Taylor v. USA , 292 F. App'x 383 ( 2008 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
September 16, 2008
No. 08-50067 Charles R. Fulbruge III
Summary Calendar Clerk
DAVID S. TAYLOR; TOBY C. TAYLOR
Petitioners- Appellants
v.
UNITED STATES OF AMERICA; INTERNAL REVENUE SERVICE
Respondents- Appellees
Appeal from the United States District Court
for the Western District of Texas
USDC No. 1:07-CV-680
Before STEWART, OWEN, and SOUTHWICK, Circuit Judges.
PER CURIAM:*
Petitioners-Appellants David S. Taylor and Toby C. Taylor (“the Taylors”)
petitioned the district court to quash an Internal Revenue Service (“IRS”)
summons served on the custodian of records of the local Church of Jesus Christ
of Latter Day Saints (“LDS Church”) for records relating to possible criminal tax
violations by the Taylors. The district court granted the IRS’s motion to dismiss
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
No. 08-50067
for lack of jurisdiction. The Taylors appeal arguing that the district court erred
in dismissing their petition. For the following reasons, we AFFIRM.
I.
On August 1, 2007, Special Agent David Booth, an IRS criminal
investigator, served a summons on the LDS Church seeking records relating to
possible criminal tax violations by the Taylors for the tax years 2002-2005.1 The
summons required LDS to comply by August 13, 2007. Relying on an exception
to the notice requirement for such third-party summonses, Agent Booth did not
serve notice upon the Taylors. However, LDS Church notified them of the
summons and its willingness to comply. On August 7, 2007, LDS Church sent
the summoned information to the IRS. On August 9, 2007, relying on 26 U.S.C.
§ 7609(b)(2), the Taylors filed a petition to quash the IRS’s summons. They also
sought various forms of equitable relief in the district court pursuant to 28
U.S.C. §§ 1331, 1340, 1343(a)(3), 1346 and Article III of the United States
Constitution.2
The IRS moved to dismiss the petition to quash arguing that the district
court lacked subject matter jurisdiction over an action against the United States
where the government’s sovereign immunity had not been waived. The
1
26 U.S.C. § 7602(a) gives the IRS the authority to summon persons, including third
parties, having books, papers, records or other data bearing on a determination of a taxpayer’s
tax liability to appear and produce such records and to give relevant testimony. A summons
may be issued in connection with an inquiry into any offense connected with the
administration or enforcement of the internal revenue laws. See 26 U.S.C. § 7602(b).
2
In their petition, the Taylors alternatively requested the following relief: (1) an
evidentiary hearing to determine the legitimacy of the IRS’s summons; (2) a preliminary
injunction prohibiting the IRS from obtaining or using any financial information, records or
testimony acquired from LDS Church relating to petitioners by having the IRS direct LDS not
to comply with the summons until resolution of the underlying issues by the district court; (3)
an order temporarily enjoining the IRS from continuing its criminal investigation of the
Taylors until resolution of the underlying issues by the district court; and (4) an order
requiring the IRS to provide a complete list of all contacts that had been issued with or without
notice to the Taylors.
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No. 08-50067
magistrate judge agreed that the district court lacked jurisdiction. Specifically,
the magistrate judge determined that: (1) although 26 U.S.C. § 7609 provides for
a waiver of the government’s sovereign immunity in certain actions brought by
persons named in an IRS summons issued to a third-party, an exception to that
waiver applied and barred the Taylors from bringing an action to quash the
summons served on LDS Church; and (2) general jurisdictional statutes such as
28 U.S.C. §§ 1331, 1340, 1343(a)(3), 1346 and Article III of the United States
Constitution do not waive the government’s sovereign immunity without an
explicit statement from Congress. On November 16, 2007, the district court
adopted the report and recommendations of the magistrate judge and issued a
final judgment granting the IRS’s motion to dismiss. The Taylors timely
appealed.
II.
