17‐503
Larson v. United States
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
______________
August Term 2017
(Argued: December 15, 2017 Decided: April 25, 2018)
Docket No. 17‐503
JOHN M. LARSON,
Plaintiff‐Appellant,
v.
UNITED STATES OF AMERICA,
Appellee.*
______________
Before:
PARKER, WESLEY, and CHIN, Circuit Judges.
______________
* The Clerk of the Court is respectfully directed to amend the
caption.
Plaintiff‐Appellant John Larson appeals a December
28, 2016 judgment of the District Court for the Southern
District of New York (Caproni, J.) dismissing his complaint.
After being assessed approximately $160 million in penalties
by the Internal Revenue Service, Larson filed suit for review
of his penalties on several statutory and constitutional
grounds. The District Court dismissed his complaint for lack
of subject matter jurisdiction and failure to state a claim. We
hold that the full‐payment rule applies to Larson’s 26 U.S.C.
§ 6707 penalties, and that his tax refund, due process,
Administrative Procedure Act, and Eighth Amendment
claims were properly dismissed by the District Court.
Accordingly, we AFFIRM the judgment of the District Court.
______________
REED J. HOLLANDER, Nelson Mullins Riley &
Scarborough, LLP, Raleigh, NC (C. Wells Hall, III, Nelson
Mullins Riley & Scarborough, LLP, Charlotte, NC; Megan L.
Brackney, Kostelanetz & Fink, LLP, New York, NY, on the
brief), for Plaintiff‐Appellant.
ANDREW E. KRAUSE, Assistant United States Attorney
(Benjamin H. Torrance, Assistant United States Attorney, on
the brief) for Geoffrey S. Berman, United States Attorney for
the Southern District of New York, for Appellee.
T. Keith Fogg, Director, Harvard Federal Tax Clinic,
Jamaica Plain, MA, for Amicus Curiae Legal Services Center of
Harvard Law School, in Support of Plaintiff‐Appellant.
______________
2
WESLEY, Circuit Judge:
John M. Larson was involved with—and later
convicted of crimes related to—the organization of several
fraudulent tax shelters. See United States v. Pfaff, 407 F. App’x
506, 508–11 (2d Cir. 2010) (summary order); Pfaff v. United
States, 989 F. Supp. 2d 301, 303 (S.D.N.Y. 2013). At the time
Larson was organizing the tax shelters, the Internal Revenue
Service (the “IRS”) required organizers/promoters to register
tax shelters “not later than the day on which the first offering
for sale of interest in such tax shelter occurs.” 26 U.S.C.
§ 6111(a) (1997) (current version at 26 U.S.C. § 6111(a)
(2005)). Organizers/promoters who failed to register a tax
shelter as required were subject to a penalty of “an amount
equal to the greater of—(A) 1 percent of the aggregate
amount invested in such tax shelter, or (B) $500.” 26 U.S.C.
§ 6707(a)(2) (1997) (current version at 26 U.S.C. § 6707
(2004)). Eight years after the IRS notified Larson that he was
under investigation, it informed him via letter that it
considered him a tax shelter organizer with respect to the tax
shelters in question. The letter noted that Larson therefore
had a duty to register the tax shelters and was subject to
aggregate penalties of $160,232,0261 for his failure to do so.
1 Larson claims that the IRS incorrectly interpreted “aggregate
amount invested” in 26 U.S.C. § 6707(a)(2) to include loans and
loan premiums not actually invested by the transaction
participants, resulting in substantially larger penalties than the
approximately $7 million the penalties would have totaled
otherwise.
3
One month later the IRS informed Larson that it would
assess the penalties against him personally.
