6321 Bank Deposits page2

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[Code Sec. 6502--Result unchanged by '69 Tax Reform Act]

Statute of limitations: Offers in compromise: Waiver: Collection after assessment.--The taxpayer's offer in compromise, and a later renewal of the compromise offer, which was neither accepted or rejected and which contained a waiver provision, operated to extend the running of the statute of limitations beyond the date of the filing of the Government's complaint. Furthermore, the movant bank, being a third party, could not challenge the validity of the taxpayer's waiver on the question of whether the offer in compromise was frivolous. Richard L. Thornburgh, United States Attorney, Pittsburgh , Pa. , for plaintiff. Coldren & Adams, 712 Gallatin Bank Bldg., Uniontown , Pa. , for defendants.

Opinion

GOURLEY, Senior District Judge:

The United States commenced this action pursuant to Sections 7401 and 7403 of the Internal Revenue Code of 1954, 26 U. S. C. §7401 and §7403, and seeks to enforce herein certain federal tax liens and to have determined the merits of all claims to and liens upon the property in question. The Court has jurisdiction pursuant to 28 U. S. C. §§ 1340 and 1345. Judgment by default has been entered in favor of the United States and against defendant Carlow (hereinafter "the taxpayer") in the sum of $13,769.96 plus interest. The present matters before the Court are a Motion for Summary Judgment filed by the United States and a cross-Motion for Summary Judgment filed by defendant Fayette National Bank and Trust Company (hereinafter "the Bank"). Counsel for the respective parties have entered into Stipulations of facts not in dispute. After hearing, the Court concludes that there is no genuine issue as to any material fact, the Motion of the United States should be granted and the Motion of the Bank denied.

In its Complaint, the United States averred that the expiration of the applicable statutory period for the enforcement of its assessment liens had been extended beyond the time of filing suit by virtue of several offers of compromise wherein the taxpayer entered into agreements supending the running of the applicable statute of limitations. The Bank averred in its Answer that it was without information sufficient to form a belief as to the truth of this averment and thereby effectively denied the averment. F. R. C. P. 8(b). Thereafter, counsel for the respective parties neither adverted to the statute of limitations issue in their respective Motions for Summary Judgment nor offered proof at the hearing, by affidavit or otherwise, with respect to this issue. Uncertain as to whether the issue had been abandoned, the Court made inquiry of respective counsel. Thereafter, counsel for the respective parties entered into a Stipulation as to the facts material to this issue and submitted briefs upon a disputed question of law. Accordingly, the Court will resolve this issue before proceeding to the question presented by the Motions for Summary Judgment.

[Facts]

The undisputed facts are as follows. During a period from February 8, 1962 to and including March 20, 1964, eleven federal tax assessments were made against the taxpayer for failure to pay on demand federal taxes totalling $9,827.67 in principal amount. On May 10, 1965, the taxpayer submitted to the United States an "Offer in Compromise," Form 656, which provides in pertinent part as follows:

"6. The undersigned proponent waives the benefit of any statute of limitations applicable to the assessment and/or collection of the liability sought to be compromised, and agrees to the suspension of the running of the statutory period of limitations on assessment and/or collection for the period during which this offer is pending, or the period during which any installment remains unpaid, and for 1 year thereafter."

The compromise offer was rejected on June 10, 1965. However, the waiver of the statute of limitations was accepted by the District Director of Internal Revenue on October 12, 1965.

Thereafter, on July 11, 1966, the taxpayer submitted a second compromise upon a form identical to the first and containing the same provision for the suspension of the statute of limitations. The waiver of the Statutes of Limitations was accepted by the District Director of Internal Revenue on September 20, 1966. Subsequently, the taxpayer amended the second compromise offer by a collateral agreement dated June 13, 1967 which reaffirmed the taxpayer's previous suspension of the statute of limitations. On May 18, 1970, the taxpayer substituted for the collateral agreement of June 13, 1967 another collateral agreement, again reaffirming his previous suspension of the statute of limitations. The United States has never rejected the second offer of compromise, dated July 11, 1966, and said offer, as modified by the collateral agreement of May 18, 1970, is presently under consideration. The United States filed the instant Complaint on May 13, 1969.

The governing statute of limitations is Section 6502 of the Internal Revenue Code of 1954, 26 U. S. C. A. §6502, which provides in pertinent part:

"(a) Length of period.--Where the assessment of any tax imposed by this title has been made within the period of limitation properly applicable thereto, such tax may be collected by levy or by a proceeding in court, but only if the levy is made or the proceeding begun--

(1) within 6 years after the assessment of the tax, or

(2) prior to the expiration of any period for collection agreed upon in writing by the Secretary or his delegate and the taxpayer before the expiration of such 6-year period (or, if there is a release of levy under section 6343 after such 6-year period, then before such release).

The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon. The period provided by this subsection during which a tax may be collected by levy shall not be extended or curtailed by reason of a judgment against the taxpayer."

Since more than six years elapsed between eight of the Government's assessments and the date of filing suit, the Government would be barred under Section 6502 from proceeding in Court upon these eight assessments unless the statutory period was suspended by agreement of the taxpayer and the Government.

[Compromise Offer as Waiver]

It has been held by the Hon. Herbert P. Sorg, an associate member of this Court, that an offer of compromise containing precisely the same language of waiver used in the taxpayer's two offers in the instant case effectively suspends the six-year limitation period in accordance with the terms of the offer. United States v. Moyer [70-1 USTC ¶9235], 308 F. Supp. 754, 756 (W. D. Pa. 1968 aff'd [70-1 USTC ¶9182] 420 F. 2d 375 (3d Cir. 1970), cert. denied 400 U. S. 819 (19--). Where the waiver of the statute of limitations by the taxpayer is accepted by the United States , it is unaffected by the ultimate rejection of the offer in compromise. United States v. Moyer, supra, at p. 756. Moreover, where waivers are issued with successive compromise offers, the waivers are cumulative in extending the time for collection. United States v. Havner [39-1 USTC ¶9286], 101 F. 2d 161, 163 (8th Cir. 1939); United States v. Maddas [53-1 USTC ¶9190], 109 F. Supp. 607, 612 (W. D. Pa. 1953).

