Hiley v. U.S., 85-1739

• Decision Date: 19 December 1986
• Docket Number: No. 85-1739,85-1739
• Citation: 807 F.2d 623
• Parties: -334, 86-2 USTC P 9839 Donald E. HILEY and Ruth V. Hiley, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 623

807 F.2d 623

59 A.F.T.R.2d 87-334, 86-2 USTC P 9839

Donald E. HILEY and Ruth V. Hiley, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.

No. 85-1739.

United States Court of Appeals Seventh Circuit.

Argued Dec. 11, 1985.

Decided Dec. 10, 1986.

As Amended Dec. 19, 1986.

Robert E. Meldman, Meldman, Case, & Weine, Ltd., Milwaukee, Wis., for plaintiffs-appellants.

Gayle P. Miller, Asst. U.S. Atty. (Joseph P. Stadtmueller, U.S. Atty., Milwaukee, Wis., for defendant-appellee.

Before BAUER, Chief Judge, COFFEY, Circuit Judge, and ESCHBACH, Senior Circuit Judge.

ESCHBACH, Senior Circuit Judge.

The primary questions presented in this appeal are (1) whether this court has jurisdiction over this appeal and (2) whether the district court erred in dismissing this action under 26 U.S.C. Sec. 7429 for judicial review of jeopardy and termination tax assessments. For the reasons stated below, we will deny the appellee's motion to dismiss the appeal for lack of jurisdiction, reverse the district court's dismissal of the action, and remand for further proceedings.

I

On December 3, 1984, the Commissioner of the Internal Revenue Service ("Commissioner") issued to Donald E. and Ruth V. Hiley (referred to collectively as "taxpayer") a notice of jeopardy assessment pursuant to 26 U.S.C. Sec. 6861 for income tax, penalties, and interest in the amount of $58,329.74 and $74,619.49 for the tax years of 1982 and 1983, respectively. ¹ The notice stated that the Internal Revenue Service ("IRS" or "Service") had been informed that the taxpayer had been arrested for wagering violations with a large sum of money found in his possession and that his "financial solvency" was or appeared "to be imperiled, thereby tending to prejudice or render ineffectual collection of the income taxes" due for the years in question.

On December 13, 1984, the IRS issued another notice of jeopardy assessment pursuant to 26 U.S.C. Sec. 6862 for wagering and registry taxes, penalties, and interest in the amount of $201,175.54 for the period of On that same day, the IRS issued to the taxpayer a notice of termination assessment pursuant to 26 U.S.C. Sec. 6851 for income taxes in the amount of $33,084.64 for the 1984 tax year. ³ The notice referred to the same facts listed in the second notice as the basis for the assessment.

                May 1982 through October 1984. 2   This notice stated that, pursuant to a search by the authorities, the taxpayer had been found in possession of a large sum of money, "thereby tending to prejudice or render ineffectual collection of wagering tax and registry tax" for the relevant period and that the taxpayer appeared to be concealing income and assets from the government
                

All of the notices advised taxpayer of the right to obtain administrative and judicial review of the assessments pursuant to 26 U.S.C. Sec. 7429. ⁴ The taxpayer filed his administrative challenges in a timely manner and, after they were rejected by the IRS, filed an action on January 18, 1985, in federal district court for review of the IRS's determinations.

A hearing was held on February 13, 1985, and the Service, which bears the burden of proof on the issue whether the assessment was reasonable under the circumstances, called the taxpayer as its first witness. He refused to answer the questions posed by counsel for the United States and instead asserted his Fifth Amendment right not to be compelled to testify against himself. ⁵ The government then moved to dismiss the taxpayer's complaint and also filed with the court that same day a memorandum setting forth the facts that served as the basis for the assessments. On February 14, 1985, the court granted the United States's motion on the ground that the taxpayer, who had "initiated" this action, could not use the Fifth Amendment as both a "sword" and a "shield." ⁶ On February 25, 1985, the district court entered its order dismissing the action.

On March 11, 1985, the taxpayer filed in this court a petition for a writ of mandamus. We denied the petition and stated that:

Mandamus is an extraordinary remedy which will not issue absent a clear abuse of discretion. United States v. Dorfman, 690 F.2d 1217 (7th Cir.1977). Due to the lack of precedent in the area and the availability of further remedies short of mandamus for petitioners, we do not find mandamus warranted in this case.

The taxpayer then filed a notice of appeal on April 26, 1985. On July 12, 1985, the United States filed a motion to dismiss this action for lack of jurisdiction. We issued an order on August 1, 1985, stating that the motion to dismiss would be decided with the merits of this appeal by the panel assigned to hear the case.

