the "Anti-Injunction" Act only applies to IRS actions to collect or assess taxes, not merely IRS efforts to collect, seize, extort or retain money.  That is, the provisions of the act only come into play when a volume of "income" (and a consequent and corresponding liability) has been formally and legally defined, and only to the extent that the relevant tax agency activities concern themselves with assessing and collecting a tax thereon.  Agency activity to collect (or retain) anything other than in connection with a formally and legally defined liability is mere piracy, and is not protected by the act in any fashion whatever.

Whether an amount deposited and claimed for refund can be characterized as a tax, and/or whether any tax is due for collection, is dependent on the existence of a defined liability.  That liability cannot exceed the amount resulting from the proper application of the rate of tax to the amount of income declared on the relevant filer’s return, which "shall be received as the amount upon which the tax is to be assessed and collected" (Revenue Act of 1862, Section 93; 26 USC 6201; 26 CFR 301.6203-1).  Any amount deposited which exceeds the liability thus determined is not, and never was, an amount of tax.

Once created, it is the filer’s return that establishes the amount of income received which can and is to be assessed; imposes the tax thereon (or consents to the Secretary doing so); and asserts the filer’s uncontestable claim to any consequent surplus of what had been previously paid-in against the possibility that the process might end in showing a tax due.  Once a return is filed, it is only if a filer has declared the receipt of sufficient income for a tax to be due that an appropriate portion of any amount paid in can then be characterized as “tax” (or any amount can be sought by collection or seizure).

Although observations by courts in this regard are superfluous at best-- as the language of the statutes is perfectly clear, and only a desire to evade the law would induce anyone to look further-- the simple realities about the law discussed above have been universally acknowledged by the federal courts at all levels and in all circuits:

“[Withheld or paid-in amounts] are, as it were, payments in escrow. They are set aside, as we have noted, in special suspense accounts established for depositing money received when no assessment is then outstanding against the taxpayer. The receipt by the Government of moneys under such an arrangement carries no more significance than would the giving of a surety bond. Money in these accounts is held not as taxes duly collected are held but as a deposit made in the nature of a cash bond for the payment of taxes thereafter found to be due.”  Rosenman v. United States, 323 US 658 (1945)

 

“It reasoned [in the District Court] that in the case of a proper tax return, the return itself defines the obligation, but where a taxpayer makes a transfer of money to the collector, the transfer itself does not define the tax obligation. Some further act is necessary. ... The Court found its course of reasoning and its conclusion supported by the decision of the Supreme Court in Rosenman v. United States. . . the reasoning compelled conclusion that the taxpayer's obligation became defined when the Commissioner made assessment. . . . It is the view of the Court that the transfers of money made by the taxpayer in the instant case did not have the status of 'payment' until the tax deficiencies were formally assessed by the Commissioner.”  United States v. Dubuque Packing Co., 233 F.2d 453 (8th Cir. 1956)

 

“We cannot accept the distinction that the Defendant-Appellant would have us draw, that the mailing of Plaintiff-Appellees' check in response to the statutory notice of deficiency amounted to a payment and that, therefore, the tax in question was duly collected.  On the contrary, we believe that Plaintiff-Appellees' check served as a deposit to be utilized by the Government in the event a tax obligation were subsequently defined and imposed.

 

We are persuaded in so holding by the reasoning of the court in Rosenman v. United States, 323 U.S. 658, 65 S.Ct. 536, 89 L.Ed. 535 (1945) which recognized that payments prior to assessment are deposits and not payments of taxes duly collected.”  Estate of M. Karl Goetz v. United States, 286 F. Supp. 128 (W.D.Mo. 1968)

 

“This much is clear: (1) a remittance is not per se 'payment' of the tax; (2) a remittance that does not satisfy an asserted tax liability should not be treated as the 'payment' of a tax; and (3) an essential factor in 'payment' before assessment is the satisfaction or discharge of what the taxpayer deems a liability.”  Ameel v. United States, 426 F.2d 1270 (6th Cir. 1970)

 

“[Rosenman Court Chief Justice Felix Frankfurter says] "the tax obligation did not become defined until April 1938," id. 323 U.S. at 662 (emphasis added); that is to say, not until the assessment was made. The key here is that something, other than the mere remittance of money, must happen to define the amount of the obligation. That could be an official assessment by the IRS, or a tax return or other official document signed by the taxpayer which acknowledges the amount of the obligation.”  Ewing v. United States, 711 F. Supp. 265 (W.D.N.C. 04/19/1989)

 

“...the Fifth and Eighth Circuits have held that Rosenman created a per se rule that whenever the taxpayer has somehow disputed liability for a deficiency, there can be no payment of taxes until there has been a formal assessment. United States v. Dubuque Packing Co., 233 F.2d 453 (8th Cir. 1956); Thomas v. Mercantile Nat'l Bank at Dallas, 204 F.2d 943 (5th Cir. 1953); Wiltgen v. United States, 813 F.Supp. 1387 (N.D.Iowa 1992); Estate of Goetz v. United States, 286 F.Supp. 128 (W.D.Mo. 1968); see also Ford v. United States, 618 F.2d 357, 359-61 (5th Cir. 1980) (questioning the wisdom of Mercantile Nat'l Bank but following it as circuit precedent); Schmidt v. Commissioner, 272 F.2d 423, 428 (9th Cir. 1959) (discussing Mercantile Nat'l Bank favorably). The Mercantile Nat'l Bank court in particular emphasized the illogic any other result would work by allowing the statute of limitations on refund claims to run against the taxpayer before the tax- payer knew what to claim. 204 F.2d at 944.