Shortly thereafter, Larson filed an appeal to the IRS
Office of Appeals. That office recognized that the IRS failed
to account for the joint and several liability of Larson’s co‐
promoters when computing his penalties, in accord with its
view of 26 U.S.C. § 6707. Internal Revenue Service, Non
Docketed Service Advice Review, IRS NSAR 20032901F, 2003
WL 22205991 (July 18, 2003). It therefore reduced the
penalties assessed against Larson to $67,661,349—a
reduction of nearly $93 million—and informed Larson that
he would need to pay the remaining penalty amounts and
file a Form 843 Claim for Refund and Request for Abatement
(“Refund Claim”) if he wanted to contest the assessment in
federal court. Larson then made a payment of $1,432,735 (the
“Initial Payment”) and filed his Refund Claim; the IRS
rejected Larson’s claim because of his failure to pay the entire
assessed penalties.
Larson then filed suit in the United States District
Court for the Southern District of New York seeking: (1)
refund of the Initial Payment and abatement of the
remainder of the penalties2 pursuant to 26 U.S.C. § 7422; (2)
judicial review of the IRS’s determination of his penalties
under the Administrative Procedure Act (the “APA”)
pursuant to 5 U.S.C. §§ 702, 704; (3) a holding that his
2 After the receipt of additional payments from other co‐
promoters, in March 2016 the IRS further reduced Larson’s
penalty by $4,250,000. The current amount owed by Larson is
therefore $61,534,027.
4
penalties were an excessive fine under the Eighth
Amendment; (4) to compel the IRS to disclose information
about the collection of any penalty amounts from his co‐
promotors; and (5) attorney’s fees.
The Government moved to dismiss Larson’s refund
claim under Federal Rule of Civil Procedure 12(b)(1) for lack
of subject matter jurisdiction. The Government argued that
because Larson had not paid the assessed penalties in full,
the District Court lacked jurisdiction under 28 U.S.C.
§ 1346(a)(1). The Government also argued that requiring full
payment of the assessed penalties prior to any judicial
review of the assessment did not violate due process. In a
well‐reasoned opinion, the District Court agreed. The
District Court concluded that the full‐payment rule applied
to Larson’s § 6707 penalties and it therefore lacked subject
matter jurisdiction, and that application of the rule did not
violate Larson’s right to due process. Larson v. United States,
16‐245, 2016 WL 7471338, at *3–7 (S.D.N.Y. Dec. 28, 2016).
With regard to Larson’s remaining claims, the
Government argued that review of a tax deficiency under the
APA was unavailable because Congress provided a specific
review procedure—tax refund suits—and that the Eighth
Amendment does not create a private right of action,
preventing the District Court from hearing Larson’s
excessive fines claim. The District Court again agreed,
concluding that Larson had an adequate alternative to APA
review and that the Eighth Amendment claim was defeated
by the availability of alternative review and, separately, the
complaint was factually insufficient. Id. at *8–12.
5
DISCUSSION
On appeal, Larson makes four main arguments: (1) the
full‐payment rule only applies to tax deficiency3 cases under
§ 1346(a)(1) where Tax Court relief was available; (2) the
application of the full‐payment rule to Larson violates his
Fifth Amendment right to due process because he cannot
fully pay his penalties and cannot seek review without
having paid the penalties; (3) district court review of the
IRS’s determination pursuant to the APA is proper because
of the lack of adequate alternatives to review pursuant to the
APA; and (4) the penalties are an excessive fine under the
Eighth Amendment. We address each of Larson’s arguments
in turn.
3 A deficiency is based on a determination that more tax is due.
According to the Supreme Court, a deficiency “is the amount of
tax imposed less any amount that may have been reported by the
taxpayer on his return.” Laing v. United States, 423 U.S. 161, 173
(1976). Tax Court review is available for deficiencies and does not
require payment of the deficiency prior to commencement of the
action in Tax Court. However, Tax Court review is unavailable for
those like Larson who face § 6707 penalties. See Smith v. Comm’r,
133 T.C. 424, 429–30 (2009); see also Our Country Home Enters., Inc.
v. Comm’r, 855 F.3d 773, 778 (7th Cir. 2017).
