                                                                                                                           Opinions of the United
2007 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


11-15-2007

Zarra v. USA
Precedential or Non-Precedential: Non-Precedential

Docket No. 06-4374




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                                                                   NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                 ____________

                                       No. 06-4374
                                      ____________

                               JOHN A. ZARRA, JR.;
                             MARSHA A. ZARRA his wife,

                                             Appellants

                                             v.

                            UNITED STATES OF AMERICA
                                   ____________

                     On Appeal from the United States District Court
                        for the Western District of Pennsylvania
                                 (D.C. No. 06-cv-00419)
                         District Judge: Honorable Joy F. Conti
                                     ____________

                       Submitted Under Third Circuit LAR 34.1(a)
                                  September 28, 2007

                 Before: McKEE, BARRY and FISHER, Circuit Judges.

                               (Filed: November 15, 2007 )
                                      ____________

                               OPINION OF THE COURT
                                    ____________

FISHER, Circuit Judge.

       John and Marsha Zarra (“the Zarras”) instituted a lawsuit in the United States

District Court for the Western District of Pennsylvania seeking to enjoin the Internal
Revenue Service (“IRS”) from pursuing collection procedures for the Zarras’ disputed

unpaid tax liability from 1999. Although the Zarras argued that an injunction was

permissible under the exception to the Anti-Injunction Act announced in Enochs v.

Williams Packing & Navigation Co., 370 U.S. 1 (1962), the District Court disagreed.

Instead, the District Court determined that the Zarras could not establish the first prong of

the Williams Packing exception, which requires proof that the IRS could not prevail on

the merits of the claim. The District Court thus dismissed the complaint, finding that the

Anti-Injunction Act deprived it of subject matter jurisdiction. For the reasons that follow,

we will affirm the order of the District Court.

                                              I.

       We write exclusively for the parties, who are familiar with the factual context and

legal history of this case. Therefore, we will set forth only those facts necessary to our

analysis.

       In April 2000, the Zarras timely submitted a check to the IRS to pay their 1999 tax

liability of $179,501.00. Although the check was written for $179,501.00, the IRS’s bank

recorded the check as $179.50, so the Zarras’ bank only paid $179.50 to the IRS.

       The Zarras became aware of the mistake when they received their monthly bank

statement in May 2000. Mrs. Zarra contacted the IRS in June and July of 2000, seeking

to rectify the error. However, in September 2000, the IRS sent notice to the Zarras and

demanded payment of the difference, plus additional penalties and interest. The Zarras



                                              2
contacted the IRS a third time and sought to correct the error, but to no avail. In July

2001, the IRS sent notice to the Zarras that their tax refund for the year 2000 was being

withheld and would be applied to the outstanding balance from their 1999 tax liability.

       In March 2006, the Zarras filed suit in District Court to enjoin the IRS from

initiating collection procedures, alleging that their tender of a check for $179,501.00 to

the IRS discharged them of their 1999 tax liability. The IRS filed a motion to dismiss the

complaint, arguing that the Anti-Injunction Act precluded the District Court from

exercising subject matter jurisdiction.

       In September 2006, the District Court granted the IRS’s motion to dismiss. The

Zarras filed this timely appeal.

                                             II.

       We have jurisdiction pursuant to 28 U.S.C. § 1291. We exercise plenary review

when the District Court dismisses a case for lack of subject matter jurisdiction. Gould

Elecs. Inc. v. United States, 220 F.3d 169, 176 (3d Cir. 2000).

                                             III.

       The Zarras argue that the District Court improperly dismissed their claim because

the Williams Packing exception to the Anti-Injunction Act applies. We disagree.

       The Anti-Injunction Act provides, with limited exceptions, that “no suit for the

purpose of restraining the assessment or collection of any tax shall be maintained in any

court by any person[.]” 26 U.S.C. § 7421(a). “The manifest purpose of § 7421(a) is to



                                              3
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.” Williams Packing, 370 U.S. at 7.

       In Williams Packing, the Supreme Court crafted a judicial exception to the Anti-

Injunction Act. Id. This exception permits a taxpayer to seek an injunction in a District

Court barring the collection of taxes if the taxpayer is able to demonstrate two factors:

(1) that “under the most liberal view of the law and the facts, the United States cannot

establish [the merits of] its claim,” and (2) that there is an independent basis for the

District Court to exercise “equity jurisdiction,” or put differently, the taxpayer must show

that he or she will suffer “irreparable injury” without injunctive relief. Id.; see also

Commissioner v. Shapiro, 424 U.S. 614, 627 (1976); Flynn v. United States ex rel.

Eggers, 786 F.2d 586, 589 (3d Cir. 1986). The taxpayer’s burden of proof under the

Williams Packing exception is “very substantial[.]” Flynn, 786 F.2d at 591. However, if

a taxpayer cannot establish either a statutory or judicial exception to the Anti-Injunction

Act, then the District Court lacks subject matter jurisdiction and must dismiss the

complaint. Williams Packing, 370 U.S. at 7.

       The Zarras assert that they satisfy the first prong of the Williams Packing

exception by showing that the IRS could not prevail on the merits. They argue that their

1999 tax liability was discharged when the IRS mistakenly underencoded their

$179,501.00 check for $179.50, and that because it was the IRS’s gross negligence that



                                               4
caused the events precipitating this action, the IRS would not be able to prevail in an

action seeking the outstanding tax liability.1

       However, the District Court properly determined that upon “the most liberal view

of the law and the facts,” the IRS could prevail on the merits of its 1999 tax collection

claim. See id. Despite the mistaken encoding of the check, the Zarras’ underlying tax

liability has not been discharged. The Zarras still owe the difference between the

$179,501.00 liability and the $179.50 actually remitted to the government, plus penalties

and interest that have accrued since payment was due. The District Court properly

determined that the mistaken encoding does not suffice to discharge the Zarras’

underlying tax liability for 1999. Therefore, the Zarras cannot establish that under no

circumstances could the IRS prevail on the merits of the case, and thus the first prong of

the Williams Packing exception has not been satisfied.2 As a result, this exception to the

Anti-Injunction Act is inapplicable here, and the District Court properly dismissed the

Zarras’ complaint for lack of subject matter jurisdiction.

       1
        The Zarras also contend that any accrued interest or penalties should be paid by
either Mellon Bank (the payor bank), Bank One (the depository bank), or that the IRS
should suffer the loss due to the various defenses available under the Pennsylvania
Uniform Commercial Code. However, the banks’ liability is not before us here, and
because the IRS may succeed on the merits of the claim, we need not reach the question
of the IRS’s liability.
       2
         The Zarras also allege that they meet the second prong of the Williams Packing
exception, because they will face “irreparable injury” if forced to pay the disputed
liability. Because the Zarras failed to prove that under no circumstances could the IRS
prevail (the first prong), we need not reach their argument regarding irreparable injury
(the second prong).

                                                 5
                                     IV.

For the foregoing reasons, we will affirm the order of the District Court.




                                      6
