998 F.3d 410
9th Cir.2021Background
- Eric and Audra Gilbert entered a Contract for Deed to buy residential property in Peoria, AZ for $1.2M from Namaca Management Limited (a purported foreign entity) in July 2014.
- After signing, the Gilberts discovered a federal tax lien had already been recorded against the Property; the contract was amended to require Namaca to clear title defects before final conveyance.
- A second federal tax lien was recorded in November 2015.
- In 2017 the Gilberts informed Namaca’s trustee (Leopard) they would withhold portions of the purchase and interest payments under FIRPTA and FDAP withholding rules; Leopard disputed the obligation and warned withholding would breach the contract.
- The Gilberts sued for a declaratory judgment that withholding under FIRPTA/FDAP would not breach the contract; Leopard moved to dismiss.
- The district court dismissed for lack of subject-matter jurisdiction under the Declaratory Judgment Act’s federal-tax exception; the Ninth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Declaratory Judgment Act’s exception for federal taxes bars a declaratory judgment about FIRPTA/FDAP withholding | Gilbert: Withholding occurs pre-assessment, so the exception does not apply and a declaration would not restrain tax assessment | Government/Leopard: The DJA is coextensive with the Anti‑Injunction Act; disputes over withholding implicate tax collection and are barred pre-payment | Held: DJA exception bars jurisdiction; court lacks authority to issue the requested declaratory relief |
| Whether seeking a pre-payment declaratory ruling (or interpleading withheld funds) improperly interferes with tax collection procedures | Gilbert: Seeking a declaration to avoid contractual breach, not to stop tax collection | Government/Leopard: Pre‑payment litigation or interpleader undermines Congress’s pay‑first, litigate‑later interest in tax collection | Held: Request interferes with collection; pay‑first refund‑later regime governs; suit premature and jurisdictionally barred |
Key Cases Cited
- Bob Jones Univ. v. United States, 416 U.S. 725 (1974) (explains congressional bar on declaratory relief "with respect to Federal taxes")
- United States v. Am. Friends Serv. Comm., 419 U.S. 7 (1974) (withholding constitutes a method of tax collection)
- Flora v. United States, 362 U.S. 145 (1960) (establishes pay‑first, litigate‑later rule for tax disputes)
- Fredrickson v. Starbucks Corp., 840 F.3d 1119 (9th Cir. 2016) (withholding from wages is a tax collection method for jurisdictional purposes)
- Int’l Lotto Fund v. Va. State Lottery Dep’t, 20 F.3d 589 (4th Cir. 1994) (Anti‑Injunction Act applies even before IRS final liability determination)
- Del Com. Properties, Inc. v. Comm’r, 251 F.3d 210 (D.C. Cir. 2001) (withholding regime and purchaser liability for miscalculation)
- Perlowin v. Sassi, 711 F.2d 910 (9th Cir. 1983) (Declaratory Judgment Act is coextensive with the Anti‑Injunction Act)
- Kent v. N. Cal. Reg’l Office of Am. Friends Serv. Comm., 497 F.2d 1325 (9th Cir. 1974) (interpleader can disrupt orderly tax litigation procedures)