TP Pays FrivPens, Wants Them Back & Judge To Enjoin IRS

[The Observer]

JUSTIN SCHLABACH,
Plaintiff,
v.
UNITED STATES,
Defendant.

Release Date: FEBRUARY 17, 2011

IN THE UNITED STATES
COURT OF FEDERAL CLAIMS

(Filed: February 17, 2011)

Application for an order restraining collection of a penalty
threatened to be imposed by the IRS; limitation on the equitable
powers of the court when exercising jurisdiction under the Tucker
Act, 28 U.S.C. section 1491(a); applicability of the Anti-Injunction
Act, I.R.C. section 7421(a)

Justin Schlabach, pro se, Mead, Washington.

Michael J. Roney, Court of Federal Claims Section, Tax Division, United States Department of Justice, Washington, D.C., for defendant. With him on the brief was John A. DiCicco, Acting Assistant Attorney General, Tax Division, Steven I. Frahm, Chief, Court of Federal Claims Section, and G. Robson Stewart, Assistant Chief, Court of Federal Claims Section, Tax Division, United States Department of Justice, Washington, D.C.

OPINION AND ORDER

LETTOW, Judge.

In this tax-refund case filed October 6, 2010, plaintiff, Justin Schlabach, seeks a refund of monies paid to the Internal Revenue Service ("IRS") in satisfaction of frivolous-filing penalties assessed under 26 U.S.C. ("I.R.C.") section 6702(c). On December 3, 2010, Mr. Schlabach filed an application for a temporary restraining order ("TRO"), requesting that the court enjoin the IRS from imposing a third frivolous-filing penalty upon him. This order addresses that application.

BACKGROUND 1

On February 7, 2008, Mr. Schlabach filed his tax return for the year 2007, seeking a refund of $ 1,314.00. Compl. paragraph 3-4. On or about December 1, 2008, Mr. Schlabach received a letter from the IRS charging him with a frivolous-filing penalty pursuant to I.R.C. section 6702(c). Id. paragraph 5. Mr. Schlabach filed a timely appeal which was denied in due course, and thereafter he paid the full penalty of $ 5,176.96. Id. paragraph 12-13, 15. In October of 2009, the IRS imposed upon Mr. Schlabach a second penalty in the amount of $ 5,000.00 for the filing of a frivolous appeal for the 2007 tax year. Id. paragraph 16. Subsequently, the IRS informed Mr. Schlabach that it had applied the $ 1,314.00 which Mr. Schlabach had claimed he was owed for the 2007 tax year plus $ 102.84 in interest to the amount then due on the second penalty. Id. paragraph 21. In December of 2009, Mr. Schlabach filed a claim for a refund of the first penalty, plus interest. Id. paragraph 19. Mr. Schlabach thereafter paid the remaining balance of the second penalty in the amount of $ 3,611.04, and, on February 5, 2010, filed a refund claim for that second penalty in the amount of $ 5,027.86. Id. paragraph 24, 25. No action appears to have been taken by the IRS on the merits of either of these two refund claims.

On October 6, 2010, Mr. Schlabach filed a complaint in this court seeking a refund of $ 10,204.82, the amount he paid to the IRS for the two frivolous-filing penalties. Then, on November 24, 2010, the IRS sent Mr. Schlabach a letter informing him of a third potential frivolous-filing tax penalty unless he withdrew his refund claims for the first two penalties, the claims at issue in this suit. Pl.'s Appl. for TRO ("Pl.'s Appl.") Ex. 1 (Letter from IRS to Mr. Schlabach (Nov. 24, 2010)); Def.'s Opp'n at 2. 2 The IRS identified those refund requests as having been filed on November 9, 2009. Pl.'s Appl. Ex. 1. The letter stated that the penalty would be assessed should Mr. Schlabach fail to withdraw the refund claims within thirty days. Id. 3 On December 3, 2010, Mr. Schlabach filed the application at issue, requesting that the court enjoin the IRS from imposing the third penalty. Pl.'s Appl. at 1-6. Currently pending before the court is that application, defendant's opposition, and plaintiff's reply to defendant's opposition.

ANALYSIS

Mr. Schlabach's complaint seeking a refund of tax penalties paid in full was filed under the Tucker Act, 28 U.S.C. section 1491(a). Compl. at 1. Under that statute, this court lacks the power to award general equitable relief; rather, the court has authority to grant equitable relief only "as an incident of and collateral to a[] [money] judgment." 28 U.S.C. section 1491(a)(2); see James v. Caldera, 159 F.3d 573, 580 (Fed. Cir. 1998).

