Schreck v. United States

• Decision Date: 30 June 1969
• Docket Number: Civ. No. 20236.
• Parties: William SCHRECK v. UNITED STATES of America and Stephen H. Sachs, United States Attorney, Paul R. Kramer, Assistant United States Attorney, Alan Baron, Assistant United States Attorney, and Robert L. Browne, Chief, Intelligence Division.
• Court: U.S. District Court — District of Maryland

301 F. Supp. 1265

William SCHRECK v. UNITED STATES of America and Stephen H. Sachs, United States Attorney, Paul R. Kramer, Assistant United States Attorney, Alan Baron, Assistant United States Attorney, and Robert L. Browne, Chief, Intelligence Division.

Civ. No. 20236.

United States District Court D. Maryland.

June 30, 1969.

Marvin J. Garbis, and Maurice T. Siegel, Baltimore, Md., for plaintiff.

Stephen H. Sachs, U. S. Atty., Paul R. Kramer, Deputy U. S. Atty., and Alan I. Baron, Asst. U. S. Atty., and James H. Jeffries, III, Tax Division, Dept. of Justice, for defendants.

FRANK A. KAUFMAN, District Judge.

The facts of this case are simple and undisputed. The legal issue, however, impels research into the depths of statutory history and case law development involving the Tax Court of the United States and its predecessor, the Board of Tax Appeals.

On November 8, 1967, the Internal Revenue Service (IRS) sent to the plaintiff, William Schreck, a letter advising him that, acting under Section 6851 of the Internal Revenue Code (the Code), the IRS had terminated his taxable year as of October 25, 1967, and that his income tax for the short taxable year of January 1, 1967 to October 25, 1967 was immediately due and payable. In that letter, Schreck was notified that "an assessment has been made against you for the income taxes due from you for such taxable period in the following amount" —

                Taxable Period        Tax Due
                January 1, 1967 to    $20,730.00
                  October 25, 1967
                

and was also notified that demand was made for the immediate payment of those taxes.

On November 9, 1967, one day after the date of that notice and demand letter, a Notice of Federal Tax Lien was filed by the IRS against Schreck. That notice stated that it was based on the assessment of November 8th. Further, on November 9, 1967, a Notice of Levy was filed by the IRS. It also stated that it was based on the November 8th assessment, and was served on Irving Machiz in his official capacity as District Director of Internal Revenue for the District of Maryland. That official had in his possession on November 9, 1967 certain of Schreck's property — including $13,749.35 in cash and other personal property — which had been seized from Schreck by agents of the federal government the preceding October 23rd.¹ The notice and demand letter of November 8, 1967 is the only document that Schreck has received from the IRS concerning the assessment of that same date.

Schreck has instituted this present action under section 6213(a) of the Code, seeking an injunction ordering the defendants to return the property which they have seized from him and now hold under the Notice of Levy. Section 6213(a) is a specified exception to the general prohibition of suits to restrain the assessment or collection of taxes (set forth in section 7421 of the Code) and provides as follows:

§ 6213. Restrictions applicable to deficiencies; petition to Tax Court

(a) Time for filing petition and restriction on assessment. — Within 90 days, or 150 days if the notice of deficiency is addressed to a person outside the States of the Union and the District of Columbia, after the notice of deficiency authorized in section 6212 is mailed (not counting Saturday, Sunday, or a legal holiday in the District of Columbia as the last day), the taxpayer may file a petition with the Tax Court for a redetermination of the deficiency. Except as otherwise provided in section 6861 relating to jeopardy assessments no assessment of a deficiency in respect of any tax imposed by subtitle A or B and no levy or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer, nor until the expiration of such 90-day or 150-day period, as the case may be, nor, if a petition has been filed with the Tax Court, until the decision of the Tax Court has become final. Notwithstanding the provisions of section 7421 (a), the making of such assessment or the beginning of such proceeding or levy during the time such prohibition is in force may be enjoined by a proceeding in the proper court. Emphasis added.

Reduced to essentials, section 6213(a) makes injunctive relief available against the assessment, levy or collection of a tax when the IRS does not send to the taxpayer a deficiency notice as required by the tax laws. See United States v. Ball, 326 F.2d 898, 902-903 (4th Cir. 1964). The plaintiff's position in this case is that the IRS was required by section 6861 to send him a deficiency notice within 60 days of the November 8th assessment, and, since it did not do so, he may now obtain the equitable relief provided for in section 6213(a). The Government admits that no such deficiency notice was sent to Schreck and concedes that if it were under a legal obligation to send such a notice, an injunction should now issue under section 6213(a). But the Government vigorously argues that neither the Code nor the Treasury Regulations require a deficiency notice to be sent to Schreck and that the Government is therefore justified in declining to provide such a notice.

