JERSEY SHORE STATE BANK, PETITIONER V. UNITED STATES OF AMERICA

   No. 85-1736

   In the Supreme Court of the United States

   October Term, 1986

   On Writ of Certorari to the United States Court of Appeals for the
Third Circuit

   Brief for the United States

            TABLE OF CONTENTS
   Opinions below
   Jurisdiction
   Statutes involved
   Question Presented
   Statement
   Introduction and summary of argument
   Argument:
      Notice to a lender of an assessment of delinquent
      employment taxes against an employer is not required
      by Section 6303(a) and in any event is not a
      prerequisite to a suit to collect the amount of
      delinquent withholding taxes from the lender
      under Section 3505
      A. The terms of Section 6303(a) do not require
         that a notice of the assessment against the
         employer be furnished to all third parties who
         might be liable for withholding taxes under
         Section 3505
      B. The policies underlying Section 6303(a) are not
         served by construing it to require notice to
         third parties potentially liable under Section
         3505
      C. Sending third parties a copy of the notice of
         assessment against the employer would serve
         no useful purpose
      D. Requiring the Commissioner to send Section
         6303(a) notice to lenders as a prerequisite to
         a suit to collect their Section 3505 liabilities
         finds no support in the legislative history of
         Section 3505 and would destroy the practical
         utility of that provision
   Conclusion

                            OPINIONS BELOW

   The opinion of the court of appeals (Pet. App. 1a-24a) is reported
at 781 F.2d 974.  The opinion of the district court (Pet. App.
27a-37a) is reported at 628 F.Supp. 15.

                             JURISDICTION

   The judgment of the court of appeals was entered on January 10,
1986.  A petition for rehearing was denied on February 4, 1986 (Pet.
App. 25a-26a).  The petition for a writ of certiorari was filed on
April 22, 1986, and was granted on June 2, 1986.  The jurisdiction of
this Court rests on 28 U.S.C. 1254(1).

                           STATUTES INVOLVED

   The relevant portions of Sections 3505 and 6303 of the Internal
Revenue Code of 1954 (26 U.S.C.) are set forth at Pet. App. 50a-51a.

                          QUESTION PRESENTED

   Section 3505 of the Internal Revenue Code provides that, where a
lender furnishes funds directly or indirectly to an employer for the
payment of wages, the lender in certain circumstances may be
personally liable if the required employment taxes are not withheld
from those wages and paid over to the IRS.  The question presented is
whether, as a prerequisite to the government's maintenance of a civil
suit to collect the lender's personal liability in such circumstances,
the IRS must have sent to the lender, within 60 days of making an
assessment of the unpaid taxes against the employer, a copy of the tax
bill that is required to be sent to the employer under Section
6303(a).

                               STATEMENT

   1. The Internal Revenue Code imposes a number of "employment
taxes," set forth in Subtitle C of the Code.  See I.R.C. Sections
3101-3510.  /1/ These taxes include the social security or FICA tax
(I.R.C. Sections 3101-3126) and the income taxes that are withheld
from employees' wages at the source (I.R.C. Sections 3401-3406).  /2/
The social security tax is imposed on the employer and the employee
alike, with each being required to pay roughly half the overall tax.
See I.R.C. Sections 3101 and 3111.  The withheld income tax,
representing a current payment on account of the employee's annual
liability, is of course borne solely by the employee.  See I.R.C.
Sections 3401 and 3402.

   Subtitle C places two basic obligations on employers with respect
to these taxes.  The employer is required to pay the employment taxes
imposed directly on him, such as his share of the social security tax.
 See I.R.C. Section 3111.  The employer is also required to withhold
from his employees' wages, and pay over to the IRS, the employment
taxes that are imposed on the employees, such as the withheld income
tax and the employees' share of the social security tax.  See I.R.C.
Section 3102(a) and (b), 3403, 3501.  These latter taxes are usually
called "withholding taxes." The employer in essence serves as a
collection agent for the government with respect to these amounts;
after collecting the taxes from the employees' salaries, the employer
is required to hold those sums in trust for the government until they
are paid into the Treasury at designated times.  See I.R.C. Sections
3102(a) and (b), 3403, 3501(a), 7501.

   If an employer fails to satisfy its obligations with respect to
withholding taxes, the Code provides several alternatives that the IRS
may us to collect such funds.  The Commissioner of course may collect
withholding taxes directly from the employer, who is explicitly made
liable therefor.  See I.R.C. Sections 3102(b), 3403.  In recognition
of the special "trust fund" status of withholding taxes, however, the
Code affords the Commissioner a number of particularized collection
remedies.  One of these is set forth in Section 6672, the so-called
"responsible officer" provision.  Under that provision, corporate
officers or other persons responsible for the collection and payment
of withholding taxes incur a personal liability, in the form of a
penalty equal to 100% of the unpaid taxes, if they willfully fail to
satisfy those responsibilities.  See I.R.C. Section 6672(a).

   Another remedy for collecting unpaid withholding taxes is set forth
in Section 3505.  Under Section 3505(a), " a lender, surety, or other
person" who pays wages directly to the employees of another employer
is "liable in his own person and estate to the United States in a sum
equal to the taxes (together with interest) required to be deducted
and withheld from such wages." A lender or other third party is also
subject to such personal liability if it supplies funds to an employer
for the specific purpose of paying wages "with actual notice or
knowledge * * * that such employer does not intend to or will not be
able to make timely payment or deposit" of the requisite withholding
taxes (I.R.C. Section 35u5(b)).  In the latter case, the third party's
liability is limited to 25% of the aggregate amount that it supplied
to the employer (ibid).  Section 3505 was enacted by Congress to
discourage a practice known as "net payroll financing," under which
lenders who undertook to satisfy an employer's payroll obligations
would supply funds necessary to meet only the net amounts due to the
employees, and no one would pay over the withholding taxes due to the
government.  See H.R. Rep. 1884, 89th Cong., 2d Sess. 20 (1966);  S.
Rep. 1708, 89th Cong., 2d Sess. 21-22 (1966).

   2. Petitioner is a bank with its principal place of business in
Jersey Shore, Pennsylvania (Pet. App. 28a).  Beginning in early 1976,
petitioner provided a total of approximately $290,000 to finance the
operations of Pennmount Industries, Inc., a financially troubled
company engaged in the business of manufacturing furniture.  From the
fourth quarter of 1977 through the first quarter of 1980, Pennmount
failed to pay over to the IRS the income and social security taxes
withheld from its employees' wages.  Pennmount also failed to pay the
employer's portion of social security taxes that it owed (Pet. App.
28a).  The Commissioner made an assessment against Pennmount for each
of these 10 quarterly periods, as well as other quarters not involved
here.  /3/ These assessments reflected Pennmount's liability for the
various unpaid employment taxes (id. at 39a, 43a-45a).

   Section 6303(a) of the Code provides that the Commissioner, as soon
as practicable after making a tax assessment, and in any event within
60 days of making an assessment, must "give notice to each person
liable for the unpaid tax, stating the amount and demanding payment
thereof." The Commissioner typically provides such notice by sending
the taxpayer a "Request for Payment of Balance Due" -- in essence, a
tax bill -- notifying the taxpayer of the amount owed and requesting
payment within 10 days.  See M. Saltzman, IRS Practice and Procedure
Paragraph 14.03, at 14-11 et seq. (1981).  On the same day that the
Commissioner made each of the assessments against Pennmount, he sent
Pennmount a notice pursuant to Section 6303(a) stating the amount of
its unpaid employment taxes and demanding payment thereof (Pet. App.
43a-45a).  In each instance, Pennmount failed to pay, in whole or in
part, the assessed taxes.  The total unpaid balance of the assessments
is approximately $116,000, plus interest (id. at 39a).

   3. On December 30, 1983, the United States brought this action
against petitioner in the United States District Court for the Middle
District of Pennsylvania (Pet. App. 27a-28a).  The government alleged
that petitioner, beginning in October 1977, had lent funds to
Pennmount under circumstances that rendered petitioner personally
liable, under Section 3505 of the Code, in an amount equal to a
portion of the employment taxes assessed against Pennmount (Pet. App.
2a, 38a-41a).  Specifically, the government alleged (id. at 39a) that
petitioner had "paid wages directly to Pennmount employees," thereby
making it liable under Section 3505(a) for the full amount of the
unpaid withholding taxes.  Alternatively, the government alleged (Pet.
App. 40a-41a) that petitioner had supplied funds to Pennmount "for the
specific purpose of paying * * * wages," with knowledge that Pennmount
"did not intend or would not be able to make timely payments or
deposits of the * * * taxes required to be deducted and withheld" from
its employees' wages, thereby making petitioner liable under Section
3505(b) for the amount of unpaid withholding taxes up to 25% of the
amount of funds supplied.  The government alleged that petitioner's
liability under Section 3505(a) was approximately $76,500, plus
interest and that its alternative liability under Section 3505(b) was
approximately $72,000, plus interest (Pet. App. 2a, 40a-41a).  In its
answer, petitioner admitted making commercial loans to Pennmount, but
denied any liability under Section 3505 (Pet. App. 3a, 46a-49a).

   The government moved for summary judgment with regard to
petitioner's liability under Section 3505(a) (Pet. App. 31a).
Petitioner conceded liability under Section 3505(a) for the period
from January 1979 through March 1980, but opposed summary judgment
with respect to the earlier periods (Pet. App. 29a).  Petitioner filed
a cross-motion for summary judgment, however, contending that the
United States was precluded from suing it for any of the periods in
question because the Commissioner had not provided it with notice of
the tax assessments against Pennmount within 60-day period specified
in Section 6303(a).  Petitioner submitted that, if the instant suit
were successful, it would be a "person liable for the unpaid tax"
within the meaning of Section 6303(a).  Petitioner accordingly argued
that the Commissioner was required, within 60 days of making the
assessments against Pennmount, to send petitioner as well as Pennmount
notice of the assessments in the form of the tax bill described in
Section 6303(a) (Pet. App. 32a-33a;  J.A. 8-9).