 

The Second, Third, Fourth, Sixth and Federal Circuits, on the other hand, have embraced a more open approach. Blatt v. United States, 34 F.3d 252 (4th Cir. 1994); Cohen v. United States, 995 F.2d 205 (Fed. Cir. 1993); Ewing v. United States, 914 F.2d 499 (4th Cir. 1990), cert. denied, 500 U.S. 905 (1991); Ameel v. United States, 426 F.2d 1270 (6th Cir. 1970); Fortugno v. Commissioner, 353 F.2d 429 (3d Cir. 1965), cert. dismissed, 385 U.S. 954 (1966); Charles Leich & Co. v. United States, 329 F.2d 649 (Ct.Cl. 1964); Hill v. United States, 263 F.2d 885 (3d Cir. 1959); Rose v. United States, 256 F.2d 223 (3d Cir. 1958); Lewyt Corp. v. Commissioner, 215 F.2d 518 (2d Cir. 1954), aff'd in part, rev'd in part on other grounds, 349 U.S. 237 (1955); Crosby v. United States, ___ F.Supp. ___, 75 A.F.T.R.2d 95-1718 (D.Vt. June 19, 1995). These courts have held that a remittance prior to a formal assessment may be a tax payment. Exactly when that happens depends on the circumstances of each case, the lack of an assessment being only one consideration among many. The cases suggest that a number of factors should play an important role besides the timing of the assessment, including the taxpayer's intent upon making the remittance, how the IRS treats the remittance upon receipt, and when the tax liability is defined. See Ewing, 914 F.2d at 503; Ameel, 426 F.2d at 1273.

 

We have not addressed the question raised by Rosenman and discussed in Rev. Proc. 84-58. Our decision in Plankinton v. United States, 267 F.2d 278 (7th Cir. 1959), cited Dubuque Packing and Mercantile Nat'l Bank favorably, but the government had conceded the issue in Plankinton and agreed that remittances made prior to the defining of a liability were not tax payments. Id. at 280.”

Moran v. United States, 63 F.3d 663, 666-667 (1995)

In the Moran case cited above, the 7th Circuit ruled that the amount paid in by the Morans-- who had filed returns declaring sufficient income for the paid-in amount to be equaled by their potential liability, but were merely arguing a timing issue-- DID constitute a payment of tax, BECAUSE THEY SAID THAT IS WHAT THEY MEANT IT TO BE: “...here, the taxpayers clearly expressed a desire to have their remittances treated as payments.”

At the same time, after its exhaustive review of existing case-law, the Court plainly observes that the courts at all levels are in universal agreement that even in the absence of a formal assessment, no amount paid-in or withheld can be considered a payment of tax except in accordance with a PREVIOUSLY “defined liability”, and not, in any case, when to take it so would be contrary to the express position of the filer.

(Good scholarship calls for noting the existence of several cases, such as Ehle v. United States, 720 F.2d 1096 (9th Cir. 1983), Baral v. United States, 528 U.S. 431 (2000) and others in which withheld or paid-in amounts ARE deemed to be “payments of tax”-- BUT ONLY FOR PURPOSES OF THE LOOKBACK-TIMING PROVISIONS OF 26 USC 6513 AND 6511.  As is noted in Baral:

" Internal Revenue Code §6511(b)(2)(A) imposes a ceiling on the amount of credit or refund to which a taxpayer is entitled as compensation for an overpayment of tax: "[T]he amount of the credit or refund shall not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to 3 years plus the period of any extension of time for filing the return." 26 U. S. C. §6511(b)(2)(A). We are called upon in this case to decide when two types of remittance are "paid" for purposes of this section: a remittance by a taxpayer of estimated income tax, and a remittance by a taxpayer's employer of withholding tax."  (Emphasis added.)

and in Ehle:

“Under 26 U.S.C. § 6511(b)(2)(A), Ehle may obtain by refund only those taxes paid within the three previous years. Under 26 U.S.C. § 6513(b)(1), any amount withheld from wages is deemed paid on the April 15th following the close of the tax year. Because Ehle's refund claim was filed more than three years after the amounts withheld in 1969-71 were deemed paid, the claim is barred by section 6511(b)(2)(A).”  (Emphasis added.)

Such cases ARE NOT departures from Rosenman, and are clearly irrelevant to application of the "Anti-Injunction Act" as it relates to CtC-educated filings by which it is established that no liability exists.)