6
A. The Full‐Payment Rule and 26 U.S.C. § 6707
Penalties4
Pursuant to 28 U.S.C. § 1346(a)(1), federal district
courts have original jurisdiction of:
[a]ny civil action against the United States
for the recovery of any internal‐revenue
tax alleged to have been erroneously or
illegally assessed or collected, or any
penalty claimed to have been collected
without authority or any sum alleged to
have been excessive or in any manner
wrongfully collected under the internal‐
revenue laws.
28 U.S.C. § 1346(a)(1).5 It is undisputed that Larson’s refund
claim arises under § 1346(a)(1).
4 This Court reviews a “district court’s factual findings for clear
error and its legal conclusions de novo” on an appeal from
dismissal pursuant to Federal Rule of Civil Procedure 12(b)(1).
CBF Industria de Gusa S/A v. AMCI Holdings, Inc., 850 F.3d 58, 76–
77 (2d Cir. 2017) (internal quotation mark and brackets omitted).
This Court reviews a district court’s decision to dismiss a
complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) de
novo, “accepting all factual allegations as true and drawing all
reasonable inferences in the plaintiff’s favor.” Id. at 77 (internal
quotation mark omitted).
5 Federal district courts have original jurisdiction over such refund
actions concurrently with the United States Court of Federal
Claims. Id. at § 1346(a).
7
It is not disputed that Larson cannot bring his claim in
the Tax Court. His only judicial recourse is a refund action in
the District Court (or the Court of Claims). Unfortunately for
him, § 1346(a)(1) does not differentiate between assessed
penalties and other tax assessments that are the result of
deficiencies. See id. Further, jurisdiction is granted over
“[a]ny civil action against the United States for the recovery
of . . . any penalty claimed to have been collected without
authority . . . .” Id. This provision has long been interpreted
to require the full payment of the contested tax as a
jurisdictional prerequisite to a tax refund action. Larson’s
penalties have not been collected: he has not made full
payment. The plain language of 26 U.S.C. § 6707 also favors
our reading, as the statute does not provide for partial‐
payment review of Larson’s penalties. Further, our reading
is supported by Congress’s decision to provide partial‐
payment review for other assessable penalties, but not for
§ 6707. See 26 U.S.C. §§ 6694(c), 6703(c). If the full‐payment
rule did not apply to assessable penalties, there would be no
reason for Congress to include partial‐payment provisions in
other assessable penalty statutes. The District Court did not
have jurisdiction to hear Larson’s claim under § 1346(a)(1).6
Larson and amicus both argue that while a pair of
Supreme Court decisions—Flora v. United States (Flora I), 357
6 There is one acknowledged exception to the full‐payment rule
for divisible taxes. See Flora v. United States (Flora II), 362 U.S. 145,
175 nn.37–38 (1960). Larson argued below that § 6707 penalties
were divisible, but the District Court rejected that argument.
Larson does not raise the issue on appeal.
8
U.S. 63 (1958), and Flora II—held that § 1346(a)(1) included a
full‐payment requirement, the rule only applies to tax
deficiencies—where Tax Court review is available—and not
to assessable penalties. In Larson’s view, the Flora II Court
made its intent apparent when it stated towards the end of
its opinion:
A word should also be said about the
argument that requiring taxpayers to pay
the full assessments before bringing suits
will subject some of them to great
hardship. This contention seems to ignore
entirely the right of the taxpayer to appeal
the deficiency to the Tax Court without
paying a cent.
Flora II, 362 U.S. at 175. We disagree with Larson’s
interpretation of this passage. In Flora II, the Supreme Court
concluded that § 1346 “correctly construed, requires full
payment of [an] assessment before an income tax refund suit
can be maintained in a Federal District Court.” Id. at 177. In
Flora I the Supreme Court had reached a similar conclusion:
“a construction [of § 1346(a)(1)] requiring full payment
would appear to be more consistent with the established
meaning of the statutory language[,] . . . the situation with
respect to tax suits against the United States at the time
[§ 1346(a)(1)] was enacted, the express purpose of its
enactment, and subsequent expressions of congressional
intent . . . .” Flora I, 357 U.S. at 69–70.