   The district court granted petitioner's cross-motion for summary
judgment (Pet. App. 27a-36a).  Relying on United States v. Associates
Commercial Corp., 721 F.2d 1094 (7th Cir. 1983), the district court
held that the notice and demand for payment specified in Section
6303(a) must timely be sent, not only to the taxpayer against whom the
taxes in question have actually been assessed, but also to third
parties against whom the United States might in future seek to
establish liability in a civil suit under Section 3505 (Pet. App.
33a-35a).  Because the government conceded that it had not notified
petitioner of the assessments against Pennmount prior to the
commencement of the instant suit on December 30, 1983 (id. at 32a),
the district court held that the government's suit was barred (id. at
35a-36a).

   4. The court of appeals reversed, one judge dissenting (Pet. App.
1a-24a).  The court rejected petitioner's argument that the "plain
meaning" of Section 6303(a) entitled it to receive notice of the
assessment against Pennmount at the time Pennmount's taxes were
assessed.  Section 6303(a) speaks of "notice to each person liable for
the unpaid tax";  at the time of the assessment against Pennmount, the
court of appeals observed, Pennmount's lenders had only a "potential
liability" with respect to the unpaid tax (Pet. App. 9a).  The court
also emphasized that Section 6303(a) "requires notice of a particular
kind:  i.e., 'one stating the amount and demanding payment thereof'"
(Pet. App. 8a (emphasis in original)).  The court pointed out that the
notice of assessment against the employer typically is not restricted
to unpaid withholding taxes, but includes other amounts for which
lenders under Section 3505 are not liable;  thus, the tax bill sent to
the employer would only fortuitiously "stat(e) the amount" of the
lender's potential liability.  Pet. App. 9a (citing I.R.C. Section
6303(a)).  Moreover, notice to a lender that the IRS has assessed
taxes against the employer would not "demand payment" from the lender,
since the lender would not be expected to pay, and could not be
required to pay, the tax at that time (Pet. App. 9a-10a).  The court
of appeals therefore found "the government's construction of the
statute the more natural and logical reading of the language:  i.e.,
section 6303(a) requires notice only to those individuals against whom
the taxes has been assessed" (Pet. App. 10a).

   The court then explained that its reading of Section 6303(a) served
the evident purpose of the statute's notice requirement (Pet. App.
11a-17a).  The Code provides two distinct methods for the collection
pf taxes:  (1) by administrative means, such as levy and distraint,
following an assessment;  and (2) by means of a civil suit.  In the
case of administrative collection, the court observed, "the need for
the notice provided by section 6303(a) and its predecessor statutes is
readily apparent," since, upon assessment and demand, all of the
taxpayer's property becomes subject to a tax lien and to summary
collection by levy or seizure.  Pet. App. 11a-12a (citing I.R.C.
Sections 6321 and 6331).  The notice provided under Section 6303(a)
thus protects the taxpayer by giving him the opportunity, by promptly
paying the assessed tax, to take steps to avoid the possibility of a
levy on his property.  Under Section 3505, however, the government
cannot collect the tax administratively, but must proceed by a civil
suit, so that the third party is in no danger of having his property
seized to satisfy the obligation.  In such circumstances, "service of
the government's complaint provides the party with all the notice and
protection required" (Pet. App. 13a).

   The court also observed that the notice sought by petitioner would
"serve( ) no useful purpose" but would simply interpose a "formalistic
requirement" on which lenders might rely to "thwart( ) Congress'
intent to recover the unpaid withholding taxes" from them (Pet. App.
18a).  The court rejected as "unfounded" (ibid.) the concern that
lenders might be prejudiced absent such notice because they might not
otherwise suspect that they ran the risk of Section 3505 liability.
The court explained that Section 3505 requires the government to prove
that the lender was "actually or constructively aware of its potential
liability for the taxes" at the time it advanced funds to the
financially distressed employer (Pet. App. 18a (emphasis omitted)).
Thus, the Section 6303(a) notice would "communicate() no additional
information" to the lender because it would tell him nothing that he
did not already know (Pet. App. 18a).  Finally, the court of appeals
emphasized that requiring the IRS to notify lenders under Section
6303(a) "would impose a prohibitory investigative burden on the
government" (Pet. App. 20a) that would render Section 3505 "a
substantial nullity" (Pet. App. 21a).

   Judge Weis dissented (Pet. App. 21a-24a).  In his view, the plain
language of Section 6303(a) required that notice be given to the
lender.  He acknowledged that the reasons advanced by the government
for its reading of the statute "have some logic and would possibly
ease administrative burdens on the government" (id. at 22a), but he
believed that those arguments should be addressed to Congress, not the
courts.

                 INTRODUCTION AND SUMMARY OF ARGUMENT

   Congress enacted Section 3505 in 1966 (Federal Tax Lien Act of
1966, Pub. L. No. 89-719, Section 105(a), 80 Stat. 1138) in response
to a practice generally known as "net payroll financing," which was
especially common in the case of employers experiencing financial
difficulties.  H.R. Rep. 1884, supra, at 20;  S. Rep. 1708, supra, at
21-22.  Under that practice, a third party -- typically a surety,
bank, or general contractor -- would supply the employer with funds
for the payment of wages, or pay wages directly to the employees,
thereby keeping the employer afloat.  In order to limit its own
exposure, however, the lender would supply an amount equal only to the
"net," of after-tax, wages due the employees, without paying, "either
to the employees or to the Government, the withholding taxes due the
Government." H.R. Rep. 1884, supra, at 20;  S. Rep. 1708, supra, at
21.  See United States v. Coconut Grove Bank, 545 F.2d 502, 505 (5th
Cir. 1977);  United States v. Algernon Blair, Inc., 441 F.2d 1379,
1381 (5th Cir. 1971).  Employees receiving such "net wages" were
entitled (then as now) to a credit against their own tax liabilities
for the taxes required to be withheld, regardless of whether the
employer actually paid the taxes over to the United States.  See 26
U.S.C. (1964 ed.) 31(a).

   Although employers in such circumstances technically remained
liable for the unpaid withholding taxes, Congress found that they were
"likely to be without financial resources and, as a result, (that)
recourse against them (might) well be fruitless." H.R. Rep. 1884,
supra, at 20;  S. Rep. 1708, supra, at 21.  Under pre-1966 law,
moreover, recourse could not be had against the lender either, because
the lender ordinarily would not have been deemed to be an "employer,"
as defined by statute, with respect to the withholding taxes.  Ibid.
Congress in 1966 acted to stem the resulting loss of revenue by
addressing this latter problem directly.  It enacted Section 3505 to
impose personal liability upon third-party lenders who engage in net
payroll financing, concluding that such lenders "sit in essentially
the same position vis-a-vis control over payroll funds and access to
information as the employer itself" (Pet. App. 6a).  See H.R. Rep.
1884, supra, at 20;  S. Rep. 1708, supra, at 22.

   Petitioner concedes that it engaged in net payroll financing and
that it is liable under Section 3505 for at least part of Pennmount's
unpaid withholding taxes.  Petitioner contends, however, that the
government is barred from suiing to collect this Section 3505
liability because the Commissioner failed to send it a copy of the tax
bill that was sent to Pennmount at the time Pennmount's taxes were
assessed.  There is a split in the circuits on the question whether
the notice specified in Section 6303(a) must be sent to lenders in
such circumstances.  Compare United States v. Messina Builders &
Contractors Co., No. 85-2505 (8th Cir. Sept. 23, 1986) (notice
required), United States v. Merchants Nat'l Bank, 772 F.2d 1522 (11th
Cir. 1985), petition for cert. pending, No. 85-1480 (same), and United
States v. Associates Commercial Corp., 721 F.2d 1094 (7th Cir. 1983)
(same), with United States v. Hunter Engineers & Constructors, Inc.,
789 F.2d 1436 (9th Cir. 1986), petition for cert. pending No. 86-209
(notice not required).

   The Third Circuit below correctly held that Section 6303(a) does
not require notice to lenders of the assessment against the employer,
and that the Commissioner's failure to provide such notice in any
event does not prevent the United States from bringing a civil action
against the lender under Section 3505.  The terms of Section 3505
impose upon a lender not a liability for a tax, which could be
collected administratively, but rather a liability "in a sum equal to
the taxes" required to be withheld from the employees' wages -- a
personal liability that can be collected only by a civil suit
instituted by the Department of Justice.  See I.R.C. Sections 3505(a)
and (b), 7401;  H.R. Rep. 1884, supra, at 65-66.  Adoption of the
notice requirement that petitioner seeks would lead to an irrational
result, for it would require the IRS, when making an assessment
against a taxpayer, to notify a group of third parties whose
identities the IRS typically would not know at the time.  This notice
would take the form of a tax bill that those parties would not then be
expected to pay, and that bill would be in an amount that would rarely
if ever correspond to any liability that the government might seek to
impose in a future Section 3505 civil suit.  If petitioner's
contention were accepted, it would place such an enormous
administrative burden on the government as a precondition to imposing
Section 3505 liability that the provision would be nullified as a
practical matter, with attendant frustration of Congress's goal to
eradicate the practice of net payroll financing.  And this untoward
result would yield no countervailing benefits -- other than windfalls
to culpable lenders -- because the notice petitioner seeks would be an
empty formality that would convey no useful information to potentially
liable third parties.

   Petitioner's argument for this perverse result is grounded
exclusively in a distorted reading of the text of Section 6303(a).  A
careful reading of that statute, however, coupled with consideration
of its legislative history and underlying purposes, confirms the court
of appeals' conclusion that Section 6303(a) requires notice only to
the taypayer or taxpayers against whom the assessment is made, and not
to third parties who might have a liability (under Section 3505 or
otherwise) for all or part of the amounts assessed.  Petitioner's
contention, finally, is directly contrary to the well-settled
proposition that a notice of assessment is not a prerequisite to a
civil suit by the United States to recover unpaid taxes.