In the instant case, the taxpayer's first offer of compromise was rejected thirty-one days after its submission under the terms of the waiver agreement, the six-year limitation period upon the earliest assessment, made on February 8, 1962, was suspended for a year and thirty-one days, thus extending the date of expiration of the statutory period into March of 1968. On July 11, 1966, before the extended date of expiration, the taxpayer proffered his second offer of compromise, accompanied with the identical waiver provision. Because the United States has yet to reject this second offer of compromise, the waiver provision contained therein has acted to extend the expiration date of the limitation period beyond the date upon which the Complaint was filed.

Defendant Bank contends, however, that both the first and second offers of compromise were so low as to have required immediate rejection by the United States and that, having failed to reject the second offer within a reasonable period of time, the United States may not claim the benefit of this delay against the Bank.

Section 7122 of the Internal Revenue Code of 1954, which governs compromises, imposes no obligation upon the Secretary of Internal Revenue to reject an offer of compromise within any given period of time. However, §301.7122-1 of the Regulations, adopted February 3, 1960, does provide in pertinent part as follows:

"(d) (4) Withdrawal or rejection. An offer in compromise may be withdrawn by the proponent at any time prior to its acceptance. In the event an offer is rejected, the proponent shall be promptly notified in writing. Frivolous offers or offers submitted for the purpose of delaying the collection of tax liabilities shall be immediately rejected. If an offer in compromise is withdrawn or rejected, the amount tendered with the offer, including all installments paid, shall be refunded without interest, unless the taxpayer has stated or agreed that the amount tendered may be applied to the liability with respect to which the offer was submitted."

In my judgment, the Bank is not entitled to the benefit of the aforequoted provision.

[Frivolous Offers]

It is apparent from the very terms of §301.7122-1(d)(4) that frivolous offers are to be rejected immediately so as to prevent undue delay in the collection of taxes. The provision is for the benefit of the United States , not the taxpayer. The taxpayer is protected from an indefinite suspension of the statute of limitations by his right, afforded by the very same Regulation, to withdraw his offer at any time before acceptance. The taxpayer in the instant case has not seen fit to make such a withdrawal of his second offer of compromise.

Moreover, even if the provision for prompt rejection of frivolous offers were partially for the benefit of the taxpayer, which I do not believe to be the case, the Bank, as a third party would not be entitled to such benefit. It is not disputed that, where a taxpayer enters into an agreement to suspend the running of the statute of limitations, this agreement binds not only the taxpayer but also any party to an action to foreclose the tax lien. United States v. Mojac Construction Corp. [61-1 USTC ¶9166], 190 F. Supp. 622, 626 (E. D. N. Y. 1960); United States v. Maddas, supra, at p. 612. Since a third party generally may not challenge the right of the taxpayer to suspend the statute of limitations by agreement with the United States, I conclude that the Regulation in question was not intended to afford a third party such a right in the particular case where the compromise offer accompanying the waiver is frivolous. The agreements between the taxpayer and the United States extending the expiration date of the limitation period upon all eleven assessments beyond the date of filing of the Complaint herein effectively precluded the Bank, a third party, from raising the statute of limitations defense herein.

[Property Subject to Lien]

I turn, then, to a consideration of the basic issue presented by the cross-Motions for Summary Judgment--whether, at the time of the assessments or thereafter, the Bank possessed property of the taxpayer to which assessment liens could attach.

As previously indicated, during a period from February 8, 1962 to and including March 20, 1964, eleven federal tax assessments were made against the taxpayer for failure to pay on demand federal taxes totalling $9,827.67 in principal amount. Notices of the assessments were filed during a period from February 8, 1962 through September 3, 1964. On November 5, 1964, the United States served an administrative Notice of Levy upon the Bank demanding that all property or rights to property of the taxpayer be turned over to the Government. Despite the receipt of service of this Notice of Levy, the Bank has failed to pay any funds over to the United States .

For some years prior to the period when the United States made the tax assessments in question, the taxpayer had been a customer of the Bank. In the course of his business as a seller of appliances and home improvements, the taxpayer regularly received promissory notes from the purchasers. On March 2, 1959, the taxpayer entered into a "Loan Agreement" with the Bank whereby the Bank agreed to discount such notes. The Loan Agreement further provided for the establishment of a reserve account in connection with the discounting of such notes. In fact, four such reserve accounts were established.

Subsequent to the date of the Loan Agreement establishing the reserve accounts, the taxpayer became personally indebted to the Bank. On June 28, 1962, the taxpayer became obligated to the Bank in the sum of $2,495.52 and, on July 27, 1963, he became indebted for the additional sum of $8,872.92. These obligations arose out of the taxpayer's acquisition of a truck and construction equipment, which were pledged to the Bank as security for the personal debts. The taxpayer subsequently defaulted upon both debts, and the Bank sold a portion of the pledged property. However, deficiencies remained. To satisfy the deficiencies, the Bank set off the existing balances in the reserve accounts on two occasions. Specifically, it set off the amount of $585.51 on September 4, 1964 and the amount of $4,797.80 on September 17, 1964. The Bank then sold the balance of the pledged property and returned $1,185.88 to one of the reserve accounts. There is presently $725.59 in the aforementioned reserve account, which the Bank concedes is due the taxpayer and subject to the tax liens of the United States . In dispute is the right of the United States to recover from the Bank $4,197.43, which is the net amount of the two setoffs which the Bank applied against the reserve accounts at a time subsequent to the Government's assessments upon the taxpayer.

