filed: December 21, 1990; As Amended January 21, 1991.
Appeal from the United States District Court for the Eastern District of Pennsylvania; D.C. No. 89-05984.
Stapleton, Cowen, and Weis, Circuit Judges.
Asserting a procedural defect, taxpayers challenged an Internal Revenue Service lien via a suit under 28 U.S.C. § 2410(a). The district court dismissed for lack of jurisdiction concluding that the taxpayers' attack necessarily struck at the underlying assessment, a result it believed was barred by this Court's precedent. We reverse. Our prohibition against assaults on the "merits of an assessment" applies to the amount of tax due and does not prevent scrutiny of procedural lapses by the IRS.
In 1971 the Internal Revenue Service assessed plaintiffs for unpaid income taxes for the years 1968 and 1969. Because of taxes assertedly due for those years, the IRS filed liens in Montgomery County, Pennsylvania against the home that plaintiffs own.
Plaintiffs filed this action to quiet title under 28 U.S.C. § 2410(a). The complaint alleged that the government failed to comply with the statutory procedures for creating a lien, specifically that the IRS never issued a notice of deficiency to plaintiffs before assessing the tax due. For the purposes of its motion to dismiss, the IRS conceded that a notice of deficiency was not sent, but asserted that jurisdiction was lacking because sovereign immunity barred plaintiffs from attacking the merits of the assessment under section 2410(a). The district court agreed that the suit was essentially a challenge to the assessments, and dismissed for lack of jurisdiction.
In the Internal Revenue Code Congress has specified steps for the creation of a lien arising out of unpaid taxes. After preliminary steps, when the IRS believes that the taxpayers have not paid all or any part of their income tax due, the following procedures apply.*fn1
1. The IRS mails a notice of deficiency to the taxpayers by certified or registered mail. 26 U.S.C. § 6212(a). Once this notice has been mailed, the taxpayers have ninety days in which to file a petition for redetermination in the Tax Court.*fn2 26 U.S.C. § 6213.
The notice of deficiency, sometimes called a "ninety day" letter, is the taxpayers' "ticket to the Tax Court" to litigate the merits of the deficiency determination, Delman v. Commissioner, 384 F.2d 929, 934 (3d Cir. 1967), cert. denied, 390 U.S. 952, 88 S. Ct. 1044, 19 L. Ed. 2d 1144 (1968), and is a jurisdictional prerequisite to a suit in that forum. Laing v. United States, 423 U.S. 161, 165 n. 4, 46 L. Ed. 2d 416, 96 S. Ct. 473 (1976). Until ninety days have passed, the IRS can neither make an assessment nor utilize Court procedures for collection. Holof v. Commissioner, 872 F.2d 50, 53 (3d Cir. 1989). If the taxpayers file in the Tax Court within that period, the restraint on the IRS continues until the decision of the Court becomes final. 26 U.S.C. § 6213(a).
2. If the taxpayers do not file a petition in the Tax Court within the specified time, the IRS makes an assessment. 26 U.S.C. § 6213(c). A duly designated official for the district or regional tax center signs the summary record of the assessment, which identifies the taxpayers, the type of tax owed, the taxable period and the amount of the assessment. 26 U.S.C. § 6203; Treas. Reg. § 301.6203-1.
3. As soon as practicable and within sixty days after making the assessment, the IRS must issue a "notice and demand letter" to the taxpayers, specifying the amount due and demanding payment. 26 U.S.C. § 6303.
4. If the taxpayers do not pay after demand, the IRS may file a lien against their property. 26 U.S.C. § 6321. See generally Wilkens & Matthews, A Survey of Federal Tax Collection Procedure: Rights and Remedies of Taxpayers and ...