                               ARGUMENT

 NOTICE TO A LENDER OF AN ASSESSMENT OF DELINQUENT EMPLOYMENT TAXES
AGAINST AN EMPLOYER IS NOT REQUIRED BY SECTION 6303(a) AND IN ANY
EVENT IS NOT A prerequisite TO A SUIT TO COLLECT THE AMOUNT OF
DELINQUENT WITHHOLDING TAXES FROM THE LENDER UNDER SECTION 3505

 A. The Terms Of Section 6303(a) Do Not Require That A Notice Of The
Assessment Against The Employer Be Furnished To All Third Parties Who
Might Be Liable For Withholding Taxes Under Section 3505

   1. Petitioner's primary contention (Br. 7-10) is that the plain
meaning of Section 6303(a) compels the conclusion that the
Commissioner was required to give it notice of the assessment against
Pennmount.  As the court of appeals explained (Pet. App. 8a-10a),
petitioner's argument is based on an incomplete and inaccurate reading
of the statute.  Section 6303(a) provides in pertinent part that the
Commissioner "shall, as soon as practicable, and within 60 days, after
the making of an assessment of a tax pursuant to Section 6203, give
notice to each person liable for the unpaid tax, stating the amount
and demanding payment thereof." In essence, Section 6303(a) requires
the Commissioner to send to the taxpayer "a typical creditor's dunning
letter" (Pet. App. 9a) -- a tax bill demanding payment of a particular
amount.  See M. Saltzman, supra, Paragraph 14.03, at 14-11 et seq.
(reprinting sample IRS form letters).

   Petitioner focuses exclusively on the portion of the statute
requiring the Commissioner to give notice "to each person liable for
the unpaid tax" and argues that, because the government is seeking to
hold it liable in an amount equal to a portion of Pennmount's unpaid
withholding taxes, it falls within this category and therefore must be
given notice of the assessment of the tax delinquency.  Examination of
the complete text of Section 6303(a), however, demonstrates that this
simplistic reading of the statute is erroneous.  Section 6303(a)
contemplates the giving of a particular form of notice -- one "stating
the amount (of the tax) and demanding payment thereof." The notice
that petitioner contends must be sent to it (see Pet. Br. 5, 8, 24) --
a copy of the tax bill that is being sent to the assessed employer --
does not meet the statutory requirements.  It neither sets forth the
amount due from the third party nor demands payment of any tax by the
third party.  Accordingly, the "plain language" of the statute cannot
be said to require that third parties potentially liable under Section
3505 be furnished with the notice of assessment mailed to the
employer.

   First, the notice of assessment sent to the employer only rarely,
if ever, will set forth the amount for which the third party is
potentially liable.  In almost every case, an employer who has not
paid withholding taxes will not have paid the employer's portion of
social security taxes either.  See page 2, supra.  The tax bill sent
to the employer will demand payment of these latter taxes, but a
lender can have no Section 3505 liability for them because they are
obligations of the employer, not "taxes * * * required to be deducted
and withheld from (the employees') wages" (I.R.C. Section 3505(a) and
(b)).  See H.R. Rep. 1884, supra, at 21 (a lender "is not liable for
the employer's portion of payroll taxes").  Accordingly, the amount of
tax due stated in the notice of assessment will not reflect an amount
for which the third party may be personally liable.  Moreover, even
with respect to the withholding taxes owed by the employer, the notice
may not reflect the magnitude of the third party's exposure because
its Section 3505(b) liability is limited to 25% of the funds that it
advanced to the employer, so that in many cases the lender will not be
liable for the full amount of the unpaid withholding taxes.  Finally,
unless the time period in which the third party paid net wages or
financed a net payroll coincides exactly with the time period
reflected in the assessment against the employer, the third party's
potential liability will not coincide with the employer's
withholding-tax liability.  Because the tax bill sent to the employer
will thus only fortuitously reveal the amount for which the third
party is potentially liable, this notice does not provide to the third
party the sort of notice contemplated by Section 6303(a).

   Second, a notice that demands that the employer promptly pay the
assessed tax does not correspondingly demand payment from a third
party who receives a copy of the notice.  At the time the assessment
is made, the government is seeking to collect from the
taxpayer-employer, not from the lender, and the notice gives no
indication of the likelihood that the government will, at some future
time, bring a suit to collect the third party's liability under
Section 3505.  See United States v. Hunter Engineers & Constructors,
Inc., 789 F.2d at 1439.  Indeed, the Commissioner has no authority to
"demand payment" from a third party when he makes an assessment
against the employer;  Congress has provided that a lender's liability
under Section 3505 can be collected only in a civil suit instituted
for that purpose by the Department of Justice.  See I.R.C. Sections
7401, 7402.  Thus, if one is "to give effect * * * to every word
Congress used" (Reiter v. Sonotone Corp., 442 U.S. 330, 339 (1979)),
it is manifest that the notification to third parties desired by
petitioner is not required by Section 6303(a), since the tax bill sent
to the employer under Section 6303(a) neither "stat(es) the amount"
nor "demand(s) payment" of the third party's potential liability.

   In fact, even if one focuses solely on the short phrase in Section
6303(a) on which petitioner relies -- the requirement that notice be
given "to each person liable for the unpaid tax" -- the language does
not unambiguously support petitioner's construction of the statute.
At the time of the assessment against the employer, the employer's
lenders, as opposed to the employer itself, have not a present but
only a "potential liability" (Pet. App. 9a) to pay the unpaid tax.
The employer is obviously a "person liable" for the unpaid tax because
the tax has been assessed against it;  that assessment has the force
of a judgment that may be summarily collected, and it is ripe for
immediate payment.  See I.R.C. Section 6331.  A lender in petitioner's
position, by contrast, could become liable to make a payment on
account of the employer's unpaid tax only if the United States
subsequently brings a civil action in which the lender's Section 3505
liability is established, a step that it is the Commissioner's current
practice to recommend only if he is unable to collect the
withholding-tax delinquency from other sources (such as the employer
itself or its responsible officers).  The speculative nature at the
time of assessment against the employer of the lender's ultimate
obligation to pay is evident from IRS estimates that Section 3505
comes into play in only about one case for every 5,000 withholding-tax
delinquencies.  See page 47, infra.  Thus, because the lender's
liability in practical terms is highly contingent at the time the
Section 6303(a) notice is mailed to the employer, it is difficult to
describe the lender at that moment as a "person liable" for the unpaid
tax.

   Moreover, even if a lender in petitioner's position were thought to
be a "person liable," such a third party, technically speaking, is not
a person liable "for the unpaid tax" (I.R.C. Section 6303(a)).
Section 3505 provides that a third party in certain circumstances
"shall be liable in his own person and estate * * * in a sum equal to
the taxes" specified therein;  Section 3505 does not impose a tax or
make the third party liable to pay another's tax.  A third party sued
under Section 3505 is subject to a distinct personal liability and
hence is not literally a person liable "for the unpaid tax" that was
assessed against the employer.  See United States v. Messina Builders
& Contractors Co., slip op. 15 (Fairchild, J., dissenting).  Finally,
the phrase "the unpaid tax" as used in Section 6303(a) obviously
refers to the delinquent taxes specified in the notice of assessment.
See I.R.C. Section 6303(a), cross-referring to I.R.C. Section 6203.
As noted above, the third party will almost invariably not be
potentially liable for the full amount stated in the notice of
assessment.  Rather, his exposure will be limited to an amount equal
to a portion of "the unpaid tax."

   In sum, the plain language of Section 6303(a) does not require that
a notice of assessment against an employer be sent to a third party
who might in future be held liable under Section 3505.  Rather, as the
court of appeals concluded (Pet. App. 10a), "the more natural and
logical reading" of the statutory language is the construction that we
urge -- that Section 6303(a) "requires notice only to those
individuals against whom the taxes have been assessed." /4/

   2. The historical antecedents of Section 6303(a) support our view
that its notice requirement contemplates notification to the party or
parties against whom the assessment is made, not to third parties who
in future may be held to have liability in an amount equal to some
part of the unpaid taxes.  The notice requirement historically has
been linked to the assessment "list" that was compiled by the
government.  The current statute traces its origins back to the
Revised Statutes of 1878.  Section 3182 of the Revised Statutes
required the Commissioner to make assessments of unpaid taxes and to
"certify a list of such assessments when made to the proper
collectors." Section 3184 of the Revised Statutes required the
collector, "within ten days after receiving any list of taxes from the
Commissioner * * * , (to) give notice to each person liable to pay any
taxes stated therein, * * * stating the amount of such taxes and
demanding payment thereof." Similar provisions were contained in the
Internal Revenue Code of 1939, ch. 2, Sections 3640, 3641, 3655, 53
Stat. 442, 446.  Section 3640 empowered the Commissioner to make
assessments, Section 3641 directed him to "certify a list of such
assessments when made to the proper collectors," and Section 3655
required the collector to issue a notice and demand for payment to
"each person liable to pay any taxes stated therein" within 10 days
after receiving a list from the Commissioner.  /5/

   These predecessor statutes of Section 6303(a), which closely
tracked the present language, clearly contemplated that notice would
be sent only to those persons who appeared on the assessment list,
i.e., to "each person liable to pay any taxes stated therein" (Rev.
Stat. Section 3184;  53 Stat. 446).  As we have shown above, a third
party in petitioner's position is not a "person liable to pay" the tax
stated in the notice of assessment sent to the employer.  And there is
no indication that Congress, in reformulating these earlier provisions
as Section 6303(a) of the 1954 Code, intended to make any change in
the identity of the persons covered by the notice provision.  Indeed,
the legislative history demonstrates that the contrary is true (see
pages 29-32, infra).  /6/

 B. The Policies Underlying Section 6303(a) Are Not Served By
Construing It To Require Notice To Third Parties Potentially Liable
Under Section 3505

   The Internal Revenue Code provides several distinct methods for the
collection of taxes.  One is administrative collection by the IRS by
means of levy and seizure.  Under the Code, this method of collection
must be triggered by an assessment, which, pursuant to Section
6303(a), is accompanied within 60 days by a notice and demand for
payment.  /7/ The United States is also empowered to seek a judgment
for any unpaid tax liability by bringing a civil action in district
court.  It is this second method that must be used to collect a
Section 3505 liability (see, e.g., H.R. Rep. 1884, supra, at 65-66),
and it was, of course, this method that was employed against
petitioner here.  But the reasons for requiring the IRS to provide a
notice of assessment have no relevance where a liability is sought to
be collected by civil suit;  such notice is necessary as a practical
matter only when administrative collection is invoked.  Hence, the
Third Circuit's construction of Section 6303(a) not only gives effect
to the complete text of the statute, but also represents the
construction that gives effect to the rationale underlying the notice
requirement.

