Laing v. United States United States v. Hall

• Decision Date: 21 January 1975
• Docket Number: Nos. 73-1808 and 74-75,s. 73-1808 and 74-75
• Citation: 96 S.Ct. 473,423 U.S. 161,46 L.Ed.2d 416
• Parties: James Burnett McKay LAING, Petitioner, v. UNITED STATES et al. UNITED STATES et al., Petitioners, v. Elizabeth Jane HALL
• Court: U.S. Supreme Court

423 U.S. 161

96 S.Ct. 473

46 L.Ed.2d 416

James Burnett McKay LAING, Petitioner,

v UNITED STATES et al.

UNITED STATES et al., Petitioners,

v. Elizabeth Jane HALL.

Nos. 73-1808 and 74-75.

Argued Jan. 21, 1975.

Reargued Oct. 15, 1975.

Decided Jan. 13, 1976.

Syllabus

These cases involve two income-tax payers whose taxable years were terminated by the Internal Revenue Service (IRS) prior to their normal expiration dates pursuant to the jeopardy-termination provisions of § 6851(a)(1) of the Internal Revenue Code of 1954 (Code), which allow the IRS immediately to terminate a taxpayer's taxable period when it finds that the taxpayer intends to commit any act tending to prejudice or render ineffectual the collection of his income tax for the current or preceding taxable year. Under § 6851 the tax is due immediately upon termination, and upon such termination the taxpayer's taxable year comes to a close. In each case, after the taxpayer failed to file a return or pay the tax assessed as demanded, the IRS levied upon and seized property of the taxpayer without having sent a notice of deficiency to the taxpayer, a jurisdictional prerequisite to a taxpayer's suit in the Tax Court for redetermination of his tax liability, and without having followed the other procedures mandated by § 6861 et seq. of the Code for the assessment and collection of a deficiency whose collection is in jeopardy. The Government contends that such procedures are inapplicable to a tax liability arising after a § 6851 termination because such liability is not a "deficiency" within the meaning of § 6211(a) of the Code, where the term is defined as the amount of the tax imposed less any amount that may have been reported by the taxpayer on his return. In No. 73-1808 the District Court held that a deficiency notice is not required when a taxable period is terminated pursuant to § 6851(a)(1), and dismissed the taxpayer's suit for injunctive and declaratory relief on the ground, inter alia, that it was prohibited by the Anti-Injunction Act, § 7421(a) of the Code, and the Court of Appeals affirmed. In No. 74-75 the District Court granted the taxpayer injunctive relief, holding that the Anti-Injunction Act was inapplicable because of the IRS's failure to follow the pro- cedures of § 6861 et seq., and the Court of Appeals affirmed. Held: Based on the plain language of the statutory provisions at issue, their place in the legislative scheme, and their legislative history, the tax owing, but not reported, at the time of a § 6851 termination is a deficiency whose assessment and collection is subject to the procedures of § 6861 et seq., and hence because the District Director in each case failed to comply with these requirements, the taxpayers' suits were not barred by the Anti-Injunction Act. Pp. 169-185.

(a) Under the statutory definition of § 6211(a), the tax owing and unreported after a jeopardy termination, which in these cases, as in most § 6851 terminations, is the full tax due, is clearly a deficiency, there being nothing in the definition to suggest that a deficiency can arise only at the conclusion of a 12-month taxable year and it being sufficient that the taxable period in question has come to an end and the tax in question is due and unreported. Pp. 173-175.

(b) To deny a taxpayer subjected to a jeopardy termination the opportunity to litigate his tax liability in the Tax Court, as would be the case under the Government's view that the unreported tax due after a jeopardy termination is not a deficiency and that hence a deficiency notice is not required, would be out of keeping with the thrust of the Code, which generally allows income-tax payers access to that court. Pp. 176-177.

(c) The jeopardy-assessment and jeopardy-termination provisions have long been treated in a closely parallel fashion, and there is nothing in the early codification of such provisions to suggest the contrary. Pp. 177-183.

No. 73-1808, 496 F.2d 853, reversed and remanded; No. 74-75, 6 Cir., 493 F.2d 1211, affirmed.

Joseph S. Oteri, Boston, Mass., for James Burnett McKay Laing. Stuart A. Smith, Washington, D. C., for the United States and others, by Donald M. Heavrin, Louisville, Ky., for Elizabeth Jane Hall.

Mr. Justice MARSHALL delivered the opinion of the Court.

These companion cases involve two taxpayers whose taxable years were terminated by the Internal Revenue Service (IRS) prior to their normal expiration date pursuant to the jeopardy termination provisions of § 6851(a)(1) of the Internal Revenue Code of 1954 (Code), 26 U.S.C. § 6851(a)(1).¹ Section 6851(a)(1) allows the IRS immediately to terminate a taxpayer's taxable period when it finds that the taxpayer intends to do any act tending to prejudice or render ineffectual the collection of his income tax for the current or preceding tax- able year. Upon termination the tax is immediately owing and, after notice, the IRS may, and usually does, levy upon the taxpayer's property under § 6331(a) of the Code, 26 U.S.C. § 6331(a), to assure payment.