Section 6321 of the Internal Revenue Code of 1954, 26 U. S. C. §6321, provides as follows:

"If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person."

Under Section 6322 of the Code, 26 U. S. C. §6322, the federal tax lien arises upon the date of assessment. Section 6323 of the Code, 26 U. S. C. §6323 establishes priorities and provides that a federal tax lien shall not be valid with respect to, or prior to, certain other claims to property unless a notice of lien is filed and, in some instances, regardless of whether a notice of lien has been filed. The Bank's defense, however, does not rest upon any of the specific priorities afforded by Section 6323.

The Bank contends that the four reserve accounts in question did not constitute "property or rights to property" at any relevant time. Therefore, it is reasoned, no federal tax lien could attach to the reserve accounts by virtue of the assessments against the taxpayer. Whether a taxpayer has an interest in particular property to which a lien can attach is determined by state law. Aquilino v. United States [60-2 USTC ¶9538], 363 U. S. 509 (1960); United States v. Bess [58-2 USTC ¶9595], 357 U. S. 51 (1958). In the instant case, it must be ascertained whether, under Pennsylvania law, the Loan Agreement in question gave the taxpayer property rights in the reserve accounts created by the Agreement.

In detail the Loan Agreement provided that the Bank would purchase from the taxpayer at a discount rate of eight per cent per annum such notes as the taxpayer might receive in connection with home modernization and improvement contracts into which he might enter with customers in the course of his business. It was agreed that the Bank would have "full recourse" against the taxpayer on the notes. Furthermore, it was provided that a reserve account would be established "to be maintained on deposit" with the Bank. On each occasion when the Bank would purchase a note from the taxpayer, it would deduct a given amount from the payment to the taxpayer and "pay" said amount "into the reserve account." If a default in payment of an installment on a note so purchased were to occur, or if the Bank were to deem its security on any note insufficient, it would then have the right to charge the unpaid balance of the note to the reserve account. When all notes purchased by the Bank would be paid in full, the amount in the reserve account then would be paid over to the taxpayer.

["Special" Accounts]

The law of Pennsylvania recognizes a distinction between "general" accounts and "special" accounts deposited with a bank. R. M. Bourne & Co. v. Peoples Union Bank and Trust Co., 404 Pa. 519 (1961); Franklin Savings & Trust Co. v. Clark, 283 Pa. 212 (1925); Parker v. Hartley, 91 Pa. 465 (1879). "Whether a deposit is general or special depends on the facts and circumstances attending its making . . ." Franklin Savings & Trust Co. v. Clark , supra, at 218. It is evident from the terms of the Loan Agreement that funds to be paid into any reserve account established in connection with the Agreement were to serve the sole purpose of collateral security for the payment of the notes purchased by the Bank. See M'Intire v. Blakely, 12 Atl. 325, 10 Cent. 925, 9 Sadler 227 (1888).

The Bank contends that, although the reserve accounts were created for the singular purpose stated above, the accounts nevertheless were not "special" accounts. It is argued that no money was actually segregated in these accounts, the accounts being evidenced simply by credits on a bank ledger. This, we believe, is of no moment. Although the Supreme Court of Pennsylvania indicated in the Franklin Savings & Trust Co. case, supra, that a requisite element of a "special" account was the segregation of money or other property therein, the later decision of said Court in R. M. Bourne & Co., supra, appears to have abandoned such a requirement. Also, we deem it of no moment that the reserve accounts were to serve as collateral securing the Bank rather than a third party. Compare M'Intire v. Blakely, supra, with R. M. Bourne & Co., supra, and Parker v. Hartley, supra. We believe that the reserve accounts, established for the sole purpose of securing the Bank's recovery upon the notes purchased by it from the taxpayer, were "special" accounts under the law of Pennsylvania .

[ Pennsylvania Law]

It is recognized under Pennsylvania law that a "general" account creates simply the relationship of debtor and creditor between the depositor and the Bank. Franklin Savings & Trust Co. v. Clark, supra, at 218. This relationship alone creates in a depositor a sufficient property interest to which a federal tax lien may attach. MacKenzie v. United States [40-1 USTC ¶9229], 109 F. 2d 540 (9th Cir. 1940).

Here, the reserve accounts in question were "special" rather than general accounts. Under the terms of the Loan Agreement, the taxpayer cannot be said to have had less of a proprietary interest in these accounts than he would have had in a general account. In fact, he appears to have had more. By virtue of the provision in the Loan Agreement that the Bank would pay into a reserve account a portion of the purchase price of a discounted note to serve as security for ultimate collection of the note, we believe the taxpayer acquired a vested property right in such funds as were paid into the account at the times when they were so applied, subject to defeasance only upon the contingency and to the extent that the Bank ultimately would find certain notes to be uncollectible. Consequently, the funds deposited into the reserve accounts constituted "such property or rights to property" in the taxpayer as would be subject to the attachment of federal tax liens.

A federal tax lien attaches not only to property and property rights owned by the taxpayer on the date of assessment but also to such property and property rights which the taxpayer acquires thereafter during the continued existence of the lien. Thus, by virtue of the assessments against the taxpayer during the period from February 2, 1962 to March 20, 1964, the continuing federal tax liens attached not only to funds in the account on the dates of the assessments in question but also to such funds as were thereafter paid into the reserve accounts during the continuing existence of the liens. There is no dispute that the liens have continued to the date of filing suit.

The question remains, however, as to whether the Bank was entitled to the setoffs of September 4, 1964 and September 17, 1964 against the reserve accounts, free and clear of the federal tax liens arising from assessments made prior to the setoffs. No general right of setoff was afforded to the Bank under the terms of the Loan Agreement itself. Thus, if such a right existed, it had to be one afforded by law.

