580 F.2d 1365 (10th Cir. 1978), 77-1861, Matter of Carlson

Docket Nº:77-1861, 77-1862 and 77-2078.
Citation:580 F.2d 1365
Party Name:In the Matter of the Tax Indebtedness of Dell W. CARLSON and Robert Torres. UNITED STATES of America, Petitioner-Appellant, v. UNITED STATES DISTRICT COURT FOR the DISTRICT OF COLORADO, Honorable Richard P. Matsch, United States District Judge, Respondents.
Case Date:July 11, 1978
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

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580 F.2d 1365 (10th Cir. 1978)

In the Matter of the Tax Indebtedness of Dell W. CARLSON and

Robert Torres.

UNITED STATES of America, Petitioner-Appellant,



Honorable Richard P. Matsch, United States

District Judge, Respondents.

Nos. 77-1861, 77-1862 and 77-2078.

United States Court of Appeals, Tenth Circuit

July 11, 1978

Submitted March 16, 1978.

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[Copyrighted Material Omitted]

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Leonard J. Henzke, Jr., Dept. of Justice, Washington, D. C. (M. Carr Ferguson, Asst. Atty. Gen., Gilbert E. Andrews, Dept. of Justice, Washington, D. C., on brief), for appellant; Joseph F. Dolan, U. S. Atty., Denver, Colo., of counsel.

Joseph H. Thibodeau and Michael J. Abramovitz, Denver, Colo. (Vivian T. Martinez, Denver, Colo., on brief), for the Colorado Bar Association.

Before McWILLIAMS, BARRETT and LOGAN, Circuit Judges.

BARRETT, Circuit Judge.

In these four consolidated actions the common questions presented involve important issues relating to the administration of internal revenue laws. They arise from the applications of the United States Attorney to the District Court for Ex parte orders granting officers of the Internal Revenue Service (IRS) general authority to enter private property for the purpose of searching for and seizing property of the taxpayers. The applications were filed following determinations by the IRS that levies were necessary in order to effect the collection of back taxes from the taxpayers. The tax liabilities of three of the taxpayers have been satisfied and only the case and judgment involving appellee Dell W. Carlson remains in dispute.

In each of the consolidated cases, the applications were made only after all of the pre-levy administrative processes directed by law had been pursued without benefit of

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tax payments, To-wit, the tax assessments, demand for payment of the taxes assessed and refusal by the taxpayer to pay.

The affidavit of Revenue Officer Robert S. Ely, Jr. of the Denver District Collection Division, IRS, was submitted to the District Court in support of the application filed by the United States Attorney for "tax entry" orders in the case involving appellee Carlson. The affidavit stated that Carlson had failed to pay income tax and Federal Insurance Contribution Act (Social Security) withholding taxes, penalties and interest assessed for the fourth quarter of 1975, due in early 1976; that on February 8, 1977, Revenue Officer Ely visually inspected Carlson's "Our Old Corner Inn" bar in Denver where he observed assets including furniture, bar fixtures, liquor, equipment and cash; that Carlson had refused to allow the revenue officer to enter the bar premises; and that Carlson had refused to tender payment.

A general review of some of the standard, long-recognized tax procedures may be helpful. A taxpayer normally pays his tax when he files his return. The return is considered to be a self-assessment. Upon receipt by IRS, a formal assessment in the amount reflected in the return is entered on the rolls. Should a taxpayer fail to file a return or tender payment, or if the amount shown on the return is investigated and found deficient, the taxpayer is customarily notified and allowed a series of administrative conferences and appeals with the IRS. Following these appeals, in income, estate, and gift tax cases the taxpayer may seek review in the Tax Court of any final tax declared deficient and owing by IRS. In the course of administrative proceedings, IRS generally does not enter an immediate assessment on the rolls. Such an assessment would allow an immediate forced collection such as a levy to be effected. In income, estate and gift tax cases, a "notice of deficiency" Must be sent to the taxpayer so that the taxpayer may seek Tax Court review and during such proceedings an assessment may be made and a levy effected only upon a determination that collection is in "jeopardy." See generally, 9 Merten's, Law of Federal Income Taxation (Zimet Rev.), §§ 49.100-49.148. Once a regular or jeopardy assessment has been formally entered, 26 U.S.C.A. § 6331 authorizes IRS to collect the tax by executive seizure "by levy upon all property and rights to property" belonging to the taxpayer. After voluntary or involuntary payment of the assessment has been made, the taxpayer is permitted, under 28 U.S.C.A. § 1346, to challenge the assessment by suing for refund in a federal district court or in the Court of Claims.

