Licavoli v. Nixon

• Decision Date: 18 January 1963
• Docket Number: No. 14952.,14952.
• Citation: 312 F.2d 200
• Parties: Peter LICAVOLI and Grace Licavoli, his wife, Plaintiffs-Appellants, v. R. I. NIXON, District Director, Internal Revenue Service, and United States of America, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

312 F.2d 200 (1963)

Peter LICAVOLI and Grace Licavoli, his wife, Plaintiffs-Appellants, v. R. I. NIXON, District Director, Internal Revenue Service, and United States of America, Defendants-Appellees.

No. 14952.

United States Court of Appeals Sixth Circuit.

January 18, 1963.

John F. Noonan, Detroit, Mich. (Robert E. Toohey, Detroit, Mich., on the brief), for appellants.

Benjamin M. Parker, Atty., Dept. of Justice, Washington, D. C. (Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, Meyer Rothwacks, Attys., Dept. of Justice, Washington, D. C., Lawrence Gubow, U. S. Atty., Detroit, Mich., on the brief), for appellees.

Before CECIL, Chief Judge, MILLER, Circuit Judge, and BOYD, District Judge.

SHACKELFORD MILLER, Jr., Circuit Judge.

The taxpayers, Peter Licavoli and Grace Licavoli, his wife, filed this action in the District Court to enjoin the Government and the District Director, Internal Revenue Service, from assessing and collecting income taxes and fraud penalties for the years 1948 through 1951 in the amount of $411,162.58, resulting from jeopardy assessments made by the Government. Following the issuance of an order to show cause, the Government filed its motion to dismiss. The motion was heard orally and upon briefs by the District Judge, who thereafter denied plaintiffs' motion for a preliminary injunction and granted defendants' motion to dismiss. Licavoli v. Nixon, 201 F. Supp. 835, E.D.Mich.

The factual background is as follows.

On March 1, 1955, separate statutory notices of deficiencies were mailed to each of the taxpayers for the year 1947 and one to the taxpayers jointly for the years 1948-1951. The proposed deficiencies were based upon a net worth analysis of taxpayers' assets. Except for the year 1951, they were barred by the statute of limitations, in accordance with the provisions of Section 275(a), Internal Revenue Code of 1939. On May 27, 1955, the taxpayers filed in the Tax Court their three petitions for redetermination of the proposed deficiencies, which included allegations raising the statutory bar of limitations. To meet this defense the Commissioner pleaded the exception set out in Section 276(a), Internal Revenue Code of 1939, providing for assessment at any time in the case of a false or fraudulent return with intent to evade the tax.

On March 2, 1956, the Tax Court entered an order in each of the three cases requiring the Commissioner to file a more detailed net worth statement in support of the fraud allegations or show cause why the proceedings should not be dismissed as to the fraud issues. The Commissioner declined to comply with this order and on June 14, 1956, the Tax Court entered an order in each of the three cases striking from the answer the affirmative allegations with respect to the fraud issue.

To test the validity of the Tax Court order, the Commissioner moved for a decision in the case involving the 1947 deficiency of Peter Licavoli, and on August 12, 1956, the Tax Court entered a decision of no deficiency in that case only. On review, this Court affirmed the decision of the Tax Court on February 14, 1958. Commissioner v. Licavoli, 252 F.2d 268, C.A. 6th.

On October 21, 1959, the Commissioner obtained ex parte leave to file in the other two cases in the Tax Court amended answers which complied with the Tax Court's order of June 14, 1956. The taxpayers' motions to strike the amended answers were denied on January 20, 1960, and their motions to reconsider were also denied on November 14, 1960.

On July 25, 1961, the Government made jeopardy assessments against the plaintiffs pursuant to Section 6861(a), Internal Revenue Code of 1954, covering their liabilities for the years 1948-1951.

On August 31, 1961, the plaintiffs filed the present action to enjoin the collection of the taxes under the jeopardy assessments. The complaint alleges that the assessments and actions of the District Director were illegal, arbitrary, capricious, and wholly without authority, and constitute an illegal claim against the plaintiffs' property; that the plaintiffs, by reason of the liens and levies asserted pursuant to the jeopardy assessments, are without funds or income to employ counsel and accountants and defray other expenses necessary to the proper presentment of the issues to the Tax Court; that they have exhausted all their administrative remedies and are without an adequate remedy at law; and that unless the relief requested is granted, they will suffer irreparable harm and injury and be deprived of their property without due process of law.

In support of its motion to dismiss, the Government relied in part upon Section 7421(a), Internal Revenue Code of 1954, which provides that, with certain exceptions not material here, "* * * no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court."

Plaintiffs contend that irrespective of the express wording of the statute, the Supreme Court ruled in 1932 in Miller v. Standard Nut Margarine Co., 284 U.S. 498, 52 S.Ct. 260, 76 L.Ed. 422, that although a suit will not lie to restrain the collection of a tax upon the sole ground of its illegality, in cases where the complainant shows that in addition to the illegality of the tax there exist exceptional and extraordinary circumstances, the statute does not preclude the judicial exercise of appropriate equitable...