Under the law of Pennsylvania , funds deposited in a bank for a special purpose, known to the bank, or under a special agreement, cannot be set off by the bank against an unrelated debt due to it from a depositor. R. M. Bourne & Co. v. Peoples Union Bank & Trust Co., 404 Pa. 519 (1961). See also M'Intire v. Blakely, supra. The reserve accounts were "special" accounts. The Bank's attempted setoffs therefore were invalid.

It may be noted that we are not presented with a question of the respective priorities of the Bank's security interest in the reserve accounts and the federal tax liens. The Bank ultimately recovered in full upon all of the notes purchased by it and, accordingly, even if the Bank's security interest previously had been entitled to priority over the federal tax liens, the Bank's security interest now has terminated under the conditions of the Loan Agreement.

The assessments gave rise to perfected tax liens upon the amounts in the reserve accounts on the dates of assessment and paid into the account thereafter. The Bank's attempted setoffs against these special purpose accounts subsequent to the assessments were invalid under State law. Accordingly, the Bank is liable to the United States in the amount of $4,923.02, that amount being the sum of the net setoff of $4,197.43 and the amount of $725.59 currently on deposit in reserve account 800-313.

An appropriate order is entered.

Order

NOW, THEREFORE, this 16th day of March, 1971, IT IS HEREBY ORDERED that plaintiff's Motion for Summary Judgment be and the same is hereby granted and that defendant-Fayette National Bank & Trust Company's Motion for Summary Judgment be and the same is hereby denied.

IT IS FURTHER ORDERED that JUDGMENT be and the same is hereby entered in favor of the plaintiff and againt defendant-Fayette National Bank & Trust Company in the sum of FOUR THOUSAND NINE HUNDRED AND TWENTY THREE DOLLARS AND TWO CENTS ($4,923.02).

IT IS ALSO ORDERED that the satisfaction of the aforesaid judgment by Fayette National Bank & Trust Company shall act to the reduction of the Judgment against Frank Carlow in like amount.

 

 

 

United States of America , Plaintiff v. Charles Wergeles: Dorothy Wergeles: Charles Wergeles, Jr.; Theresa Mastrogiovanni Rush; and The State National Bank of Connecticut , Defendants

U. S. District Court, Dist. Conn., Civil Action No. 11219, 7/8/69

[Code Sec. 6323]

Unpaid taxes: Judgment: Surrender of bank deposit books.--The taxpayer wife was ordered to surrender to a bank two bank deposit books which she held in her name in trust for other persons. The bank was ordered to deliver a check payable to the United States in the full net amount of the bank accounts as payment for income taxes owed by the taxpayer husband and wife.

Jon O. Newman, United States Attorney, New Haven, Conn., John F. Mulcahy, Jr., Hartford, Conn., Charles A. Simmons, Department of Justice, Washington, D. C. 20530 for plaintiff. Abram W. Spiro, 54 Main St., Danbury, Conn., Robert J. Wolfe, 68 Main St., Danbury, Conn., Robert M. McAnerney, 43 Corbin Dr., Darien, Conn. for defendants.

Judgment

CLAIR, District Judge.

This cause having been submitted on plaintiff's motion for summary judgment and the Court having considered the pleadings, the affidavits, the exhibits and the briefs, and having been otherwise fully informed in the premises, it is

ORDERED, ADJUDGED and DECREED that plaintiff's motion for summary judgment be and is hereby granted in all respects; and it is further

ORDERED, ADJUDGED and DECREED that the plaintiff United States of America shall have judgment against the defendants Charles Wergeles and Dorothy Wergeles, jointly and severally, for unpaid federal income taxes for the tax year 1956 in the total amount of $27,155.39; and it is further.

ORDERED, ADJUDGED and DECREED that The State National Bank of Connecticut is awarded attorney's fees to be paid out of the amount on deposit with said bank in the amount of $400.00; (See discussion: Vol. 41 Conn. B. J. 528-530, Sept. 1967); and it is further

ORDERED, ADJUDGED and DECREED that the defendant Dorothy Wergeles forthwith surrender to The State National Bank of Connecticut deposit books for Account Numbers 748 and 749, being variously titled Dorothy Inez Wergeles in trust for Charles Wergeles, Jr., and Dorothy Inez Wergeles in trust for Theresa Mastrogiovanni, and that coincident thereto The State National Bank of Connecticut deliver to the United States a check payable to the United States of America in the full net amount of said accounts, including interest to the date of the closing of the accounts; and it is further

ORDERED, ADJUDGED and DECREED that this amount shall be applied in reduction of the judgment entered against the defendants Charles Wergeles and Dorothy Wergeles, jointly and severally.

 

 

 

Conrad Miklaski, Plaintiff v. United States of America and Paul McKay, Defendants

U.S. District Court, East. Dist. Mich. , So. Div., CIV. 97-CV-71212-DT, 6/6/97, 18 FSupp 2 d 707

[Code Secs. 6201 , 6511 and 7421 ]

Jurisdiction: Suit to restrain assessment: Authority for assessment: Lien for taxes: Notice of deficiency: Adequate remedy at law.--Jurisdiction was lacking over an individual's motion to schedule an evidentiary hearing in connection with an IRS levy on his wages and his personal savings account because the taxpayer established no exceptions to the Anti-Injunction Act. Although the taxpayer contended that the IRS's failure to provide him with a notice of deficiency prevented him from seeking review in the Tax Court, the IRS was not required to provide notice since the assessment was based on figures presented in the taxpayer's tax returns. Furthermore, the taxpayer was not without an adequate remedy at law because the two-year limitations period under Code Sec. 6511 for filing for a refund had not expired on his unpaid tax liability.

