Batts v. United States

• Decision Date: 09 April 1964
• Docket Number: Civ. No. 854.
• Citation: 228 F. Supp. 272
• Parties: Willard E. BATTS and Flossie W. Batts, his wife, Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Eastern District of North Carolina

228 F. Supp. 272

Willard E. BATTS and Flossie W. Batts, his wife, Plaintiffs, v. UNITED STATES of America, Defendant.

Civ. No. 854.

United States District Court E. D. North Carolina, Wilson Division.

April 9, 1964.

Frank P. Meadows, Jr., Meadows & Batts, Rocky Mount, N. C., for plaintiffs.

Robert H. Cowen, U. S. Atty., Raleigh, N. C., for defendant.

LARKINS, District Judge:

SUMMARY

These plaintiff taxpayers have been assessed certain income taxes additional to those already paid, as determined from their joint tax returns filed for 1959, 1960, and 1961. This action is brought to have these deficiency tax assessments declared void and of no effect. Plaintiffs seek the abatement of all liens and the removal of the cloud upon the title to their property. Their contention is that jurisdiction is conferred by 28 U.S.C.A. § 1340 and that the United States has consented to become a party to the suit by reason of 28 U.S.C.A. § 2410.

The issue is before the court on plaintiffs' motion for preliminary injunction requesting that defendant be restrained from levying or, in any way attempting to collect these assessments. The defendant has filed a motion to dismiss the action. Oral argument was heard by the court at the Wilson Term on February 5, 1964. Both parties have submitted thorough and well-written briefs.

Having duly considered the pleadings, briefs, and oral argument, the court makes the following

FINDINGS OF FACT

Plaintiffs, a Nash County couple, filed joint tax returns for the calendar years 1959, 1960, and 1961 and paid to the government the income taxes owing thereon. Upon auditing these returns, the defendant made certain adjustments in the computation of plaintiffs' taxable income and a deficiency was determined for each of the three years. In accordance with 26 U.S.C.A. § 6213, assessment and demand were made in the sum of $252.39 for 1959; $229.75 for 1960; and $399.06 for 1961.

The taxpayers admitted that one of the adjustments was proper in each of the three years and they paid the additional tax due. The validity of the balance of the assessment is challenged.

There are no procedural defects in assessing these taxes and none is alleged. The government posted to the taxpayers a thirty-day letter and followed that with a ninety-day letter. Plaintiffs took no action. Subsequently the assessment was made and the District Director sent notices to the taxpayers demanding payment of the tax owing.

Pursuant to 26 U.S.C.A. § 6321, the assessment of additional taxes by the government and the refusal to pay by the taxpayers after demand, created a lien upon all property and rights to property, whether real or personal, belonging to the plaintiffs. This lien constitutes a cloud upon the plaintiffs' title to their property, however, the government has made no effort to record the lien or to enforce it in any way.

CONCLUSIONS OF LAW

The problem posed by this suit falls upon the construction and application which the courts have rendered to 28 U.S.C.A. § 2410(a), which reads as follows:

"Under the conditions prescribed in this section and section 1444 of this title for the protection of the United States, the United States may be named a party in any civil action or suit in any district court, or in an State court having jurisdiction of the subject matter, to quiet title to or for the foreclosure of a mortgage or other lien upon real or personal property on which the United States has or claims a mortgage or other lien."

The government contends that a taxpayer cannot test the underlying merits of a tax assessment through the vehicle of a suit to quiet title. Supporting that contention, it says that the legislative history of this section precludes the taxpayer from making such a test and, further, to permit an action of this kind would hamper the collection of taxes and, of course, would be inconsistent with the theory upon which our system of tax collection is bottomed. Cases giving strength to the government's position are: Commercial Credit Corporation v. Schwartz, 126 F.Supp. 728 (E.D.Ark. 1954); Remis v. United States, 172 F. Supp. 732 (D.C.Mass.), affirmed 273 F. 2d 293 (C.C.A.1st 1960); Wells v. Long, 162 F.2d 842 (C.C.A.9th 1947).

The plaintiffs, on the other hand, argue that since a statutory lien has attached to their property and the government has threatened to levy thereon, they are authorized by this section to test the validity of the deficiency assessments in seeking the removal of the cloud from the title to their property. Supporting this view they cite: United States v. O'Connor, 2 Cir., 291 F.2d 520 § 9495 (C.C.A. 2nd 1961); Falik v. United States, 206 F.Supp. 181 (E.D.N.Y.1962); Sonitz v. United States, 221 F.Supp. 762 (D.C.N. J.1963); Coson v. United States, D.C. Cal., 169 F.Supp. 671, modified and affirmed 286 F.2d 453 (C.C.A.9th 1961).

Most of the confusion which evolves around § 2410 relates back to the decision by the Second Circuit in Pipola v. Chicco, 2 Cir., 274 F.2d 909 (1960), and its subsequent overruling by United States v. O'Connor, 2 Cir., 291 F.2d 520 (1961). The Pipola case arose to quiet title under 28 U.S.C.A. § 2410 when purchasers of the taxpayer's realty sought to cancel a government tax lien thereon which they claimed was invalid. The government argued, and the court accepted it, that the plaintiff-purchasers, who stood in the shoes of the taxpayer, could not question the assessment on the merits because the taxpayer could not test the validity of an assessment in a collection suit brought by the government under 26 U.S.C.A. § 7403. The court reasoned that if Congress intended to prohibit the taxpayer from inquiring into the merits of the assessment in a collection suit, the intent applied as well in a suit by the taxpayer to quiet title by cancelling a tax lien.

In the O'Connor case, the government brought suit to collect certain assessments made against defendants. This action arose under § 7403. Pipola was under § 2410. In O'Connor the government admitted error to the court in arguing in Pipola that a taxpayer could not have the validity of the assessment adjudicated in a collection suit under § 7403. Since the court had rested its opinion in Pipola upon that very contention, it overruled the Pipola decision and stated, 291 F.2d at page 527:

"The question thus becomes whether in a suit under § 7403 the assessment is conclusive, as it would be in a summary method of enforcement, or presumptive but inconclusive, as it would be in an action at law on the assessment or on a bond to secure its payment. * * * We think the closer analogy is to the action at law on the assessment; when the Government seeks the aid of the courts in enforcing the assessment in any form, it opens the assessment to judicial scrutiny in all respects. * * *"

Relying on the O'Connor holding, Falik v. United States, supra, and Sonitz v. United States, supra, decided that because a taxpayer could question the validity of a tax assessment in a collection suit, it followed that he could bring a suit under § 2410 and test the merits of the assessments there in an action to quiet title. The O'Connor decision removed the prop from under its construction of § 2410 in the Pipola case, however, in the...