Williams v. United States, Civ. No. LV-2025.

Decision Date15 November 1973
Docket NumberCiv. No. LV-2025.
Citation373 F. Supp. 71
PartiesElbert WILLIAMS, Plaintiff, v. UNITED STATES of America, Defendant.
CourtU.S. District Court — District of Nevada

Raymond E. Sutton, Las Vegas, Nev., for plaintiff.

V. DeVoe Heaton, U. S. Atty., Las Vegas, Nev., for defendant.

OPINION

ROGER D. FOLEY, Chief Judge.

FACTS

This is an action seeking preliminary injunction against the assessment and collection of federal taxes and for the return of monies seized as assessed taxes for a terminated tax period. Jurisdiction is asserted under 28 U.S.C. §§ 1340 and 1346(a)(1) and 26 U.S.C. §§ 6213(a) and 7421(a).

On information obtained from informants and police surveillance, the Las Vegas Police Department (LVPD) obtained a search warrant and, after no response to their knock, forcibly entered plaintiff's apartment in search of narcotics on the evening of March 9, 1973. Plaintiff arrived at his apartment while the search was in progress. The officers found a capsule and a "30¢ bag" of heroin, a gun, and some cash in the apartment and a large amount of cash on plaintiff's person. They arrested plaintiff for narcotics violations (including sale of heroin) and for possession of a firearm by an ex-felon; and they seized the items noted. The money totaled $4,113.00.

As had been the procedure for some months prior in narcotics arrests where large amounts of cash are also found, the LVPD notified the Internal Revenue Service of the case. On March 10, 1973 (a Saturday), Mr. Burns, an IRS officer, prepared a tax assessment against plaintiff for the period January 1, 1973, through March 9, 1973, totaling $7,721. This was based upon multiple hearsay from the LVPD that plaintiff had been selling approximately $900 worth of narcotics a day and, apparently, plaintiff's failure to file a return for the years 1969 through 1971. Burns also prepared (1) a notice of seizure, (2) a notice of levy, and (3) a letter dated March 10, 1973, notifying plaintiff that pursuant to IRS Code and Regulations § 6851 plaintiff's taxable period 1/1/73 to 3/10/73 was immediately terminated and the tax due. The grounds given in the letter were that plaintiff was attempting to place property "beyond the reach of the government either by removing it from the United States, or by concealing it, or by transferring it to other persons". Documents (1) and (2) were signed by Burns, served on the LVPD and the IRS obtained possession of the funds on March 10, 1973.

Although there is some confusion, the defendant's counsel admits that the third document, the letter to plaintiff, was not mailed until March 12, after seizure of the funds by the IRS. (RT for oral hearing, p. 81.) Further, the letter to plaintiff was signed by a Mr. Moody, another IRS officer, at a time period when there is some question as to Moody's authority as Acting District Director. Because of these procedural defects, counsel for defendant stated that the March 10 assessment was invalid (RT pp. 82, 84), and the original seizure illegal (RT p. 84). Following filing of the instant complaint, however, the IRS "abated" the March 10 assessment and entered a new assessment and termination on April 27. This latter assessment was, essentially, on the same factual data as the first assessment (but substituted a "married" standard deduction for a "single" deduction previously made), and was served personally on plaintiff. Throughout, the funds remained in possession of the IRS. Defendant's counsel contends this procedure is completely valid. (RT p. 84.)

Plaintiff, a 65-year-old illiterate male Negro, stated at oral hearing that he coalesced the funds from wages, social security payments, gambling winnings, money collected from his employer's renters, and monetary gifts. (RT 98-104.) His complaint alleges that the money was illegally and erroneously assessed and collected, in violation of due process and 26 U.S.C. § 6861(c). Claiming irreparable harm, he prays for injunctive relief. The defendant has moved to dismiss.

ISSUES

1. Should defendant's motion to dismiss be granted?

2. Should plaintiff be granted a preliminary injunction ordering the IRS to cease assessment and collection for the terminated tax period and to return the monies seized?

CONCLUSIONS

1. No.

2. The IRS should be enjoined from continuing in force and effect its assessment and levy against the plaintiff unless it promptly sends a deficiency notice to plaintiff. The IRS should not, however, be ordered to refund the monies seized.

DISCUSSION

While other questions are presented, resolution of this case is ultimately dependent upon whether the assessment authority, after the termination of the taxable year under 26 U.S.C. § 6851, is found in the general assessment provision of 26 U.S.C. § 6201(a) or the jeopardy assessment provision of 26 U.S.C. § 6861. This issue of statutory interpretation has recently sparked a significant controversy among the district courts and only in two circuits does there appear appellate discussion of the problem.

