Homan Mfg. Co. v. Long

• Decision Date: 04 February 1957
• Docket Number: No. 11782.,11782.
• Citation: 242 F.2d 645
• Parties: HOMAN MFG. CO., Inc., Plaintiff-Appellee, v. H. A. LONG et al., Defendants-Appellants,
• Court: U.S. Court of Appeals — Seventh Circuit

242 F.2d 645 (1957)

HOMAN MFG. CO., Inc., Plaintiff-Appellee, v. H. A. LONG et al., Defendants-Appellants,

No. 11782.

United States Court of Appeals Seventh Circuit.

February 4, 1957.

Charles K. Rice, Asst. Atty. Gen., Frederic G. Rita, Atty., Tax Division, U. S. Dept. of Justice, Washington, D. C., Robert Tieken, U. S. Atty., Chicago, Ill., John N. Stull, Acting Asst. Atty. Gen., Robert N. Anderson, A. F. Prescott, Attys., Dept. of Justice, Washington, D. C., Alexander O. Walter, John Peter Lulinski, Donald S. Lowitz, Asst. U. S. Attys., Chicago, Ill. for appellants.

George B. Christensen, Edward J. Wendrow, Chicago, Ill., William T. Kirby, Chicago, Ill., for appellee, Winston, Strawn, Smith & Patterson, Chicago, Ill., of counsel.

Before FINNEGAN, LINDLEY and SWAIM, Circuit Judges.

FINNEGAN, Circuit Judge.

A summary judgment obtained by plaintiff-corporate-taxpayer, Homan Manufacturing Co., Inc.,¹ against the defendant,² Director of Internal Revenue precipitated the latter's appeal. Plaintiff challenged the deficiency assessment underlying a Federal tax lien, 68A Stat. 779, I.R.C.1954, § 6322, 26 U.S.C.A. § 6322. Homan is subject to taxation and there is absent any question of statutory exclusion, 68A Stat. 911, I.R.C.1954, § 7701, 26 U.S.C.A. § 7701. In short, Homan launched a frontal attack on the assessment, involved in this appeal, for the purpose of freeing funds frozen under a notice of levy, dated September 15, 1955, served on several hundred Federal Savings & Loan Associations where plaintiff has moneys on deposit, and which contains this itemization:

                                                          Date of
                      Period and Type of Tax             Assessment          Account No
                  -----------------------------------------------------------------------
                  1944                   DVEP             9/15/55           55/30/9103900
                  1944                   EP               9/15/55           55/30/9103900
                  1945                   DVEP             9/15/55           55/30/9103901
                  1945                   EP               9/15/55           55/30/9103901
                  1946                   Income           9/15/55           55/30/9103902
                                        Unpaid                 Statutory
                   |Period|            Balance                 Additions         Total
                   |------|  ------------------------------------------------------------
                   |      |
                   | 1944 |          $ 53,517.82            P.  26,758.91
                   |      |                                 I.  33,716.23      113,992.96
                   | 1944 |           409,084.68            P. 250,993.15
                                                  I. 257,723.35      917,801.18
                   | 1945 |            73,064.47            P.  36,532.24
                   |      |                                 I.  41,646.75      151,243.46
                   | 1945 |           682,126.51            P. 353,277.69
                   |      |                                 I. 388,812.11    1,424,216.31
                   | 1946 |           281,029.72            P. 140,514.86
                                                            I. 143,352.161   564,869.74
                                                       Total Amount Due     $3,172,123.65
                

Roughly eleven days after that notice, Homan was granted a temporary restraining order directed to Ernest J. Sauber, then District Director of Internal Revenue. A "ninety-day" letter, dated November 14, 1955, was sent to and received by the taxpayer.³

By a supplemental affidavit filed in opposition to plaintiff's motion for summary judgment, it is stated, by defense counsel that: "On or about February 10, 1956, The Homan Mfg. Co., Inc., * * * filed with the Tax Court of the United States a petition for review of the assessment complained of in this action." With what has been said thus far, we clear our opinion of several technical statutory steps which might otherwise be overlooked.

This appeal lends itself to three main divisions:

(I) The nature and purpose of jeopardy assessments and, (II) The unequivocal prohibitory language⁴ found in § 7421 of the Internal Revenue Code of 1954, 68A Stat. 876, 26 U.S.C.A. § 7421, and (III) Allowance of plaintiff's motion for summary judgment. Normally jurisdictional questions demand primary attention. But under the circumstances of this case we think it advisable to first examine the jeopardy assessment phase.

I.

