Source: https://supreme.justia.com/cases/federal/us/424/614/
Timestamp: 2019-04-24 16:37:35+00:00

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complaint without a further inquiry into whether, upon viewing the law and the facts most favorably to the Commissioner, there was no "factual foundation" for his claim that respondent was a tax-delinquent narcotics dealer during 1971, and thus no basis for the assessment.
Held: The Act did not require dismissal of respondent's complaint. Pp. 424 U. S. 624-633.
(a) Whether the Commissioner has a chance of ultimately prevailing for purposes of the Williams Packing exception is a question to be resolved on the basis of the information available to the Commissioner at the time of the suit. Hence, the Court of Appeals did not err in declining to specify the precise manner in which the relevant facts would be revealed on remand, since whether the Commissioner discloses such facts because he has the technical burden of proof or discloses them in response to a discovery motion or interrogatories, under Williams Packing, the relevant facts are those in the Commissioner's possession, and must somehow be obtained from him. Pp. 424 U. S. 624-628.
(b) The Act's primary purpose is not interfered with by not requiring the taxpayer to plead specific facts which, if true, would establish that the Commissioner cannot ultimately prevail, since the collection of taxes will not be restrained unless the District Court is persuaded from the evidence eventually adduced that the Commissioner will under no circumstances prevail. Moreover, the Act's "collateral objective" to protect the collector from tax litigation outside the statutory scheme is not undercut, since the taxpayer himself must still plead and prove facts establishing that his remedy in the Tax Court or in a refund suit is inadequate to repair any injury caused by an erroneous assessment or collection, in which case, the Commissioner is required simply to litigate the question whether his assessment has a basis in fact. Pp. 424 U. S. 628-629.
(c) While to permit the Commissioner to seize and hold property on the mere good faith allegation of an unpaid tax would raise serious due process problems in cases like this one, where it is asserted that seizure of assets pursuant to a jeopardy assessment is causing irreparable injury, the case may be resolved, under the Williams Packing exception, solely by reference to the Act, whose required standard as to affording the taxpayer an opportunity for a hearing and as to the evidence necessary to show that an assessment has a basis, in fact, is at least as favorable to the taxpayer as that required by the Constitution. Pp. 424 U. S. 629-633.
162 U.S.App.D.C. 391, 499 F.2d 527, affirmed.
WHITE, J., delivered the opinion of the Court, in which BURGER, C.J., and BRENNAN, STEWART, MARSHALL, and POWELL, JJ., joined. BLACKMUN, J., filed a dissenting opinion, in which REHNQUIST, J., joined, post, p. 424 U. S. 634. STEVENS, J., took no part in the consideration or decision of the case.
This case presents questions relating to the scope of the Internal Revenue Code's Anti-Injunction Act, 26 U.S.C. § 7421(a), [Footnote 1] in the context of a summary seizure of a taxpayer's assets pursuant to a jeopardy assessment. §§ 6861, 6331, 6213.
"no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person." § 7421(a).
In this case, the Commissioner found, on December 6, 1973, that the imminent departure of respondent Samuel Shapiro (hereinafter Shapiro or respondent) for Israel and the probable departure with him of the assets in his New York bank accounts and safe-deposit boxes jeopardized the collection of income taxes claimed to be due and owing by him for the tax years 1970 and 1971. Accordingly, he assessed income taxes against respondent in the amount of $92,726.41 for the tax years 1970 and 1971. On the same day, he filed liens against respondent and served notices of levy upon various banks in New York State in which respondent maintained accounts or had safe deposit boxes. These notices of levy effectively froze the money in the accounts -- totaling about $35,000 -- and the contents of the safe-deposit boxes.
Shapiro v. Ferrandina, 478 F.2d 894 (1973), and the State of Israel had agreed to grant him a speedy trial when he arrived in Israel and to release him on $60,000 bail pending such trial.