II

A. Appellate Jurisdiction

1. Denial of Petition for Writ of Mandamus

The government contends that our denial of the taxpayer's petition for a writ of mandamus precludes consideration of this appeal in its entirety or at least of the subject-matter jurisdiction questions presented. We disagree. Where, as here, the denial of the petition is based not on the merits of the dispute, but rather on the limitations inherent in the extraordinary nature of the writ, such a denial does not preclude examination of the merits of the questions presented in the mandamus petition

                under the doctrines of res judicata or law of the case (unless perhaps those questions were actually decided by the denial).   See Hoffman v. Blaski, 363 U.S. 335, 340 & n. 9, 80 S.Ct. 1084, 1088 & n. 9, 4 L.Ed.2d 1254 (1960);  United States v. Dean, 752 F.2d 535, 541-42 (11th Cir.1985);  18 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure Sec. 4445 at 393-94, 396-97, Sec. 4478 at 798 & n. 31 (1981);  cf. Christianson v. Colt Industries Operating Corp., 798 F.2d 1051, 1056-1058, (7th Cir.1986).  As noted above, our order denying the taxpayer's petition stated only that "[d]ue to the lack of precedent in the area and the availability of further remedies short of mandamus for petitioners, we do not find mandamus warranted in this case."    This is manifestly not a decision on either the jurisdiction question or the merits and is, therefore, entitled to no preclusive effect in this appeal
                

2. Appellate Jurisdiction

Having found that we are not precluded from examining the jurisdictional issues, we will now consider the government's motion to dismiss for lack of appellate jurisdiction. Of course, even in the absence of such a motion, we have an obligation to determine sua sponte the basis of our subject-matter jurisdiction as well as that of the district court. Christianson v. Colt Industries Operating Corp., 798 F.2d 1051, 1055-56, (7th Cir.1986). For the reasons developed below, we find that this court has jurisdiction to consider the district court's dismissal of the taxpayer's complaint under 26 U.S.C. Sec. 7429 and will, therefore, deny the United States's motion to dismiss.

Our primary statutory grant of jurisdiction is 28 U.S.C. Sec. 1291, which provides in relevant part that the courts of appeals "shall have jurisdiction of appeals from all final decisions of the district courts of the United States." Thus, we have a broad and generalized authority to review the decisions of the lower courts. In addition, it must also be noted that plenary judicial review of administrative action (here, that of the IRS) is presumed to be available in all cases and that "only upon a showing of 'clear and convincing evidence' of a contrary legislative intent should the courts restrict access to judicial review." Abbott Laboratories v. Gardner, 387 U.S. 136, 141, 87 S.Ct. 1507, 1511, 18 L.Ed.2d 681 (1967); see also Lindahl v. Office of Personnel Management, 470 U.S. 768, 778-82, 105 S.Ct. 1620, 1627-28, 84 L.Ed.2d 674 (1985).

The Internal Revenue Code of 1954 ("Code") provides for "jeopardy" and "termination" assessments that operate to freeze the assets of the taxpayer until the existence and amount of tax liability can be determined; thus, the taxpayer loses the use of whatever property is seized by the IRS until judgment is rendered. Williams v. United States, 704 F.2d 1222, 1225 n. 3 (11th Cir.1983). Before 1976, the taxpayer's remedies for jeopardy and termination assessments were the same as those for normal assessments, i.e., petitioning the Tax Court for a redetermination or filing a refund suit in a United States district court or in the former Court of Claims. Congress, recognizing that these procedures often work a serious hardship on the taxpayer, enacted Sec. 7429 of the Code as part of the Tax Reform Act of 1976, Pub.L. No. 94-455, Sec. 1204(a), 90 Stat. 1520, 1695-96. See Vicknair v. United States, 617 F.2d 1129, 1131 (5th Cir.1980). Section 7429 provides for "expedited" administrative and judicial action in an effort to eliminate to the extent practicable the inevitable delay in obtaining review of jeopardy and termination assessments under prior law. See S.Rep. No. 938 (Part 1), 94th Cong., 2d Sess. 359-67, reprinted in 1976 U.S.Code Cong. & Ad.News 3439, 3789-96; H.R.Rep. No. 658, 94th Cong., 2d Sess. 299-304, reprinted in U.S.Code Cong. & Ad.News 2897, 3195-3200; Joint Committee of Taxation, 94th Cong., 2d Sess., General Explanation of the Tax Reform Act of 1976; see also Commissioner v. Shapiro, 424 U.S. 614, 96 S.Ct. 1062, 47 L.Ed.2d 278 (1976); Laing v. United States, 423 U.S. 161, 96 S.Ct. 473, 46 L.Ed.2d 416 (1976).

Under Sec. 7429(b)(1), the taxpayer, after seeking administrative review of the assessment, may bring a civil action in district court within 30 days of the administrative determination or within 30 days of the 16th day after the taxpayer's request for administrative review (whichever is earlier). Section 7429(b)(2) provides that, within 20 days after the action is commenced, the district court "shall determine" whether "the making of the assessment under section 6851, 6861, or 6862 ... is reasonable under the circumstances" and whether "the amount so assessed or demanded as a...