CCS Trans, Inc., et al v. United States Department of the Treasury - Internal Revenue Service

Filing 24

Memorandum of Opinion and Order For the reasons set forth herein, the Report and Recommendation of the Magistrate Judge (ECF No. 16 ) is hereby adopted. The Motion for a Temporary Restraining Order (ECF No. 2 ) is denied. Judge Benita Y. Pearson on 11/26/2014. (JLG)

PEARSON, J.
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
CCS TRANS, INC., et al.,
Plaintiffs,
v.
UNITED STATES OF AMERICA,
Defendant.

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CASE NO. 4:14CV2332

JUDGE BENITA Y. PEARSON
MEMORANDUM OF OPINION
AND ORDER
[Resolving ECF Nos. 2 and 18]

On October 20, 2014, Plaintiff CCS Trans, Inc. filed a Complaint to [Quiet] Title and for
a Temporary Restraining Order (ECF No. 1) and a separate Motion for a Temporary Restraining
Order (ECF No. 2). Plaintiffs named the United States Department of Treasury – the Internal
Revenue Service (“IRS”) as the defendant in the original complaint and motion.1
The next day, Plaintiff CCS Trans, Inc.’s Motion for a Temporary Restraining Order
(ECF No. 2) was referred by the undersigned to Magistrate Judge Kathleen B. Burke pursuant to
28 U.S.C. § 636 and Local Rules 72.1 and 72.2(a), which authorized her to file with the Court a
report containing proposed findings and a recommendation for disposition of the motion.2

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Defendant is correct that the IRS has no capacity to be sued, and that Plaintiffs
should have named the United States of America as a party instead of the IRS. See, e.g.,
Carelli v. Internal Revenue Service, 668 F.2d 902, 904 (6th Cir. 1982) (The United States
is the proper party, not the IRS).
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The undersigned was presiding over a jury trial in United States of America v.
Nickie Thomas Gray, Jr., No. 4:14CR0164 (N.D. Ohio filed May 6, 2014).

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On October 23, 2014, Plaintiff CCS Trans, Inc. filed an Amended Complaint to Quiet
Title, for Wrongful Levy and for a Temporary Restraining Order (ECF No. 9) that added (1) W.
James Cobbin as a party-Plaintiff and (2) a claim for wrongful levy under 26 U.S.C. § 7426.3
On October 24, 2014, the magistrate judge submitted a Report and Recommendation
(ECF No. 16) recommending that the Court deny the Motion for a Temporary Restraining Order
because under the Tax Anti-Injunction Act, 26 U.S.C. § 7421(a), the Court lacks jurisdiction to
entertain the motion. Plaintiffs filed Objections to the Magistrate Judge’s Report and
Recommendation (ECF No. 18). The Court, after reviewing the record, the parties’ briefs and
the applicable law, hereby adopts the Report and denies the motion.
I. Standard of Review for a Magistrate Judge’s Report and Recommendation
Where objections have been made to the magistrate judge’s Report and Recommendation,
the District Court standard of review is de novo. Fed. R. Civ. P. 72(b)(3).
A district judge:
must determine de novo any part of the magistrate judge’s disposition that has
been properly objected to. The district judge may accept, reject, or modify the
recommended disposition; receive further evidence; or return the matter to the
magistrate judge with instructions.
Id.
Accordingly, this Court has conducted a de novo review of the portions of the Magistrate
Judge’s Report to which Plaintiffs have properly objected.

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The Court has granted Plaintiffs’ Motions for Leave to File Corrected Amended
Complaint (ECF No. 10) and to Substitute Declaration (ECF No. 12) by separate Nondocument Orders.
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II. Law & Analysis
Plaintiffs object that the magistrate judge failed to consider the allegations set forth in
their amended complaint. Specifically, Plaintiffs contends that the magistrate judge “failed to
consider the wrongful levy claim under [26 U.S.C. § 7426] in any manner whatsoever.” ECF
No. 18 at PageID #: 387. Next, Plaintiffs object that the magistrate judge misapplied the
exception to the Tax Anti-Injunction Act discussed in Enochs v. Williams Packing & Navigation
Co., 370 U.S. 1, 7 (1962). ECF No. 18 at PageID #: 387. Finally, Plaintiffs argue the Tax AntiInjunction Act is only for taxes and not penalties, and the parties should be permitted to engage
in limited discovery relating to the assessment. ECF No. 18 at PageID #: 388.
A. The allegations set forth in Plaintiffs’ amended complaint
Plaintiffs filed their amended complaint after Defendant filed its memorandum in
opposition to the within Motion for Temporary Restraining Order (ECF No. 2). As stated above,
the Amended Complaint to Quiet Title, for Wrongful Levy and for a Temporary Restraining
Order (ECF No. 9) added (1) W. James Cobbin as a party-Plaintiff and (2) a claim for wrongful
levy.
The Court lacks subject matter jurisdiction to enjoin the IRS from collecting taxes from
Plaintiff CCS Trans, Inc. The Tax Anti-Injunction Act provides that, except for certain lawsuits
authorized elsewhere in the Internal Revenue Code, “no 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.” 26 U.S.C. § 7421(a). This
is precisely what Plaintiff CCS Trans, Inc. seeks to do in the case at bar. The purpose of the Tax