[Code Secs. 6321 and 6501 ]

Statute of limitations: Assessments: Levy: Authority: Refund claim: Two-year period for unpaid taxes: Adequate remedy at law.--Certificates of assessment showed that the IRS properly assessed an individual's taxes within three years after he filed his income tax returns. Also, the IRS had authority to issue levies against the taxpayer's wages and savings account.

OPINION AND ORDER GRANTING DEFENDANTS' MOTION TO DISMISS AND DENYING PLAINTIFF'S EMERGENCY EX-PARTE MOTION TO ADVANCE THE CASE FOR THE PURPOSE OF SCHEDULING AN EVIDENTIARY HEARING

DUGGAN, District Judge:

This matter is before the Court on plaintiff's "Emergency Ex-Parte Motion to Advance the Case for the Purpose of Scheduling an Evidentiary Hearing" and defendants' motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(1) and (6). Because the Court believes that it lacks subject matter jurisdiction to hear this action, the Court grants defendants' motion and denies plaintiff's motion.

Background

From 1986 through 1990, plaintiff worked as an independent contractor for the NASIMBEM company. Defendant McKay is a revenue officer of the Internal Revenue Service ("IRS"). In 1991, plaintiff filed Forms 1040 with the IRS for the years 1986 through 1990. Plaintiff and the IRS agreed that plaintiff would pay $500 a month to satisfy his income tax liability. Defendants contend that the agreement allowed the IRS to modify the amount of plaintiff's payments if plaintiff's ability to pay changed significantly.

On April 1, 1995, plaintiff submitted a Form 433-A to the IRS, showing that plaintiff earned net income of $4,203 per month and had $1965 in expenses and debt payments per month. (Defs.' Ex. C.) Based on this information, the IRS increased plaintiff's payments to $500 per week. ¹ The IRS informed plaintiff of the change in 1995. Plaintiff claims that this increase was "unilateral" on the part of the IRS. Plaintiff failed to pay the increased amount. The IRS filed a First Notice of Intent to Levy on March 11, 1996. On January 30, 1997, defendant McKay sent plaintiff a Final Notice of Intent to Levy. On March 6, 1997, McKay issued a lien/levy on plaintiff's wages from his employer, Wisne Automation and Design Company, and on plaintiff's savings account at NBD Bank. Plaintiff received no notice of deficiency or notice of assessment before the IRS issued the lien/levy.

Discussion

Defendants argue that the Court should deny plaintiff's motion and dismiss plaintiff's complaint because the Court lacks jurisdiction over this dispute. 26 U.S.C. §7421 states,

Except as provided in sections 6212(a) and (c), 6213(a), 6672(b), 6694(c), and 7426(a) and (b)(1), and 7429(b), no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such person is the person against whom such tax was assessed.

Plaintiff argues that this case falls within an exception to §7421 because the IRS failed to follow the procedure for sending a notice of deficiency to plaintiff under 26 U.S.C. §6212)(a). ² Plaintiff contends that this failure on the part of the IRS foreclosed his ability to seek review in Tax Court under 6213(a). ³

The Court rejects plaintiff's argument. Defendants have submitted plaintiff's tax returns for the years 1986-1990. These forms show that plaintiff owed taxes of $27,188 for 1986, $9,582 for 1987, $13,980 for 1988, $19.190 for 1989, and $16,369 for 1990. (Defs.' Ex. A.) Defendants also submitted certificates of assessment that have the same figures as those presented in the tax returns. (Defs.' Ex. B.) Thus, it is apparent that the IRS based its assessment of plaintiff's liability for taxes and penalties on his tax returns. For this reason, no deficiency notice was required. See 26 U.S.C. §6201(a)(1) (authorizing the IRS to assess taxes and penalties, based on tax returns), see also Larsen v. U.S. , 1996 WL 848210 *1 (W.D. Wash. Dec. 3, 1996); IBEW Local Union No. 640 v. Forman, 1995 W.L. 735743 *2 (D. Ariz. Sept. 20, 1995). Plaintiff was not entitled to a notice of deficiency under §6212, and this action does not fall within an exception to §7421.

Plaintiff makes the alternative argument that §7421(a) is inapplicable in this case. In Enochs v. Williams Packing & Navigation Co. [62-2 USTC ¶9545], 370 U.S. 1, 7, 82 S. Ct. 1125, 1129, 8 L. Ed. 2d 292 (1962), the Supreme Court held that §7421(a) is inapplicable if 1) it is clear at the time the suit is filed that the government cannot prevail under any circumstances, and 2) equity jurisdiction otherwise exists.

Plaintiff believes that the government cannot prevail because the government did not provide him with a deficiency notice. As discussed above, plaintiff was not entitled to such a notice. Therefore, the Court must reject this argument.

Plaintiff next argues that the IRS did not assess his taxes within three years after he filed his tax returns, as required by 26 U.S.C. §6501. ⁴ Defendants have submitted certificates of assessment for the relevant years, which list "23c" dates in 1991. (Defs.' Ex. B). The IRS uses Form 23c to record assessments, and the 23c date indicates the date the IRS made the assessment. See Geiselman v. U.S. [92-1 USTC ¶50,200], 961 F.2d 1, 5-6 (1st Cir. 1992), cert. denied, 506 U.S. 891, 113 S. Ct. 261, 121 L. Ed. 2d 191 (1992). "Certificates of assessment and payments are generally regarded as sufficient proof, in the absence of evidence to the contrary, of the adequacy and propriety of notices and assessments that have been made." Gentry v. U.S. [92-1 USTC ¶50,225], 962 F.2d 555, 557 (6th Cir. 1992). Thus, plaintiff's tax liability was assessed in 1991, the same year that plaintiff filed his returns, and the Court must reject this argument as well.

Plaintiff also argues that the IRS has no authority to issue levies or liens against him. 26 U.S.C. §6321 states,

If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.

(emphasis added). This statute provides authority for the creation of tax liens. Therefore, the Court must also reject this argument.