   1. Section 6203 of the Code provides that an assessment is made "by
recording the liability of the taxpayer in the office of the
Secretary." An assessment is simply "a bookkeeping notation * * * made
when the Secretary or his delegate establishes an account against the
taxpayer on the tax rolls" (Laing v. United States, 423 U.S. 161, 170
n.13 (1976)), and it "consists of no more than the ascertainment of
the amount due and the formal entry of that amount on the books of the
secretary." United States v. Dixieline Financial, Inc., 594 F.2d 1311,
1312 (9th Cir. 1979).  While the assessment itself is thus a mere
bookkeeping matter, the consequences that flow from the making of an
assessment are quite significant.  See generally M. Saltzman, supra,
Paragraph 10.01, at 10-2.

   Once a tax has been assessed, the IRS is empowered to collect the
tax using various summary methods of collection not involving resort
to the courts.  See United States v. Rodgers, 461 U.S. 677, 682-683
(1983);  Bull v. United States, 295 U.S. 247, 259-260 (1935);  see
generally McGregor & Davenport, The Collection of Delinquent Federal
Taxes, 28 So. Cal. Tax Inst. 589 (1976).  The assessment automatically
creates a lien against the taxpayer's property.  See I.R.C. Sections
6321, 6322.  If the taxpayer fails to pay the tax within 10 days after
notice and demand, the IRS may levy against any property the taxpayer
owns or on which a lien exists, and it may then sell the seized
property (I.R.C. Sections 6331, 6335).  And the government may file
notice of the tax lien created by the assessment to protect its
interest in the taxpayer's property against competing interests.  See
I.R.C. Section 6323.

   With limited exceptions, Section 7421(a) of the Code bars suits to
enjoin the assessment or collection of taxes.  Accordingly, once an
assessment has been made, the taxpayer ordinarily has no recourse if
he wishes to dispute his liability except to pay the tax and sue for a
refund.  /8/ And the taxpayer has no power to prevent the IRS from
levying against his property unless he promptly pays the tax. See
generally United States v. National Bank of Commerce, No. 84-498 (June
26, 1985).

   An assessment thus provides the IRS with powerful administrative
tools that it may use to effect immediate collection from the
taxpayer, without resort to the courts.  Sections 6321 and 6331(a) of
the Code, however, restrain the commencement of these collection
measures by requiring the Commissioner to wait 10 days after giving
the taxpayer "notice and demand" under Section 6303(a) before
proceeding to levy on or seize his property.  See I.R.C. Section 6321
(providing that a tax lien arises if "any person liable to pay any tax
neglects or refuses to pay the same after demand") (emphasis added);
I.R.C. Section 6331(a) (authorizing levy and distraint if "any person
liable to pay any tax neglects or refuses to pay the same within 10
days after notice and demand") (emphasis added).  The primary function
served by the Section 6303(a) notice of assessment and demand for
payment is thus to protect the taxpayer against unexpected seizure of
his property.  See Pet. App. 12a;  Macatee, Inc. v. United States, 214
F.2d 717, 719 (5th Cir. 1954).  Notice and demand permit him to make
immediate payment (subject to later recovery in a refund suit) and
thereby avoid embarrassment and other difficulties that may result
from the recording of liens against, or the seizure of, his assets.
Notice and demand also afford the taxpayer an opportunity to bring an
immediate suit to restrain collection, if there exist the limited
circumstances under which such suits are permitted (see note 8,
supra).  Thus, Congress reasonably concluded that fairness to
taxpayers requires that Section 6303(a) notice and demand be provided
to persons against whom an assessment has been made before summary
administrative collection methods can be invoked.

   2. When the Commissioner does not resort to summary administrative
collection methods, however, but rather requests the Justice
Department to commence a civil suit, "notice and demand" under Section
6303(a) play no significant role in the tax-collection process.  The
government is empowered to bring a collection action to obtain a
personal judgment against a taxpayer for a tax due.  See I.R.C.
Section 7401 (providing that such action can be commenced only with
the concurrence of the Commissioner and at the direction of the
Attorney General);  28 U.S.C. 1396 (establishing venue for such
action).  The power to bring a collection suit exists independently of
any statutory authorization;  it is based simply on the government's
common-law right to sue on a debt.  See, e.g., United States v.
Chamberlin, 219 U.S. 250, 261 (1911);  Dollar Savings Bank v. United
States, 86 U.S. (19 Wall.) 227, 239-240 (1874).  In the words of Judge
Friendly, "in 1791 an action of debt lay in England for the collection
of taxes, (and) such an action has always lain in the federal courts
even apart from statute." Damsky v. Zavatt, 289 F.2d 46, 51 (2d Cir.
1961).

   This judicial action to collect a tax debt is independent of the
administrative collection process.  It has long been settled that the
government's failure to assess taxes does not preclude it from
exercising its right to sue the delinquent taxpayer for those taxes.
See, e.g., King v. United States, 99 U.S. 229, 233 (1878);  Dollar
Savings Bank v. United States, 86 U.S. (19 Wall.) at 240-241;
Macatee, Inc. v. United States, 214 F.2d at 717.  Indeed, the
government's right to collect taxes without assessment is expressly
recognized in Section 6501(a) of the Code, which establishes a
three-year statute of limitations for bringing a "proceeding in court
without assessment for the collection of such tax," a period that may
be extended if an assessment is made.  When a civil suit is brought
without an assessment, however, summary collection procedures (such as
levy and distraint) are not available.  Accordingly, there is no
particular need to notify the taxpayer of the amount of his tax
liability in advance of such a suit, or to make a prior "demand for
payment" upon him, since there is no possibility of nonjudicial
seizure of his property against which he must be warned.  Rather, just
as is the case with any other lawsuit, the filing of the complaint
provides all the notice that the taxpayer needs to protect his
interests.

   For the same reasons, it would make little sense to extend the
Section 6303(a) notice requirement to third parties who might
conceivably be held personally liable under Section 3505.  The
government can take action to collect that liability only by filing a
civil suit;  the lender under no circumstances can be subjected to the
risk of summary collection procedures that attend an assessment.  See,
e.g., H.R. Rep. 1884, supra, at 65-66.  /9/ It is of course true that
a lender whom the government seeks to hold liable under Section 3505
is entitled to "some device which serves the same function of
providing notice to the defendant that the filing of a lawsuit would"
(American Bankers Ass'n Amicus Br. 7).  But that "device" is already
in place;  it is, somewhat truistically, the filing of the
government's lawsuit.  The notice specified in Section 6303(a) would
not really serve this function at all, since it would not tell the
third party whether or not the government actually intended to collect
on its Section 3505 liability, nor would it tell the third party what
the amount of its potential exposure was likely to be.  In short, the
Section 6303(a) notice is designed to serve the specific purpose of
demanding payment from the party against whom the assessment is made,
informing him that he may be subject to summary collection procedures
if he fails to pay at once.  The notice loses its utility when
extended beyond that context.

   3. Petitioner's contention that Section 6303(a) requires notice to
third parties is further belied by the well-settled rule that the
Commissioner's failure to notify a taxpayer of an assessment does not
have suit by the United States to collect that individual's delinquent
taxes.  Even in cases where the IRS assessed a tax but failed to
provide the taxpayer with the notice and demand specified in Section
6303(a), the courts have held that this procedural error did not
extinguish the taxpayer's liability or bar the United States from
proceeding to collect that liability by a timely-filed civil suit.
See United States v. Erie Forge Co., 191 F.2d 627, 631 (3d Cir. 1951),
cert. denied, 343 U.S. 930 (1952);  Jenkins v. Smith, 99 F.2d 827, 828
(2d Cir. 1938).  Those courts explained that an assessment, with its
attendant notice requirement, is a prerequisite to the administrative
collection process, so that the Commissioner's failure to give the
taxpayer Section 6303(a) notice could well prevent the IRS from
levying on the taxpayer's property.  But an assessment -- and a
fortiori notice to the taxpayer of an assessment -- "is immaterial in
an action by the United States" because such a suit may be brought
"'upon the duty imposed by the statute alone,'" that is, upon the
taxpayer's statutory obligation to pay his taxes.  Erie Forge, 191
F.2d at 631 (quoting Jenkins, 99 F.2d at 828).  Since the provision of
Section (6303(a) notice to the taxpayer against whom the assessment is
made is not a prerequisite to a civil suit to collect from him, it
would be perverse to read into Section 6303(a) a congressional intent
that the provision of such notice to a third party is a prerequisite
to a civil suit to collect from the third party.  Indeed, under the
rule set forth in Erie Forge and Jenkins, even if Congress had
established a third-party notice requirement in Section 6303(a), the
Commissioner's failure to satisfy that requirement would not bar the
United States from bringing a civil suit like this one, which is
simply "an action on a debt to impose personal liability" upon the
lender (Farmers-Peoples Bank v. United States, 477 F.2d 752, 756 (6th
Cir. 1973)).  /10/

   Petitioner does not dispute the correctness of the authorities just
cited for the proposition that the government's failure to provide
post-assessment notice and demand to a taxpayer is not a bar to a
civil suit to collect the taxpayer's debt.  Indeed, petitioner seems
to acknowledge that the Code prior to 1954 did not require the
government to provide notice of assessment to third parties (Pet. Br.
12-13).  Petitioner contends, however, that this rule was altered by
certain executive-branch reorganizational changes that were made in
1950 and incorporated into the 1954 Code.

