Mrizek v. Long

Decision Date15 September 1959
Docket NumberNo. 58 C 1633.,58 C 1633.
Citation187 F. Supp. 830
PartiesBessie A. MRIZEK and John R. Mrizek, Plaintiffs v. H. Alan LONG, District Director of Internal Revenue for the Chicago District, Chicago, Illinois, Defendant.
CourtU.S. District Court — Northern District of Illinois

Sydney E. Foster, Anna R. Lavin, Chicago, Ill., for plaintiff.

R. J. Tieken, U. S. Atty., Chicago, Ill., for defendant.

MINER, District Judge.

Defendant has moved to dismiss plaintiffs' suit for injunctive relief and application for the calling of a three-judge court. The issues before the Court on this motion are:

(1) Do the allegations of the amended complaint state a good cause of action for restraining actions of the defendant which allegedly purport to have been taken pursuant to Sections 6331 and 6672 of the Internal Revenue Code (26 U.S.C. §§ 6331 and 6672)?

(2) Does the amended complaint set forth such substantial question as to the constitutionality of Section 6672 as to require the convening of the three-judge court as set forth in 28 U.S.C. §§ 2282 and 2284?

The amended complaint is divisible into two parts. In the first, plaintiffs allege, in substance, that they are president and secretary, respectively, of the R. J. Mrizek Co., Inc.; that the corporation became delinquent in payment of withholding taxes due during 1955 or 1956; that arrangements for weekly installment payments on account of the delinquent and current taxes were made between the said president and defendant's authorized agents; that the agreed payments were made regularly up to and including March 6, 1958; that on March 13, 1958, defendant, without prior notice to plaintiffs, seized possession of the corporation's assets and demanded immediate payment of $32,474.48 from the corporation; that the said sum comprised the entire amount of delinquent taxes alleged by defendant to be due; that defendant's notice of seizure of the corporation's property "for nonpayment of delinquent internal revenue taxes due from R. J. Mrizek Co., Inc." in that amount is dated five days after the seizure; that on April 12, 1958, defendant advertised a public auction of the corporation's property, to be held on April 16, 1958; that by reason of defendant's said actions one of the corporation's creditors demanded immediate payment of its note; that because of defendant's actions neither the corporation nor the plaintiffs could comply with that demand; that because of the said failure to discharge the note the creditor filed foreclosure proceedings on a trust deed on April 10, 1958, which action is now pending; and that on April 14, 1958, an involuntary petition in bankruptcy was filed in this court against the corporation.

Plaintiffs argue that defendant's said actions in seizing possession of the corporation's property are violative of Section 6331 of the Internal Revenue Code (26 U.S.C. § 6331), which reads, in pertinent part:

"(a) Authority of Secretary or delegate.—If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary or his delegate to collect such tax (and such further sum as shall be sufficient to cover the expenses of the levy) by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person or on which there is a lien provided in this chapter for the payment of such tax. * * * If the Secretary or his delegate makes a finding that the collection of such tax is in jeopardy, notice and demand for immediate payment of such tax may be made by the Secretary or his delegate and, upon failure or refusal to pay such tax, collection thereof by levy shall be lawful without regard to the 10-day period provided in this section.
"(b) Seizure and sale of property. —The term `levy' as used in this title includes the power of distraint and seizure by any means. In any case in which the Secretary or his delegate may levy upon property or rights to property, he may seize and sell such property or rights to property (whether real or personal, tangible or intangible)."

Specifically, plaintiffs contend (1) that the corporate taxpayer had neither neglected nor refused to pay the taxes owed and was, in fact, making payment pursuant to the alleged agreement with defendant, (2) that defendant failed to give the notice and demand required by the statute before a levy is authorized, and (3) that defendant's actions have deprived plaintiffs of their property and principal source of income without due process of law in violation of the Fifth Amendment.

In the second part of their amended complaint, plaintiffs allege, in substance, that on March 21, 1958, defendant sent letters to each of the plaintiffs proposing to assess penalties against each in the amount of $52,206.68 pursuant to the provisions of Sec. 6672 of the Internal Revenue Code (26 U.S.C. § 6672); that on March 26, 1958, plaintiffs' attorney answered defendant's letters, advising that plaintiffs did not "consent to such penalty assessment" and requesting a conference; that defendant made no reply to the request; that no notice of deficiency has been sent by defendant to the plaintiffs in accordance with Sections 6212 and 6671 of the Internal Revenue Code (26 U.S.C. §§ 6212, 6671); that plaintiffs have unsuccessfully attempted to obtain information concerning defendant's proposed assessment of the 100% penalty; that on April 28, 1958, defendant recorded a lien against the plaintiffs in the amount of $52,206.68; that on June 13, 1958, defendant recorded a lien in the sum of $58,912.44 against the home owned by Bessie A. Mrizek in Illinois; that on May 2, 1958 and September 2, 1958, defendant filed liens against Florida real estate in which plaintiffs have an interest; that plaintiff Bessie A. Mrizek has exhausted her administrative remedies by reason of the fact that defendant has refused her formal request, filed July 1, 1958, pursuant to Internal Revenue Regulations § 301.6861(F) (1), for abatement of the said liens; that except for her interest in the real estate encumbered by the said liens plaintiff Bessie A. Mrizek has total assets of the approximate value of $2,000; that except for his interest in the real estate encumbered by the said liens and his interest in the R. J. Mrizek Co., Inc., plaintiff John R. Mrizek is without assets; and that because of the said liens plaintiffs are unable to obtain funds from or make any disposition of the encumbered property.

