Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_04-cv-00336/USCOURTS-caed-2_04-cv-00336-0/pdf.json

Nature of Suit Code: 871
Nature of Suit: IRS 3rd Party Suits 26 USC 7609 (U.S. plaintiff)
Cause of Action: 28:2201 Declaratory Judgement (Insurance)

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 Plaintiffs also sought a declaratory judgment that the 1

IRS’s notice of deficiency and tax assessment were invalid;

however, the court dismissed this claim for lack of jurisdiction. 

(6/23/2004 Order at 4-5.)

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

RODERICK L. MacKENZIE, and

SHARON V. MacKENZIE, 

Plaintiffs,

v.

COMMISSIONER OF INTERNAL

REVENUE SERVICE of the United

States of America,

Defendant. 

CIV-S-04-0336 DFL/JFM

MEMORANDUM OF OPINION 

AND ORDER

Plaintiffs Roderick and Sharon MacKenzie seek an injunction

preventing the Internal Revenue Service (IRS) from collecting an

alleged deficiency in their 1998 taxes. The IRS moves for 1

summary judgment on the grounds that the court lacks subject

matter jurisdiction and that plaintiffs are not entitled to

equitable relief. Plaintiffs were given the opportunity to

submit supplemental evidence to support their request for

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 A number of the facts cited above are disputed by the 2

parties, including plaintiffs’ actual notice of the tax

deficiency. (Mot. at 8-10.) The court views the evidence in the

light most favorable to the nonmoving party. Devereaux v. Abbey,

263 F.3d 1070, 1074 (9th Cir. 2001) (en banc).

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equitable relief. Having reviewed this evidence, and for the

reasons stated below, the IRS’s motion is GRANTED. 

I.

Roderick MacKenzie is an attorney with a law practice in

Sacramento, California, and Sharon MacKenzie is the secretary and

office manager of the practice. (SUF ¶¶ 3-4.) In April 2001,

the IRS informed the MacKenzies of its intent to audit their 1998

tax return. (Id. ¶ 7.) Thereafter, in June 2002, the IRS sent

the MacKenzies notice of an alleged deficiency in their 1998

taxes. (Id. ¶¶ 17-18.) The original notice was sent to

plaintiffs’ home address, despite plaintiffs’ express instruction

to the IRS to send all tax communications to their business

address. (Id.; Roderick Decl. ¶¶ 8-9, 18.) The IRS also asserts

that it sent a copy of the notice to Darryl Brown, who held a

power of attorney from plaintiffs concerning their taxes and who

was employed by plaintiffs at their business address. (SUF ¶ 18;

Lee Decl. Ex. J.) Plaintiffs deny having received either notice. 

(Roderick Decl. ¶ 21.) Plaintiffs assert that they were 

uninformed of the tax deficiency until long after the time for

petitioning for a redetermination of the deficiency had expired.2

(Id.) 

Plaintiffs filed this action on February 18, 2004,

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requesting an injunction – based on the allegedly misdirected

notice of deficiency – preventing the IRS from collecting the

deficiency in their 1998 taxes.

II.

Under the Anti-Injunction Act, federal courts cannot hear

suits brought “for the purpose of restraining the assessment or

collection of any tax. . . .” 26 U.S.C. § 7421(a). However,

there are a number of statutory and judicial exceptions to this

rule. One exception comes into play when the IRS fails to send

the taxpayer valid notice of a tax deficiency. Id. § 6213(a). 

Plaintiffs contend that the notice of deficiency sent to

their home address was not valid because it was not sent to their

“last known address,” their business address. In addition,

plaintiffs assert that they did not receive actual notice of

their tax deficiency through either the notice sent to their home

address or the copy sent to their business address addressed to

Darryl Brown. Even if plaintiffs could prove these facts, such

that an exception to the Anti-Injunction Act would apply,

plaintiffs still must establish the normal prerequisites to

injunctive relief to enjoin the collection of the disputed taxes. 

Cool Fuel, Inc. v. Connett, 685 F.2d 309, 313-14 (9th Cir. 1982). 

Accordingly, to prevail in this action, plaintiffs must show that

they lack an adequate remedy at law and that irreparable injury

would result in the absence of an injunction. Id. If a taxpayer

has the ability to pay a disputed tax and then file a suit for a

refund, the taxpayer has an adequate remedy at law. Id. at 314. 

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To prove an inadequate remedy at law, a taxpayer must show

that payment of the disputed tax would deprive him or his family

of the “necessities of life.” Jensen v. I.R.S., 835 F.2d 196,

198 (9th Cir. 1987). To accomplish this, the taxpayer must

submit detailed evidence of his financial situation, including

evidence of his income, assets, liabilities, and expenses, so

that the court can determine his ability to pay. See id. at 198-

99; Gibson v. United States, 761 F.Supp. 685, 691-92 (C.D.Cal.

1991); Hillyer v. C.I.R., 817 F.Supp. 532, 537-38 (M.D.Pa. 1993).

Plaintiffs provide little evidence of their financial

situation besides listing their debts and making bare assertions

that they cannot pay the disputed tax. Regarding their assets,

plaintiffs acknowledge that they earned about $70,000 in 2003,

but assert nevertheless that the family law practice lost over

$15,000 during 2004. (Roderick Supplemental Decl. ¶ 6.) 