   Under the 1939 Code, the duty to provide taxpayers with "notice and
demand" following an assessment was entrusted to Treasury Department
officials called "collectors of internal revenue," who were in charge
of administrative tax collection generally;  civil actions to collect
taxes (then as now) were commenced at the direction of the Attorney
General upon request from the Commissioner.  Internal Revenue Code of
1939, ch. 2, Sections 3655(a), 3740 and 3940-3978, 53 Stat. 446, 460,
and 480-486.  Petitioner views the decisions in Erie Forge and Jenkins
as critically dependent upon this division of labor:  the reason that
civil suits were there permitted despite the absence of timely notice
and demand, petitioner seems to say, is that the courts were reluctant
to preclude action by the Attorney General and the Commissioner
because of the collector's procedural default.  Petitioner asserts
(Br. 11-15) that this rationale disappeared in 1954, when Congress
centralized in the hands of the Secretary of the Treasury both the
power of administrative tax collection formerly exercised by tax
collectors and the power to authorize the Attorney General to
institute civil litigation.  When Congress codified this
reorganization and at the same time enacted a new version of Section
6303(a), petitioner concludes, the effect was to require the Secretary
to issue a timely notice and demand to a third party as an absolute
prerequisite to the commencement of a civil action against that
person.

   Petitioner's contention is multiply flawed, as the court of appeals
explained in detail below (Pet. App. 13a-17a).  First and foremost,
the rationale of Jenkins and Erie Forge was not that the collector's
procedural default could not be imputed to other government officials,
but that the collector's default affected only the government's
ability to collect the tax administratively, rather than eradicating
the taxpayer's underlying duty to pay the tax.  Since the taxpayer,
notwithstanding the absence of notice and demand, continued to have a
"legally enforceable liability" to pay the tax, the courts reasoned
that the tax could be collected by other means at the government's
disposal, such as a civil suit initiated by the Attorney General.  See
Jenkins, 99 F.2d at 828;  Erie Forge, 191 F.2d at 631.  In short, it
was not the identity of the particular government official charged
with providing notice and demand, but the nature of the collection
method sought to be invoked by the government, that those courts found
dispositive.

   In any event, the premise of petitioner's contention is that theere
was a legally significant shift of authority effected by Congress in
1954, and this premise is plainly erroneous.  The two organizational
changes that petitioner describes -- the abolition of the position of
tax collector and the vesting of the power to collection taxes
administratively in the hands of the Secretary of the Treasury -- were
affected by Executive Orders in 1950 and 1952.  See Reorg. Plan No. 26
of 1950, 15 Fed. Reg. 4935 (1950);  Reorg. Plan No. 1 of 1952, 17 Fed.
Reg. 2243 (1952).  These were changes of form, not substance.  Under
the 1939 Code, all tax collection activities were under the "general
superintendence" of the Commissioner, who in turn was under the
direction of the Secretary (Section 3901(a)(1), 53 Stat. 477).  Thus,
even prior to the 1950-1952 reorganization, the Secretary was
ultimately responsible both for administrative tax collection and for
recommending the institution of civil litigation, and hence the 1954
Code made no substantive change in this regard.  The legislative
history makes it clear that the 1954 codification was not intended to
change pre-existing notice requirements, since Congress specifically
observed that Section 6303(a) contained only "two changes from
existing law," neither of which is of any relevance here.  See H.R.
Rep. 1337, 83d Cong., 2d Sess. A405 (1954);  S. Rep. 1622, 83d Cong.,
2d Sess. 574 (1954);  Pet. App. 15a & n.6.  Accordingly, there is no
basis for concluding that the 1954 enactment of Section 6303(a)
effected any substantive change with respect to the parties to whom
notice must be given or with respect to the consequences of failure to
provide such notice.  It thus remains the law that the failure to
provide Section 6303(a) notice and demand does not bar a civil
tax-collection suit.  See Marvel v. United States, 719 F.2d 1507,
1513-1514 (10th Cir. 1983);  Sherwood v. United States, 246 F. Supp.
502, 507-508 (E.D. N.Y. 1965).

 C. Sending Third Parties A Copy Of The Notice Of Assessment Against
The Employer Would Serve No Useful Purpose

   Petitioner cannot dispute that furnishing a copy of the notice of
assessment to third parties would not serve the overriding purpose of
the Section 6303(a) notice provision, namely, to demand immediate
payment from the party against whom the assessment is made, thus
giving that individual an opportunity to take steps to avoid summary
collection procedures.  Petitioner argues, however, that third parties
will be unfairly prejudiced in other ways if they are not notified of
the assessment against the employer.  This argument does not withstand
analysis.

   1. Petitioner asserts (Br. 20-22, 26-27) that, unless third-party
lenders receive a copy of the tax bill sent to the employer under
Section 6303(a), they may be unaware of the possibility that the
government might seek to hold them personally liable under Section
3505, and hence may unwittingly destroy records or take other steps
that could prejudice their defense in the event that the government
were eventually to bring suit against them.  As the court of appeals
explained (Pet. App. 17a-19a), the "scienter" standard contained in
Section 3505 eliminates any possibility of prejudice in this regard.
That scienter standard ensures that a third party will not be subject
to liability under Section 3505 unless it already has in its
possession, at the time it advances funds to the employer, all
relevant information that would be conveyed to it by a Section 6303(a)
notice and demand.

   The notice that petitioner seeks would not give third parties any
indication of the likelihood that the government might actually bring
a Section 3505 action against them.  That datum is not within the
contemplation of Section 6303(a);  indeed, at the time a notice of
assessment is mailed to the employer, the IRS typically would have no
idea whether it would be likely to bring future suits against third
parties.  What the Section 6303(a) notice says is that an assessment
has been made and that the subject of the assessment must pay the tax
due.  The relevant information that would be conveyed to a third party
receiving a copy of this notice would be that the employer owes taxes
(which is apparent from the face of the assessment notice) and perhaps
that the government believes the third party to face possible exposure
under Section 3505 (which it might deduce from the fact that a copy of
the notice was sent to it).

   In conveying this information, the Section 6303(a) notice would
tell a third-party lender who runs a risk of Section 3505 liability
nothing that he does not already know.  Section 3505 establishes
third-party liability only where the lender is himself paying net
wages or where he has "actual notice or knowledge" that the employer
will not or does not intend to pay withholding taxes (I.R.C. Section
3505(a) and (b)).  In either case, the lender is aware that
withholding taxes are not being paid and hence knows that the employer
owes taxes.  The lender, moreover, is presumed to be aware of the law
and hence to know that entering into payroll-financing arrangements
causes one to face possible exposure under Section 3505 if withholding
taxes are not paid.  Thus, any lender that is potentially subject to
Section 3505 liability must already have in his possession all
relevant knowledge that a Section 6303(a) notice would give him.
Because such a lender "must have necessarily been intimately involved
in the employer's failure to pay taxes" (United States v. Hunter
Engineers & Constructors, Inc., 789 F.2d at 1441)), the lender is
fully capable of taking whatever steps he deems appropriate to
preserve records of the payroll financing operation and otherwise to
protect himself against the possibility of a future Section 3505 suit.
 Receiving a copy of the employer's tax bill would add no relevant
facts to the sum of his knowledge and hence the failure to provide him
with a copy of that notice would not prejudice him in any way.

   Petitioner makes the related point that furnishing an employer's
lenders with a copy of the Section 6303(a) notice would "allow the
lender to evaluate its ongoing relationship with the borrower" so that
it could "take steps to monitor the employer's payment of
(withholding) taxes" or even "stop funding the employer completely"
(Br. 24-25).  Amicus American Bankers Association similarly argues
(Br. 11) that the notice of assessment would supply a bank with
"knowledge that the borrower is in dire financial straits" so that the
bank "would be able to limit its losses on potentially bad loans." But
the idea that Section 6303(a) could require the IRS to provide notice
and demand to lenders in order to serve these objectives is quite odd.
 One would have thought that it is the responsibility of the bank, not
of the Internal Revenue Service, to monitor the financial condition of
the bank's customers and to evaluate the profitability of a continued
debtor-creditor relationship.  There is absolutely no reason to
suppose that Congress intended to require the IRS to spend public
funds to relieve banks of the task of keeping abreast of their
borrowers' financial condition.

   To the contrary, the legislative history of Section 3505
demonstrates that "Congress envisioned a system in which third parties
would take their potential liability under section 3505 into
consideration at the time they entered into the transaction exposing
them to liability under the statute" (Pet. App. 19a).  For example,
the committee reports on the 1966 legislation stated that "sureties
can protect themselves against any losses attributable to withholding
taxes by including this risk of liability in establishing their
premiums, and lenders by their including the amounts in their loans
and taking adequate security." H.R. Rep. 1884, supra, at 22;  S. Rep.
1708, supra, at 23.  /11/ Congress plainly intended that third parties
entering into lending arrangements that might bring them within the
purview of Section 3505 should accept, as an incident of the lending
transaction, some responsibility for monitoring the payment of
withholding taxes.  Indeed, as the Third Circuit observed (Pet. App.
6a), Congress found that lenders who engage in net payroll financing
"sit in essentially the same position vis-a-vis control over payroll
and access to information as the employer itself." See H.R. Rep. 1884,
supra, at 20;  S. Rep. 1708, supra, at 21-22.  Thus, Congress cannot
have expected that third parties would have any need of the sort of
notice provided by Section 6303(a), and Congress cannot have intended
to burden the IRS with the duty of communicating with third-party
lenders so as to relieve them of their monitoring responsibilities.
For these reasons, the court of appeals correctly concluded that
furnishing the third-party lender with a copy of the Section 6303(a)
notice sent to the employer would merely add a "formalistic
requirement for the imposition of section 3505 liability" that would
"serve( ) no useful purpose" (Pet. App. 18a).

