The case of Landers v. United States, 3:20-cv-00455-G (N.D. Tex. 2020) raises the issue of the timing of the injunction against collection vis a vis the completion of a bank levy. This case appears to break ground not previously broken, as Ms. Landers seeks to undo the levy because she filed her innocent spouse request during the 21-day period the bank was holding the funds in the joint account after receipt of the levy. The court decides that the language stopping collection resulting from the filing of an innocent spouse request does not stop the bank levy during the 21-day period. The opinion goes through an analysis of the Anti-Injunction Act to get there.
For those interested in a deeper dive on the issue presented by the case and the arguments made by the parties you can find the following case documents: motion to dismiss; affidavit of Revenue Officer; plaintiff’s brief; IRS reply; and plaintiff’s sur reply.
Ms. Landers and her ex-husband jointly filed a 2016 return at the end of 2017. The IRS assessed a liability of $742,728 against them jointly and severally in January of 2018. Although the opinion does not say this explicitly, I assume from the timing of the assessment that the IRS assessed a tax shown on the return. The couple divorced on September 14, 2018. On December 5, 2019, the IRS issued a levy to a bank where Ms. Landers had an account owned solely by her. The bank received the levy notice on December 11 which started the 21 day holding period after a bank levy. On December 20, 2019, Ms. Landers submitted a request for innocent spouse relief. At the conclusion of the 21-day period, the bank turned over all of the money in her account as of December 11.
She filed this action on February 24, 2020 seeking relief, arguing entitlement to an injunction for return of the funds because the IRS should have ceased the levy upon the filing of the innocent spouse relief request until the conclusion of the innocent spouse case pursuant to IRC 6015(e)(1)(B)(i). This subsection provides:
no levy or proceeding in court shall be made, begun, or prosecuted against an individual making [an innocent spouse claim] . . . for collection of any assessment to which such election or request relates until the close of the 90th day referred to in subparagraph (A)(ii) . . . .
Additionally, she argued that she deserved declaratory or injunctive relief under 28 U.S.C. 2201 and 5 U.S.C. 702 for harm caused by the action and she deserved mandamus relief under 28 U.S.C. 1361 requiring the IRS to return the money acquired through the levy.
Injunctive Relief
The IRS filed a motion to dismiss for lack of subject matter jurisdiction citing the Anti-Injunction Act (AIA) creating a situation of dueling injunctive provisions. The innocent spouse provisions contain one of the enumerated exceptions to the AIA in subsection 6015(e)(1)(B)(ii) which provides:
Notwithstanding the provisions of section 7421(a) [the AIA], the beginning of such levy or proceeding during the time the prohibition under clause (i) is in force may be enjoined by a proceeding in the proper court[.]
The court states that it must decide two questions: (1) what is the scope of the exception to the AIA provided in the innocent spouse provision and (2) do the facts of Ms. Lander’s case fall within the scope of the innocent spouse exception to the AIA. It then states that the innocent spouse exception to the AIA does not provide an exception upon which she can rely in these circumstances.
The parties focused extensively on the phrase in (B)(i) “no levy or proceeding in court shall be made, begun, or prosecuted.” The court, however, notes that the discussion of the language in (B)(i) must be tied into the language in (B)(ii) to determine if the court has jurisdiction to enjoin the IRS from this collection activity. It finds that the phrase “the beginning of such levy” in (B)(ii) crucial to its determination of jurisdiction.
The court noted the absence of case law interpreting the phrase and resorted to rules of statutory construction. It finds that (B)(ii) allows taxpayers to seek a preemptive injunction against the IRS starting the levy process but does not provide an indefinite right allowing an injunction after a levy has issued. I find this peculiar. What taxpayer wants to bring a suit to enjoin the IRS from issuing a levy before it does so? Such a construction would suggest taxpayers should preemptively bring injuction suits after filing innocent spouse requests rather than rely on the statute to stop such actions. Courts would not look kindly on such suits.
The logical conclusion of the court leaves taxpayers helpless if they do not preemptively sue to enjoin the IRS before it issues a levy. Ms. Landers points this out to the court arguing that its interpretation makes the injunction in the innocent spouse provision toothless. In answer the court says it seeks to read both the innocent spouse provisions and the AIA in such a way as to protect the purposes of both statutes. It also notes that the AIA provides a broad restriction requiring strict enforcement. It points out that Ms. Landers had more than a year after her divorce before she filed her innocent spouse request and she received notice of the intent to levy giving her a further, more specific opportunity to act before she did. She had a broad window for seeking an injunction and missed it. It concludes the first section of its opinion by providing:
Without deciding when exactly the levy began (and the court’s power under subsection (B)(ii) expired), the court concludes that Landers was long past that point when she sought injunctive relief, more than a month after the funds had already been turned over to the government by ICU. Therefore, the court is without subject matter jurisdiction over Landers’ claims for injunctive relief, and they must be dismissed.
Mandamus Relief
The court relies heavily on its decision regarding the injunction to reach its conclusion here. It points out that the mandamus provisions cannot override the AIA by obtaining injunctive relief in the guise of a mandamus. It basically dismisses this action because it attempts to end run the AIA, which the court believes serves to prevent injunctive relief here.
Declaratory Relief
The court points out that the exception in the Declaratory Judgment Act (DJA) for taxes intended to leave the Flora rule intact requiring full payment before seeking a return of money. It looks to the case of Cohen v. United States, 650 F.3d 717,729-31 (D.C. Cir. 2011) to find an answer to the jurisdictional issue raised here. In Cohen the court found that the relief sought was simply a declaration with no effect on the assessment and collection of taxes. It finds that to the extent Ms. Landers seeks merely a declaration her case closely mirrors the Cohen case.
In other words, the DJA does allow courts to issue declarations regarding procedural issues so long as the declaration does not run afoul of the AIA by interfering with the assessment and collection of taxes. Taxpayers may seek a declaration of their procedural rights, but that declaration cannot be used to bootstrap a right to injunctive relief.
The court finds that it has jurisdiction over her DJA claim as long as she only seeks a declaration that the IRS followed proper levy procedures and does not seek an injunction or return of the levy proceeds.
Obtaining a statement that the IRS did not follow procedures but can still keep the money may not help Ms. Landers very much. If she wins her innocent spouse case, will the IRS return the money at that point or will it require her to finish paying off the balance of the large assessment before she can sue for refund. If she seeks a refund will the IRS argue that the district court has no jurisdiction over that case as it has done in the past despite the contrary arguments it has made to appeals courts. Ms. Landers’s path to recovery of the levy proceeds remains unclear. Simply obtaining a statement that the IRS did not properly follow procedures will not put food on the table. This cases raises interesting questions. We may not have seen the last of it.