A district court’s decision to grant a motion to dismiss for lack of subject
matter jurisdiction, is a jurisdictional question that we review de novo. See
Jones v. Grinnell Corp., 235 F.3d 972, 974 (5th Cir. 2001). Our analysis begins
with the fundamental principle that the United States cannot be sued unless its
sovereign immunity has been explicitly and unequivocally waived through
Congressional statute. See United States v. Dalm, 494 U.S. 596, 608 (1990); see
also Wilkerson v. United States, 67 F.3d 112, 188 (5th Cir. 1995). Where
Congress has statutorily waived the United States’s sovereign immunity, an
action against the government will be strictly construed, and a court will lack
subject matter jurisdiction over any action that does not fit within the scope of
the Congressional waiver. See Wilkerson, 67 F.3d at 118. Courts have held that
an action to quash a summons issued by the IRS is a suit against the United
States requiring a waiver of its sovereign immunity. See Barmes v. United
States, 199 F.3d 386, 388 (7th Cir. 1999) (citations omitted). Thus, resolution of
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No. 08-50067
the Taylors’s appeal turns on whether the government has waived its sovereign
immunity with respect to the action they brought in the district court.
On appeal, the Taylors contend that the district court retained jurisdiction
to grant the relief requested in their petition for two reasons: (1) the statutory
exception that the district court believed stripped it of jurisdiction is inapplicable
to their case; and (2) other federal statutes confer jurisdiction on the district
court because Agent Booth’s actions were unconstitutional, exceeded the scope
of his statutory authority and were taken in his official capacity as an officer of
the government and under color of law. We will address each of these
arguments in turn.
A.
In their first point of error, the Taylors allege that the district court had
jurisdiction over their petition to quash because Congress waived the
government’s sovereign immunity within the statutory framework of 26 U.S.C.
§ 7609.
As a general rule, § 7609 requires the IRS to serve anyone whose financial
records are sought pursuant to a third-party summons with a notice copy of the
summons. See 26 U.S.C. § 7609(a)(1). Persons entitled to notice may then bring
a petition in federal district court to quash the summons. See 26 U.S.C. §§
7609(b)(2) and (h)(1). The Taylors and the IRS agree that § 7609(b)(2) provides
for waiver of the government’s sovereign immunity with respect to a petition to
quash brought by persons whose financial records are sought in an IRS
summons issued to a third-party. However, the government urges that an
exception to that waiver of sovereign immunity found at 26 U.S.C. §
7609(c)(2)(E), bars the Taylors from bringing a petition to quash.
In accordance with § 7602(b,) which gives the IRS the authority to issue
a summons in connection with an inquiry into any “offense connected with the
administration or enforcement of the internal revenue laws,” § 7609(c)(2)(E)
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No. 08-50067
excepts certain of those summonses from challenge in the district court if they
are:
(i) issued by a criminal investigator of the Internal Revenue Service
in connection with the investigation of an offense connected with the
administration or enforcement of the internal revenue laws; and
(ii) served on any person who is not a third-party record keeper (as
defined in § 7603(b).
See 26 U.S.C. § 7609(c)(2)(E)(i) - (ii). In turn, § 7603(b) lists a number of entities
as third-party record keepers; however, LDS Church does not fit into any of
those categories, a point conceded by the Taylors.3
Nevertheless, they maintain that 26 U.S.C. § 7609(c)(2)(E) is inapplicable
to them. According to the Taylors, that section only applies to persons who may
be employees or agents of the IRS, as such persons are tasked with the
administration or enforcement of the internal revenue laws. Therefore, because
the Taylors are not IRS employees or agents, they contend they cannot commit
any offenses “connected with the administration or enforcement of the internal
revenue laws” per §§ 7602(b) or 7609(c)(2)(E)(i). We disagree with the Taylors’s
reading of these statutory provisions.
3
26 U.S.C. § 7603(b)(2) provides the following list of third-party record keepers:
(A) any mutual savings bank, cooperative, domestic building and loan
association, or other savings institution chartered and supervised as a savings
and loan or similar association under Federal or State law, any bank. . . or any
credit union . . . ;
(B) any consumer reporting agency . . . ;
(C) any person extending credit through the use of credit cards or similar
devices;
(D) any broker . . . ;
(E) any attorney;
(F) any accountant;
(G) any barter exchange . . . ;
(H) any regulated investment company . . . and any agent of such regulated
investment company when acting as an agent thereof;
(I) any enrolled agent; and
(J) any owner or developer of a computer software source code . . . .