   2. Petitioner also contends (Br. 18-22) that a third party is
prejudiced by its failure to receive a notice of the assessment
against the employer because of the manner in which an assessment
affects the statute of limitations applicable to collection suits.
Section 6501(a) of the Code generally provides that "the amount of any
tax imposed by this title shall be assessed within 3 years after the
return was filed * * * and no proceeding in court without assessment
for the collection of such tax shall be begun after the expiration of
such period." Section 6502(a)(1) in turn generally provides that, if
an assessment is timely made, "such tax may be collected by levy or by
a proceeding in court * * * begun * * * within 6 years after the
assessment of the tax." /12/ Petitioner thus correctly states that an
assessment of tax against the employer made on the last day of the
three-year limitations period would have the effect of increasing the
overall statute of limitations from three years to nine years.
Petitioner asserts that it is unfair to provide notice to the employer
of this limitations-lengthening event without also providing notice to
third parties potentially liable under Section 3505.  See Pet. Br. 6,
16-22, 28.

   Petitioner's contention is without merit.  Although six years after
assessment may seem a long time, that is the period that is routinely
available to the Commissioner to collect taxes from employers (and
from taxpayers generally) where, as will typically be the case, the
Commissioner has assessed the taxes in timely fashion.  As we have
noted above, a third-party lender will run a risk of Section 3505
liability only if it has actual knowledge that the employer's
withholding taxes are not being paid.  Any prudent lender, moreover,
necessarily must assume that the Commissioner will not let the
three-year statute of limitations run against the government, but
rather will timely assess the unpaid withholding taxes in order to
protect the revenue.  Lenders who engage in net payroll financing are
accordingly on notice to take whatever steps they deem necessary to
protect evidence and otherwise preserve their defenses for a period of
nine years from the date on which the withholding taxes were due.
/13/

   Equally erroneous is petitioner's assertion (Br. 19) that our
interpretation of Section 6303(a), when coupled with the applicable
statute-of-limitations rules, "results in less procedural protection
to a third party * * * than to the employer." In actuality, third
parties are afforded considerably more procedural protection than
employers by virtue of the fact that the government is not authorized
to assess Section 3505 liabilities.  Because the IRS in the absence of
an assessment cannot resort to summary collection procedures, the
lender, unlike the employer, is assured that he will not be deprived
of property to satisfy the asserted Section 3505 obligation without a
judicial finding of liability.  In a Section 3505 action to collect
from a lender, moreover, the government bears the burden of proving
the elements necessary to establish liability on the lender's part.
See, e.g., United States v. Intercontinental Industries, Inc., 635
F.2d 1215, 1219-1220 (6th Cir. 1980);  H.R. Rep. 1884, supra, at 21;
S. Rep. 1708, supra, at 23.  By contrast, in a collection or refund
suit involving the taxpayer against whom the tax is assessed, the
assessment is deemed prima facie correct and the taxpayer bears the
burden of proving it erroneous.  See, e.g., United States v. Janis,
428 U.S. 433, 440-441 (1976).  For these reasons, our interpretation
of the statute does not place the lender in a worse position than the
employer nor does it otherwise result in unfairness to third parties.
/14/

   3. Amicus First Alabama Bank (Br. 20-25) appears to proffer a
further argument on the statute-of-limitations front, one addressed to
the proper construction of Section 6502(a) rather than of Section
6303(a).  Amicus concedes in this connection (Br. 17 n.9) that the
Commissioner's failure to provide Section 6303(a) notice to a
third-party lender would not bar a Section 3505 suit against the
lender if the suit were brought within the three-year limitations
period specified in Section 6501(a).  Amicus goes on to argue,
however, that Section 6502(a), which permits a civil collection suit
to be commenced within six years of assessment, should not be
effective against a lender that has not received notice of the
assessment.  Because the instant suit, on the authority of Section
6502(a), was commenced within six years of the assessments against
Pennmount but more than three years after Pennmount's employment tax
returns were filed, and because petitioner did not receive a copy of
the notice of assessment sent to Pennmount, amicus contends (Br.
20-25) that the three-year statute of limitations of Section 6501(a)
bars this action.

   We note at the outset that amicus's statute-of-limitations argument
is not properly before this Court.  The question on which the Court
granted review is whether the lender's receipt of a Section 6303(a)
notice of assessment is a prerequisite to the government's maintenance
of a Section 3505 suit to collect the lender's liability.  That
question depends upon the proper construction of Section 6303(a) and
does not turn on the timing of the government's action.  Amicus's
statute-of-limitations argument has nothing whatever to do with
Section 6303(a), but relates rather to the proper construction of
Section 6502(a).  A statute-of-limitations defense, moreover, is not
available to petitioner here because petitioner did not raise that
defense in its answer, as Rule 8(c) of the Federal Rules of Civil
Procedure requires, or at any other time in the district court.  See
Pet. App. 46a-49a.  Petitioner's failure to invoke the
statute-of-limitations defense in a timely fashion constitutes a
waiver that precludes petitioner from raising the defense on appeal.
See, e.g., Perry v. O'Donnell, 749 F.2d 1346, 1353 (9th Cir. 1984);
Moore v. Tangipahoa Parish School Board, 594 F.2d 489, 495 (5th Cir.
1979).  A fortiori that defense cannot now be raised by an amicus
curiae.

   In any event, amicus's statute-of-limitations contention is without
merit.  As amicus recognizes, the Code sets forth no explicit statute
of limitations for Section 3505 suits.  In the absence of an explicit
statute of limitations, Section 3505 actions might appear at first
blush to fall within the general rule that the government is not
subject to any limitations period unless Congress has specifically
provided one.  See Guaranty Trust Co. v. United States, 304 U.S. 126,
132-133 (1938);  Badaracco v. Commissioner, 464 U.S. 386, 392 (1984)
(statutes of limitations barring the collection of taxes are strictly
construed in favor of the government).  In United States v. Updike,
281 U.S. 489 (1930), however, this Court held that a suit to collect a
transferee's third-party liability was governed by the statute of
limitations applicable to a suit to collect the taxes from the
transferor.  The Court explained (id. at 493-496) that the
congressional purposes underlying both the establishment of the
statute of limitations and the imposition of third-party liability are
best fulfilled by allowing the government the same period for
collection of the third party's liability as applies to the underlying
liability of the taxpayer.  Application of that principle here would
indicate that a suit to collect a lender's Section 3505 liability
should be subject to the limitations periods established by the Code
for suits against the delinquent employer -- that is, six years from
the date of the assessment when the assessment is timely made.  See
I.R.C. Sections 6501(a) and 6502(a)(1);  Treas. Reg. Section
31.3505-1(d)(1).  Accord, e.g., United States v. Hunter Engineers &
Construction, Inc., 789 F.2d at 1441;  United States v. Associates
Commercial Corp., 721 F.2d at 1097-1098.

   This implicit limitation on the time within which Section 3505
suits can be brought is purely derivative of the explicit limitation
placed on suits against the employer.  There is, therefore, no
conceivable basis for amicus's contention that, because petitioner did
not receive a Section 6303(a) notice, it should be subject to a
shorter statute of limitations than is the employer.  Either Section
3505 collection suits are governed by no limitations period at all, or
they are governed derivatively by the limitations period applicable to
suits against employers, in which case the latter period and the
Section 3505 period must be congruent.  It is an inpermissible form of
bootstrapping to begin with no statute of limitations at all, proceed
to find a derivative statute of limitations, and then use that
derivative period as a springboard to argue for a still-shorter
statute of limitations.  /15/

   Even if there were some basis for amicus's assumption that the
Section 6502(a) limitations period is directly applicable to suits
against a lender, rather than derivatively applicable through
congruence with suits against the employer, there would still be no
reason to link the statute of limitations to the receipt or
non-receipt of a Section 6303(a) notice.  The terms of Section 6502(a)
make it quite clear that it is timely assessment, not timely notice of
assessment, that brings the six-year period for collections into play.
 See I.R.C. Section 6502(a) ("(w)here 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 * * * within 6
years after the assessment").  Once a timely assessment is made
against the employer, in other words, Section 6502(a) gives the
government six years to bring a collection suit against the employer,
even if the government for some reason failed to give notice of the
assessment to him.  A fortiori, the government has the same six years
to bring suit against a third-party lender irrespective of whether the
lender received a copy of that notice.

 D. Requiring The Commissioner To Send Section 6303(a) Notice To
Lenders As A Prerequisite To A Suit To Collect Their Section 3505
Liabilities Finds No Support In The Legislative History Of Section
3505 And Would Destroy The Practical Utility Of That Provision

   1. The legislative history of Section 3505 and the policies
underlying it confirm the conclusion derived from an examination of
Section 6303(a) alone -- namely, that Congress did not intend that the
Commissioner be required to furnish third parties with notice and
demand under Section 6303(a) as a prerequisite to suit under Section
3505.  There is nothing in either the language or history of Section
3505 to suggest that Congress intended a lender's liability to hinge
on whether it had received notice of the sort described in Section
6303(a).  Indeed, the mechanism that Congress prescribed for
collecting the lender's liability clearly suggests the reverse.
Congress did not provide the IRS with authority to make an assessment
against a third party for Section 3505 liability.  Instead, Congress
restricted for government to collection "by appropriate civil
proceeding." H.R. Rep. 1884, supra, at 66.