Upon learning of the notices of levy, respondent obtained the consent of the State of Israel to postpone his extradition date until December 16, 1973; and then, on December 13, 1973, he initiated the instant lawsuit. Claiming that he owed no taxes; that he could not litigate the issue with the Internal Revenue Service while in jail in Israel; that he would be in jail in Israel, unless he could use the frozen $35,000 as bail money; and that the Internal Revenue Service had deliberately and in bad faith waited until December 6, 1973, before filing its notices of levy precisely in order to place him in this predicament, respondent requested in his complaint an order enjoining his extradition until he had an opportunity to litigate the question whether he owed the Internal Revenue Service any taxes or, in the alternative, an order directing the Internal Revenue Service to lift the notices of levy.
1973, the Commissioner served counsel for respondent with supplements to the responses to the interrogatories to which were appended notices of deficiency, see 26 U.S.C. § 6212. The notices of deficiency disclosed that the 1970 assessment was based on unexplained cash bank deposits of $18,000, and that the 1971 assessment was based on income in the amount of $137,280 derived from respondent's alleged activities as a dealer in narcotics. [Footnote 4] On that date, the District Court dissolved the temporary restraining order and granted the Commissioner's motion to dismiss the complaint. The court concluded that the Anti-Injunction Act withdrew its jurisdiction to order the levies to be lifted, and that the timing of the extradition, validly ordered by the United States District Court for the Southern District of New York under a treaty with Israel, was a matter within the exclusive jurisdiction of the State Department.
of Appeals on February 12, 1974. On May 15, 1974, the Court of Appeals affirmed the District Court's holding that it had no jurisdiction over the extradition order, and respondent was extradited several days thereafter. [Footnote 6] The Court of Appeals, however, disagreed with the District Court that it had no jurisdiction to consider the claim for relief from the levies, and remanded for further proceedings. Shapiro v. Secretary of State, 162 U.S.App.D.C. 391, 499 F.2d 527 (1974).
the Williams Packing decision, the Anti-Injunction Act does not deprive the District Court of jurisdiction to restrain collection of a tax, if (1) the taxpayer shows "extraordinary circumstances causing irreparable harm" for which he has no "adequate remedy at law," and (2) it is apparent that, under the most liberal view of the law and the facts, the United States "cannot establish its claim.'" 162 U.S.App.D.C. &t 396, 499 F.2d at 532. The court found that Shapiro had satisfied the first test: the money frozen in his New York banks was to be used as bail money in Israel, and, without it, Shapiro would be incarcerated. Accordingly, his remedy at law -- i.e., his ability later to contest the validity of the assessment in the Tax Court or in a suit for a refund -- was inadequate. As for the second test, the court concluded that the District Court should not have dismissed the complaint without further inquiry into the factual foundation for the jeopardy assessment, and that further proceedings were necessary before finally determining whether, upon viewing the law and the facts most favorably to the Government, there was "no factual foundation" for the Government's claim that Shapiro was a tax-delinquent narcotics dealer during 1971, and thus no basis for the assessment. Accordingly, the court remanded in order to "allow the District Court. . . to develop a record" and to determine in light of it whether the asserted deficiency was "so arbitrary and excessive" [Footnote 8] as to be an exaction in the guise of a tax. [Footnote 9] Id. at 399, 499 F.2d at 535.
U.S. at 370 U. S. 7. The Government argues further that, since the taxpayer had and still has wholly failed to prove or even plead specific facts establishing that the Government can under no circumstances prevail, the Court of Appeals should have affirmed the District Court's initial dismissal and its decision to the contrary should be reversed.
basis for the assessment is, and thus can never show that the Government will certainly be unable to prevail. We agree with Shapiro.
"the question of whether the Government has a chance of ultimately prevailing is to be determined on the basis of the information available to it at the time of the suit,"
It is true that, in Phillips v. Commissioner, 283 U.S.
"Where, as here, adequate opportunity is afforded for a later judicial determination of the legal rights, summary proceedings to secure prompt performance of pecuniary obligations to the government have been consistently sustained."
of due process, if the opportunity given for the ultimate judicial determination of the liability is adequate. . . ."
