Heller v. Scanlon

• Decision Date: 07 July 1961
• Docket Number: No. 61-C-326.,61-C-326.
• Citation: 196 F. Supp. 832
• Parties: Joseph I. HELLER, Plaintiff, v. Thomas E. SCANLON, District Director of Internal Revenue for the District of Brooklyn, New York, Defendant.
• Court: U.S. District Court — Eastern District of New York

196 F. Supp. 832

Joseph I. HELLER, Plaintiff, v. Thomas E. SCANLON, District Director of Internal Revenue for the District of Brooklyn, New York, Defendant.

No. 61-C-326.

United States District Court E. D. New York.

July 7, 1961.

Weisman, Allan, Spett & Sheinberg, New York City, for plaintiff. Herbert R. Berk, Robert Cahn, New York City, of counsel.

Joseph P. Hoey, U. S. Atty., E. D. New York, Brooklyn, N. Y., for defendant. Jon H. Hammer, Asst. U. S. Atty., Brooklyn, N. Y., of counsel.

BARTELS, District Judge.

Motion by defendant to dismiss the complaint herein, pursuant to Rule 12(b), Fed.Rules Civ.Proc., 28 U.S.C.A.

The action, commenced pursuant to 28 U.S.C.A. § 1340, is primarily for injunctive relief against the enforcement by the District Director of Internal Revenue of certain tax liens arising out of penalty assessments imposed pursuant to Section 6672 of the Internal Revenue Code (26 U.S.C.A.) for the failure of plaintiff to collect, account for and pay over withholding taxes. The complaint alleges that plaintiff was vice-president of Voltar Electronics, Inc., in charge of engineering; that Voltar was adjudicated a bankrupt in 1958 while it owed the Government withholding taxes for the last three quarters of 1957 and the first two quarters of 1958 amounting to $6, 337.36; that the Government has not collected any portion thereof; that a 100% penalty assessment was made against plaintiff and a notice of tax lien filed against him in Kings County although he never had "the duty of preparing, signing and/or filing any tax returns whatsoever" or "the duty to collect, account for and/or pay over any withholding and/or other employment taxes on behalf of Voltar"; and that said lien now causes plaintiff irreparable harm by way of damage to reputation, harassment and liability to turn over assets he may hereafter acquire in order to satisfy the assessment and lien. To this recital he adds that "the existence of such lien will upon information and belief, impede and/or prevent plaintiff from obtaining and/or holding employment" (emphasis added). In amplification of this allegation plaintiff argues in his brief that he is engaged in the field of electronics, which is a sensitive field involving Government contracts and is thus in a vulnerable position. This assertion is not included in the complaint but it is doubtful that such inclusion would produce a different result. The relief prayed for is a declaration that the assessments are null and void and an injunction against the enforcement or collection of the assessments.

Defendant seeks dismissal of the complaint on the grounds that (i) the Court lacks jurisdiction over the subject matter, (ii) injunctive relief is precluded by Section 7421(a), I.R.C., (iii) the United States is an indispensable party which has not been joined, (iv) the complaint is in effect, one for a declaratory judgment which cannot be granted in a case involving a tax dispute (28 U.S. C.A. § 2201) and (v) the complaint fails to state facts upon which any relief can be granted.

Upon this motion the Court must accept as true all of the facts alleged in the complaint. Merrimac Hat Corporation v. Crown Overall Mfg. Co., D.C.N.Y. 1950, 91 F.Supp. 49. It will therefore be assumed that as far as this plaintiff is concerned there is no basis for the exaction of the assessment and the filing of the liens by the District Director. But this is not enough to protect the plaintiff. If equitable relief is unavailable to him in this action he cannot prevail and the other grounds urged in support of the motion become moot.

Defendant contends that plaintiff is not entitled to equitable relief in view of the prohibition of Section 7421 (a) which provides, in part, that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court" (emphasis added). Plaintiff replies that in accordance with Section 6672 the penalty assessment herein is not a tax, but "a penalty equal to the total amount of the tax" and that Section 7421 has no applicability to penalties because they are exceptions to the general rule. See Hill v. Wallace, 1922, 259 U.S. 44, 42 S.Ct. 453, 66 L.Ed. 822; Lipke v. Lederer, 1922, 259 U.S. 557, 42 S.Ct. 549, 66 L.Ed. 1061. Although discussed by the Court in Botta v. Scanlon, 2 Cir., 1961, 288 F.2d 504, 505, the question of whether an assessment of the present kind is a tax or penalty was left undecided. In Ruby v. Mayer, D.C.N.J. 1961, 194 F.Supp. 594, Chief Judge Smith described the assessment as a penalty. The classification of this assessment as a tax or penalty, however, seems to be of little consequence because Section 6671 (a) provides that "* * * Except as otherwise provided, any reference in this title to `tax' imposed by this title shall be deemed also to refer to the penalties and liabilities provided...