The Flora decisions recognized the Government’s
“substantial interest” in taxation and in maintaining the
9
“smooth functioning of th[e taxation] system” that Congress
intentionally and purposefully crafted. Flora II, 362 U.S. at
175–76; see Flora I, 357 U.S. at 69–70. The Flora II majority
focused a significant amount of its opinion on a review of the
history of “suit[s] to recover a tax illegally assessed,” Flora II,
362 U.S. at 152, and the greater statutory scheme Congress
fashioned around § 1346(a)(1), id. at 152–67.7 While it is true
that Flora I and Flora II acknowledge the existence and
availability of Tax Court review, see Flora I, 357 U.S. at 75–76;
Flora II, 362 U.S. at 175, Tax Court availability was not
essential to the Supreme Court’s conclusion in either
opinion. The basis of the Flora decisions is that when
Congress enacted § 1346(a)(1) it understood the statute to
require full‐payment to maintain “the harmony of our
carefully structured twentieth century system of tax
litigation,” not that the full‐payment rule only applies when
Tax Court review is available. Flora II, 362 U.S. at 176–77.
7 Flora II’s majority noted that the “statutory language . . . [wa]s
inconclusive and [the] legislative history . . . [wa]s irrelevant”
before moving into its analysis of the “historical basis” for tax
refund suits. Id. at 152. Although the Flora II majority struggled to
divine the existence of the full‐payment rule from the plain
language of the statute, that does not trouble our conclusion that
§ 1346(a)(1)’s full‐payment rule applies to Larson’s penalties. The
Supreme Court was evaluating whether the plain language of
§ 1346(a)(1) included the full‐payment rule. The question before
us is different: whether the language of § 1346(a)(1) indicates that
the full‐payment rule should only apply to tax deficiencies and
not assessable penalties.
10
The Seventh Circuit agrees: where a “taxpayer cannot
seek refund in the Tax Court but must proceed in a federal
district court[,] . . . Flora counsels that [the taxpayer’s]
hardship is a matter for legislative, not judicial[,] remedy.”
Curry v. United States, 774 F.2d 852, 854 (7th Cir. 1985)
(internal citation omitted). The Seventh Circuit continued:
“carv[ing] out a ‘hardship’ exception to the Flora rule . . .
would endanger the ‘public purse’ and disrupt the smooth
functioning of the tax system . . . .” Id. at 855.
In Flora the Supreme Court recognized that choosing
the district court as the forum in which to litigate the
legitimacy of a deficiency had a cost to taxpayers—full
payment of the taxes claimed to be due in Flora. The Court
took comfort in knowing that taxpayers unable to meet the
jurisdictional bar of § 1346(a)(1) could go to Tax Court
without prepayment and pursue their claims if they chose to
do so. But under § 1346(a)(1) the ticket to district court was
full payment of the deficiency as mandated by the history of
tax refund suits and the greater statutory scheme. Although
perhaps pleased that Congress had provided an alternate
forum for some taxpayers, the Court did not rewrite the
statute—as Larson would have us do—to engraft an
alternate forum requirement for the application of the full‐
payment rule plainly set out in § 1346(a)(1).8
8 Larson relies on another Supreme Court decision, Laing v. United
States, wherein the Supreme Court considered whether the IRS
had to assess a deficiency and mail a notice of deficiency when it
had prematurely terminated a taxable period. 423 U.S. 161. The
majority concluded that the IRS had to assess a deficiency and did
11
B. The Fifth Amendment and Prepayment Review of
§ 6707 Penalties
The Fifth Amendment provides that “[n]o person shall
be . . . deprived of life, liberty, or property, without due
process of law . . . .” U.S. CONST. amend. V. As the Supreme
Court has noted, “due process is flexible and calls for such
procedural protections as the particular circumstance
demands. . . . [N]ot all situations calling for procedural
safeguards call for the same kind of procedure.” Morrissey v.
