Lisner v. McCanless

• Decision Date: 24 January 1973
• Docket Number: 72-548.,Civ. No. 72-500
• Citation: 356 F. Supp. 398
• Parties: Mark Bernard LISNER and Deborah E. Lisner, aka Deborah E. Gray, Plaintiffs, v. A. W. McCANLESS, District Director, Internal Revenue Service, Defendant. Robert E. SAWDEY, Plaintiff, v. A. W. McCANLESS, District Director, Internal Revenue Service, Defendant.
• Court: U.S. District Court — District of Arizona

356 F. Supp. 398

Mark Bernard LISNER and Deborah E. Lisner, aka Deborah E. Gray, Plaintiffs, v. A. W. McCANLESS, District Director, Internal Revenue Service, Defendant.

Robert E. SAWDEY, Plaintiff, v. A. W. McCANLESS, District Director, Internal Revenue Service, Defendant.

Civ. Nos. 72-500, 72-548.

United States District Court, D. Arizona.

January 24, 1973.

Stephen E. Silver, Robert F. Lane, Phoenix, Ariz., for plaintiffs in Civ. No. 72-500.

William C. Smitherman, U. S. Atty., Joseph Raymond Keilp, Asst. U. S. Atty., Phoenix, Ariz., Martin Teel, Tax Div., U. S. Dept. of Justice, for defendant in Civ. No. 72-500.

A. Jerry Busby, of Debus, Busby & Green, Phoenix, Ariz., for plaintiff in Civ. No. 72-548.

William C. Smitherman, U. S. Atty., Fred C. Mather, Asst. U. S. Atty., Phoenix, Ariz., Martin Teel, Tax Div., U. S. Dept. of Justice, for defendant in Civ. No. 72-548.

OPINION AND ORDER

COPPLE, District Judge.

These cases bring before the Court issues that are of fairly recent origin, and on which the courts have taken diverse approaches and reached different conclusions. In Lisner the parties allegedly left $15,600 in cash in a motel room which was subsequently levied upon by the Internal Revenue Service (IRS),¹ as was their automobile. Lisner faces charges in state court for dealing in marijuana. In Sawdey the Arizona Department of Public Safety seized $986 from the petitioner upon his arrest for drug violations, although he had not been charged at the time of the hearing.² The IRS levied on the cash and on Sawdey's automobile.

The procedure in each case was for the IRS to terminate petitioners' tax years pursuant to Int.Rev.Code of 1954, § 6851 (IRC § 6851), and on successive days to assess the tax due and levy on petitioners' assets on the authority of various code sections. In Sawdey's case, the automobile was scheduled to be sold at auction within three weeks of the termination. All the relevant events took place within ten days of the termination. The Lisners are said to owe over $100,000, and Sawdey $5,635 in assessed taxes for the terminated years.

Equity Jurisdiction

Petitioners claim jurisdiction exists by virtue of the exception to the no-suit provision, IRC § 7421(a), established in Enochs v. Williams Packing & Nav. Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L. Ed.2d 292 (1962), or alternatively under IRC § 6213(a). Enochs allows a taxpayer to sue directly in district court where there is no adequate remedy at law for the irreparable harm caused by the imposition of a tax amounting to a penalty, and the government could not prevail under any reasonable view. The courts have applied the rule only sparingly. See Note, Jeopardy Assessment: The Sovereign's Stranglehold, 55 Geo.L.J. 701 (1967). The government's consistent position in these cases has been that no jurisdiction exists under any possible variation of the facts.³

Substantial memoranda have been submitted, and a hearing on the merits held in both cases. The two cases have been consolidated for consideration. Transcript of Hearing in Sawdey, at 29-30 (S.Tr. 29-30). No evidence was introduced at either hearing showing irreparable harm. Allegations in the pleadings that the assessments would deprive petitioners of counsel were not confirmed by testimony. The fact that levies on their property in substantial— even extraordinary—amounts will be made is not a sufficient allegation, without some evidentiary showing of harm. Thus the first prong of Enochs jurisdiction fails, and an attack on the method of computation is foreclosed.⁴ Pizzarello v. United States, 408 F.2d 579 (2d Cir. 1969).

Statutory Jurisdiction

Jurisdiction in this Court therefore exists, if at all, pursuant to IRC § 6213(a).⁵ That section provides, "Notwithstanding the provisions of section 7421(a), the making of such deficiency assessment . . . may be enjoined by a proceeding in the proper court." A reasonable reading of section 6213(a) makes clear that section 6861 jeopardy assessments are not removed from its limitation, but that in jeopardy situations the differing procedural steps are incorporated by reference. Petitioners claim that the failure to provide a deficiency notice, IRC § 6861(b), allows injunctive relief. The government strenuously argues here, as it has elsewhere, that an assessment following termination under section 6851 is not made pursuant to section 6861. It first suggested that the assessment was pursuant to section 6851, then abandoned that in favor of section 6201(a), the general assessment authority.

