Laino v. U.S., 85
| Decision Date | 06 October 1980 |
| Docket Number | D,No. 85,85 |
| Citation | 633 F.2d 626 |
| Parties | 80-2 USTC P 9724 Pasquale LAINO and Minerva Laino, Plaintiffs-Appellants, v. UNITED STATES of America, Jerome Kurtz, as he is the Commissioner of the Internal Revenue Service, and George S. Alberts, as he is the District Director of Internal Revenue, Brooklyn District, Defendants-Appellees. ocket 80-6039. |
| Court | U.S. Court of Appeals — Second Circuit |
John A. Dudeck, Jr., Tax Div., Dept. of Justice, Washington, D.C. (Edward R. Korman, U.S. Atty., E. D. N. Y., New York City, M. Carr Ferguson, Asst. Atty. Gen., Gilbert E. Andrews and Richard W. Perkins, Tax Div., Dept. of Justice, Washington, D.C., of counsel), for defendants-appellees.
Elliott H. Pollack, New York City (Law Offices of Michael B. Pollack, New York City), for plaintiffs-appellants.
Before FRIENDLY and MESKILL, Circuit Judges, and BONSAL, District Judge. *
Pasquale and Minerva Laino, husband and wife, brought suit in the District Court for the Eastern District of New York, seeking to declare null and void an income tax assessment based on unreported income from gambling activities asserted against them by the Commissioner of Internal Revenue, and to enjoin the Commissioner from enforcing a lien to collect the tax. 1 The district court dismissed the complaint for lack of subject matter jurisdiction and this appeal followed. We affirm.
Appellants' tax problems date back to 1973, when the New York City Police Department placed Pasquale Laino under surveillance on suspicion of bookmaking activities. According to the sworn affidavit of Patrolman Robert Patterson, on five days in April beginning on April 2, 1973, Laino was observed receiving slips of paper and money in bill form from a variety of persons at a social club in Brooklyn. In a typical transaction, a "runner" would enter the premises, hand an envelope or brown paper bag containing the policy slips and cash to Laino, who would then count the money, place the slips behind a counter and stash the bills in his pocket. Late in the afternoon Laino would put all the slips and bills in a large brown paper bag and give the bag to someone else, who would then leave the club and drive off. The affidavit also alleged that on one occasion the large brown paper bag containing the day's receipts was placed in the trunk of a Cadillac regularly used by Laino, and that on one afternoon late in April, the bag was taken directly to Laino's residence in Queens. Based on this affidavit, a search warrant issued and a raid of the Laino home took place on May 3, 1973. In the course of their search, the police seized 8 banker statements, 142 controller statements, 9 pay and collect slips, 4 controller ribbons, 181 weekly collectors' records, one adding machine, and $1,713 in currency.
Pasquale Laino was arrested and indicted on one count of promoting gambling in the second degree and one count of possession of gambling records in the second degree. Penal Law, McKinney's Consol. Laws of N.Y.Ann., §§ 225.05, 225.15. On January 7, 1974, Laino withdrew his pleas of not guilty and pled guilty to the second count of possession of gambling records. Upon the recommendation of the district attorney, the court accepted the plea. Prior to sentencing, counsel for Laino made the following statement, which we shall relate because of the importance attached to it by appellants:
He has not been previously convicted of any crime. His involvement I can say was a minor one. These were not his personal records. He was an employee of someone making a normal salary for just holding the records. He is not anything big in the hierachy. He is like a middle man. He is gainfully employed.
This colloquy continued as follows:
The Court: How old are your children?
The Defendant: The oldest one is eight, six, three and three months.
The Court: How old are you, sir?
The Defendant: Thirty-three years old.
The Court: Well, I don't think any useful purpose would be (served by) putting you on probation. If you have been fooling around with policy or gambling, this is the time to stop.
Laino received a fine of $1,000.
On July 20, 1977, the Internal Revenue Service (IRS) mailed a notice of deficiency to appellants, notifying them of unpaid taxes for 1973 in the amount of $57,677.87 plus interest and penalties. The amount of unreported taxable income was computed as follows: from 5 days of betting slips totalling $67,115.70 seized in the raid on Laino's house, an average per day of $13,423.14 was obtained. This daily average was multiplied by 29 days, yielding a figure for gross receipts equal to $389,271.06. Profits were estimated at thirty-five percent, resulting in unreported net taxable income of $136,244.87. The tax owing on the Laino's reported and unreported income was then calculated to be $57,677.87.