Id. at 283 U. S. 595, 283 U. S. 596-597. (Emphasis supplied.) Accordingly, neither the holding nor the dicta in Phillips support the proposition that the tax collector may constitutionally seize a taxpayer's assets without showing some basis for the seizure under circumstances in which the seizure will injure the taxpayer in a way that cannot be adequately remedied by a Tax Court judgment in his favor. Instead, it would appear to be entirely consistent with our more recent holdings.
In any event, we are satisfied that, under the exception to the Anti-Injunction Act described in the Williams Packing case, this case may be resolved by reference to that Act alone. At the time the District Court dismissed the complaint, the Government had done little more than assert that respondent owed taxes in an amount greater than the value of the property levied -- it had alleged that respondent had made an unexplained bank deposit of $18,000 in 1970 and, in a wholly conclusory fashion, that he had received $137,280 in income from selling hashish. [Footnote 14] Before the taxpayer had an opportunity to inquire into the factual basis for this conclusory allegation, it was not possible to tell whether the Government had any chance of ultimately prevailing. Accordingly, the Court of Appeals properly concluded that the Anti-Injunction Act did not require dismissal of the taxpayer's complaint.
Moreover, we are satisfied that the standard required by the Anti-Injunction Act is at least as favorable to the taxpayer as that required by the Constitution, and that the standard to be applied by the District Court will therefore not be affected by the resolution of the constitutional issue. The Government may defeat a claim by the taxpayer that its assessment has no basis, in fact, -- and therefore render applicable the Anti-Injunction Act -- without resort to oral testimony and cross-examination. Affidavits are sufficient so long as they disclose basic facts from which it appears that the Government may prevail. The Constitution does not invariably require more, Gerstein v. Pugh, 420 U. S. 103 (1975); Mathews v. Eldridge, 424 U. S. 319 (1976), and we would not hold that it does where collection of the revenues is involved.
Finally, it seems apparent that, if the facts do not even disclose "probable cause," North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U. S. 601, 419 U. S. 607 (1975); Gerstein v. Pugh, supra, to support the assessment, the Government would certainly be unable to prevail at trial. Thus the Williams Packing standard is consistent with the applicable constitutional standard.
"Except as provided in sections 6212(a) and (c), 6213(a), and 7426(a) and (b)(1), 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."
"If the Secretary or his delegate determines that there is a deficiency in respect of any tax imposed by subtitles A or B or chapter 42, he is authorized to send notice of such deficiency to the taxpayer by certified mail or registered mail."
"(a) Time for filing petition and restriction on assessment."
"Within 90 days, or 150 days if the notice is addressed to a person outside the States of the Union and the District of Columbia, after the notice of deficiency authorized in section 6212 is mailed (not counting Saturday, Sunday, or a legal holiday in District of Columbia as the last day), the taxpayer may file petition with the Tax Court for a redetermination of the deficiency. Except as otherwise provided in section 6861 no assessment of a deficiency in respect of any tax imposed by subtitle A or B or chapter 42 and no levy or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer, nor until the expiration of such 90-day or 150-day period, as the case may be, nor, if a petition has been filed with the Tax Court, until the decision of the Tax Court has become final. Notwithstanding the provisions of section 7421(a), the making of such assessment or the beginning of such proceeding or levy during the time such prohibition is in force may be enjoined by a proceeding in the proper court."
"(a) Authority of Secretary or delegate."
"If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary or his delegate to collect such tax (and such further sum as shall be sufficient to cover the expenses of the levy) by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person or on which there is a lien provided in this chapter for the payment of such tax. Levy may be made upon the accrued salary or wages of any officer, employee, or elected official, of the United States, the District of Columbia, or any agency or instrumentality of the United States or the District of Columbia, by serving a notice of levy on the employer (as defined in section 3401(d)) of such officer, employee, or elected official. If the Secretary or his delegate makes a finding that the collection of such tax is in jeopardy, notice and demand for immediate payment of such tax may be made by the Secretary or his delegate and, upon failure or refusal to pay such tax, collection thereof by levy shall be lawful without regard to the 10-day period provided in this section."
