William ENGLAND and Mary England, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee

United States Court of Appeals for the Seventh Circuit1958-12-04No. No. 12398

261 F.2d 455

Summary · law.co

Holding. The trial court properly dismissed the complaint because the plaintiffs failed to state a claim upon which relief could be granted, as they lacked jurisdiction to grant declaratory relief on federal tax matters, had not filed a timely administrative claim for refund, and had not followed the statutory procedures for challenging tax assessments or liens. Affirmed.

William and Mary England sued the United States seeking a declaration that certain tax-related documents they had signed were void due to fraud, requesting cancellation of a federal income tax lien on their real estate, and seeking recovery of $1,200 paid as a compromise offer. They alleged that revenue agents had fraudulently induced them to sign documents on three separate occasions between 1945 and 1955, misrepresenting the legal effect of the signatures.

The trial court dismissed the complaint for failure to state a valid claim. The Englands appealed, but the appellate court affirmed the dismissal. The court found multiple fatal defects: the Declaratory Judgment Act specifically prohibits declaratory relief regarding federal taxes; any refund suit requires a timely administrative claim for refund first; no federal statute authorizes judicial cancellation of tax liens; and the proper channels for challenging tax assessments are Tax Court or the refund suit procedure after payment.

Summary generated by law.co from the public-domain opinion. The opinion text itself is public domain.

Key issues

Whether courts have jurisdiction to issue declaratory judgments regarding federal taxes
Whether a tax refund suit can proceed without a prior timely administrative claim for refund
Whether federal courts can cancel federal income tax liens through direct judicial action
What procedures must be followed to challenge the validity of federal tax assessments

Procedural posture

The District Court dismissed the amended complaint for failure to state a claim, and the plaintiffs appealed.

Authorities cited

No cited authorities resolved to law.co cases yet.

Opinion · public domain

majority opinion

DUFFY, Chief Judge.

The complaint herein contains two counts. In the first count plaintiff, William England, seeks a declaratory judgment that certain written instruments executed by him are of no legal effect as being products of fraud; that the Court enter an order cancelling a Federal income tax lien imposed by the Government upon certain real estate owned by him; and that he be awarded the sum of $1200.00 alleged to have been paid by him as an offer in compromise. In the second count plaintiff, Mary England, sought a court order cancelling the Federal income tax lien referred to in count 1, and releasing her distinct interests in said real estate from the encumbrance of the lien.

The claims for fraud were based upon an allegation that taxpayer, in May, 1945, was fraudulently induced by a revenue agent to sign a written document in blank on the representation that the signature was a mere acknowledgment of an audit,- whereas, in truth-, the legal effect of the signature was a waiver of all future legal action regarding the decision of the agent as well as an acknowledgment that the decision was correct.

A second allegation of fraud was that in February of 1946 two other revenue agents induced him, by fraud, to execute a certain document. The third of the fraud allegations was that in March, 1955, still another revenue agent fraudulently induced him to sign a written instrument empowering the United States to reassess 1944 taxes although the statute <of limitations had run, and induced him to offer the sum of $1200.00 in compromise for 1945 and 1946 taxes.

Taxpayers failed to allege a timely filing of a claim for refund. Apparently the suit is based on an attempt to recover under the Federal Tort Claims Act, 28 U.S.C. § 1346(b). The District Court dismissed taxpayers’ amended complaint on the ground that it failed to state a cause upon which relief could be granted. This appeal followed.

The District Court had no jurisdiction to enter a declaratory judgment that various documents signed by taxpayers were null and void. The Declaratory Judgment Act specifically excepts such relief “with respect to Federal taxes.” 28 U.S.C. § 2201.

Insofar as the complaint sought a return of an amount paid for Federal income taxes, it did not state a claim upon which relief could be granted, because it is fundamental that a suit for a refund of Federal income taxes may not be maintained unless a claim for refund has first been timely made. Internal Revenue Code of 1954, § 7422(a), 26 U.S.C.A. § 7422(a).

There is no federal statute authorizing a suit against the United States for the cancellation of Federal income tax liens. In making such a demand, taxpayers are requesting the Court to make a determination as to the validity of the tax assessments upon which the liens were based. The proper method of contesting the validity of an assessment of Federal income tax is by filing a petition in the Tax Court and litigating the proposed deficiency, or, by paying the tax, filing a claim for refund and thereafter suing for such refund in a United States District Court.

We hold the trial court correctly dismissed taxpayers’ complaint as failing to state a claim upon which relief can be granted.

Affirmed.