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No. 08-50067
A plain reading of §§ 7602(b) and 7609(c)(2)(E) demonstrates that these
provisions relate to possible criminal offenses by a taxpayer that interfere with
the IRS’s administration or enforcement of the internal revenue laws, as opposed
to offenses committed by IRS agents, as urged by the Taylors. Section 7602(b),
added in 1982 to the statutory framework for IRS summonses, simply codified
the extension of the IRS’s summons power to investigations of a taxpayer’s
criminal tax-related liability. See Pub. L. No. 97-248, 96. Stat. 622. Further
support for this reading of §§ 7602(b) and 7609(c)(2)(E) is found in the federal
regulatory guidelines relating to the IRS’s summons authority which explains
that “[t]his summons power may be used in an investigation of either civil or
criminal tax-related liability.” See 26 C.F.R. § 301.7602-1(b)(1). Therefore,
§ 7602(b) gives the IRS the authority to issue summonses to investigate whether
a taxpayer has criminally violated the internal revenue laws.
Here, Agent Booth submitted an affidavit attesting to the fact that the
summons issued to LDS Church related to the Taylors’s possible criminal tax-
related liability for the years 2002-2005. Further, the Taylors acknowledge that
LDS Church is not a third-party record keeper. Therefore, the exception of
§ 7609(c)(2)(E) fully applies to bar their petition to quash. Accordingly, the
government’s sovereign immunity has not been waived with respect to Taylors’s
petition, and the district court was without jurisdiction to adjudicate their claim.
B.
In their second point of error, the Taylors allege that the district court
retained jurisdiction to grant the equitable relief alternatively sought in their
petition to quash. The Taylors now concede that general jurisdictional statutes
such as 28 U.S.C. §§ 1331, 1340, 1343(a)(3), 1346, and Article III of the United
States Constitution are insufficient in themselves to confer such authority on the
district court. However, they argue that other federal statutes give the district
court power to grant their requested relief. Based on our review, none of the
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No. 08-50067
statutes upon which the Taylors rely abrogate the government’s sovereign
immunity.
First, the Taylors rely on a line of cases that created the so-called “Larson-
Dugan exception” to sovereign immunity to argue that because their petition
alleged that the actions of an officer of the United States exceeded the scope of
his statutory authority, the district court had jurisdiction to grant them relief.
See Larson v. Domestic & Foreign Commerce Corp., 337 U.S. 682 (1949); Dugan
v. Rank, 372 U.S. 609 (1963).
The Supreme Court has stated:
There may be . . . suits for specific relief against officers of the
sovereign which are not suits against the sovereign . . . . Where the
officer’s powers are limited by statute, his actions beyond those
limitations are considered individual and not sovereign actions. The
officer is not doing the business which the sovereign has empowered
him to do or he is doing it in a way which the sovereign has
forbidden. His actions are ultra vires his authority and therefore
may be the object of specific relief.
See Larson, 337 U.S. at 690; Dugan, 372 U.S. at 621-22. However, the Taylors
do not provide any facts to support their assertion that Agent Booth exceeded his
statutory authority in issuing the summons to LDS Church. Rather, they make
only the conclusory statement that Agent Booth’s actions “egregiously exceed
[the] limitations” of his statutory authority. As discussed above, § 7602(b)
grants the IRS the power to issue summonses to third parties, like LDS Church,
to investigate possible criminal tax violations of taxpayers, such as the Taylors.
Therefore, Agent Booth’s issuing of the summons to LDS Church was within the
statutory grant of power, and the Taylors have not demonstrated that his actions
overstepped the bounds of § 7602(b). Consequently, the Taylors have not
demonstrated that they are entitled to relief under the Larson-Dugan exception
to sovereign immunity.