Brewer, 408 U.S. 471, 481 (1972). If the full‐payment rule
applies to § 6707 penalties, Larson asserts, he will be
unconstitutionally deprived of due process by application of
the full‐payment rule because he cannot pay the imposed
penalties and cannot seek review without paying those
penalties. In essence, he says “it is just not fair.”
The District Court correctly concluded that the full‐
payment rule, as applied here, does not violate Larson’s right
to due process. There is a strong governmental interest in the
efficient administration of the tax system as crafted by
Congress. That interest allows courts to conclude that
adequate summary or administrative prepayment review of
not address Flora at all. Id. at 163–85. Justice Blackmun, writing in
dissent, explicitly stated that “the full‐payment rule applies only
where a deficiency has been noticed, that is, only where the
taxpayer has access to the Tax Court for redetermination prior to
payment.” Id. at 208–09 (Blackmun, J., dissenting). Larson relies
on Justice Blackmun’s dissent, but Justice Blackmun’s view did
not garner majority support. No subsequent majority of the
Supreme Court has adopted that understanding of the statute.
12
tax assessment—with adequate post‐payment judicial
review—provides the required constitutional procedural
protections.
Two of our sister circuits agree. In Kahn, the Third
Circuit noted that “[i]n the tax context, the constitutionality
of a scheme providing for only post‐assessment judicial
review is well‐settled.” Kahn v. United States, 753 F.2d 1208,
1218 (3d Cir. 1985) (citing Bob Jones Univ. v. Simon, 416 U.S.
725, 746–47 (1974); Mitchell v. W.T. Grant Co., 416 U.S. 600,
611 (1974); Bull v. United States, 295 U.S. 247, 259–60 (1935);
and Phillips v. Comm’r, 283 U.S. 589, 595 (1931)). Similarly, the
Sixth Circuit in Johnston concluded “that the payment of
taxes as a precondition to sue for their return places a burden
on the taxpayer, [but] we do not believe that it is such as to
deny him the fundamental processes of fairness required by
the Fifth Amendment . . . .” Johnston v. Comm’r, 429 F.2d 804,
806 (6th Cir. 1970).9
Larson’s appeal to the IRS Office of Appeals resulted
in a nearly $100 million reduction. Larson doesn’t take issue
with his substantial victory at the IRS Office of Appeals; he
does not adequately contend that it was neither an effective
nor meaningful review of his complaints. He simply thinks
9 Johnston relied on the reasoning in Cheatham v. United States, 92
U.S. 85, 88–89 (1875); Flora also relied on Cheatham. In Cheatham—
prior to the creation of the Tax Court—the Supreme Court noted
that “the government has the right to prescribe the conditions on
which it will subject itself to the judgment of the courts in the
collection of its revenues.” Cheatham, 92 U.S. at 88–89.
13
the IRS misapplied the law. His complaint is not procedural,
it is substantive.10
Larson maintains that an administrative prepayment
review does not satisfy the requirements of due process. For
support, Larson looks to Phillips v. Commissioner. In Phillips,
the IRS sought to collect a tax deficiency from the estate of a
stockholder of a dissolved corporation, and the estate argued
that the summary administrative proceedings violated its
right to due process. 283 U.S. at 592–94. Phillips
acknowledged that the two methods of review available in
that case—an action to recover the amount paid after
prepayment of the tax without administrative relief or
immediate redetermination of the tax liability by the Board
of Tax Appeals—satisfied due process, but Phillips did not
conclude that due process required both. Id. at 597–98. The
Supreme Court in Phillips was clear:
The right of the United States to collect its
internal revenue by summary
administrative proceedings has long been
settled. Where . . . adequate opportunity
10 Larson suggests that the IRS in “hypothetical” proceedings
could intentionally inflate penalties in bad faith to bar judicial
review. Larson has not identified or alleged any bad faith by the
IRS here, nor any violation of the IRS Office of Appeals’s
procedures. He is unhappy with the IRS’s calculation of his
penalties, and disputes that calculation, but that dispute is
substantive. But, beyond his bare argument on appeal, Larson
failed to plead any facts to suggest that the administrative review
he received at the IRS was, for example, tainted by bad faith or
was otherwise inappropriate.
