David SCHON, Peter Schon, and Cadwallader & Johnson, Inc., Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.
No. 84-1621
United States Court of Appeals, Seventh Circuit
Decided April 10, 1985.
Argued Feb. 14, 1985.
759 F.2d 614
III
In sum, the district court correctly allowed Radick to intervene in the action as a third-party beneficiary of the consent decree. The court erred in voiding the two-year limit on the decree‘s time-span. We refuse to remand for consideration of whether extension of the two-year limit was necessary because of “changed circumstances” because that issue was not properly presented below: Radick failed to discharge his burden to produce some evidence that would justify a finding of changed circumstances.
The judgment below is therefore affirmed in part and reversed in part. If deficiencies in prison library facilities persist, the appropriate remedy for Radick is to file a new lawsuit in his own right. Each party shall bear its own costs.
Pell, Senior Circuit Judge, dissented with opinion.
David E. Carmack, Tax Div., Dept. of Justice, Washington, D.C., for defendant-appellee.
Before WOOD and FLAUM, Circuit Judges, and PELL, Senior Circuit Judge.
HARLINGTON WOOD, Jr., Circuit Judge.
This appeal concerns plaintiff-appellant Cadwallader & Johnson, Inc.‘s claim that the Internal Revenue Service misapplied funds paid by a co-assignee of the appellant. The district court granted summary judgment for the United States, and Cadwаllader & Johnson, Inc. appealed. 582 F.Supp. 47. We hold that the district court lacked jurisdiction and should have dismissed plaintiff‘s action.
I.
To aid in understanding the facts of this case, we first outline several federal taxes applicable to employers. The Internal Revenue Code requires every employer to withhold income and social security (FICA) taxes from the wages of its employees.
The present case concerns trust and non-trust fund taxes owed by Cadwallader & Johnson, Inc. for 1980 and 1981. On May 22, 1981, the company entered into аn assignment for the benefit of creditors. On June 11, 1982, a co-assignee sent the Internal Revenue Service a check for $52,383.00 but did not indicate to which taxes the check applied. The attorney for Cadwallader & Johnson, Inc., who was not a co-assignee, mailed а letter to the Internal Revenue Service on June 18, 1982, requesting that the $52,383.00 be applied to the employee (trust fund) taxes. The attorney also stated that he spoke with an I.R.S. agent on the phone that day and gave him the same instructions. On June 22 and 24, 1982, the Internal Revenue Sеrvice, allegedly following Revenue Ruling 79-284, applied the funds to various non-trust fund taxes due from the company, leaving an unpaid trust fund liability. The Internal Revenue Service subsequently denied the company‘s claim that the funds were applied to the wrong taxes and assessed рlaintiffs David and Peter Schon, as responsible corporate officers under sections 6671(b) and 6672 of the Internal Revenue Code, for the unpaid trust fund taxes.
The Schons filed this action in federal district court, asking the court to “direct that the funds paid by the Assignee ... be alloсated to the trust portion of the taxes due as of the date of payment, and that the assessments against Peter Schoen [sic]1 and David Schoen be abated accordingly.” The Schons later amended their complaint to add Cadwallader & Johnson, Inc. as а plaintiff. The district court dismissed the Schons as parties because they had not paid any portion of the taxes assessed against them and requested a refund as required by
II.
Whether the district court had jurisdiction over this action is the first and only issue we need to discuss.3 Cadwallader & Johnson, Inc. argues that the district court had jurisdiction under
The district courts shall have original jurisdiction, concurrent with the United States Claims Court, of:
(1) Any civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegаlly assessed or collected, or any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfully collected under the internal-revenue laws.
We think Congress intended section 1346(a)(1) as a means for taxpayers who had payed too much to recoup the erroneously or illegally assessed or collected amount. But this is a narrow waiver of sovereign immunity, and accordingly we construe it strictly. United States v. Sherwood, 312 U.S. 584, 586, 61 S.Ct. 767, 769, 85 L.Ed.2d 1058 (1941); Busse v. United States, 542 F.2d 421, 425 (7th Cir. 1976). For example, a taxpayer cannot rely on section 1346(a)(1) to bring suit alleging that the I.R.S. did not sell his assets so as to maximize the sale price and to minimize his remaining debt for unpaid taxes. See Film Truck Service, Inc. v. Nixon, 216 F.Supp. 77, 78 (E.D.Mich.1963). Similarly, a tаxpayer may not rely on section 1346(a)(1) to challenge an erroneously or illegally assessed amount without first paying the full amount of an income tax deficiency. See Flora v. United States, 357 U.S. 63, 75-76, 78 S.Ct. 1079, 1086, 2 L.Ed.2d 1165 (1958); Boynton v. United States, 566 F.2d 50, 52-54 (9th Cir. 1977) (exception to Flora rule for divisible tax assessments).
In the present case, Cadwallader & Johnson, Inc. does not claim that the $52,383.00 was erroneously or illegally assessed. Indeed, the сompany admits that it would still owe taxes to the federal government even if the Internal Revenue Service had applied the money to the trust fund taxes. Plaintiff instead argues that United States v. Piedmont Mfg. Co., 89 F.2d 296, 299 (4th Cir. 1937) supports its position that an erroneous application of the $52,383.00 falls within the “erroneously ... collected” language of section 1346(a)(1). We think its reliance on Piedmont is misplaced. That case merely held that a taxpayer could sue the United States for overpayment of taxes even though the payment to the Collectors of Internal Revenuе consisted of credits from overpayments in prior years. 89 F.2d at 297-99. Nothing in that case suggests that a taxpayer need not pay more tax than was due before the taxpayer can bring an action to recover the overpaid amount under
A functional analysis of appellant‘s claim further supports our holding that the district court had no jurisdiction. What the present case is really about is an attempt by David and Peter Schon to reduce their personal liability for trust fund taxes by having a federal court rule that the Internal Revenue Service should have applied the $52,383.00 to the trust fund taxes due. Thus plaintiffs’ action is really one for a declaratory judgment, but
For the foregoing reasons, the judgment of the district court is vacated and the case is remanded to the district court with instructions to dismiss for lack of jurisdiction.
PELL, Senior Circuit Judge, dissenting.
As I understand the position of the corporation, it is that there was a proper designation that the amount paid by the assignee be applied to the trust fund taxes, that the IRS by not honoring this designation had, in the wording of
While it appears to me therefore that there was properly jurisdiction in the district court, I agree with that court‘s decision that there was no proper designation. Accordingly, I respectfully dissent from the analysis of the majority but I would affirm the judgment of the district court on the merits.
Notes
No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Secretary or his delegate, according to the provisions of law in that regаrd, and the regulations of the Secretary or his delegate established in pursuance thereof.
In a case of actual controversy within its jurisdiction, except with respect to Federal taxes other than actions brought under section 7428 of the Internal Revenue Code of 1954 or a proceeding under section 505 or 1146 of title 11, any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.