Source: http://pa.findacase.com/research/wfrmDocViewer.aspx/xq/fac.19630409_0040172.C03.htm/qx
Timestamp: 2016-10-28 02:38:24
Document Index: 96850447

Matched Legal Cases: ['§ 6203', '§ 6201', '§ 6873', '§ 301', '§ 93', '§ 7', '§ 25', '§ 45']

| Cohen v. Gross
decided.: April 9, 1963.
These circumstances appearing without dispute, the court below dismissed the complaint on motion, sustaining the District Director's position that the assessment procedure in this case provided no basis for equitable relief. Cohen v. Mayer, D.C., 199 F. Supp. 331.
The taxpayer's theory is that the words "shall * * * be immediately assessed" in section 6871(a) establish a limited period of time during which an assessment may be made without following the requirements of section 6213(a), after which those strictures again apply. Since the assessment of December 2, 1960, was not made "immediately" after the adjudication of bankruptcy, the plaintiff claims that the assessment is thereafter subject to the requirements of, and its enforcement is enjoinable under, section 6213(a).
In the scheme which Congress has devised for the determination and collection of federal taxes, assessment is a prescribed procedure for officially recording the fact and the amount of a taxpayer's administratively determined tax liability, with consequences somewhat similar to the reduction of a claim to judgment. 1954 Code § 6203. See Bull v. United States, 1935, 295 U.S. 247, 259-260, 55 S. Ct. 695, 79 L. Ed. 1421. An appropriate officer of the Internal Revenue Service is given general authority to make tax assessments. 1954 Code § 6201. However, as concerns the normal assessment of income tax deficiencies, this authority is regulated and limited by the provisions of section 6213 outlined above. All of this appears in Chapter 63 of the Internal Revenue Code.
A different scheme for assessment and collection in cases where bankruptcy intervenes is provided separately in Chapter 70. Section 6871, with its provision for the immediate assessment of any deficiency which is outstanding but has not been assessed when a taxpayer is adjudicated a bankrupt, is part of that chapter. This bankruptcy scheme is distinct and complete in itself. We think this indicates that section 6213 is simply inapplicable to a claim subject to and administered under the bankruptcy provisions of section 6871. The taxpayer himself recognizes this to the extent of conceding that by seeking relief in bankruptcy he subjected himself to the immediate assessment of any tax deficiency and the adjudication of his tax liability by the bankruptcy court, instead of the procedure prescribed by section 6213. But beyond that, once a tax claim has been asserted and allowed in a bankruptcy proceeding, though not collected therein because of the lack of assets, neither the language of the Code nor the sense of the situation suggests that any of the procedure of section 6213 again becomes prerequisite to the establishment and collection of that particular tax liability. Indeed, we think the contrary is implied by a statutory provision that once a tax claim has been allowed in bankruptcy, the government is empowered to collect, by levy upon the taxpayer's after-acquired property, any portion of the claim that has not been satisfied out of the bankrupt estate.1954 Code, § 6873; see Treas. Reg. § 301.6873-1.*fn1
We conclude, therefore, that the requirements of section 6213 and the limited power given the courts to enjoin premature assessments which are subject to those requirements are simply not relevant to the situation of the present taxpayer. If the government's effort to collect a tax here is enjoinable at all, it must be on the ground that failure to comply with the provision of section 6871 that assessment shall be made "immediately" after the taxpayer is adjudicated a bankrupt has made the present delayed assessment invalid. Once the problem is stated this way it becomes apparent that equity has no jurisdiction because section 7421(a) plainly prohibits any "suit for the purpose of restraining the assessment or collection of any tax". Cf. Mensik v. Long, 7th Cir. 1958, 261 F.2d 45; Harvey v. Early, 4th Cir. 1947, 160 F.2d 836; Salikoff v. McCaughn, E.D. Pa. 1928, 24 F.2d 434 (all holding that section 7421(a) precludes enjoining collection pursuant to jeopardy assessments which, like bankruptcy assessments, are specially covered in Chapter 70).
The decision below was correct for another reason. Even if equitable intervention in cases involving Chapter 70 assessments were within judicial power, it is clear that that power should not be exercised unless the imposition is unquestionably illegal. Enochs v. Williams Packing & Nav. Co., 1962, 370 U.S. 1, 82 S. Ct. 1125, 8 L. Ed. 2d 292. In this case it is simply impossible for the taxpayer to show such clear illegality. The deficiencies determined against him have already been approved by the bankrmp3c8 court which had jurisdiction to determine their amount and legality. Under section 57, sub. d of the Bankruptcy Act, 52 Stat. 866 (1938), 11 U.S.C. § 93, sub. d, he could have contested the validity of the tax claims filed against his estate. United States v. Welley, S.D. Cal. 1958, 160 F. Supp. 67, 71, rev'd on other grounds, 9th Cir., 259 F.2d 579; see American Anthracite & Bituminous Coal Corp. v. Leonardo Arrivabene, S.A., 2d Cir., 1960, 280 F.2d 119. His apparent failure to avail himself of this forum does not enhance his position after that opportunity has passed. See Graham v. du Pont, 1923, 262 U.S. 234, 43 S. Ct. 567, 67 L. Ed. 965. Furthermore, he was even subject to a statutory duty to "examine and report to his trustee concerning the correctness of all proofs of claim filed against his estate". Bankruptcy Act § 7, sub. a(3), 52 Stat. 847 (1938), 11 U.S.C. § 25, sub. a(3). If the claimed deficiencies had been disallowed by the bankruptcy court, that action would have been a conclusive adjudication of the taxpayer's freedom from liability, binding on the government. Hargadine-McKittrick Dry Goods Co. v. Hudson, 8th Cir., 1903, 122 F. 232; Roland to Use of Shick v. Albright, 1937, 325 Pa. 431, 190 A. 885, cert. denied, 302 U.S. 688, 58 S. Ct. 40, 82 L. Ed. 532, rehearing denied 302 U.S. 776, 58 S. Ct. 136, 82 L. Ed. 601; see United States v. Coast Wineries, Inc., 9th Cir., 1942, 131 F.2d 643; Maryland Cas. Co. v. United States, Ct. Cl. 1940, 32 F. Supp. 746, 91 Ct. Cl. 203. On the other hand, since this was a no assets bankruptcy and the taxpayer did not contest the government's claim in the bankruptcy proceeding, it is arguable that the question of his tax liability has not been conclusively determined against him, as would be true in an in personam action or in a proceeding in which he actively participated. See Restatement, Judgments §§ 45, 76(2). Arguably, he may be entitled to litigate that question in any subsequent proceeding in which it shall become relevant, such as a suit for a refund. See United States for Use and Benefit of Allen Constr. Corp. v. Verrier, D. Me. 1959, 179 F. Supp. 336. But see Hamel v. United States, D.C.N.H. 1955, 135 F. Supp. 482; Carr v. Barnes, St. Louis Ct. App. 1909, 138 Mo. App. 264, 120 S.W. 705. See also United States v. O'Connor, 2d Cir., 1961, 291 F.2d 520, 526-528 (foreclosure of tax lien). But whatever his rights may be to challenge the tax in another proceeding, he cannot successfully contend, in the light of the history and adjudication of the claim in bankruptcy, that we have here an arbitrary imposition of a clearly illegal tax justifying the extraordinary intervention of equity to restrain the assessment and collection of taxes.