We must decide whether the IRS, when assessing and collecting the unreported tax due after the termination of a taxpayer's taxable period, must follow the procedures mandated by § 6861 et seq. of the Code, 26 U.S.C. § 6861 et seq., for the assessment and collection of a deficiency whose collection is in jeopardy.² The answer, as we shall see, depends on whether the unreported tax due upon such a termination is a "deficiency" as defined in § 6211(a) of the Code, 26 U.S.C. § 6211(a) (1970 ed. and Supp. IV). The Government argues that the tax liability that arises after a § 6851 termination cannot be a "deficiency," and that the procedures for the assessment and collection of deficiencies in jeopardy are therefore inapplicable. We reject this argument. We agree with the taxpayers that any tax owing, but unreported, after a § 6851 termination is a deficiency, and that the assessment of that deficiency is subject to the provisions of § 6861 et seq. We reverse in No. 73-1808 and affirm in No. 74-75.

I

A. No. 73-1808, Laing v. United States. Petitioner James Burnett McKay Laing is a citizen of New Zea- land. He entered the United States from Canada on a temporary visitor's visa on May 31, 1972. On the following June 24, Mr. Laing and two companions sought to enter Canada from Vermont but were refused entry by Canadian officials. As they turned back, they were detained by United States customs authorities at Derby, Vt. Upon a search of the vehicle in which the three were traveling, the customs officers discovered in the engine compartment a suitcase containing more than $300,000 in United States currency. The IRS District Director found that petitioner Laing and his companions were in the process of placing assets beyond the reach of the Government by removing them from the United States, thereby tending to prejudice or render ineffectual the collection of their income tax.³ He declared the taxable periods of petitioner and his companions immediately terminated under § 6851(a). An assessment of $310,000 against each was orally asserted for the period from January 1 through June 24, 1972. The assessment against Mr. Laing was subsequently abated to the amount of $195,985.55 when a formal letter-notice of termination and demand for payment and the filing of a return were sent. Mr. Laing received no deficiency notice under § 6861(b) and no specific information about how the amount of the tax was determined.⁴

After Mr. Laing and his companions refused to pay the tax, the IRS seized the currency that had been found in the vehicle. A portion thereof was applied to the tax assessed against Mr. Laing.⁵

On July 15, petitioner, filed suit against the United States, the Commissioner of Internal Revenue, the District Director, and the Chief of the Collection Division, District of Vermont, in the United States District Court for the District of Vermont. He asserted the absence of a notice of deficiency, which he claimed was required under § 6861(b), and he challenged as violative of due process both the provisions of the levy and distraint statute, § 6331(a), and the actions of the IRS in seizing and retaining the currency "without any finding of a substantial or probable nexus between that money and taxable income." App. in No. 73-1808, p. 20.⁶

The District Court, relying on its controlling court's decision in Irving v. Gray, 479 F.2d 20 (CA2 1973), held that a notice of deficiency is not required when a taxable period is terminated pursuant to § 6851(a)(1), and dismissed the suit as prohibited by the Federal Anti-Injunction Act, § 7421(a) of the Code, 26 U.S.C. § 7421(a), and as within the plain wording of the exception to the Declaratory Judgment Act, 28 U.S.C. § 2201, for a controversy with respect to federal taxes. 364 F.Supp. 469 (1973).

Adhering to its earlier ruling in Irving, the Second Circuit affirmed per curiam. 496 F.2d 853 (1974). It expressly declined to follow the Sixth Circuit's decision in Rambo v. United States, 492 F.2d 1060 (1974).⁷ These rulings of the Second Circuit, and one of the Seventh Circuit, Williamson v. United States, 31 A.F.T.R.2d 73-800 (1971), appeared to be in conflict with holdings by other Courts of Appeals, Rambo v. United States, supra ; Hall v. United States, 493 F.2d 1211 (CA6 1974), and Clark v. Campbell, 501 F.2d 108 (CA5 1974).⁸ Suggesting that the conflict was irreconcilable and noting that some 70 pending cases in the federal courts depended on its resolution, the Solicitor General did not oppose Mr. Laing's petition for certiorari. We granted certiorari to resolve the conflict.⁹ 419 U.S. 824, 95 S.Ct. 39, 42 L.Ed.2d 47 (1974).

B. No. 74-75, United States v. Hall. Respondent Elizabeth Jane Hall is a resident of Shelbyville, Ky. After the arrest of her husband in Texas on drug-related charges, Kentucky state troopers obtained a warrant and searched respondent's home on January 31, 1973. They found controlled substances there. The...