Finally, plaintiff argues that he satisfies the second prong of the Enochs test because he has no adequate remedy at law. Defendants argue that equity jurisdiction is lacking because plaintiff could sue the government for a refund. "[T]he opportunity to sue for a refund is an adequate remedy at law which bars the granting of an injunction." Church of Scientology of California v. U.S. [91-1 USTC ¶50,004], 920 F.2d 1481, 1489 (9th Cir. 1990). A suit for refund cannot be maintained unless the claimant filed a claim for a refund with the Secretary of the Treasury or the Commissioner of Internal Revenue. See 26 U.S.C. §7422. Plaintiff counters that filing for a refund would be futile because it must be done within three years of filing the tax return, and more than three years have passed since plaintiff filed the returns in question. See 26 U.S.C. §6511(a) (providing for a limitations period of 3 years from the time the refund was filed, or 2 years from the time the tax was paid, whichever period is later). The Court notes that §6511 also provides an alternative limitations period of 2 years after the tax was paid. Plaintiff has not paid his entire tax liability for the relevant years. Therefore, the statute of limitations has not run on the amounts that he has not yet paid. Moreover, even if the statute of limitations bars plaintiff's claim for a refund, that fact does not deprive him of an adequate remedy at law. See Ohlendiek v. Schuler, 299 F. 182, 188 (6th Cir. 1924) ("It is a general rule that, when a party has a complete and adequate remedy at law and fails for any cause to rely upon it in that forum, he will not be permitted to assert it in equity merely because he has lost his right of action by bar of the statute of limitation, unless he was prevented by fraud or accident, or by such circumstances as he was unable to control."); see also Baker v. Cummings, 169 U.S. 189, 18 S. Ct. 367, 42 L. Ed. 2d 711 (1898) (" 'Courts of equity, in cases of concurrent jurisdiction, consider themselves bound by the statute of limitations which govern actions at law.' ") (quoting Metropolitan Bank v. St. Louis Dispatch Co., 149 U.S. 436, 448, 13 S. Ct. 944, 948, 37 L. Ed. 799 (1893)).

For the reasons set forth above,

IT IS ORDERED that plaintiff's emergency ex-parte motion to advance the case for the purpose of scheduling an evidentiary hearing is DENIED,

IT IS FURTHER ORDERED that defendants' motion to dismiss plaintiff's complaint is GRANTED pursuant to Rule 12(b)(1).

¹ Plaintiff's total unpaid balance is $89,799.22, including penalties and interest.

² Section 6212(a) states, "If the Secretary determines that there is a deficiency in respect to any tax imposed by subtitles A or B or chapter 41, 42, 43, 44, he is authorized to send notice of such deficiency to the taxpayer by certified mail or registered mail."

³ Section 6213(a) states, "After 90 days . . . after the notice of deficiency authorized in section 6212 is mailed . . . the taxpayer may file a petition with the Tax Court for redetermination of deficiency."

⁴ Section 6501 states, "the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed."

 

 

 

United States of America v. Silvio Amoroso and First National Bank of Boston , Massachusetts

U. S. District Court, Dist. Mass., Civ. Action No. 57-456-M, 12/23/57

[1939 Code Sec. 3670--similar to 1954 Code Sec. 6321; 1939 Code Sec. 1145--similar to 1954 Code Sec. 7485]

Lien for taxes: Bond to stay assessment and collection.--A lien for unpaid income taxes could be enforced against a bank account where a bond to stay assessment and collection was not filed with a petition for the review of a Tax Court determination by the Court of Appeals. The assessment could be made by the Commissioner during the pendency of the petition for review in the absence of the bond

Charles Barrett, Assistant United States Attorney, Boston , Mass. , for plaintiff. Joseph H. B. Edwards, 1 Federal Street , Boston , Mass. , Summer W. Elton, 390 Main Street , Worcester , Mass. , for defendant.

Opinion

MCCARTHY, District Judge:

This case was submitted to the Court upon an agreed statement of facts and briefs. The plaintiff seeks to establish and enforce a lien which it claims upon an account of the defendant Amoroso held by the defendant bank arising out of an assessment of taxes due for the tax year 1945 made on July 17, 1951.

The defendant Amoroso asserts by brief that the assessment was not timely made and that it must therefore fall. The determination of this question requires a reading and interpretation of several statutes. Before the statutes may be applied the facts should be stated.

On February 16, 1949, the Commissioner of Internal Revenue sent the taxpayer in notice of deficiency for his 1945 income tax of $1,655.27. On April 18, 1949, the taxpayer filed a petition with the Tax Court for a redetermination of this deficiency. [10 TCM 186, CCH Dec. 18,167(M).] On May 21, 1951, the Tax Court determined that a deficiency of $1,053.90 with interest existed. On May 31, 1951, the taxpayer filed a petition for review of this determination by the Tax Court with the Court of Appeals. The taxpayer did not avail himself of Section 1145 of the 1939 Internal Revenue Code and did not file a bond with this petition for review. On July 17, 1951, the Commissioner of Internal Revenue assessed the deficiency. Notice was sent to the taxpayer on July 25, 1951. Notice of a lien was served on the defendant bank on September 14, 1955, and notice of levy on account of the assessment was served on the bank on September 19, 1955. Final demand for payment of the levy by the bank was made on September 28, 1955. No payment was forthcoming by the bank. On May 8, 1957, the United States brought this action to foreclose the lien and for an order for payment by the bank to the United States of the amount standing in the account.