This court's equitable authority does not allow the court to enjoin the IRS from collection of penalties or taxes even if the IRS' assessment and collection is tied directly to a claim for a refund that is properly before the court. See Ledford v. United States, 297 F.3d 1378, 1381 (Fed. Cir. 2002) ("[N]o statutory authority exists that would grant the Court of Federal Claims the power to enjoin an IRS collection proceeding."); Harris v. United States, 4 Cl. Ct. 418, 419 (1984) ("A preliminary injunction, issued prior to an adjudication on the merits of a claim, is not 'incident to a money judgment.'" (quoting Smith v. United States, 654 F.2d 50, 52 (Ct. Cl. 1981)). Any disposition of the merits in this case would depend on events that presumably will take place at a point in time somewhat removed from now; the government only filed its answer to Mr. Schlabach's complaint on February 4, 2011.

An additional obstacle to Mr. Schlabach's request is presented by the Anti-Injunction Act, which provides that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person." I.R.C. section 7421(a). 4 The Anti-Injunction Act thus "flatly prohibits" the grant of injunctive relief regarding IRS collection proceedings. Ledford, 297 F.3d at 1381; see, e.g., Jordan v. United States, 77 Fed. Cl. 565, 570 (2007) (Anti-Injunction Act "precludes the [c]ourt from exercising jurisdiction over [plaintiff's] . . . claim to prevent the IRS from collecting" taxes and penalties). 5

In his reply, Mr. Schlabach attempts to avail himself of a judicially-created exception to the Anti-Injunction Act, Pl.'s Reply at 3-6, providing that injunctive relief may be issued notwithstanding the Act if: (1) "it is 'clear that under no circumstances could the government ultimately prevail'" and (2) "'equity jurisdiction' otherwise exists, i.e., [t]he taxpayer shows that he would otherwise suffer irreparable injury." Commissioner v. Shapiro, 424 U.S. 614, 627 (1976) (quoting Enochs v. Williams Packing Co., 370 U.S. 1, 7 (1962)). 6 Despite his efforts, Mr. Schlabach has not demonstrated that equitable jurisdiction "otherwise exists." In short, this court lacks the equitable authority now to afford him the relief he seeks. 7 As the Supreme Court in Williams Packing observed, "[t]he manifest purpose of section 7421(a) 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." 370 U.S. at 7. Mr. Schlabach can pursue his claim for refund of the previously imposed penalties in the instant proceeding, and if the IRS pursues the threatened additional penalty, he can pay that penalty and amend his complaint to seek refund of that further imposition.

CONCLUSION

For the reasons stated, plaintiff's application for a temporary restraining order is DENIED.

It is so ORDERED.

Charles F. Lettow
Judge

FOOTNOTES:

/1/ For purposes of resolving Mr. Schlabach's application, the court presumes that the allegations in his complaint are true. This recitation is provided as a background for the pending application and does not constitute findings of fact by the court. However, unless otherwise noted, the circumstances set out appear to be undisputed.

/2/ Of course, if Mr. Schlabach did withdraw the two refund requests, he would remove the jurisdictional predicate required by I.R.C. section 7422(a) for a refund claim in this court. See United States v. Clintwood Elkhorn Mining Co., 553 U.S. 1, 4, 13-14 (2008); Reiss v. United States, 983 F.2d 899, 900-01 (8th Cir. 1993).

/3/ Counsel for the government advised the court that "[o]n December 6, 2010, defendant contacted the Service and requested that it voluntarily withdraw its notice of proposed assessment, in light of plaintiff's suit for refund in this [c]ourt. Defendant renewed its request on December 15, 2010. As of the date hereof [December 20, 2010], defendant's request remains unanswered." Def.'s Opp'n at 3 n.1.

/4/ Penalties for frivolous submissions are a "tax" within the meaning of the Anti-Injunction Act. See First Atlas Funding Corp. through Kersting v. United States, 23 Cl. Ct. 137, 140 (1991), aff'd, 954 F.2d 733 (Fed. Cir. 1992) (Table); see also Farnum v. United States, 813 F.2d 114, 115-16 (7th Cir. 1987); I.R.C. section 6671(a); I.R.C. section 6702(a).

/5/ Excepted from the prohibition of the Anti-Injunction Act are cases arising under I.R.C. section 6015(e), 6212(a) and (c), 6213(a), 6225(b), 6246(b), 6330(e)(1), 6331(i), 6672(c), 6694(c), 7426(a) and (b)(1), 7429(b), and 7436. None of those exceptions are applicable here.

/6/ Shapiro has been superseded in part by statute as stated in Kindred v. Commissioner, 454 F.3d 688, 695 (7th Cir. 2006).