"(b) Seizure and sale of property."
"The term 'levy' as used in this title includes the power of distraint and seizure by any means. A levy shall extend only to property possessed and obligations existing at the time thereof. In any case in which the Secretary or his delegate may levy upon property or rights to property, he may seize and sell such property or rights to property (whether real or personal, tangible or intangible)."
"If the Secretary or his delegate believes that the assessment or collection of a deficiency, as defined in section 6211, will be jeopardized by delay, he shall, notwithstanding the provisions of section 6213(a), immediately asses such deficiency (together with all interest, additional amounts, and additions to the tax provided for by law), and notice and demand shall be made by the Secretary or his delegate for the payment thereof."
"If the jeopardy assessment is made before any notice in respect of the tax to which the jeopardy assessment relates has been mailed under section 6212(a), then the Secretary or his delegate shall mail a notice under such subsection within 60 days after the making of the assessment."
"It is determined that you realized unreported taxable income from unexplained bank deposits at the 1st National City Bank in the amount of $18,000.00"
"It is determined that you realized unreported taxable income in the amount of $137,280.00 for the taxable year ended December 31, 1971 from your activities as a dealer in narcotics, computed as follows:"
On January 3, 1974, respondent, armed with his deficiency notice, filed in the Tax Court for a redetermination of the deficiency. 26 U.S.C. § 6213(a).
The extradition issue is therefore no longer in this case.
The Court of Appeals rejected, on the record before it, and on the authority of Phillips v. Commissioner, 283 U. S. 589 (1931), respondent's claim that the assessment, absent a hearing, violated the Due Process Clause. It noted, however, that, if respondent could establish on remand that his extradition would prevent him from litigating effectively before the Tax Court, then one of the predicates for the Phillips decision would be lacking. The court also noted, but did not resolve, a factual dispute as to whether the levy was in conformity with the statute. Shapiro had alleged, for the first time on appeal, that no notice had been given to him or demand made of him to pay the taxes at the time the levies were served. Such notice and demand are required by 26 U.S.C. § 6861, compliance with which is necessary under § 6213(a), if the Anti-Injunction Act is to apply. The Commissioner claimed that he had mailed a deficiency notice to Shapiro on December 6, 1973.
It is clear that a demand has now been made for payment of the tax assessed and that the levies are now in compliance with § 6213. A notice of deficiency was served on Shapiro's attorney in the District Court on December 21, 1973. The Internal Revenue Service, conceding that it could not be sure whether the original notice of deficiency was mailed before or after the notices of levy were served, served new notices of levy on October 11 and 15, 1974. This moots both the question whether the IRS mailed a notice of deficiency to Shapiro on December 6, 1973, and whether the notice preceded the levies. There can be no question at this point, therefore, that, in these respects the levies are in technical compliance with the provisions of § 6861.
This standard, considered by the Court of Appeals to be consistent with Enochs v. Williams Packing was based on cases decided by other Courts of Appeals, primarily Pizzaello v. United States, 408 F.2d 579 (CA2 1969), and Lucia v. United States, 474 F.2d 565 (CA5 1973) (en banc).
"a. There was no record that Samuel Shapiro had filed an income tax return for 1970."
"b. That Samuel Shapiro had filed an income tax return for 1971 reporting no tax liability based upon $1,600 in adjusted gross income, consisting of $2,600 miscellaneous income from private tutoring and net short-term losses from commodity transactions of $1,450 (limited to $1,000 in computing adjusted gross income)."
"c. That deposits were credited to two accounts in the name of Samuel Shapiro at the First National City Bank, New York, Nos.: 04993564 and 05008773, in the amounts of $18,000 in 1970 and $36,735 in 1971."
