Court Opinion

ID: 9475104
Source: CourtListenerOpinion
Date Created: 2023-08-05 05:17:34.852704+00
Date Added: 2024-06-11T17:44:31.019659
License: Public Domain

VANCE, Circuit Judge,
dissenting:
I start with what I understand to be a central meaning of procedural due process: that deprivations of property by governmental action ordinarily must be preceded by a fair hearing. This was the cornerstone of the Supreme Court’s decision in Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556 (1972). In striking down state prejudgment replevin statutes the Court reflected:
[T]he prohibition against the deprivation of property without due process of law reflects the high value, embedded in our constitutional history, that we place on a person’s right to enjoy what is his, free of governmental interference.
Id. 407 U.S. at 81, 92 S.Ct. at 1994.
The Internal Revenue Service clearly has the right and power to assess taxes on a taxpayer and to use liens and levies to assure the collection of those taxes.1 That power is not the reason for this dissent. I dissent because the holding that relief for the Lovells is barred by the anti-injunction act permits the IRS to misuse its power by attempting to collect the taxes of one party from another on the simple claim that one is the alter ego of the other.2 The alter ego claim may be valid or invalid, well-motivated or ill-motivated, supported or unsupported;3 but the naked application of that label is all that the IRS thinks that it needs to seize any property it desires.
The alter ego doctrine has previously been used primarily to make wholly owned corporations and their sole shareholders responsible for one another’s taxes.4 The legal relationship between those parties is obvious, and such use of the alter ego doctrine can be justified. There is no legal precedent for applying that doctrine to the situation now before the court. Fred and Carlos Lovell have no legal connection whatever with Lovana, the tax-owing corporation. They are, respectively, the father and uncle of Virgil Lovell, the owner of Lovana, but they are neither shareholders nor officers of Lovana.
The Internal Revenue Code contemplates two classes from which taxes are collected: the taxpayer who incurred the burden and third parties to whom the taxpayer has transferred property that should have been available , to satisfy that burden. The IRS must follow statutory procedures for each of these classes, and each class has reme*979dies to protect it from IRS overreaching. By invoking the alter ego doctrine here the IRS has worked its magic to strip appellants of the protections given to either class and to place them in a less advantageous position than if they had themselves incurred the tax obligation. Lovana had notice of and the right to contest the propriety and the amount of the assessment. The district court found the Lovells did not share in those rights because they were not the taxpayer. The first notice the Lovells received that Lovana’s tax burden was to be imputed to them was after their property was slapped with liens and their bank account seized. Nor were the Lovells allowed the protection the code allows to third party transferees because as alter egos they are claimed for this purpose to be the same as the taxpayer. If proper transferee procedures had been followed the IRS would have had the burden of proving that Lovana had transferred property to the Lovells and could reach only that property transferred from Lovana. By this process the Lovells must now shoulder the burden of proving that their property did not come from Lovana, and the IRS has put liens and levies on all their property, even that clearly owned before Lovana incurred any tax liability. Thus the Lovells have neither the rights of the taxpayer nor the rights of the third party. There is here a fundamental unfairness and lack of due process.
The majority avoids passing on the Lo-vells’ alter ego and transferee arguments on the ground that the Lovells did not contest a district court finding that they had suffered no irreparable harm. Whether irreparable harm was suffered is a distinct question from whether the Lovells qualified for one of the statutory exceptions to the anti-injunction statute. The district court’s finding that there was no irreparable harm dealt only with the seizure of the Lovells’ bank account and was made in discussing whether they qualified for one of the judicial exceptions to the act.5 The Lovells were, however, seeking to come under one of the statutory exceptions to the anti-injunction act listed in 26 U.S.C. § 7421(a).6 Until they qualified for one of those exceptions, proof of irreparable harm would not suffice to gain the Lovells an injunction. The Lovells' alleged failure to discuss directly the district court’s limited finding of lack of irreparable harm does not justify this court’s refusal to reach the merits of their claim to a statutory exception to the anti-injunction act. By its refusal, this court leaves the Lovells and future third parties unprotected by statutory and constitutional due process from IRS attempts to collect from them taxes due from an unrelated taxpayer.
The language of the Court in Sniadach v. Family Finance Corp., 395 U.S. 337, 342, 89 S.Ct. 1820, 1823, 23 L.Ed.2d 349 (1969), is equally applicable here:
Where the taking of one’s property is so obvious, it needs no extended argument to conclude that absent notice and a prior hearing ... this ... procedure violates the fundamental principles of due process.
I dissent.

. It is also clear that application of the anti-injunction act to bar a taxpayer’s suit to prevent such collection is not a denial of due process so long as the taxpayer has access to judicial review in a refund action. Professional Engineers, Inc. v. United States, 527 F.2d 597, 600 (4th Cir.1975).

. There is precedent in this circuit that the act, 26 U.S.C. § 7421(a), does not prevent suits for an injunction brought by someone whose property has been levied upon to pay the tax obligations of another. Lange v. Phinney, 507 F.2d 1000, 1005 (5th Cir.1975); Campbell v. Bagley, 276 F.2d 28, 33 (5th Cir.1960); see abo South Carolina v. Regan, 465 U.S. 367, 377 n. 14, 104 S.Ct. 1107, 1113 n. 14, 79 L.Ed.2d 372 (1984).

. By this dissent I express no opinion on whether the Lovells can eventually be proven to be participants in an abusive táx shelter or whether they can properly be shown to be responsible for Lovana’s taxes.

. The only case cited to us that goes beyond sole shareholders is Al-Kim, Inc. v. United States, 650 F.2d 944 (9th Cir.1979), where there were several corporations and several shareholders. That opinion does not clearly state the interrelationships among the various corporations and shareholders, but there clearly were legal connections.

. That the Lovells have suffered irreparable harm seems obvious. Their real property is encumbered; postseizure relief will not restore the lost opportunities for sale. Their bank account has been seized; though they may recover their money, they cannot recover the time during which they had no access to it. As the Court in Fuentes states: "This Court has not ... embraced the general proposition that a wrong may be done if it can be undone." 407 U.S. at 82, 92 S.Ct. at 1995, quoting Stanley v. Illinois, 405 U.S. 645, 647, 92 S.Ct. 1208, 1210, 31 L.Ed.2d 551 (1972).

. The distinction is significant. If the Lovells qualify for one of the statutory exceptions to section 7421(a), their request for an injunction is considered under ordinary equity standards. If their request comes within the statute they must further demonstrate that the government cannot prevail under the law. Bob Jones University v. Simon, 416 U.S. 725, 745, 94 S.Ct. 2038, 2050, 40 L.Ed.2d 496 (1974).