Under § 6201 of the I.R.C. of 1954, 26 U.S.C.A. § 6201 the Secretary of the Treasury or his delegate make the inquiries, determinations, and assessments of all taxes (including interest, additional amounts, additions to the tax, and assessable penalties) imposed by the Code and "* * * assess all taxes determined by the taxpayer or by the Secretary or his delegate as to which returns or lists are made * * *." That section is implemented by another provision, § 6204, embodying this general rule: "The Secretary or his delegate may, at any time within the period prescribed for assessment, make a supplemental assessment whenever it is ascertained that any assessment is imperfect or incomplete in any material respect." Section 6204 in the present Code contains no material change from existing law. Limitations on assessment and collection are governed by provisions, §§ 6501-6503, in Chapter 66 of the Code. Two other integral parts of the Code should also be noted: "§ 6202. * * * If the mode or time for the assessment of any internal revenue tax (including interest, additional amounts, additions to the tax, and assessable penalties) is not otherwise provided for, the Secretary or his delegate may establish the same by regulations," and "§ 6203. * * * The assessment shall be made by recording the liability of the taxpayer in the office of the Secretary or his delegate in accordance with rules or regulations prescribed by the Secretary or his delegate. Upon request of the taxpayer, the Secretary or his delegate shall furnish the taxpayer a copy of the record of the assessment." In other words, in this case, by filing its return plaintiff's corporate predecessor made, as do most taxpayers, its self-assessment. If the initial return is accepted, income tax is paid and collected on the basis of a taxpayer's own assessment, made pursuant to the relevant statutory provisions and regulations. After filing a tax return and on dispute, but before ultimate disposition there are various administrative steps and procedures within the structure of the Internal Revenue Service. But even during the period of such administrative activity the Commissioner may invoke the statutory weapon, jeopardy assessment, for the purpose of insulating the collection of the taxes, claimed of a particular taxpayer, against loss or prejudice. See, e.g., Brown Wheeler Co. v. Commissioner, 1930, 21 B.T.A. 755.

Authority for making jeopardy assessments is conferred by Congress through § 6861, I.R.C.1954, 68A Stat. 834, 26 U.S.C.A. § 6861: "If the Secretary or his delegate believes that the assessment or collection of a deficiency, as defined in section 6211, will be jeopardized by delay, he shall, notwithstanding the provisions of section 6213(a), immediately assess such deficiency (together with all interest, additional amounts, and additions to the tax provided for by law), and notice and demand shall be made by the Secretary or his delegate for the payment thereof." (Italics supplied.) Section 6211, of the 1954 Code, set out in the marginal note⁵ defines "deficiency."

While there are some statutory limitations on the time for assessments and collections, under § 6501(c) (1) and (2) no period of limitations is provided where there is a false or fraudulent return, or a willful attempt to evade tax.

Congress gave the Secretary, or his delegate, a stop-gap remedy under § 6861. Like all first aid measures it is subject to abuse or improper use. The Code does provide interim relief for a taxpayer if he is able to give a bond under § 6863⁶ and, of course, a review of the assessment is available in the tax court. We are not now saying that either the bond section or tax court review are the panacea for all ills suffered when a jeopardy assessment is utilized by the government.

Senate Report No. 730 accompanying the bill (H.R. 6402) providing for abatement of jeopardy assessments, approved August 14, 1953 and now § 6861(g) contains the following cogent observations:⁷

"H.R. 6402 specifically authorizes the Secretary of the Treasury to abate so-called jeopardy assessments when the Secretary determines that jeopardy does not exist.

"Under existing law if the Bureau of Internal Revenue believes that ultimate collection of a tax is in danger, it may make a so-called jeopardy assessment. This is an arbitrary assessment designed to get control of available assets of the taxpayer pending final determination of the liability, if any. At the present time, once such an assessment has been made, the Bureau believes that it does not have authority to revoke the assessment even though it finds that a mistake has been made and that there is no danger of losing the tax. As a result, the Bureau has had in the past and now has cases before it in which arbitrary jeopardy assessments, which may be greatly in excess of any tax finally found to be due, are a cause of financial embarrassment and danger to the taxpayer involved. The Bureau believes it is unable to do anything about such cases even though it agrees that there would in fact be no risk to the revenue in following normal procedures.

"This bill simply permits the revocation of a jeopardy assessment whenever it appears that there is in fact no danger of losing any tax which may be due. Enactment of H. R. 6402 is recommended by the Treasury Department.

"The bill will apply only to assessments outstanding at the date of enactment and assessments thereafter made." (Emphasis ours.)

Section 6861(g) currently effective provides, inter alia:

"The Secretary or his delegate may abate the jeopardy assessment if he finds that jeopardy does not exist. Such abatement may not be made after a decision of the Tax Court in respect of the

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