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No. 08-50067
Second, the Taylors contend that they are entitled to relief in the district
court because Agent Booth violated the United States Constitution and “relevant
statutes” in issuing the summons. Without providing any facts for this
assertion, the Taylors argue that while 28 U.S.C. § 2679(b)(1) exempts
government officers from suit individually for common law torts committed
within the scope of their employment, that exemption does not apply where a
civil action is brought against a government employee for violation of the United
States Constitution or a federal statute. See 28 U.S.C. § 2679(b)(2).
As best we can determine, the Taylors seek relief from the summons by
characterizing their petition to quash as a Bivens action whereby a person may
seek damages and other relief when a federal agent has allegedly violated that
person’s constitutional rights. See Brown v. Nationsbank Corp., 188 F.3d 579,
590 (5th Cir. 1999) (citing Bivens v. Six Unknown Named Agents of Fed. Bur. of
Narcotics, 403 U.S. 388 (1971)). However, their petition to quash falls short of
stating a Bivens claim as, significantly, they do not name Agent Booth, in his
individual capacity, as a defendant in their action. See Williamson v. U.S. Dept.
of Agriculture, 815 F.2d 368, 380-81 (5th Cir. 1987) (explaining that a Bivens
action only applies against individual federal officers, in their individual
capacities . . . [while] “[t]he United States and its officers in pursuit of their
official duties remain protected by sovereign immunity.”). Consequently, the
Taylors cannot rely upon the waiver of sovereign immunity in 28 U.S.C.
2679(b)(2) to seek relief in the district court against the IRS.
Finally, the Taylors allege that § 702 of the Administrative Procedure Act
(“APA”) gives the district court power to grant them equitable relief from the
IRS’s summons. Section 702 waives sovereign immunity in regard to actions
seeking nonmonetary relief and claiming “that an agency or an officer or
employee thereof acted or failed to act in an official capacity or under color of
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No. 08-50067
legal authority.”4 5 U.S.C. § 702. However, § 702 further provides: “Nothing
herein . . . confers authority to grant relief if any other statute that grants
consent to suit expressly or impliedly forbids the relief sought.” Id. Therefore,
a petitioner cannot bring an action against the United States under the APA if
another statute prohibits his claim. See McCarty v. United States, 929 F.2d
1085, 1088 (5th Cir. 1991).
Here, the Anti-Injunction Act, 26 U.S.C. § 7421, specifically prohibits the
injunctive relief the Taylors seek, as that statute provides that “no suit for the
purpose of restraining the assessment or collection of any tax shall be
maintained in any court.” See 26 U.S.C. § 7421(a). Courts have held that this
prohibition applies equally to actions to enjoin IRS investigations. See Hobson
v. Fischbeck, 758 F.2d 579, 580-81 (11th Cir. 1985); United States v. Dema, 544
F.2d 1373, 1376 (7th Cir. 1976); accord Brittingham v. United States, 451 F.2d
315, 317-18 (5th Cir. 1971). Additionally, to the extent that the Taylors sought
declaratory relief in the district court, the Declaratory Judgment Act, 28 U.S.C.
§ 2201, bars claims with respect to a dispute over federal taxes.5 See Bob Jones
Univ. v. Simon, 416 U.S. 725, 732 n.7 (1974) (explaining that Congress’s
enactment of 28 U.S.C. § 2201 evidences its “antipathy for premature
interference with the assessment or collection of any federal tax.”); accord
Brittingham, 451 F.2d at 317-18. Therefore, as both the Anti-Injunction Act and
the Declaratory Judgment Act bar the equitable relief sought by the Taylors,
4
5 U.S.C. §702 provides in relevant part:
An action in a court of the United States seeking relief other than monetary
damages and stating a claim that an agency or an officer or employee thereof
acted or failed to act in an official capacity or under color of legal authority shall
not be dismissed nor relief therein be denied on the ground that it is against the
United States or that the United States is an indispensable party . . . .
5
28 U.S.C. § 2201 provides: “In a case of actual controversy within its jurisdiction,
except with respect to Federal taxes, any court of the United States . . . may declare the rights
and other legal relations of any interested party . . . .”
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No. 08-50067
they cannot avail themselves of the APA’s waiver of sovereign immunity to seek
that relief in the district court.
III.
For the foregoing reasons, we AFFIRM the ruling of the district
court.
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