Section 6672 reads as follows:

"Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. No penalty shall be imposed under section 6653 for any offense to which this section is applicable."

Plaintiffs claim that the said liens are void because (1) they are not based on a valid assessment, (2) they are patently without relation to the taxes allegedly due and unpaid, (3) they are speculatively separately applied to two individuals, aggregating $104,413.36, whereas the statute pursuant to which the liens were purportedly applied authorizes a penalty "equal to * * * the tax evaded, or not collected, or not accounted for and paid over," (4) any purported assessment of penalties (upon which liens are predicated) is void as having no connection or relation to the outstanding tax deficiency claimed, and (5) notice of the imposition of penalty assessment has never been given.

Plaintiffs further raise issues which concern the constitutionality of Section 6672. Specifically, they argue that if penalty assessments are found to have been made pursuant to the statute (1) they are invalid as imposing punishment without the right to a jury trial, (2) the hearing referred to in the notice of proposed assessment "cannot, as a matter of discretion, be deemed a substantial substitute for the due process of law that the Constitution requires", and (3) since they have "punitive nature and purpose, must be preceded by opportunity to contest their validity".

Plaintiffs allege that they are without an adequate remedy at law, in that (1) they are unable to seek relief under 28 U.S.C. § 13461 for the reason that by the levy and seizure of the assets of the R. J. Mrizek Co., Inc., and the liens applied to their independent property, they have been rendered without means to pay the alleged penalties, (2) they are unable to obtain a bond in double the amount of the purportedly assessed penalties to stay collection pending determination of the validity thereof, (3) there is no provision made for review of the denial of the requested administrative abatement, and (4) if defendant is not restrained from enforcing the claimed liens, plaintiffs' properties will be sold at distress sale for less than their reasonable value, even though it may ultimately result that plaintiffs owe no money to defendant. Plaintiffs further urge the inadequacy of any legal remedy for an injury they characterize as "punishment without trial by jury and without prior opportunity to contest the validity of the punishment," which injury they allege has resulted from defendant's attempt to enforce 26 U.S.C. § 6672.

Plaintiffs ask this Court to grant whatever relief may be appropriate, and particularly to issue its restraining order and then, pursuant to 28 U.S.C. §§ 2282 and 22842, convene a three-judge court to test the constitutionality of 26 U.S.C. § 6672. But the Court is admonished by the authorities that before taking steps to convene a three-judge court it must be satisfied that a substantial question of constitutionality is presented. William Jameson & Co. v. Morgenthau, 1939, ...

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13 cases
  • LOC Industries, Inc. v. United States
    • United States
    • U.S. District Court — Middle District of Tennessee
    • June 25, 1976
    ...New York banks. If so, then the Commissioner may well have violated Shapiro's right to due process. See, e. g., Mrizek v. Long, 187 F.Supp. 830, 835 (N.D.Ill.1959): ... `if plaintiffs are being thus deprived of their property by administrative action purporting to conform, but failing to co......
  • Henderson v. U.S.
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    • May 9, 2000
    ...not fall under the IRC's definition of "deficiency." See Cutaiar v. U.S., 1992 WL 198927, at *6 (E.D.Pa. Aug.11, 1992); Mrizek v. Long, 187 F.Supp. 830 (N.D.Ill.1959). 23. 26 U.S.C. § 6404(i) was redesignated from subsection (g) by the IRS Restructuring and Reform Act of 24. See also Argabr......
  • Bremson v. United States
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    • October 6, 1978
    ...do not state a contrary rule. In both L. O. C. Industries, Inc. v. United States, 423 F.Supp. 265 (M.D.Tenn.1976), and Mrizek v. Long, 187 F.Supp. 830 (N.D.Ill.1959), the levy in question preceded notice and demand for immediate payment. See also, Shapiro v. Secretary of State, 162 U.S.App.......
  • Husek v. IRS OF US, 91-CV-0444.
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    • U.S. District Court — Northern District of New York
    • November 22, 1991
    ...his tax liability. Furthermore, in its decision the Court never addressed section 6303 notice. 5 Plaintiff cites Mrizek v. H. Alan Long, 187 F.Supp. 830 (N.D.Ill.1959), for the proposition that a court has jurisdiction under section 2410 to enjoin the collection of taxes if the "Notice and ......
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