also contend that IRS has used the wrong interest rate by
charging 1% a month. Complaint ¶ 18.
The government argues that it is permitted to charge interest
as well as a penalty for a failure to pay tax. Deft's Brief 6.
Defendant says that Section 6651 provides for the imposition of
a "penalty" for failure to pay tax. Id. In addition to a
penalty, the government contends that IRS may impose interest
on outstanding taxes, pursuant to Section 6601.
THE PRELIMINARY INJUNCTION
The government argues that the Anti-Injunction Act prohibits
a suit for the purpose of restraining the assessment or
collection of any tax. 26 U.S.C. § 7421(a) (hereinafter
"Section 7421" or "the Anti-Injunction Act. ")*fn7 Under
Section 6601(e)(1) the government contends that the term "tax"
refers not only to the tax itself but also to any additional
amounts added to the tax, such as penalty and interest charges:
"any reference in this title . . . to any tax imposed by this
title shall be deemed also to refer to interest imposed by this
section on such tax." In addition, under section 6665(a)(2),
additions to the tax, including penalties, are also included in
the term "tax." 26 U.S.C. § 6665(a)(2).*fn8
We agree with the government that the statutes cited above
make it clear that plaintiffs' first cause of action is a suit
to restrain the collection of "tax," as that term is defined in
the Internal Revenue Code. Therefore, the Anti-Injunction Act
is applicable and prohibits any suit to restrain the collection
of tax so long as no exceptions apply.
It is well settled that the purpose of Section 7421
prohibiting the taxpayer from suing to restrain assessment and
collection of any tax is to withdraw from federal courts the
jurisdiction to enjoin assessment or collection of federal
taxes so that the executive arm of government may assess or
collect taxes without judicial intervention, thus requiring the
taxpayer to resolve the legality of assessment in tax court by
way of suit for refund. See Martinon v. Fitzgerald, 306 F. Supp. 922,
924, aff'd, 418 F.2d 1336 (S.D.N.Y. 1969) (citing Enochs
v. Williams Packing & Navigation Co., 370 U.S. 1, 82 S.Ct.
1125, 8 L.Ed.2d 292, reh'g denied, 370 U.S. 965, 82 S.Ct. 1579,
8 L.Ed.2d 833 (1962)).
The parties agree that Enochs v. Williams Packing Co.,
370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962), creates an
exception to the prohibition of injunctions on the assessment
or collection of taxes. Pltfs' Reply Brief at 3; Deft's Brief
at 4. The exception is that an injunction may be issued by a
court in the following instance: 1) if it is clear that under
no circumstances could the government prevail given the facts
available and the most liberal view of the law; and 2) equity
jurisdiction otherwise exists. Enochs, 370 U.S. at 7, 82 S.Ct.
Plaintiffs contend that this case fits both prongs of the
Enochs exception. Plaintiffs dispute the government's position
that IRS may impose additions to the tax under both § 6651 and
§ 6601. Pltfs' Reply Brief at 3. However, the only argument
plaintiffs make in support of their position is that the
government's argument would allegedly impose a greater penalty
on a taxpayer who reports his full obligation but fails to pay
it than on one who files an inaccurate return, leaving it to
the IRS to find a deficiency. Id. This position, unsupported by
authority, even if true, does not address either of the prongs
of the Enochs exception.
It is our view that the government has provided enough
support for its position to show that it might prevail. Section
6651(a) provides for an "addition to the tax"*fn9 for
failing either "to pay the amount shown as tax on any return
. . . on or before the date prescribed for payment of such tax"
or for failing to pay "any amount in respect of any tax
required to be shown on a return . . . within 10 days of the
date of the notice and demand therefor." 26 U.S.C. § 6651(a)(2)
and (3) (emphasis added). Thus, the statute allows IRS to
assess a penalty in the latter instance only from the date of
the notice and demand. While plaintiffs may think the statutory
provisions are unfair, the provisions support the government's
position regarding the imposition of penalties and interest
charges on plaintiffs' tax obligations.*fn10
Plaintiffs also argue that the amounts assessed are simply
too large to be valid. Pltfs' Reply Brief at 3. The
calculations of exactly what is owed are not directly at issue
in this motion. We are satisfied that the government's position
is not so untenable as to prevent it from prevailing under any
circumstances and consequently the first prong of the
Enochs exception is not implicated.
We also find that plaintiffs have not established that
equitable jurisdiction otherwise exists. Plaintiffs allege that
they have been irreparably injured because their credit has
been destroyed by the government's tax lien. A suit to enjoin
collection of federal taxes due may not be entertained merely
because collection would cause irreparable injury such as
ruination of a taxpayer's enterprise. See Galanti v. United
States, 244 F. Supp. 528 (D.C.N.J. 1965). We agree with the
government that the plaintiffs have an adequate remedy at law,
namely, a suit for refund after they have made full payment,
including penalties and interest. See Magnone v. United States,
902 F.2d 192, 193 (2d Cir. 1990).
Plaintiffs' alternative argument is that in South Carolina v.
Regan, 465 U.S. 367, 372, 104 S.Ct. 1107, 1110, 79 L.Ed.2d 372
(1984) the Supreme Court held that the prohibition against
injunction suits would not apply where Congress has not
provided the plaintiff with an alternative legal way to
challenge the validity of a tax. Pltfs' Reply Brief at 5.
However, as mentioned above and in Magnone, supra, plaintiffs
have a legal remedy for challenging the validity of their tax.
It is well settled that, under the full payment rule, a federal
court has jurisdiction over a tax refund suit only after the
taxpayer has made full payment of the assessment, including
penalties and interest. Flora v. United States, 357 U.S. 63, 78
S.Ct. 1079, 2 L.Ed.2d 1165 (1958), aff'd on rehearing,
362 U.S. 145, 80 S.Ct. 630, 4 L.Ed.2d 623 (1960). Plaintiffs' remedy is
to pay the assessment and file a refund suit.
Therefore, since plaintiffs have not satisfied the full
payment rule, we find that this court does not have
jurisdiction over plaintiffs' first cause of action. Thus, we
must dismiss the first cause of action.
Plaintiffs' motion for a preliminary injunction is denied. We
vacate our temporary restraining order dated April 30, 1990.
Having found that this court has no jurisdiction over
plaintiffs' first cause of action, it is hereby dismissed.