The opinion of the court was delivered by: FULLAM
Section 6402 of the Internal Revenue Code deals with refunds to taxpayers of amounts paid to IRS in excess of tax due. Subsection (a) provides the general rule that the balance of the overpayment is to be refunded to the taxpayer. Subsection (b) provides for optional credit of such overpayments against estimates of future taxes. In 1981, subsection (c) was added, in conjunction with amendments to § 6305 of the Code. Section 6402(c) provides:
"(c) Offsets of past-due support against overpayments. -- The amount of any overpayment to be refunded to the person making the overpayment shall be reduced by the amount of any past-due support (as defined in § 464(c) of the Social Security Act) owed by that person of which the Secretary has been notified by a state in accordance with § 464 of the Social Security Act. The Secretary shall remit the amount by which the overpayment is so reduced to the state to which support has been assigned and notify the person making the overpayment that so much of the overpayment as was necessary to satisfy his obligation for past-due support has been paid to the state. . . ."
Plaintiffs, four married couples who filed joint income tax returns reflecting overpayments of income taxes, brought this action to challenge the new procedure. As to each couple, it is claimed that only one of the spouses had an overdue support liability to the state, and that the overpayments to IRS were made in whole or in part by the other spouse. Plaintiffs contend that the statutory "intercept" procedure violates their constitutional right to due process of law, in that (a) monies due in whole or in part to one spouse are being seized to satisfy obligations of the other spouse, and (b) in any event, they are entitled to notice and an opportunity to be heard, before being deprived of the property represented by the refund claims.
Plaintiffs seek the following relief: (1) a declaratory judgment to the effect that the statutory "intercept" procedure violates due process of law; (2) a declaratory judgment to the effect that the defendant IRS officials are illegally withholding refunds due the wife-plaintiffs; (3) an injunction restraining the defendants from continuing to withhold refunds due the wife-plaintiffs; (4) counsel fees and expenses; and (5) general relief.
Plaintiffs' contentions are indeed interesting, and seemingly non-frivolous, but three related statutory provisions combine to bar relief in this action.
A federal district court has no power to enter declaratory judgment "with respect to federal taxes", 28 U.S.C. § 2201. And the Tax Injunction Act similarly precludes "suit for the purpose of restraining the assessment or collection of any tax. . .." 26 U.S.C. § 7421(a). Viewed together, these statutes plainly, in my view, prohibit declaratory judgments concerning what IRS should do with tax refunds, and injunctions directing the payment of tax refunds (or, more accurately, restraining IRS from failing to pay refunds due). Congress has exhibited an unmistakable purpose to protect "the government's need to assess and collect taxes as expeditiously as possible with a minimum of pre-enforcement interference," Bob Jones University v. Simon, 416 U.S. 725, 736, 40 L. Ed. 2d 496, 94 S. Ct. 2038 (1974) and "to require that the legal right to the disputed sums be determined in a suit for refund." Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 7, 8 L. Ed. 2d 292, 82 S. Ct. 1125 (1962). The presence of constitutional issues is immaterial, Commissioner v. Americans United, Inc., 416 U.S. 752, 94 S. Ct. 2053, 40 L. Ed. 2d 518 (1974).
The essential thrust of plaintiffs' Complaint is that they overpaid their taxes and are entitled to a refund from IRS. Plaintiffs may indeed be correct in anticipating that IRS would seek to justify denial of the claimed refunds by the actions taken pursuant to the 26 U.S.C. § 6402(c) intercept arrangement, but the validity of that defense can properly be examined in a refund suit.
In short, as I understand the matter, plaintiffs' sole remedy is a suit for refund. But on the present state of the record, that avenue of relief is not yet available to them. 26 U.S.C. § 7422(a) provides:
"(a) No suit prior to filing claim for refund. -- No suit or proceeding shall be maintained in any court for the recovery of any Internal Revenue tax alleged to have been erroneously or illegally assessed or collected . . . or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Secretary or his delegate, according to the provisions of law in that regard, and the regulations of the Secretary or his delegate established in pursuance thereof."
This statute "establishes the undisputed proposition that failure to make a timely refund claim bars any action for such refund", Kreiger v. U.S., 539 F.2d 317, 320 (3d Cir. 1976). Here again, the assertion of constitutional claims does not affect the result. Kent v. Northern California Regional Office, 497 F.2d 1325 (9th Cir. 1974). It is undisputed that none of the plaintiffs has complied with this condition precedent.
Plaintiffs seek to excuse compliance with this requirement because the IRS has consistently referred them to 45 C.F.R. § 303.72 (g) (1) ("upon receipt of a complaint from an individual concerning a tax refund which has been offset, the state . . . shall take steps to investigate the complaint to determine its validity"), and has ...