Plaintiff is seeking an injunction restraining defendant from assessing, collecting and retaining monies pursuant to a terminated taxable period under 26 U. S.C. § 6851. 26 U.S.C. § 7421 of the Code, however, states that "no suit for the purpose of restraining the assessment or collection of any tax (may) be maintained in any court by any person . . ." except in certain instances. Plaintiff seeks to bring himself within the statutory exception of 26 U.S.C. § 6213(a) and the judicial exception of Enochs v. Williams Packing and Navigation Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L. Ed.2d 292 (1962), in an effort to avoid § 7421. 26 U.S.C. § 6213(a) allows for injunctive relief against the assessment, levy or collection of a tax when the IRS has not sent 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). Plaintiff argues that the IRS was required by § 6861 to send him a deficiency notice within 60 days of the assessment and, failing this requirement, he is entitled to § 6213(a) relief. The Government argues that § 6861 is inapplicable, that an assessment for a § 6851 terminated year is not a "deficiency", that § 6201 (a) is the assessment authorization applicable here and it requires no deficiency notice, concluding that no deficiency notice is required. Because the judicial exception of Enochs is unavailable to this plaintiff (see discussion below), the statutory issue is unavoidable.

Before discussing the specific issues presented by this case, it should be noted that although defendant has filed a motion to dismiss on the grounds that this Court lacks jurisdiction, it is actually based on an assertion that plaintiff has failed to state a claim on which relief can be granted under Rule 12(b) (6), F.R.Civ.P. See Parrish v. Daly, 350 F. Supp. 735 (S.D.Ind.1972) (characterizing the same issue and contentions). The instant case will thus be discussed in the latter context.

1. The Judicial Exception to § 7421 is Unavailable to this Plaintiff

In Enochs v. Williams Packing and Navigation Co., 370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962), the Supreme Court ruled that § 7421 is inapplicable (1) "if it is clear that under no circumstances could the Government ultimately prevail", and (2) if the traditional requisites for equitable relief are otherwise present. 370 U.S. at 7, 82 S. Ct. at 1129. Plaintiff is incorrect when he argues that all Enochs requires is a showing that the Government acted in "bad faith".

The Ninth Circuit has rephrased the first portion of the Enochs test to require the taxpayer to show that "under the most liberal view of the law and facts the United States cannot establish its claim . . ." Enterprises Unlimited, Inc. v. Davis, 340 F.2d 472, 474 (9th Cir. 1965), citing Walker v. Internal Revenue Service, 333 F.2d 768, 771 (9th Cir. 1964). The role of the District Court in considering factual disputes presented in an action to enjoin assessment and collection of a tax is thus severely limited. While there exists an apparent split among the circuits regarding a District Court's ability to determine factual issues in such a proceeding compare Bauer v. Foley, 404 F.2d 1215 (2nd Cir. 1968) on rehearing, 408 F.2d 1331 (2nd Cir. 1969) (Court is to decide whether wife-taxpayer's signatures on returns were result of forgery or duress), with Trent v. United States, 442 F.2d 405, 406 (6th Cir. 1971) (rejecting Bauer and stating:

"To hold an evidentiary hearing at this point would be to circumvent the long-standing procedure . . . for litigating the merits of these cases (in the Tax Court)."),

the better view relegates all but spurious factual disputes to the appropriate court in an action for refund (26 U.S.C. § 7422) or redetermination of a deficiency (§ 6213(a)). (See Miller v. Standard Nut Margarine, 284 U.S. 498, 52 S.Ct. 260, 76 L.Ed. 422, predecessor to Enochs and only case in which the Court upheld an injunction in spite of § 7421. Plaintiff's product had previously been ruled exempt from tax sought to be imposed. See Enterprises Unlimited, Inc. v. Davis, supra, where factual dispute exists, Enochs relief inapplicable.) The Court, in Enochs itself, appears to contemplate such an approach, stating:

"We believe that the 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." (Emphasis added.)

370 U.S. at 7, 82 S.Ct. at 1129. The clear inference is that the District Court, at the time of the injunction suit, is to determine, on the basis of information available to the Government at that time, whether the Government conceivably may prevail in a later action by the taxpayer in District Court (see 370 U.S. at 7, 82 S.Ct. 1125) or in Tax Court.

Thus viewed, the facts presented at oral hearing remove this case from the ambit of Enochs authorized relief. At the time of this suit, the Government...

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