Thus, the Internal Revenue Code, hereinafter referred to as Code, provides that delinquent taxes and tax penalties shall be assessed, collected and paid by administrative means. The right of the United States to collect its internal revenue by summary administrative proceedings has been long recognized. 26 U.S.C.A. §§ 6301, 6302(a), 6302(b), 6303; Phillips v. Commissioner of Internal Revenue, 283 U.S. 589, 51 S.Ct. 608, 75 L.Ed. 1289 (1931). The subject of federal taxes, including remedies for their collection, has always been conceded to be the paramount right of the federal government independent of the legislative action of the states. United States v. Union Central Life Ins. Co., 368 U.S. 291, 82 S.Ct. 349, 7 L.Ed.2d 294 (1961). The existence of the power of the federal government to levy is essential to our self-assessment tax system in that it encourages voluntary compliance with the tax laws and furthers the collection of taxes described in Bull v. United States, 295 U.S. 247, 55 S.Ct. 695, 79 L.Ed. 1421 (1935), as "the life-blood of government, and their prompt and certain availability an imperious need."

The Code creates a general lien for unpaid federal taxes upon "all property and rights to property, whether real or personal" belonging to the delinquent taxpayer. 26 U.S.C.A. § 6321; Detroit Bank v. United States,317 U.S. 329, 63 S.Ct. 297, 87 L.Ed. 304 (1943). In determining the extent of "property and rights to property" to which a federal tax lien attaches, state law controls. United States v. Brosnan, 363 U.S. 237, 80 S.Ct. 1108, 4 L.Ed.2d 1192 (1960);

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Kirby v. United States, 329 F.2d 735 (10th Cir. 1964). § 6321, Supra, creates a federal tax lien on property or rights to property "belonging" to the person liable therefore and it does not extend to the property of others. United States v. Kaufman, 267 U.S. 408, 45 S.Ct. 322, 69 L.Ed. 685 (1925).

The Code provides that if any person liable to pay any federal tax refuses or neglects to pay it within ten days after notice and demand, the Secretary or his delegate shall collect the tax and necessary expenses by levy upon all property and rights to property not otherwise exempt from levy belonging to such person or in which there is a lien for payment of the tax; furthermore, if there is a finding that the collection of the tax is in jeopardy, notice and demand for immediate payment may be made and, upon failure or refusal to pay, collection of the tax shall be lawful without regard to the ten day period. 26 U.S.C.A. § 6331(a). The Congress has empowered the Secretary to enforce collection of taxes by the summary administrative method of distraint which has been held not to amount to a denial of due process of law. Springer v. United States, 102 U.S. 586, 6 L.Ed. 253 (1880). Summary proceedings have been held a constitutionally valid expedient for the collection of taxes necessary for the very existence of government. United States v. Manufacturers Trust Co., 198 F.2d 366 (2nd Cir. 1952). A levy under the statute does not, accordingly, require a prior judgment; all that is required is an assessment.

Federal district courts have original jurisdiction of any civil action arising under any act of Congress providing for internal revenue. 28 U.S.C.A. § 1340. The Code expressly confers jurisdiction upon federal district courts to make and issue in civil actions, writs and orders of injunction ". . . and such other orders and processes, and to render such judgments and decrees as may be necessary or appropriate for the enforcement of the internal revenue laws." 26 U.S.C.A. § 7402(a).

Prior to the decision by the Supreme Court in the case of G. M. Leasing Corp. v. United States, 429 U.S. 338, 97 S.Ct. 619, 50 L.Ed.2d 530 (1977), the IRS had for years pursued the administrative practice, pursuant to 26 U.S.C.A. § 7301(a), of seizing any property found in the possession, custody or control of the person against whom the tax had been imposed. Following seizure, the property was declared forfeited to the United States.

The Supreme Court, in Commissioner of Internal Revenue v. Shapiro,424 U.S. 614, 96 S.Ct. 1062, 47 L.Ed.2d 278 (1976), spoke of the exceptions to the Anti-Injunction Act's (26 U.S.C.A. § 7421(a) ) prohibition of taxpayer suits to restrain IRS administrative assessment or collection of federal taxes. The Court held that an injunction may be obtained if (1) it is clear that under no circumstances the government can ultimately prevail, and (2) it is shown that the taxpayer would otherwise suffer irreparable injury. If a taxpayer's federal district court action seeking injunctive relief from the IRS's summary seizure of the taxpayer's assets pursuant to jeopardy assessments under 26 U.S.C.A. §§ 6213, 6331 and 6861, the taxpayer is not required to plead specific facts establishing that the IRS cannot ultimately prevail; rather, the taxpayer must plead and prove facts establishing that his remedy in the Tax Court under the Code or in a refund suit is inadequate to repair any injury he may sustain by the erroneous assessment or collection of the asserted tax liability. Upon such proof, the IRS is required to litigate the issue as to whether its assessment has a basis in fact. The collection of the taxes will not be restrained unless the...

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