[Assessment Was Proper]

The defendant taxpayer asserts that the Statute of Limitations had run on the tax in question when the assessment was made. There is ordinarily a three-year statute of limitations applicable to the assessment. Sec. 275(a) of the Internal Revenue Code of 1939, now §6501(a) of the Internal Revenue Code of 1954 appearing in Title 26 of the United States Code. (All further references to sections are to sections of the 1939 Internal Revenue Code unless otherwise stated.) The statute of limitations on 1945 tax returns began to run on March 15, 1946, and the assessment had to be made within three years of that date unless there was some suspension of the running of the statute. Such a suspension is implicit in the terms of §272(a)(1) and is express in §277. The further question now arises of whether the suspension of the statute of limitations and the bar against assessment was in force on the date on which the assessment was made, July 17, 1951. At this time the Tax Court decision had been rendered and the taxpayer had petitioned the Court of Appeals for the First Circuit for review under §1142. The taxpayer did not file a bond with the petition for review in accordance with §1145. By its terms §1145 provides that assessment shall not be stayed if the bond is not filed.

Reading the applicable sections together I rule that the assessment could be made by the Commissioner during the pendency of the petition for review in the absence of the bond.

Judgment for the plaintiff accordingly.

 

 

 

United States of America , Petitioner-Appellee v. First National City Bank, Respondent-Appellant, and Milton F. Meissner, Proposed Intervenor-Appellant

(CA-2), U. S. Court of Appeals, 2nd Circuit, Docket Nos. 75-6007, 75-6008, 568 F2d 853, 2/4/77, Affirming District Court decision reported at, 75-1 USTC ¶9168

[Code Secs. 6321, 6323, 6331 and 7402--result unchanged by '76 Tax Reform Act]

Levy and distraint: Jeopardy assessment: Funds in safe-deposit box: Motion for leave to intervene in pre-seizure enforcement proceedings.--The Second Circuit Court of Appeals affirmed a District Court decision in holding that a taxpayer's constitutional rights did not require that he be allowed to intervene in pre-seizure summary proceedings to enforce IRS levies on the contents of his safe-deposit box and that the taxpayer's bank was properly ordered to turn over the contents of the safe-deposit box to the IRS. The taxpayer's claim that the District Court lacked jurisdiction to enforce the levies was without merit. One Judge concurred and dissented.

Paul J. Curran, United States Attorney, William R. Bronner, Steven J. Glassman, Assistant United States Attorneys, New York, N. Y. 10007, for petitioner-appellee. Henry Harfield, Matthew C. Gruskin, Shearman & Sterling, 53 Wall St., New York, N. Y. 10005, for respondent-appellant. R. Kenly Webster, Kennedy & Webster, 888 17th St., N. W., Washington, D. C. 20006, Neal J. Hurwitz, 745 Fifth Ave., New York, N. Y. 10002, for proposed intervenor-appellant.

Before HAYS, TIMBERS and GURFEIN, Circuit Judges.

TIMBERS, Circuit Judge:

This appeal presents questions important to the administration of the internal revenue laws. They arise from the use of summary judicial proceedings to enforce IRS levies upon the contents of a taxpayer's safe deposit box following a determination by the IRS that the collection of back taxes from the taxpayer is in jeopardy. The central issue is whether the taxpayer's constitutional rights require that as a pre-seizure remedy he be granted leave to intervene in the summary enforcement proceedings or whether the taxpayer's post-seizure remedies are adequate to protect his rights. We affirm the district court's denial of the taxpayer's motion for leave to intervene and its direction that the bank allow the IRS to enter the box and obtain possession of the contents.

I. Prior Proceedings

Milton F. Meissner and First National City Bank (Citibank) appeal from orders entered in the Southern District of New York, Lloyd F. MacMahon, District Judge, (1) denying Meissner's motion for leave to intervene in pre-seizure summary proceedings to enforce levies on the contents of his safe deposit box; and (2) directing (a) that Citibank allow the IRS to enter the box for the purpose of obtaining possession of the non-exempt contents, and (b) that Citibank retain possession of the contents not removed by the IRS, subject to further order of the court. ¹

On April 9, 1974, the IRS made a jeopardy assessment against Meissner pursuant to §6851(a). ² It did so because it believed Meissner ³ owed substantial back taxes for the years 1970 and 1971, the collection of which was in jeopardy. ⁴ The IRS immediately served upon Meissner a notice of assessment and a demand for payment pursuant to §6861(a). It also served a notice of deficiency pursuant to §6861(b); this entitled Meissner to litigate his liability before the Tax Court, which he has done.

On April 10, the IRS issued jeopardy levies pursuant to §6331(a) upon the contents of two safe deposit boxes leased by Meissner, one from Citibank and the other from Chemical Bank New York Trust Co. (Chemical). ⁵ The two banks refused the IRS access to the boxes. On October 4, the United States Attorney commenced the instant proceedings against the banks for summary enforcement of the IRS levies pursuant to §7402(a). On October 15, Meissner, who was not a party to the summary enforcement proceedings, moved for leave to intervene in those proceedings.

The district court denied Meissner's motion for leave to intervene and directed the banks to allow the IRS access to Meissner's safe deposit boxes. See note 1, supra. The court also granted the motions of Meissner and Citibank for stays pending appeal conditioned on Meissner's posting a $260,000 bond, the approximate amount of his back taxes.

Instead of posting the bond ordered by the district court, Meissner moved in our Court for a stay pending appeal without bond. Citibank also moved in our Court for a stay pending appeal. We denied both motions on April 15, 1975. On April 17, Circuit Justice Marshall likewise denied appellants' applications for stays.

Chemical thereafter turned over to the IRS the contents of its safe deposit box which Meissner leased; and the government filed with the court an inventory, dated April 22, of the contents of the Chemical box. Citibank, on the other hand, while allowing the IRS access to the contents of its safe deposit box leased by Meissner, refused to permit the IRS to remove the contents. On April 22, after a hearing, the district court ordered that the Citibank box be placed under the joint control of the government and the bank. The court also ruled that the government, in order to remove the contents of the box, would be required to serve a formal subpoena. The government did serve upon Citibank an administrative subpoena demanding that the bank turn over to the IRS the contents of the box. No further action has been taken to enforce that subpoena pending the outcome of the instant proceedings.

