Collins v. Daly

• Decision Date: 19 January 1971
• Docket Number: No. 18230.,18230.
• Citation: 437 F.2d 736
• Parties: Fred L. COLLINS, Plaintiff-Appellant, v. James E. DALY, District Director of Internal Revenue, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

437 F.2d 736 (1971)

Fred L. COLLINS, Plaintiff-Appellant, v. James E. DALY, District Director of Internal Revenue, Defendant-Appellee.

No. 18230.

United States Court of Appeals, Seventh Circuit.

January 19, 1971.

John H. O'Hara, Indianapolis, Ind., Attorney for appellant; O'Hara & Kohlmeyer, Indianapolis, Ind., of counsel.

Johnnie M. Walters, Asst. Atty. Gen., Tax Division, John M. Brant, Atty., U. S. Department of Justice, Washington, D. C., Stanley B. Miller, U. S. Atty., Indianapolis, Ind., Lee A. Jackson, Joseph M. Howard, Attys., Department of Justice, Washington, D. C., for appellee.

Before CASTLE, Senior Circuit Judge, and CUMMINGS and STEVENS, Circuit Judges.

CASTLE, Senior Circuit Judge.

Fred L. Collins, plaintiff-appellant, appeals from the judgment order of the District Court dismissing his action for injunctive relief against the defendant-appellee, James E. Daly, District Director of Internal Revenue for the District of Indiana. Plaintiff's complaint seeks to permanently enjoin the District Director from assessing and collecting wagering excise taxes and the special occupational tax proposed to be assessed against plaintiff by the District Director as allegedly due under 26 U.S.C.A. §§ 4401 and 4411, respectively.¹ The government filed a motion to dismiss the action as barred by 26 U.S.C.A. § 7421(a).² The District Court granted the motion and dismissed the action.

The plaintiff's complaint alleges, in substance, that the taxes proposed to be assessed and collected are illegal because their assessment and collection would constitute an invasion of plaintiff's privileges under the Fifth Amendment since the activities sought to be taxed are violations of Indiana statutes; and because the determination upon which the assessment is proposed is arbitrary and without basis in evidence. It is further alleged that plaintiff will suffer irreparable injury unless the assessment is enjoined because the relevant statutes provide no means for judicial redetermination of the correctness of the amount assessed except in a refund suit in which the plaintiff would have the burden of proof and could not maintain his action without waiver of his privilege under the Fifth Amendment against self-incrimination, and that absent such a redetermination his property will be subject to levy, distraint and sale for the amount of the assessment irrespective of whether it is the correct amount due.

Attached to the complaint as exhibits are the notice of the proposed excise tax assessment, containing the revenue agent's explanation that the plaintiff refused to permit the agent to examine his records, and showing that the proposed assessment was determined by averaging the total monthly gross receipts reported by the plaintiff for the past five years; and a schedule showing the total wagers reported on Forms 730 by the plaintiff for each month from April 1, 1963, to and including February, 1968, and the monthly averages of wagers and tax so reported. Similar exhibits show a proposed assessment of the annual $50.00 special occupational tax, with the explanation that "investigation into the matter of special tax liability has disclosed the operation of a lottery for profit by Mr. Collins" and that he had refused to file the required form.

The complaint does not allege, nor does the plaintiff contend, that he was not engaged in the wagering business during the relevant periods.

The gist of plaintiff's contentions on appeal is that neither the assessment nor the collection of the ten percent wagering excise tax³ should be permitted because the plaintiff's statutory remedy is limited to a suit for refund, in which in order to maintain his case he would be obliged to produce evidence that he owed less tax because he did less business than the government estimates, with the collateral consequence of incriminating himself under Indiana's anti-gambling statutes. He also contends that the assessment proposed by the government is arbitrary because it is without basis in evidence, and that unless the assessment and collection is enjoined he will suffer irreparable injury.

The main issue presented on appeal, as we perceive it, is whether the plaintiff has asserted the existence of facts which entitle him to equitable relief or as would permit an exception to the strict prohibition of 26 U.S.C.A. § 7421(a).

The Supreme Court has placed a gloss on the absolute command of § 7421(a) so as to allow for the extreme case where it is so obvious that the tax cannot be ultimately sustained that any effort to collect it calls into question the government's good faith. See, e. g., Miller v. Standard Nut Margarine Co., 284 U.S. 498, 52 S.Ct. 260, 76 L.Ed. 422. The Court's latest decision on the subject is Enochs v. Williams Packing & Nav. Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L. Ed.2d 292, where the Court pointed out that there are two requirements, each of which must be fulfilled, for avoidance of the statute: (1) irreparable injury and inadequacy of the legal remedy and (2) a finding that, under the most liberal view of the law and the facts, the United States cannot establish its claim. The Court observed (370 U.S. 1, at p. 6, 82 S.Ct. 1125, at p. 1129) that "such a suit one to restrain the assessment or collection of a tax may not be entertained merely because collection would cause an irreparable injury" but "this is not to say, of course, that inadequacy of the legal remedy need not be established if § 7421(a) is inapplicable". With respect to the element of inapplicability of § 7421(a), the Court went on to say (370 U.S. 1, 7-8, 82 S.Ct. 1125, 1129):

"We believe that the question of whether the Government has a chance of ultimately prevailing is to be determined on the basis of the information available to it at the time of suit. Only if it is then apparent that, under the most liberal view of the law and the facts, the United States cannot establish its claim, may the suit for an injunction be maintained. Otherwise, the District Court is without jurisdiction, and the complaint must be dismissed. To require more than good faith on the part of the Government would unduly interfere with a collateral objective of the Act — protection of the collector from litigation pending a suit for refund. And to permit even the maintenance of a suit in which an injunction could issue only after the taxpayer\'s nonliability had been conclusively established might `in every practical sense operate to suspend collection of the * * * taxes until the litigation is ended.\' Great Lakes Dredge & Dock Co. v. Huffman, 319 U.S. 293, 299 63 S.Ct. 1070, 87 L.Ed. 1407. Thus, in general, the Act prohibits suits for injunctions barring the collection of federal taxes when the collecting officers have made the assessment and claim that it is valid. Snyder v. Marks, 109 U.S. 189, 194

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