14
is afforded for a later judicial
determination of the legal rights,
summary proceedings to secure prompt
performance of pecuniary obligations to
the government have been consistently
sustained. Property rights must yield
provisionally to government need . . . [to
promptly] secure its revenues.
Id. at 595–96 (internal citations and footnote omitted). While
Congress decided to provide prepayment review in some
situations, its failure to do so when the penalty is beyond the
taxpayer’s resources is not a due process defect. We know of
no case that supports that view.
Consideration of the factors from Mathews v. Eldridge,
424 U.S. 319 (1976), also militates against Larson. In Mathews,
the Supreme Court instructed courts to consider three factors
when faced with a due process claim: (1) “the private interest
that will be affected by the official action”; (2) “the risk of an
erroneous deprivation of such interest through the
procedures used, and the probable value, if any, of
additional or substitute procedural safeguards”; and (3) “the
Government’s interest, including the function involved and
the fiscal and administrative burdens that the additional or
substitute procedural requirement would entail.” Id. at 335.
The Supreme Court explained that “[t]he ultimate balance
involves a determination as to when, under our
constitutional system, judicial‐type procedures must be
imposed upon administrative action to assure fairness.” Id.
at 348. Further, “[a]ll that is necessary is that the procedures
be tailored, in light of the decision to be made, to the
15
capacities and circumstances of those who are to be heard to
insure [sic] that they are given a meaningful opportunity to
present their case.” Id. at 349 (internal quotation marks and
citation omitted).
Larson’s interest is not insignificant; the IRS has
imposed onerous penalties that Larson claims he cannot pay.
But, as we previously noted, the IRS Office of Appeals
review resulted in a substantial reduction of Larson’s
penalties. No review is perfect and Larson offers no record‐
based criticism of how the appeal was conducted. We are
satisfied that the current procedures effectively reduced the
risk of an erroneous deprivation and gave Larson a
meaningful opportunity to present his case. Indeed, the
Seventh Circuit recently observed that the IRS Office of
Appeals “is an independent bureau of the IRS charged with
impartially resolving disputes between the government and
taxpayers,” and that “Congress has determined that
hearings before this office constitute significant protections
for taxpayers.” Our Country Home Enters., Inc., 855 F.3d at
789. Lastly, the governmental interest here is singularly
significant due to the careful structuring of the tax system
and the Government’s “substantial interest in protecting the
public purse.” Flora II, 362 U.S. at 175. Considering all three
factors, our Mathews analysis weighs in the Government’s
favor. Therefore, application of the full‐payment rule to
Larson’s § 6707 penalties does not result in a violation of
Larson’s due process rights.
16
C. Administrative Procedure Act Review of Larson’s
§ 6707 Penalty
APA review is limited to (1) final agency action (2) not
committed to agency discretion by law (3) where Congress
has not implicitly or explicitly precluded judicial review.
Sharkey v. Quarantillo, 541 F.3d 75, 87 (2d Cir. 2008) (citing
Bowen v. Mich. Acad. of Family Physicians, 476 U.S. 667, 673
(1986); Lunney v. United States, 319 F.3d 550, 558 (2d Cir.
2003); and Air Espana v. Brien, 165 F.3d 148, 151–54 (2d Cir.
1999)). The APA also “does not provide additional judicial
remedies in situations where the Congress has provided
special and adequate review procedures.” Bowen v.
Massachusetts, 487 U.S. 879, 903 (1988) (internal quotation
marks omitted).11 “When Congress enacted the APA to
provide a general authorization for review of agency action
in the district courts, it did not intend that general grant of
11 There is also a question as to whether the District Court would
have subject matter jurisdiction over Larson’s potential APA
claim. See Larson, 16‐245, 2016 WL 7471338 at *7 n.12. Generally,
district courts have jurisdiction over APA review pursuant to 28
U.S.C. § 1331. Sharkey, 541 F.3d at 84. Sovereign immunity is
waived by the APA for non‐monetary damages claims, 5 U.S.C.