"d. That . . . Samuel Shapiro paid in excess of $3,000 in currency for the purchase of an automobile."
"e. That information available to the Internal Revenue Service indicated that early in 1973 Samuel Shapiro paid over $40,000 for a home purchased for over $60,000."
"f. That information supplied to the Internal Revenue Service indicated that Samuel Shapiro had been smuggling into the United States substantial amounts of an illegal substance, hashish, every six days from Israel, presumably for resale within the United States, and also supported a conclusion that Samuel Shapiro was dealing in hashish, during 1971."
"g. That included in the 1971 bank deposits referred to in subparagraph (c) above, were money transfers from an individual since convicted of selling hashish, who stated that the transfers were for hashish supplied to him by Samuel Shapiro as follows:"
"h. That information available to the Internal Revenue Service indicated that the known practice in hashish trafficking was to deal in full kilos (kilograms), equal to 2.2 pounds; that, during 1971, the retail price of hashish was $1,360 to $1,980 per pound, or $2,992 to .4,356 per kilo; and that the wholesale cost to a dealer would approximate $2,350 per kilo; and that the common practice in hashish dealing was to receive payment in two parts -- the first for cost and the second for profit."
"i. That on the basis of the information set forth in subparagraphs g. and h. above, [the revenue agent] concluded that, during 1971 Samuel Shapiro was dealing in at least 2 kilos of hashish per week, and that his taxable profit therefrom was $137,280, computed as follows:"
"j. That unexplained deposits of 18,000 during 1970 should be deemed to be taxable income."
At a hearing held by the District Court on November 12, 1974, respondent submitted two affidavits (which had been filed in the Tax Court) denying that he was or ever had been a dealer in narcotics. Respondent's affidavits further stated that his 1971 income tax return was correct. Respondent also submitted an affidavit of Rachel Laub, a resident of Switzerland, which stated that, at respondent's request in 1970, she held for him in safekeeping $50,000 in cash and approximately 18 to 20 kilos of gold bars. That affidavit further stated that, at respondent's request, she transmitted the cash to him in 1971, and the proceeds of the sale of the gold bars ($32,000 and $35,000) in 1971 and 1972, respectively. Finally, the District Judge has tentatively ruled that the Government must, if the court is to deny injunctive relief, submit its informant for in camera examination by the court. Following the Court's granting of the Government's petition for a writ of certiorari, 420 U.S. 923 (1975), no further proceedings have taken place below.
The proceedings before the District Court on remand and the other events just described are, of course, not before us at this time. These proceedings occurred after the decision of the Court of Appeals which we review. However, the parties appear to agree that these events have occurred as described, and we mention them because they are relevant to the question of what proceedings must eventually be conducted by the District Court following our decision in this case.
We believe that it is consistent with Williams Packing to place the burden of producing evidence with the taxpayer, and to require, if the Government insists, that facts in its sole possession be obtained through discovery. However, nothing we say here should prevent the Government from voluntarily and immediately disclosing the basis for its assessment, which, if sufficient, would terminate discovery proceedings and justify judgment for the Government.
Goldberg v. Kelly, 397 U. S. 254, 397 U. S. 264 (1970) (temporary deprivation of welfare payments may deprive recipient of "the very means by which to live while he waits"); Sniadach v. Family Finance Corp., 395 U. S. 337, 395 U. S. 341-342 (1969) (temporary deprivation of wages may "drive a wage-earning family to the wall"); North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U. S. 601, 419 U. S. 608 (1975) ("probability of irreparable injury" sufficient to warrant preseizure probable validity hearing); see also Gerstein v. Pugh, 420 U. S. 103 (1975) (incarceration must be preceded by probable cause finding or promptly followed by probable cause hearing); cf. Regional Rail Reorganization Act Cases, 419 U. S. 102, 419 U. S. 156 (1974) (no probable cause hearing required where complainant eventually will be "made whole" for any inadequacy in compensation for confiscated property).