/7/ Mr. Schlabach cites Bothke v. Fluor Eng'rs and Constructors, Inc., 713 F.2d 1405 (9th Cir. 1983), vacated on other grounds, Terry v. Bothke, 468 U.S. 1201 (1984), for the proposition that the Anti-Injunction Act does not preclude the granting of his application. Pl.'s Appl. at 1. In Bothke, the Ninth Circuit indicated in dicta that exceptions to the Anti-Injunction Act existed where the IRS failed properly to assess a tax or failed to provide an impartial hearing to contest the tax. 713 F.2d at 1412-13. As the government notes, Bothke "is not binding [o]n this [c]ourt," Def.'s Opp'n 9-10, and in all events the propriety of the IRS' actions to assess penalties against Mr. Schlabach is a matter to be addressed on the merits of this case, after appropriate development of evidence of record and argument.

[Gregg]

...requesting that the court enjoin the IRS from imposing a third frivolous-filing penalty upon him

Stupid cubed?


So this guy has or will pay $15,000 in penalties all to avoid less than $1500 in taxes? And here I thought Harvester was dumb. I wonder if someone will smack him in the head with a hammer before the courts start hitting him with penalties too, at $25,000 a whack.

So, place yer bets, based on his tax, he's a fry cook but based on his ability to write non bouncing checks for the penalties, he's a Pilot, a Dentist or a Chiropractor.

1) low life tax cheat working mostly cash jobs who got a 1099 for one he wasn't expecting
3:1
2) Airline Pilot not engaging in federally privileged activity
4:1
3) Dentist with a pure trust
5:1
4) Chiropractor who went to a seminar
7:1

[Gregg]

And just a side note to Harvester, if choice one is correct, which I think it might be, AND if you're not lying about one of the stories you've told and how you work with no info returns, this could well be you any year for the rest of your life, and I suspect when this idiot runs out of money they might consider criminal charges.

Paying someone a decent salary under the table is hard to do for any length of time because it involves too many people with brains to agree to take considerable risk to themselves just so you can get out of paying your taxes, in fact, in addition to asking them to commit felonies so you don't have to pay any taxes you're asking them to pay those taxes for you, because they can't write off the payments without some explanation of where the money went. First you have to get the boss to go along with it, which you may. Then the boss has to get his accountant and maybe his attorney to go along with it, which is a little bit harder to do, but some may keep looking until they can find a crooked book keeper, but eventually the IRS will start asking questions no one can answer without someone going to jail.

That someone would be you.

Say Hi! to Pete for me!

[LPC]

The case is interesting because the taxpayer is in a kind of Catch-22, in the sense that he can't challenge the penalties in court without filing a claim for a refund, and the claim for refund itself can generate another penalty.

Which might seem unfair until you realize that "frivolous" is so far outside of the realm of reasonableness that a taxpayer really shouldn't be able to contest the resulting penalties without being subject to further penalties.

[LPC]

This guy's (Justin Schlabach's) name looked familiar, and I think he's related to an EA who has made money peddling "reliance" letters, because they both live in Washington state.

John J. Schlabach is an enrolled agent, and his name is associated with an "opinion" that appears in a number of places on the Internet.

He recently sued the IRS under the Privacy Act, claiming that in their investigations of him that have put copies of letters in their files that he did not write, but the court ruled that it did not have subject matter jurisdiction. John Schlabach v. Internal Revenue Service, No. CV-09-298-FVS (E.D. Wash. 9/23/2010), currently on appeal, No. 10-35929 (9th Cir.).

He lost on a petition to quash a summons last year. Schlabach v. United States, No. 3:10-cv-00101-RET-CN (M.D. La. 7/6/2010). He also lost when the IRS petitioned to enforce a summons against him, and was cited for contempt. United States v. Schlabach, No. : 2:08-cv-00095-CI (E.D. Wash. 3/24/2010), aff'd, No. 09-35135 (9th Cir. 10/6/2010), reh. den. (2/14/2011).

In 2008, he was sued by the state of Washington for violating its Consumer Protection Act by selling "pure trusts" as a form of asset protection, operating under the name "Senior Asset Preservation Services, Inc." See State of Washington v. Senior Asset Preservation Services, Inc. et al., 2008 Wash. App. LEXIS 2714, 2766, 147 Wn. App. 1031, No. 26224-3-III (Wash. Ct. Apps., Div. III, 11/18/2008).

Schlabach can also screw up estate tax returns as badly as income tax returns. See Estate of Ralph Robinson v. Commissioner, T.C. Memo. 2010-168.

[grixit]

In 2008, he was sued by the state of Washington for violating its Consumer Protection Act by selling "pure trusts" as a form of asset protection, operating under the name "Senior Asset Preservation Services, Inc." See State of Washington v. Senior Asset Preservation Services, Inc. et al., 2008 Wash. App. LEXIS 2714, 2766, 147 Wn. App. 1031, No. 26224-3-III (Wash. Ct. Apps., Div. III, 11/18/2008).

<noir> The letter was so full of lawyer words it reminded me of a subway car. But one sentence stood out, as sharp as an icepick to the temple: "You were just another SAP, and your money is gone". </noir>