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Anti-Injunction Act “is to permit the United States to assess and collect taxes alleged to be due
without judicial intervention, and to require that the legal right to the disputed sums be
determined in a suit for refund.” Williams Packing, 370 U.S. at 7.
In addition, Plaintiff CCS Trans, Inc. cannot find an escape hatch from the Tax AntiInjunction Act by Plaintiff W.J. Cobbin raising a claim for wrongful levy under 26 U.S.C. §
7426. Under section 7426, a party other than the delinquent tax payer may seek injunctive relief
to remedy a wrongful levy. 26 U.S.C. § 7426(a)(1), (b); see also Sharp Mgmt., LLC v. United
States, No. C07-402JLR, 2007 WL 1367698, at *2 (W.D. Wash. May 8, 2007) (citing Shannon v.
United States, 521 F.2d 56, 60 n. 10 (9th Cir. 1975)). Mr. Cobbin is the Chief Executive Officer
and founder of Plaintiff CCS Trans, Inc. Declaration (ECF No. 14) at PageID #: 306, ¶ 1.
B. The exception to the Tax Anti-Injunction Act set forth Williams Packing
The exception to the Tax Anti-Injunction Act discussed by the Supreme Court in
Williams Packing applies only in those cases where (1) it is clear the Government will not
ultimately prevail; and (2) equity jurisdiction otherwise exists. 370 U.S. at 7; RYO Machine,
LLC v. U.S. Dept. of Treasury, 696 F.3d 467, 473 (6th Cir. 2012).
Mr. Cobbin admits, “I am aware that I have not paid my taxes for December 31st of 2008
and 2009.” ECF No. 14 at PageID #: 308, ¶ 17. However, Plaintiff CCS Trans, Inc. does contest
its liability for the civil penalty. ECF No. 11-1 at PageID #: 155. According to Plaintiffs, the
2004 W-2’s were filed and the United States can not under any circumstances conceivably collect
the 2004 civil penalty because it was never due. See ECF No. 14 at PageID #: 308, ¶ 15 and 334.

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There is a three-year statute of limitations on the IRS’s authority to enter an assessment
under 26 U.S.C. § 6501(a).4 The United States did not assess Plaintiff CCS Trans, Inc. with the
2004 civil penalty until January 7, 2008. Declaration of Aimee J. Coles (ECF No. 8-1) at PageID
#: 40-41, ¶ 3. Plaintiffs claim that they meet the first part of the Williams Packing exception
because “the Government could not prevail under any circumstances on the 2004 civil penalty for
the reason the penalty was not assessed within three years of its alleged due date.” ECF No. 18 at
PageID #: 387.
The Court finds Plaintiffs cannot meet the first part of the Williams Packing exception.
“In the case of failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time.” 26 U.S.C. § 6501(c)(3).
Here, Plaintiff CCS Trans, Inc. was assessed the 2004 civil penalty for failing to file its W-2s.
ECF No. 8-1 at PageID #: 40-41, ¶ 3. As such, the United States could – as it did – assess the
2004 penalty beyond the general three-year statutory period.
C. The Tax Anti-Injunction Act is for penalties
Plaintiffs argue the Tax Anti-Injunction Act is only for taxes and not penalties. Plaintiffs

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Section 6501, 26 U.S.C. provides, in pertinent part:
Except as otherwise provided in this section, the amount of any tax
imposed by this title shall be assessed within 3 years after the return was
filed (whether or not such return was filed on or after the date prescribed)
or, if the tax is payable by stamp, at any time after such tax became due
and before the expiration of 3 years after the date on which any part of
such tax was paid, and no proceeding in court without assessment for the
collection of such tax shall be begun after the expiration of such period. . .
(emphasis added).
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are incorrect. As stated in Springer v. I.R.S. ex rel. U.S., 231 Fed.Appx. 793 (10th Cir. 2007):
Because penalties and interest arising from the failure to pay taxes are assessed as
taxes, see 26 U.S.C. § 6665(a)(2), the [Tax Anti-Injunction Act] bars actions
seeking to enjoin their assessment. See Nuttelman v. Vossberg, 753 F.2d 712, 714
(8th Cir. 1985) (per curiam) (holding that penalties and interest are subject to the
[Tax Anti-Injunction Act]); cf. Souther v. Mihlbachler, 701 F.2d 131, 132 (10th
Cir.1983) (per curiam) (holding that civil penalties imposed under 26 U.S.C. §
6682 for making false statements in connection with withholding are taxes within
the meaning of the [Tax Anti-Injunction Act]).
Id. at 798; see also Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. ----, 132 S.Ct. 2566, 2583
(2012) (noting that subchapter 68B penalties are treated as taxes for purposes of the Tax AntiInjunction Act). The Tax Anti-Injunction Act prohibits a federal court from enjoining the
assessment or collection of penalties and interest arising from the failure to pay taxes.
D. Discovery relating to the assessment
Finally, Plaintiffs contend the parties should be permitted to engage in limited discovery
relating to the assessment of the 2004 civil penalty. Plaintiffs request that a ruling on the
Objections filed by Plaintiffs be deferred until Defendant responds to the written discovery
requests they served on November 3, 2014. Plaintiffs’ First Combined Set of Discovery
Requests Propounded to Defendant the United States (ECF No. 21-1), however, has nothing to
do with whether the Magistrate Judge’s Report and Recommendation should be adopted.

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III. Conclusion
Accordingly, the Report and Recommendation (ECF No. 16) is hereby adopted. The
Motion for a Temporary Restraining Order (ECF No. 2) is denied.

IT IS SO ORDERED.

November 26, 2014
Date

/s/ Benita Y. Pearson
Benita Y. Pearson
United States District Judge

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