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, 419 U. S. 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, 407 U. S. 92 (1972). This interest is clearly sufficient to justify seizure of a taxpayer's assets without a preseizure 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, 283 U. S. 589, 283 U. S. 595-597 (1931). However, it is very doubtful that the need to collect the revenues is a sufficient reason to justify seizure causing irreparable injury without a prompt post-seizure inquiry of any kind into the Commissioner's basis for his claim.
The taxpayer has no right to start a proceeding before the Tax Court for 60 days following a jeopardy seizure: the IRS may under the statute wait 60 days before it issues the deficiency notice which gives the taxpayer his "ticket to the Tax Court." 26 U.S.C. § 6861. The record does not indicate how quickly a hearing on the merits can be obtained there. Preliminary relief is not there available. Nothing we hold today, of course, would prevent the Government from providing an administrative or other forum outside the Art. III judicial system for whatever preliminary inquiry is to be made as to the basis for a jeopardy assessment and levy.
The taxpayer also challenged unsuccessfully the provision requiring a court of appeals to give deference to a fact determination by the Board of Tax Appeals on review of the Board's decision.
We do not decide whether the allegation of an $18,000 unexplained bank deposit is insufficient to establish income in that amount -- for the purposes of the Williams Packing test -- for the year 1970. The levies, being greatly in excess of the tax due for 1970 in any event, may not be sustained unless the allegations with respect to respondent's tax liability for 1971 are sufficient.
We note that it has now been over two years since respondent filed his petition before the Tax Court, and, so far as we are informed, there has been no final determination by that court. It may be that, for some reason, it has been impossible -- despite the respondent's best efforts -- to obtain a decision by the Tax Court. However, it is also possible that the taxpayer has not vigorously sought such a determination, and has chosen instead to devote most of his energies litigating in the federal courts. If, on remand, the District Court concludes that the absence of a remedy at law at this time is due to respondent's failure to pursue that remedy, then equity will not intervene, and the complaint should be dismissed. The inadequacy of his legal remedy would then be due to his own choice not to pursue it.
MR. JUSTICE BLACKMUN, with whom MR. JUSTICE REHNQUIST joins, dissenting.
I would have thought that, when the Commissioner of Internal Revenue, on December 21, 1973, provided respondent Samuel Shapiro with supplements to the responses to the interrogatories, at that time, if not before, he surely satisfied and met all that was required to bring the Anti-Injunction Act, 26 U.S.C. § 7421(a), and the principle of Enochs v. Williams Packing Co., 370 U. S. 1 (1962), into full and effective application. It would follow that the District Court's dismissal of the complaint at that point was entirely proper, and should have been affirmed.
the inapposite cases cited, ante at 424 U. S. 629-630, n. 11, is not unexpected. I am far from certain that the Court is correct, and I am confused by the Court's failure even to cite Bob Jones University v. Simon, 416 U. S. 725 (1974), and Commissioner v. "Americans United," Inc., 416 U. S. 752 (1974), two cases heavily relied upon by the Commissioner here and, I think, of some significance. I observe only that, with Laing and the present decision, the Court now has traveled a long way down the road to the emasculation of the Anti-Injunction Act, and down the companion pathway that leads to the blunting of the strict requirements of Williams Packing and, now, of Mr. Justice Brandeis' opinion for a unanimous Court in Phillips v. Commissioner, 283 U. S. 589 (1931). The Court has taken this Laing-Shapiro tack, I suspect, as a response to what it deems to be administrative excesses with respect to suspected narcotics operatives who also are, or should be, taxpayers. Whether all this will prove to be stultifying or embarrassing to the collection of the revenues in a more temperate and untroubled time I do not know. Perhaps, up to a point, the Congress will come to the rescue.
The Court, ante at 424 U. S. 624-626, n. 9, demonstrates, of course, that the present case is in a most unsatisfactory posture for review here. It is unfortunate that a case so posed occasions the pronouncement of new and, so far as tax collection efforts are concerned, regressive law.

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