§ 702, but the Anti‐Injunction Act, 26 U.S.C.§ 7421(a), and the
Declaratory Judgment Act, 28 U.S.C. § 2201(a), prohibit injunctive
and declaratory relief for claims involving taxes. The Anti‐
Injunction Act includes a further exception allowing those who do
not have an alternate remedy to pursue their claim. South Carolina
v. Regan, 465 U.S. 367, 378 (1984). Larson’s ability to seek an
injunction pursuant to the APA therefore also depends on our
determination of the availability of alternate review.
17
jurisdiction to duplicate the previously established special
statutory procedures relating to specific agencies.” Id. Larson
claims he has been adversely affected by the IRS’s
assessment of the penalties, a tax‐refund suit does not
provide adequate review due to the staggering amount of
the penalties, and Congress has not precluded review of
§ 6707 penalties pursuant to the APA.
Larson’s claim pertains to a final agency action that
was not committed to agency discretion by law. His claim
runs into difficulty, however, when analyzing whether
Congress implicitly or explicitly precluded judicial review,
and whether Congress has provided for “special and
adequate” review. This Court has noted that “the APA’s
strong presumption in favor of judicial review” of
administrative action requires clear and convincing evidence
of congressional intent to overcome. Sharkey, 541 F.3d at 84.
While it is true that § 6707 does not expressly preclude
judicial review, Congress did not include any language in
§ 6707 to except assessed penalties under the statute from the
full‐payment rule. The absence of any exception is
conspicuous because Congress has expressly provided for
partial‐payment exceptions in other penalty statutes. See 26
U.S.C. §§ 6694(c), 6703(c).
Examining § 1346(a)(1)’s and § 6707’s respective
places within the tax system supports that conclusion. As
discussed previously, Congress has treated tax claims
differently and has provided for post‐payment judicial
review of assessed taxes in district court with a few explicit
exceptions. It seems contradictory to conclude that the full‐
payment rule applies to § 1346(a)(1)—as Flora held many
18
years ago—but that Congress did intend to allow judicial
review under the APA prior to full payment without
enacting an additional express authorization. It is clear to us
that Congress intended the full‐payment rule of § 1346(a)(1)
to apply to § 6707 penalties, including Larson’s; Congress
thus implicitly precluded prepayment judicial review of
Larson’s penalties under the APA.
Even if Congress did not implicitly preclude judicial
review, Congress has provided special and adequate review
procedures, and APA review is therefore inappropriate.
Larson’s failure to comply with the scheme established by
Congress—by failing to prepay the assessed penalties—does
not render the review procedures inadequate. Larson has an
adequate remedy instead of APA review: follow Congress’s
established scheme by paying his penalties and then filing a
tax‐refund claim pursuant to § 1346(a)(1). We are
sympathetic to Larson’s dilemma, but that does not permit
us to employ APA‐based jurisdiction where Congress has
provided for review through a specific statutory procedure.
Larson cites to several cases in support, arguing that
although they may be factually distinguishable they
demonstrate that courts have found tax‐refund suits to
provide inadequate review. The problem with Larson’s
argument is two‐fold: (1) none of the cases involve a judicial
determination that the APA allows a federal court to review
a taxpayer‐specific ruling; and (2) the inadequacy of judicial
review arose out of the particular facts of each case and not
the application of a statute like § 1346. National Restaurant
Association v. Simon involved the adequacy of a claim under
the Anti‐Injunction Act—the only way for the plaintiffs to
19
obtain review of the regulation they sought to challenge was
to first violate it. 411 F. Supp. 993, 996 (D.D.C. 1976).