This case is controlled by Schreck v. United States, 301 F.Supp. 1265 (D.Md. 1969); accord, Clark v. Campbell, 341 F.Supp. 171 (N.D.Tex.1972). The necessity of providing the jeopardy taxpayer with at least minimal procedural safeguards under section 6861 is well discussed in Judge Kaufman's detailed opinion in Schreck; it is not necessary to repeat the arguments here. The Court declines to follow Williamson v. United States, No. 17992 (7th Cir. Apr. 8, 1971), in which the possibility of section 6861 use is not discussed, and which was determined on Marchetti-Grosso grounds.⁶ That Schreck properly determines section 6861 to be the companion assessment section in short-year terminations is shown as well by a brief analysis of the code structure.

It is axiomatic that a true code—which Congress intended here to create—is primarily different from statutes in that a comprehensive, cross-related scheme of laws is presented. No one section can be interpreted without reference to its place in the scheme of things: witness the numerous cross-reference sections written into the Internal Revenue Code of 1954. Ordinarily, the procedure for collection of income tax would be for the taxpayer to file an annual return and to pay the amount due. At this point an "ordinary assessment" is made by entering on the rolls the tax reported and crediting the amount paid. IRC §§ 6201(a), 6203. See generally 9 J. Mertens, Jr., Law of Federal Income Taxation §§ 49.100-.103 (J. Malone, et al., eds. 1971 rev.) (hereinafter Mertens); Flora v. United States, 362 U.S. 145, 80 S.Ct. 630, 4 L.Ed.2d 623 (1960). Thus section 6201(a) does provide assessment authority; that authority is limited on its face, however.⁷ As a general matter, taxes beyond those admitted by the taxpayer cannot be assessed except as a deficiency. Compare IRC § 6201(a)(1) with id. §§ 6201(d), 6211(a). See 9 Mertens §§ 49.128, 49.187; cf. IRC § 6204(b).

Jeopardy cases are either a part of this general scheme, or they represent yet a third category of assessment in which all the rules are waived. The government of course prefers the latter interpretation and would have the Court rely on the absolute power of the sovereign to collect taxes in such a manner. The point is that it is doubtful that Congress intended that effect on its code structure. Ordinarily one files a return at year's end, but the period may be shortened by jeopardy (section 6851). Ordinarily one is forced to pay a contested amount only after an opportunity to approach the Tax Court and to have procedural safeguards against collection, but assessment can take place immediately if there is jeopardy (section 6861). To imagine that Congress, which enacted these two sections under the general title "Subchapter A—Jeopardy," intended the sections to be used as "wild cards" without reference to its carefully constructed collection scheme, is to ignore plain english. See generally 9 Mertens §§ 49.81, 49.126-.137. If, as the government concedes, section 6851 authorizes no assessment in a jeopardy case, then what different type of jeopardy is controlled by the next section, "6861 Jeopardy Assessment"?⁸

As a further example, Mertens, the recognized authority, supports this view. See Id. §§ 49.145, 49.154. Nowhere in its discussion of collection procedures is there any suggestion of an assessment procedure in addition to ordinary (IRC § 6201(a)), deficiency (IRC § 6213), or jeopardy (IRC § 6861). Jeopardy assessment is consistently discussed in the deficiency context. 9 Mertens §§ 49.126-.169.

It is therefore clear that a termination under section 6851 is a substitute for the ordinary filing requirement of section 6072, both of which are controlled by sections 6001, 6011-6017. See IRC § 443(a)(3). If an assessment may indeed be made under section 6851, it is the "ordinary" assessment based on the return prepared by the taxpayer or the IRS.⁹ IRC §§ 6020, 6201(a)(1). That does not give rise to immediate collection of contested taxes, which by definition are deficiencies. IRC § 6211; see 9 Mertens § 49.128. Section 6861 is the only assessment authority in the Code designated "jeopardy." The attempt of the government to bypass the procedural requirements of section 6861 in this and other cases¹⁰ has led it on a path of convolutions and strained interpretations, instead of an attempt to find order in a highly structured code.¹¹ The Tax Court has jurisdiction to determine the tax for the terminated year. IRC §§ 6861, 7451; see 9 Mertens § 50.10.

A jeopardy taxpayer therefore loses the calendar year payment period, and the delay of assessment and levy, but these are replaced by other procedural protections:

"1. The IRS is required to send a deficiency notice within sixty days after the assessment, thus enabling the jeopardy taxpayer to litigate in the Tax Court. IRC § 6861(b). If the IRS does not comply with this requirement, the assessment and levy . . . may be enjoined by the federal courts. . . .

"2. The jeopardy taxpayer can stay all collection action pending the Tax Court's decision if he is able to post an adequate bond. § 6863(a).

"3. Property seized pursuant to the assessment may not, in general, be sold during the pendency of litigation in the Tax Court. § 6863(b)(3)(A).

"4. The IRS `may' abate the jeopardy assessment . . .."

Schreck v. United States, supra, 301 F. Supp. at 1279 (footnote omitted). No deficiency notices have been furnished by the...