At no time did appellants take advantage of their right to file a petition with the Tax Court seeking redetermination of the deficiency, see 26 U.S.C. § 6213. Subsequently, in December, 1977, the IRS assessed the outstanding taxes, penalty and interest against them, and in March, 1978, filed notice of a tax lien in the office of the Register of Queens County, N.Y., where the Lainos' home is located. Another year passed, and in May, 1979, appellants brought this action in the district court seeking injunctive and declaratory relief. Their principal contention below, and again on appeal, was that Pasquale Laino had no proprietary interest in the bookmaking operation but served merely as a bookkeeper at a salary of $150 per week, and that the Commissioner had not presented any evidence of ownership. According to appellants, the Commissioner's assessment attributing the total profits of the scheme to Laino thus lacked any basis in fact. As noted above, the district court, for reasons which will appear more clearly below, dismissed for lack of subject matter jurisdiction.
Section 7421(a) of the Internal Revenue Code of 1954, 26 U.S.C. § 7421(a), commonly known as the Anti-Injunction Act (the Act), provides with certain exceptions that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed." The only statutory exception of which appellants might at one time have availed themselves is that set out in section 6213(a), 26 U.S.C. § 6213(a), which prohibits the Commissioner from assessing or collecting a tax prior to the mailing of a notice of deficiency, prior to the expiration of the ninety-day period following such a mailing in which a taxpayer may petition the Tax Court for a redetermination of the deficiency, or prior to the rendering of a final decision of the Tax Court if such a petition has been filed. In these circumstances, if the Commissioner makes an assessment or takes steps to collect a tax, section 6213(a) expressly allows injunctive relief. Appellants, however, have not questioned the validity or the receipt of the notice of deficiency sent to them, nor did they petition the Tax Court during the ninety-day period or at any time thereafter.
Recognizing the force of this statutory bar to the maintenance of their suit, appellants seek to bring their cause within the judicially created exception to the Anti-Injunction Act articulated in Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962). There the Court announced a two-part test permitting an injunction suit to be maintained "if it is clear that under no circumstances could the Government ultimately prevail," and if equity jurisdiction otherwise exists. Id. at 7, 82 S.Ct. at 1129.
(T)he question of whether the Government has a chance of ultimately prevailing is to be determined on the basis of the information available to it at the time of suit. Only if it is then apparent that, under the most liberal view of the law and the facts, the United States cannot establish its claim, may the suit for an injunction be maintained. Otherwise, the District Court is without jurisdiction, and the complaint must be dismissed.
Id. Later decisions reaffirming this two-pronged test have noted the "almost literal effect" which Williams Packing gave to the Act, and characterized it as requiring that the Government's action be "plainly without a legal basis" or have "no chance of success on the merits." Bob Jones University v. Simon, 416 U.S. 725, 737, 745, 94 S.Ct. 2038, 2046, 2050, 40 L.Ed.2d 496 (1974). See also Alexander v. "Americans United" Inc., 416 U.S. 752, 94 S.Ct. 2053, 40 L.Ed.2d 518 (1974); Commissioner of Internal Revenue v. Shapiro, 424 U.S. 614, 96 S.Ct. 1062, 47 L.Ed.2d 278 (1976). Appellants' attempt to invoke Williams Packing must be rejected because they have failed to satisfy either of its prerequisites, namely, a showing of equity jurisdiction or that "under no circumstances could the Government ultimately prevail." 2
Appellants assert that the one legal remedy still open to them a refund suit which would require that they first pay in full the amount assessed against them by the Commissioner, see Flora v. United States, 362 U.S. 145, 80 S.Ct. 630, 4 L.Ed.2d 623 (1960) is inadequate because they are financially unable to "pay first and litigate later." Id. at 168, 80 S.Ct. at 642. Moreover, they assert that if the IRS were to foreclose upon their house, in which they reside with their five minor children, they would suffer irreparable harm. Accepting these contentions as true for the purpose of argument, and acknowledging that no judge could regard with enthusiasm the prospect of the dispossession of a family of seven, we nevertheless must view the adequacy of appellants' legal remedies in the light of all the remedies afforded them by the Internal Revenue Code. From this perspective, it is decisive that appellants failed to exhaust their legal remedies by neglecting to petition the Tax...
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