Commissioner of Internal Revenue v. Shapiro

• Decision Date: 08 March 1976
• Docket Number: No. 74-744,74-744
• Citation: 424 U.S. 614,96 S.Ct. 1062,47 L.Ed.2d 278
• Parties: COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. Samuel SHAPIRO et ux
• Court: U.S. Supreme Court

47 L.Ed.2d 278

96 S.Ct. 1062

424 U.S. 614

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

v Samuel SHAPIRO et ux.

No. 74-744.

Argued Nov. 5, 1975.

Decided March 8, 1976.

Syllabus

Finding that the imminent departure of respondent taxpayer Samuel Shapiro (hereinafter respondent) for Israel under an extradition order to stand trial there on criminal charges jeopardized the collection of income taxes claimed owed by respondent for 1970 and 1971, petitioner Commissioner of Internal Revenue made a jeopardy assessment, filed liens against respondent, and served notices of levy on various banks in which respondent had accounts or safe-deposit boxes. Respondent then brought suit, claiming that he owed no taxes, that he could not litigate the issue while jailed in Israel, and that he would be in jail there unless he could use the levied bank accounts as bail money, and seeking an order enjoining his extradition until he could litigate whether he owed taxes or directing the Internal Revenue Service to lift the levy notices. After the Commissioner, in response to interrogatories, furnished deficiency notices disclosing that the claimed bases for the assessments were for 1970 unexplained cash bank deposits and for 1971 income derived from alleged narcotics sales, the District Court dismissed the complaint on the ground, inter alia, that the Anti-Injunction Act (Act), § 7421(a) of the Internal Revenue Code, which prohibits suits for the purpose of restraining the assessment or collection of taxes, withdrew its jurisdiction to order levies lifted. The Court of Appeals disagreed and remanded for further proceedings, holding that an unresolved fact issue existed as to whether the case fell within the exception to the Act formulated in Enochs v. Williams Packing Co., 370 U.S. 1, 7, 82 S.Ct. 1125, 1129, 8 L.Ed.2d 292, 296, whereby an injunction may be obtained against the collection of any tax if (1) it is "clear that under no circumstances could the Government ultimately prevail" and (2) "equity jurisdiction" otherwise exists in that the taxpayer shows that he would otherwise suffer irreparable injury. The court found that respondent had satisfied the second test because he would be incarcerated until his bank accounts could be used for bail money, and that as to the first test the District Court should not have dismissed the complaint without a further inquiry into whether upon viewing the law and the facts most favorably to the Commissioner there was no "factual foundation" for his claim that respondent was a tax-delinquent narcotics dealer during 1971 and thus no basis for the assessment. Held: The Act did not require dismissal of respondent's complaint. Pp. 624-633.

(a) Whether the Commissioner has a chance of ultimately prevailing for purposes of the Williams Packing exception is a question to be resolved on the basis of the information available to the Commissioner at the time of the suit. Hence, the Court of Appeals did not err in declining to specify the precise manner in which the relevant facts would be revealed on remand, since whether the Commissioner discloses such facts because he has the technical burden of proof or discloses them in response to a discovery motion or interrogatories, under Williams Packing the relevant facts are those in the Commissioner's possession and must somehow be obtained from him. Pp. 624-628.

(b) The Act's primary purpose is not interfered with by not requiring the taxpayer to plead specific facts which, if true, would establish that the Commissioner cannot ultimately prevail, since the collection of taxes will not be restrained unless the District Court is persuaded from the evidence eventually adduced that the Commissioner will under no circumstances prevail. Moreover, the Act's "collateral objective" to protect the collector from tax litigation outside the statutory scheme is not undercut, since the taxpayer himself must still plead and prove facts establishing that his remedy in the Tax Court or in a refund suit is inadequate to repair any injury caused by an erroneous assessment or collection, in which case the Commissioner is required simply to litigate the question whether his assessment has a basis in fact. Pp. 628-629.

(c) While to permit the Commissioner to seize and hold property on the mere good-faith allegation of an unpaid tax would raise serious due process problems in cases like this one, where it is asserted that seizure of assets pursuant to a jeopardy assessment is causing irreparable injury, the case may be resolved, under the Williams Packing exception, solely by reference to the Act, whose required standard as to affording the taxpayer an opportunity for a hearing and as to the evidence necessary to show that an assessment has a basis in fact is at least as favorable to the taxpayer as that required by the Constitution. Pp. 629-633.