   This treatment stands in sharp contrast to the mechanism prescribed
for collecting certain other third-party liabilities under the Code.
Congress has provided, for example, that the liability of certain
transferees (I.R.C. Section 6901(a)) and of responsible officers
(I.R.C. Section 6672(a)) "shall be assessed and collected in the same
manner as (the) taxes" of the taxpayer itself, thereby empowering the
Commissioner to use summary collection procedures following notice and
demand.  See I.R.C. Sections 6671(a), Section 6901(a).  Having
purposefully established a procedural framework that does not require
-- or even permit -- a separate assessment to be made against the
third party (see United States v. First Nat'l Bank, 652 F.2d 882, 889
(9th Cir. 1981);  United States v. Dixieline Financial, Inc., 594 F.2d
at 1313;  United States v. Marine Midland Bank, 544 F. Supp. 268, 270
(W.D. N.Y. 1982)), Congress is most likely to have contemplated
extending to third parties the requirement of notice under Section
6303(a).  That notice is designed to protect the taxpayer against
summary collection procedures and has never been considered a
prerequisite to the institution of a civil collection suit (see pages
21-29, supra).  /16/

   2. The fact that Congress did not intend to make Section 6303(a)
notice to lenders a prerequisite to a civil suit under Section 3505 is
confirmed by examining the practical effect that such a requirement
would have.  The court of appeals below correctly concluded
(apparently without intending an oxymoron) that a notice requirement
would render Section 3505 "a substantial nullity" (Pet. App. 21a).

   When the Commissioner makes an assessment of unpaid withholding
taxes, he ordinarily will have no way of knowing whether the
delinquent employer has borrowed money from a third party under
circumstances that might render the latter liable under Section 3505.
There is no indication on the face of the employment tax return who
the employer's creditors might be, much less any indication whether
such creditors might themselves have paid net wages (I.R.C. Section
3505(a)) or have "actual * * * knowledge" (I.R.C. Section 3505(b)) of
the employer's withholding tax delinquency.  /17/

   Moreover, the Commissioner cannot reasonably be expected, at the
time he makes the assessment against the employer, affirmatively to
undertake to identify the lenders who may have potential liability for
the unpaid withholding taxes.  The IRS during 1984 received about 19
million quarterly employment tax returns, almost six million of which
were accompanied by only partial payment or by no payment at all.
/18/ In order to protect the revenue, the Commissioner typically
assesses such delinquent taxes against the employer within a month or
two after receiving the return.  As the court of appeals observed
(Pet. App. 20a), it would obviously "impose a prohibitory
investigative burden on the government" to require the Commissioner,
within 60 days of making those six million assessments, to identify
and notify all lenders who might be personally liable for the taxes
thus assessed.

   Even if such investigations were realistically possible, they would
entail a tremendous waste of resources.  Like any creditor, the
Commissioner ordinarily tries to collect delinquent withholding taxes
first from the employer itself by sending the employer a series of
bills (i.e., notice and demand under Section 6303(b)) for the unpaid
taxes.  See M. Saltzman, supra, Paragraph 14.03, at 14-11 et seq.  If
collection efforts against the employer fail, /19/ it is the
Commissioner's usual practice to try to collect under Section 6672
from the employer's responsible persons.  Only after those avenues
have been investigated does the Commissioner normally explore the
possibility of collection from lenders.  /20/ Indeed, the IRS
estimates that Section 3505 comes into play in about only one case for
every 5,000 withholding-tax delinquencies.  Because lenders in the
vast majority of cases will never be called upon to pay the delinquent
taxes, it would be exceedingly inefficient and wasteful for the IRS to
go to the expense of identifying and notifying them at the very outset
of the collection process -- a step that would needlessly embarrass
employers and convey no useful information to lenders in any event.

   Petitioner's suggestions for avoiding the formidable practical
obstacles to giving Section 6303(a) notice to lenders are wholly
unsatisfactory.  The idea (Pet. Br. 23) that the IRS should delay
making an assessment against the employer-taxpayer for up to three
years, instead of making the assessment within a month or two of
receiving the employer's return as is the Commissioner's current
practice, would constitute a rather clear breach of the Commissioner's
duty to protect the public fisc.  As the court of appeals correctly
recognized (Pet. App. 21a), such a delay in making the assessment
would "seriously jeopardize the government's interest in collecting
the taxes from the employer" because it would "enable other creditors
to obtain prior liens against the employer's property." /21/

   Equally flawed is the alternative suggestion of petitioner (Br. 25)
and of amicus American Bankers Association (Br. 13) that the IRS
should make its usual prompt assessment against the employer (without
notice to lenders) and then make a "supplemental assessment" against
the employer (with notice to lenders) under Section 6204(a) within
three years after the return is filed.  See also United States v.
Messina Buildings & Contractors Co., slip op. 12, where the same
suggestion is advanced.  Petitioner and amicus apparently offer this
suggestion on the theory that, in the interim between the initial and
supplemental assessments, the IRS would have enough time to undertake
an investigation to learn the identities of third parties potentially
subject to Section 3505 liability.  This suggestion, of course, is
inconsistent with petitioner's basic argument that Section 6303(a)
demands notice to third parties of an assessment against the employer
within 60 days of making that assessment.  Moreover, it is doubtful
that petitioner's suggestion could be effectuated under existing law.
Section 6204(a) allows the Secretary to make a supplemental assessment
only when "it is ascertained that any assessment is imperfect or
incomplete in any material respect." This provision would not appear
to be applicable where the only defect alleged is that a copy of the
notice of assessment was not sent to a third party.

   In sum, the practical effect of requiring the sort of notice sought
by petitioner would be to eviscerate Section 3505.  It is
inconceivable that Congress, in enacting this provision to eradicate
the practice, of net payroll financing, would at the same time have
incorporated a notice requirement that would so substantially weaken
the statute as to ensure that the practice would continue unabated.
The conclusion is inescapable that receipt of Section 6303(a) notice
to an employer is not a prerequisite to a civil suit against a third
party lender to collect a Section 3505 liability.

                              CONCLUSION

   The judgment of the court of appeals should be affirmed.

   Respectfully submitted,

   CHARLES FRIED

      Solicitor General

   ROGER M. OLSEN

      Assistant Attorney General

   ALBERT G. LAUBER, JR.

      Deputy Solicitor General

   ALAN I. HOROWITZ

      Assistant to the Solicitor General

   WYNETTE J. HEWETT

   BRUCE R. ELLISEN

      Attorneys

   OCTOBER 1986

   /1/ Unless otherwise noted, all statutory references are to the
Internal Revenue Code of 1954 (26 U.S.C.), as amended (the Code or
I.R.C.).

   /2/ Other Subtitle C taxes, such as the Federal Unemployment Tax
(I.R.C. Sections 3301-3311) and the Railroad Retirement Tax (I.R.C.
Sections 3201-3233), are not involved here.

   /3/ An "assessment" is the recording by the Internal Revenue
Service on its books of the taxpayer's liability for taxes.  See
I.R.C. Section 6203.  It is a statutory prerequisite to summary
collection methods such as levy and distraint.  See I.R.C. Section
6331.

   /4/ It is noteworthy that Section 6303(a) has never been
interpreted to require that "responsible officers" or other persons
liable for a "penalty equal to the amount of the (delinquent
withholding) tax" (I.R.C. Section 6672) receive notice of the
assessment against the employer.  Because the Code specifies that the
liability under Section 6672 is to be "assessed and collected in the
same manner as taxes" (I.R.C. Section 6671(a)), these responsible
persons do receive a notice of assessment, but only when a separate
assessment is made against them.

   /5/ While the Code today no longer provides for certification of an
assessment list, the basic principles concerning the identity of
persons against whom assessments are made remain unchanged from 1878.
The assessment is made by "recording the liability of the taxpayer"
(I.R.C. Section 6203 (emphasis added)), and the regulations require
that the record of assessment contain the identity "of the taxpayer"
(Treas. Reg. Section 301.6203-1 (emphasis added)).  The taxpayer in
this connection is the employer, the party against whom the assessment
is made;  a third-party lender potentially liable under Section 3505
does not come within the term "taxpayer" and cannot appear on the
assessment list.  See United States v. Dixieline Financial, Inc., 594
F.2d 1311, 1313 (9th Cir. 1979).  Like its predecessors, Section
6303(a) necessarily draws a nexus between the assessment list and the
notice requirement because that notice requirement is triggered by the
making of an assessment "pursuant to section 6203."

   /6/ Section 3505 of course had not been enacted at the time
Congress reformulated the 1954 Code, and therefore Congress could not
have been expected to address specifically in Section 6303 the
possibility of giving notice to a third party potentially liable under
Section 3505.  But amicus First Alabama Bank is incorrect in stating
(Br. 6) that there did not exist in 1954 any third-party liability
that did not provide for separate notice and assessment.  This Court
had made clear in 1931 that the Commissioner could collect a
transferee's liability by filing a lawsuit (Phillips v. Commissioner,
283 U.S. 589, 592 & n.2 (1931)), and while the assessment of certain
types of transferee liabilities was statutorily authorized (e.g.,
Internal Revenue Code of 1939, ch. 2, Section 311, 53 Stat. 90-91),
transferee liabilities not covered by statute remained collectible
only by civil action.  Moreover, the government has always been
empowered to collect delinquent taxes from a party that has
contractually assumed the taxpayer's liability, even though it cannot
assess the taxes against such a third party.  See, e.g., United States
v. Scott, 167 F.2d 301 (8th Cir. 1948);  cf. United States v. John
Barth Co., 279 U.S. 370 (1929) (suit against surety on taypayer's bond
to secure payment of taxes).  Thus, there did exist in 1954
third-party liabilities that were not subject to separate assessment,
and accordingly, contrary to petitioner's contention (Br. 11-13), the
fact that Section 6303 at that time did not provide for notice of
assessment to such third parties is significant in determining its
meaning in the Section 3505 liability context.