The present appeals are from the district court's orders denying Meissner's motion for leave to intervene and directing Citibank to turn over to the IRS the contents of its safe deposit box leased by Meissner.

The essential questions presented are (1) whether summary proceedings to enforce IRS levies are authorized by §7402(a); (2) whether Meissner is barred by §7421(a) (the Anti-Injunction Act) from raising his claims in the pre-seizure summary proceedings; and (3) whether Meissner is entitled to intervene in the pre-seizure summary proceedings to protect his constitutional rights.

II. Summary Enforcement Proceedings Pursuant to Section 7402(a)

Appellants claim that the district court lacked jurisdiction to enforce the IRS levies by summary proceedings. They argue that §7402(a), ⁶ relied on by the district court, authorizes only "writs and orders" ancillary to plenary civil actions. We disagree.

The language of this statute is broad and clear. In addition to authorizing writs and orders ancillary to civil actions, it gives the district courts jurisdiction to issue "such other orders and processes, and to render such judgments and decrees as may be necessary or appropriate for the enforcement of the internal revenue laws." We decline to construe such a broad statutory mandate so restrictively as to add nothing to the power conferred by the All Writs Act, 28 U. S. C. §1651 (1970). ⁷ We hold, as the Third Circuit did in United States v. Mellon Bank [75-2 USTC ¶9690], N. A., 521 F. 2d 708, 710-11 (3 Cir. 1975) (related case), ⁸ that §7402(a) authorized the summary enforcement proceedings in the district court.

III. Anti-Injunction Act--Section 7421(a)

Before turning to Meissner's constitutional claims, we must determine whether he is barred by the Anti-Injunction Act ⁹ from raising those claims in the instant proceedings. We hold that he is not.

Section 7421(a) has no application to counterclaims or defenses interposed by a taxpayer in an action brought by the government. By its terms, this statute applies only to a "suit for the purpose of restraining the assessment or collection of any tax," meaning of course a suit by a taxpayer. It would seem fundamental that when Congress confers jurisdiction upon the district courts to entertain a government action to collect taxes, it may not bar a taxpayer from asserting in such action counterclaims or defenses which affect his rights with respect to the taxes sought to be collected.

In Commissioner v. Shapiro [76-1 USTC ¶9266], -- U. S. --, 44 U. S. L. W. 4313 (U. S. March 8, 1976), which was a post-seizure injunction action by the taxpayer, the Court held that the Anti-Injunction Act did not bar such an action and that the taxpayer would be entitled to injunctive relief if (1) he could show a likelihood of irreparable injury, and (2) the government could not establish a factual basis for its assessment. ¹⁰ -- U.S. at --, 44 U. S. L. W. at 4317-19. While the Court's holding was based on its interpretation of the statute, it strongly suggested that a narrower construction of the jurisdiction of the courts under the statute would involve "serious constitutional problems." -- U. S. at --, 44 U. S. L. W. at 4318.

In view of our holding below, under Section IV of this opinion, that Meissner is not entitled to a pre-seizure hearing, it is not necessary for us to decide what effect Shapiro (which was a post-seizure action) would have on the instant proceedings.

It is sufficient in the instant case to hold, as the Third Circuit did in United States v. Mellon Bank, N. A., supra, that the Anti-Injunction Act does not bar Meissner from raising his constitutional claims in the instant proceedings. See note 8, supra.

IV. Constitutional Claims

Turning directly to the constitutional claims which Meissner sought to raise by his motion for leave to intervene in the summary enforcement proceedings, and viewing the record in the light most favorable to Meissner, it appears that the following are the claims he sought to raise: (1) due process claim under the Fifth Amendment; (2) search and seizure claim under the Fourth Amendment; and (3) self-incrimination claim under the Fifth Amendment. ¹¹

(1) Due Process Claim. In order to focus on the precise due process claim raised, it is important to bear in mind what is not involved. The issue here is not whether the taxpayer has a right to a hearing after his property has been seized. Rather, the issue is whether he is entitled to litigate his claims before the government has obtained possession of the contents of his safe deposit box. Meissner has not commenced an action of his own. Instead, he has sought by intervening to oppose every step of the government's pre-seizure enforcement proceedings.

In Commissioner v. Shapiro--a post-seizure injunction action--the Court stated that due process required "some kind of predeprivation or prompt post-deprivation hearing." -- U. S. at --, 44 U. S. L. W. at 4318 (emphasis added). The Court again noted:

"We have often noted that, in resolving a claimed violation of procedural due process, a careful weighing of the respective interests is required, Goss v. Lopez, 419 U. S. 565, 579 (1975); and we have noted that the Government's interest in collecting the revenues is an important one, Fuentes v. Shevin, 407 U. S. 67, 92 (1972). This interest is clearly sufficient to justify seizure of a taxpayer's assets without a pre-seizure hearing, Fuentes v. Shevin, supra, and to remove any need to subject the Commissioner to the burden of an inquiry into the basis for his assessment absent factual allegations of irreparable injury by the taxpayer. Phillips v. Commissioner [2 USTC ¶743], 283 U. S. 589, 595, 596-97 (1931) . . ." -- U. S. at -- n. 12, 44 U. S. L. W. at 4318 n. 12 (emphasis added).

Under Shapiro the taxpayer is entitled to an initial hearing on his claims before a subsequent determination in the Tax Court or in a suit for a refund, "at least where irreparable injury may result from a deprivation of property pending final adjudication of the rights of the parties. . . ." -- U. S. at -- and n. 12, 44 U. S. L. W. at 4318 and n. 12. ¹² Meissner's remedy for alleged deprivation of his property rights is in a post-seizure hearing of the sort described in Shapiro.