It would appear that the parties have joined issue on whether or not a certain letter must be sent by the IRS to Schreck, which would, at first blush, appear to pose a wholly uninteresting, technical issue. What saves it from this fate is that the deficiency notice is a jurisdictional prerequisite to adjudication in the Tax Court, Mason v. Commissioner of Internal Revenue, 210 F.2d 388 (5th Cir. 1954); it is, as the Ninth Circuit has pointed out, a "ticket to the tax court," see Corbett v. Frank, 293 F. 2d 501, 502, 503 (9 Cir. 1961). Thus, the real issue in this case is whether a taxpayer has a right to have adjudicated in the Tax Court the validity of an assessment in a jeopardy situation made for a short-year period. The resolution of this basic issue must be made within the confines of "the harmony of our carefully structured twentieth century system of tax litigation."²

I.

A. The enactment of the Revenue Acts of 1916 and 1918 followed close on the heels of the ratification of the Sixteenth Amendment. Neither Act provided for a procedure by which a taxpayer could challenge, prior to payment, the validity of an assessment by the IRS. The only remedy prescribed was a suit for refund following payment of the tax.

Section 250(g) of the 1918 Act gave the IRS the power to terminate the taxable year before its completion and to declare taxes, for the truncated period, immediately due and payable, once the IRS had found that there existed certain prejudicial activity by the taxpayer which threatened the future collectibility of taxes. That section, which has been repeatedly reenacted in essentially identical language ever since,³ now stands as section 6851 of the Code and reads, in pertinent part, as follows:

§ 6851. Termination of taxable year

(a) Income tax in jeopardy. —

(1) In general. — If the Secretary or his delegate finds that a taxpayer designs quickly to depart from the United States or to remove his property therefrom, or to conceal himself or his property therein, or to do any other act tending to prejudice or to render wholly or partly ineffectual proceedings to collect the income tax for the current or the preceding taxable year unless such proceedings be brought without delay, the Secretary or his delegate shall declare the taxable period for such taxpayer immediately terminated, and shall cause notice of such finding and declaration to be given the taxpayer, together with a demand for immediate payment of the tax for the taxable period so declared terminated and of the tax for the preceding taxable year or so much of such tax as is unpaid, whether or not the time otherwise allowed by law for filing return and paying the tax has expired; and such taxes shall thereupon become immediately due and payable * * *.

As far as remedies under the 1918 Act were concerned, the short-period taxpayer was in the same position as any other taxpayer against whom an assessment was made — he had to pay the tax first and then bring a suit for refund. The IRS's authority to assess income taxes for both the full-year period and the short-year period was found in the general authorizing statute, section 3176 of the Revised Statutes.⁴

The inherent harshness of the pay first-litigate later scheme led Congress in 1924 to establish a non-prepayment forum, the Board of Tax Appeals. See H.R.Rep. No. 179, 68th Cong., 1st Sess. 7 (1924).⁵ The 1924 Board of Tax Appeals was given limited jurisdiction, however, since section 274(b) and section 279(b) of the Revenue Act of 1924 gave a dissatisfied party — be it the taxpayer or the Government — the right to a further suit in the district courts. Even though this meant that the Board was more or less an advisory body, the Government's power of immediate income tax assessment in the normal (as opposed to jeopardy) case was sharply curtailed by the deficiency notice provision of section 274(a). That section required the IRS to send the taxpayer a deficiency notice of the IRS's finding that a deficiency was due and of the intention of the IRS to assess and to collect the deficiency. But, for sixty days following that notification, the IRS could take no action, and the taxpayer could petition the Board for a redetermination of the income tax deficiency. § 274(a) and (c). The power of the IRS was left virtually unaffected in those cases in which it believed that the assessment or collection of a deficiency would be jeopardized by delay. In the event of a jeopardy assessment under section 274(d), no deficiency notice was required; the only way the taxpayer could get to the Board was by filing a claim in abatement and posting a bond. § 279(a) and (b). Thus, if the taxpayer could not post bond, his only available remedy was, again, to pay first and sue for a refund later.

The structure of tax litigation was brought to its basic, present form with the passage of the ...