Estate of Michael ex rel. Michael v. Lullo is another non‐
APA case. 173 F.3d 503 (4th Cir. 1999). Lullo involved a
unique circumstance of claims of bad faith by the IRS
warranting a mandamus action, as “the actions of the IRS
[we]re transparently baseless, in that it [wa]s pursuing th[e]
matter after the statute of limitations clearly ha[d] barred
collection or assessment of further taxes.” Id. at 510. After an
estate paid the assessed tax and the statute of limitations had
run, the IRS “discovered” a mistake in its original assessment
and decided to reduce one of the estate’s tax credits in the
amount of the miscalculation to create an unpaid balance
and deficiency owed by the estate. Id. at 504–07. Unlike Lullo,
where “the IRS . . . maintained its baseless position for more
than five years . . . despite its utter lack of legal support,”
here, there are no plausibly‐pleaded allegations of bad faith
on the part of the IRS. Id. at 511.
In the final case cited by Larson, Cohen v. United States,
the D.C. Circuit permitted APA review of IRS procedure
where the appellants challenged the procedure itself as
substantively unreasonable. 650 F.3d 717, 732 (D.C. Cir.
2011).12 The D.C. Circuit expressly noted that: “[i]n the tax
context, the only APA suits subject to review would be those
12 In Cohen, the D.C. Circuit stated that “the adequacy of [the IRS
procedure] is the gravamen of [a]ppellants’ suit. Appellants claim
[the IRS procedure] is unlawful, and therefore inadequate,
because it was not subject to notice and comment rulemaking and
is substantively unreasonable.” Id.
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cases pertaining to final agency action unrelated to tax
assessment and collection.” Id. at 733. The court in Cohen took
pains to distinguish cases challenging the individual
assessment or collection of a tax from a challenge to refund
procedure. Id. Larson challenges the individual assessment
of the penalty, not whether a procedure was unlawful and
inadequate due to a lack of notice and comment rulemaking
and substantive unreasonableness. Id. at 732. These cases do
not persuade us that the review procedures are inadequate
and warrant a departure from the tax system carefully
constructed by Congress. This is especially so where Larson
has had a chance of meaningful review during his
administrative, non‐judicial appeal. The system laid out by
Congress may seem like bad policy to Larson, but his
problem requires a legislative—rather than a judicial—
solution.
D. The Eighth Amendment and Larson’s Penalties
The Eighth Amendment states that “[e]xcessive bail
shall not be required, nor excessive fines imposed . . . .” U.S.
CONST. amend. XIII. We have serious doubts that the District
Court had subject matter jurisdiction over the Eighth
Amendment claim. Larson wisely disclaims any intention to
seek monetary damages, for “[u]nder the doctrine of
sovereign immunity, an action for damages will not lie
against the United States absent consent.” Robinson v.
Overseas Military Sales Corp., 21 F.3d 502, 510 (2d Cir. 1994).
Larson asserts that his claim is for equitable relief and that
the District Court can review his claim as part of his APA
action. His claim for equitable relief under the APA is barred
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by the Anti‐Injunction Act or the Declaratory Judgment Act
unless he lacks an adequate remedy. Larson has an adequate
remedy; he simply doesn’t like it. Therefore, the District
Court lacked subject matter jurisdiction over his Eighth
Amendment claim and dismissal was proper. Because we
conclude that the District Court lacked subject matter
jurisdiction, we decline to assess whether Larson’s complaint
successfully stated an Eighth Amendment claim.
______________
We close with a final thought. The notion that a
taxpayer can be assessed a penalty of $61 million or more
without any judicial review unless he first pays the penalty
in full seems troubling, particularly where, as Larson alleges
here, the taxpayer is unable to do so. But, “[w]hile the Flora
rule may result in economic hardship in some cases, it is
Congress’ responsibility to amend the law.” Rocovich v.
United States, 933 F.2d 991, 995 (Fed. Cir. 1991).
We AFFIRM the District Court’s dismissal of Larson’s
complaint. This Court’s order dated October 27, 2017,
resolved the two motions by Larson dated September 5, 2017,
for judicial notice of the Laing oral argument.
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