   /7/ "Notice and demand" under Section 6303(a) should not be
confused with the "notice of deficiency" described in Section 6212 of
the Code.  A notice of deficiency is a pre-assessment document,
applicable to income, gift, and estate taxes, that the IRS generally
must provide taxpayers before it may assess or collect a "deficiency"
in such taxes, i.e., a liability greater than that shown on the
taxpayer's return.  See I.R.C. Sections 6211(a), 6213(a).  The notice
of deficiency gives the taxpayer the opportunity to petition the Tax
Court to have his liability for the asserted deficiency redetermined.
I.R.C. Section 6214.  If a notice of deficiency is sent and the
taxpayer does not petition the Tax Court, or if he petitions and a Tax
Court decision redetermining a deficiency has become final, the IRS
then may assess the deficiency (see I.R.C. Section 6213(a)) and send
the taxpayer a notice and demand, i.e., a bill, for those taxes.  The
notice-of-deficiency procedure has no application where a taxpayer has
filed a tax return showing a liability, but has not fully paid that
admitted liability.  Such an unpaid tax is subject to immediate
assessment, and the IRS may assess and proceed to collect any tax
shown on a return.  See I.R.C. Section 6151(a).  Moreover, the
notice-of-deficiency procedure has no application to certain types of
taxes, such as social security taxes, excise taxes, and withholding of
income taxes.  For those taxes, the IRS may immediately assess and
collect any additional taxes for which it has determined that the
taxpayer is liable beyond the amounts shown on its return.

   /8/ If an assessment is improper because it has not been preceded
by the issuance of a requisite notice of deficiency (see note 7,
supra), the taxpayer may bring suit to enjoin summary collection
pending government compliance with the statutory procedures.  See
I.R.C. Sections 6213(a), 7421(a);  Cool Fuel, Inc. v. Connett, 685
F.2d 309, 313 (9th Cir. 1982).  In addition, where the Commissioner is
authorized to terminate the taxpayer's taxable year (I.R.C. Section
6851) or to make jeopardy assessments (I.R.C. Sections 6861, 6862),
the assessment is subject to judicial review under Section 7429.  It
is clear, however, that except in the extraordinary case where a
taxpayer can demonstrate that "under no circumstances could the
Government ultimately prevail" (Enochs v. Williams Packing Co., 370
U.S. 1, 7 (1976)), the taxpayer cannot restrain the collection of
assessed taxes simply on the ground that he does not in fact owe the
taxes.  That question must be litigated in a refund suit.

   /9/ Amicus American Bankers Association appears to take the
position (Br. 13) that the Commissioner is empowered to make an
assessment directly against a third-party lender for its Section 3505
liability.  It is surprising that amicus takes this position for, if
it were so, it would make collection of Section 3505 liabilities much
easier.  The commissioner could simply make an assessment and levy on
the funds of the presumably solvent bank;  the government would then
not need to go to the trouble of litigating a civil action in court.
In fact, however, amicus's suggestion is plainly mistaken, as amicus
First Alabama Bank points out (Br. 13 & n.7).  There is simply no
statutory authority for the Commissioner to assess a third-party
lender for its Section 3505 liability.  See pages 43-44, infra;
United States v. Dixieline Financial, Inc., 594 F.2d at 1313;  but use
United States v. Messina Builders & Contractors Co., slip op. 11-12 &
n.5.

   /10/ The Eleventh Circuit has stated that the government has no
inherent common law right to sue to collect Section 3505 liabilities
because the debt it thereby seeks to collect "is a creature of
statutory, not common law." United States v. Merchants Nat'l Bank, 772
F.2d at 1524 n.1;  see also United States v. Messina Builders &
Contractors Co., slip op. 10-11.  This statement completely misses the
point.  There is no question that liability under Section 3505 is a
creature of statute, but so are tax liabilities generally;  and there
is no doubt that the government has a common law right to sue to
collect taxes.  It is the government's right to sue that is based on
common law;  it is quite irrelevant whether the debt sought to be
collected in that suit is created by statute or by common law.

   /11/ Petitioner asserts (Br. 28-32) that the reports' statement to
this effect related only to Congress's amendment of the Miller Act, 40
U.S.C. 270a(d), that was also a part of the 1966 legislation.
Although the heading of the paragraph in which the statement occurs
refers to the Miller Act, the statement is prefaced by the phrase
"(i)n the cases discussed above," and the context makes it quite clear
that this phrase refers to the immediately preceding discussion of
Section 3505 liability.  The committees apparently were referring both
to the Miller Act and to Section 3505 in discussing how third parties
could protect themselves against the new liability that was being
imposed.

   /12/ Section 6503 provides for the suspension of the running of the
statute of limitations in certain specified circumstances.

   /13/ If a lender for some reason believes it absolutely essential
to be notified that a tax assessment has been made against one of its
borrowers, the lender can take various stepts to obtain that
information.  The lender, for example, can draft its lending agreement
to require the borrower to notify it upon receipt of any bill for
unpaid taxes.  If the lender does not believe that it can trust the
borrower himself to provide this information, it can require the
borrower to execute a power of attorney (IRS Form 2848) or a tax
information authorization (IRS Form 2848-D) directing the IRS to mail
copies of tax notices and other written communications concerning the
borrower to the bank.

   /14/ It is worth noting that the three-year statute of limitations
on assessment of taxes can be extended without the taxpayer's consent
of knowledge for various reasons, and that taxpayers cannot be heard
to complain of unfairness on this account because their knowledge of
the relevant facts puts them on notice to preserve their defenses
accordingly.  If a taxpayer's return contains a 25% omission from
gross income, for example, the three-year statute of limitations on
assessment is extended to six years (I.R.C. Section 6501(e)(1)(A)),
with the Commissioner being allowed another six years to collect taxes
properly assessed within that time (I.R.C. Section 6502(a)).  If the
taxpayer fails to file a return, or if any entry on his return is
tainted with fraud, his tax may be assessed, or a proceeding in court
may be begun without assessment, "at any time" (I.R.C. Section
6501(c)(1) and (3)).  In all these situations, the taxpayer is
presumed to be aware of the exposure to which he has subjected himself
by virtue of his conduct, and he accordingly acts at his peril in
destroying documents or otherwise failing to preserve relevant
evidence.

   /15/ We note incidentally that acceptance of amicus's contention
that suits to collect Section 3505 liabilities are subject to a
shorter limitations period than suits to collect delinquent
withholding taxes from the employer would not necessarily be to the
benefit of lenders.  If amicus's statute-of-limitations argument were
correct, the government in some instances would have little choice but
to protect itself by trying to collect first from the lender before
exhausting collection efforts with respect to the employer, which is
contrary to the Commissioner's present practice.  See United States v.
Hunter Engineers & Constructors, Inc., 789 F.2d at 1441;  United
States v. Associates Commercial Corp., 721 F.2d at 1098.

   /16/ Petitioner errs in characterizing our position as a contention
that Section 3505 creates an "exception" (Pet. Br. 10) to Section
6303(a).  On the contrary, as explained in detail above (pages 13-32,
supra), we submit that Section 6303(a) has never imposed an obligation
on the government to send a copy of the taxpayer's notice of
assessment to any third party, regardless what provision of the Code
the third party's liability might rest upon.  We note here only that
Section 3505 itself imposes no such obligation and provides no reason
to give Section 6303(a) a different construction.

   /17/ The suggestion of amici American Bankers Association (Br. 12)
and First Alabama Bank (Br. 16 n.8) that the IRS could solve these
practical problems by modifying the employment tax return to require
the employer to identify its creditors is wholly unrealistic.  To
begin with, the vast bulk of lending arrangements expose the lender to
no conceivable risk of liability under Section 3505.  Obtaining a list
of all lenders and then giving them notice of the assessment against
the employer is not only grossly overinclusive, but could result in
severe financial burdens on employers by impairing their access to the
credit markets.  Nor would it be feasible for the IRS to require the
employer to disclose the names of only those lenders who might be
liable under Section 3505.  The determination that a lender is liable
under Section 3505 may present complex factual and legal issues,
issues that the employer is obviously in no position to resolve.
Moreover, an employer who is not paying his employment taxes may well
be in desperate financial shape, and he cannot be depended upon to
disclose the identity of the lenders who are supplying him with sorely
needed funds.  Finally, if failure to provide Section 6303(a) notice
were a bar to collection of Section 3505 liability, keying that notice
to information contained in employer returns would enable the employer
to insulate his lenders from liability simply by omitting their names
from his tax returns.  In short, amici's suggestion, which resembles a
suggestion recently advanced by the Eighth Circuit (United States v.
Messina Builders & Contractors Co., slip op. 11), is completely
unsatisfactory.

   /18/ These statistics have been provided to us by the IRS and are
based on information in its files.

   /19/ In most cases, collection is achieved without the need to take
any steps other than sending notices to the employer.  In 1984, for
example, only about 1.1 million of the 6 million employment tax
returns involving delinquencies gave rise to the issuance of "taxpayer
delinquency accounts," which are issued after attempts to collect by
sending notices to the taxpayer fail.

   /20/ There is nothing in the Code, however, that requires the
Commissioner to try to collect the taxes from the employer and from
the responsible persons under Section 6672 before pursuing lenders
under Section 3505.  Cf. note 15, supra.

   /21/ Even if the amount of the withholding taxes were eventually
recovered from the lender under Section 3505, the treasury would still
lose funds under petitioner's proposed procedure because delinquencies
in the employer's portion of the social security tax can be collected
only from the employer.