162 U.S.App.D.C. 391, 499 F.2d 527, affirmed.

MyroC. Baum, Washington, D. C., for petitioner.

Nathan Lewin, Washington, D. C., for respondents.

Mr. Justice WHITE delivered the opinion of the Court.

This case presents questions relating to the scope of the Internal Revenue Code's Anti-Injunction Act, 26 U.S.C. § 7421(a),¹ in the context of a summary seizure of a taxpayer's assets pursuant to a jeopardy assessment. §§ 6861, 6331, 6213.

I

Normally, the Internal Revenue Service may not "assess" a tax or collect it, by levying on or otherwise seizing a taxpayer's assets, until the taxpayer has had an opportunity to exhaust his administrative remedies, which include an opportunity to litigate his tax liability fully in the Tax Court, 26 U.S.C. §§ 6212, 6213; ² and if the Internal Revenue Service does attempt to collect the tax by levy or otherwise, before such exhaustion of remedies in violation of § 6213, the collection is not protected by the Anti-Injunction Act and may be restrained by a United States district court at the instance of the taxpayer. §§ 6213(a), 7421(a). The rule is otherwise when the Commissioner proceeds under § 6861 and finds that collection of a tax due and owing from a taxpayer will be "jeopardized by delay" in collection. In such a case, the Commissioner may immediately assess the tax and, upon "notice and demand . . . for payment thereof" followed by the taxpayer's "failure or refusal to pay such tax," may immediately levy on the taxpayer's assets. §§ 6861, 6331.³ When the Commissioner follows this procedure, the Anti-Injunction Act applies in full force and "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person." § 7421(a).

In this case, the Commissioner found, on December 6, 1973, that the imminent departure of respondent Samuel Shapiro (hereinafter Shapiro or respondent) for Israel and the probable departure with him of the assets in his New York bank accounts and safe-deposit boxes jeopardized the collection of income taxes claimed to be due and owing by him for the tax years 1970 and 1971. Accordingly, he assessed income taxes against respondent in the amount of $92,726.41 for the tax years 1970 and 1971. On the same day, he filed liens against respondent and served notices of levy upon various banks in New York State in which respondent maintained accounts or had safe-deposit boxes. These notices of levy effectively froze the money in the accounts totaling about $35,000 and the contents of the safe-deposit boxes.

At that time respondent Shaprio was under a final order of extradition to Israel, for trial on criminal fraud charges, issued by the United States District Court for the Southern District of New York, and was scheduled to leave for Israel on December 9, 1973 three days later. That date had been set as a result of an agreement between Shapiro and the State of Israel pursuant to which he had withdrawn a petition for writ of certiorari seeking review by this Court of the affirmance of the extradition order by the Court of Appeals for the Second Circuit Shapiro v. Ferrandina, 478 F.2d 894 (1973), and the State of Israel had agreed to grant him a speedy trial when he arrived in Israel and to release him on $60,000 bail pending such trial.

Upon learning of the notices of levy, respondent obtained the consent of the State of Israel to postpone his extradition date until December 16, 1973; and then on December 13, 1973, he initiated the instant lawsuit. Claiming that he owed no taxes; that he could not litigate the issue with the Internal Revenue Service while in jail in Israel; that he would be in jail in Israel, unless he could use the frozen $35,000 as bail money; and that the Internal Revenue Service had deliberately and in bad faith waited until December 6, 1973, before filing its notices of levy precisely in order to place him in this predicament, respondent requested in his complaint an order enjoining his extradition until he had an opportunity to litigate the question whether he owed the Internal Revenue Service any taxes or, in the alternative, an order directing the Internal Revenue Service to lift the notices of levy.

Over the Government's claim that the court lacked jurisdiction over the case by reason of the Anti-Injunction Act and because the timing of an extradition is a matter within the exclusive jurisdiction of the Executive Branch, the District Court granted a temporary restraining order against extradition on December 13, 1973, and set argument on the motion for a preliminary injunction for December 19, 1973, later postponed until December 21, 1973. Interrogatories were then served on the Government inquiring, Inter alia, into the basis for the assessments. In partial, expedited, response to the interrogatories, the Government stated on December 19, 1973, that respondent was not yet entitled to know the basis for the assessments. Then on December 21 1973, the Commissioner served counsel for respondent with supplements to the responses to the interrogatories to which were appended notices of...