Plaintiffs’ 2001 tax return shows an overall business loss of

$22,457 and reports zero income, and their 2000 return reports an

income of $11,184. (Roderick Decl. Ex. 11; Lee Decl. Ex. 11.) 

Plaintiffs assert by declaration that their income was $11,922 in

1999 and $13,537 in 2002. (Roderick Decl. ¶ 15.) Plaintiffs

acknowledge that Roderick MacKenzie’s mother gave him $7,500 to

$8,000 each year from 1997 to 2003 and that he recently inherited

$50,000 upon her death. (Id. ¶ 14.) 

Plaintiffs also list a number of debts. They assert that

they owe about $900 to Visa, $400 to Macy’s, $3,500 to

Lexis/Nexis, and $8,500 on their copier lease. (Lee Decl. Ex. 4

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at 3-4.) Also, plaintiffs owe about $21,000 to “Master Cards.” 

(Id.) Plaintiffs owe a former landlord of their office space

about $127,000 in past rent, but they admit that Roderick

MacKenzie pays this debt by providing the former landlord with

legal services. (Resp. to Def.’s SUF ¶ 25.) They owe another

former landlord of their office space $35,000, but they admit

that they “pay on that when [they] can.” (Id. ¶ 26; Roderick

Decl. ¶ 15.) Finally, plaintiffs allegedly owe West Publishing

about $69,000, but they are currently disputing this amount in

litigation. (SUF ¶ 27.) Plaintiffs were able to pay $5,000 on

their debt to West Publishing in 2004. (Id.)

Plaintiffs fail to demonstrate the lack of an adequate

remedy at law. Plaintiffs owe the IRS $13,179.00 in back taxes

plus $18,154.77 in penalties and interest. (Def.’s SUF ¶ 35; Lee

Decl. Ex. 9.) Plaintiffs recently possessed sufficient funds to

pay these sums. According to plaintiffs, their family of three

has been living off of approximately $20,000 a year. However,

they earned an extra $50,000 in income in 2003. Plaintiffs do

not account for how this additional income was spent. 

In addition, plaintiffs admit that the family recently

received $50,000 through an inheritance. They assert that the

money was used to sustain the family business in 2004. (Roderick

Supplemental Decl. ¶ 8.) However, absent a showing that this

choice was made out of necessity, it cannot forgive plaintiffs’

duty to pay their taxes. See Wood v. Sargeant, 694 F.2d 1159,

1161 (9th Cir. 1982) (noting that “the ruination of the

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taxpayer’s enterprise” does not justify a taxpayer’s failure to

pay a disputed tax and seek his adequate remedy at law). 

Even if plaintiffs could adequately account for the use of

these extra funds, plaintiffs still fail to provide an adequately

detailed picture of their overall financial situation so as to

provide a basis for determining their ability to pay. The record

contains no information about plaintiffs’ assets, including their

interest in stocks, bonds, savings accounts, or other liquid or

unliquidated assets. For example, it appears that plaintiffs own

a home, but they do not inform the court of the equity they own

in that home. (SUF ¶ 28.) If this equity is reachable without

irreparable consequences, plaintiffs may be required to use that

equity to satisfy their tax debts prior to bringing a refund

suit; therefore, this information is essential to a determination

of plaintiffs’ ability to pay. See Shannahan v. United States,

47 F.Supp.2d 1128, 1144 (S.D.Cal. 1999) (declining to find that

plaintiffs’ loss of their home would deprive them of the

necessities of life); see also Hillyer, 817 F.Supp. at 537

(finding that the loss of a home would cause irreparable injury

where there was evidence that plaintiffs would be homeless

without it). Plaintiffs’ decision to place their child in a

private school and pay school tuition cuts against their claim of

inability to pay. (Roderick Decl. ¶ 15; Roderick Supplemental

Decl. ¶ 5.) The amount of tuition is not provided.

Plaintiffs assert that their various debts prevent them from

paying the disputed taxes. (Roderick Supplemental Decl. ¶¶ 5-6.) 

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However, the evidence does not support this assertion. 

Plaintiffs admit that many of their debts, including those

connected to their business, are collected on a flexible basis or

are disputed by them. There is no evidence that plaintiffs will

lose their business or home if they first honor their debt to the

IRS. At most, the evidence shows that plaintiffs have found it

difficult to juggle their various financial responsibilities and

have put the tax deficiency at the bottom of the list. However,

“[h]ardship in raising money with which to pay taxes is now

common to all taxpayers.” Monge v. Smyth, 229 F.2d 361, 368 n.8

(9th Cir. 1956) (quotation omitted). This hardship does not

confer “equity jurisdiction on the courts to prevent collection

by injunctive process.” Id. 

Because plaintiffs have an adequate remedy at law through a

refund action, they cannot establish their entitlement to an

injunction. Therefore, the IRS’s motion for summary judgment is

GRANTED.

IT IS SO ORDERED.

Dated: 24 May 2005

 

/s/ David F. Levi

DAVID F. LEVI

United States District Judge

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