Source: https://famguardian.org/PublishedAuthors/Indiv/MeadorDan/Articles/taxcsent.htm
Timestamp: 2017-10-20 12:35:56
Document Index: 797233489

Matched Legal Cases: ['§ 1733', '§ 6331', '§ 874', '§ 6501', '§ 6213', '§ 900', '§ 6901', '§ 301', '§ 6203', '§ 301', '§ 6502', '§ 6203', '§ 473', '§ 6201', '§ 301', '§ 6203', '§ 6321', '§ 6303', '§ 6203', '§ 2410', '§ 6212', '§ 6213', '§ 6213', '§ 301', '§ 1340', '§ 1983', '§ 554', '§ 8', '§ 7421', '§ 6213']

Federal Income Tax Case Notes
[First edition, May 22, 2000]
This file is comprised of case cites imported from cases previously downloaded from law publishing Internet services. Case cite information appears prior to text inserts. The cites have not been edited or otherwise changed. All comments other than case text appears in brackets [note]. The following categories are listed:
Requirement of Assessment
Notice & Demand for Payment
Jurisdiction For Suit (Standing)
Payment Prior to Assessment is Deposit
Regulations Binding on Government as Well as People
Executive Officer Immunity; Immunity in General
United States v. Miller 318 F.2d 637 (1963)
We think it clear that the term 'assessment' referred to in this section of the Internal Revenue Code of 1954 has [*639] a technical meaning spelled out in the Code and that meaning is binding on this court. n2
The district court properly considered the copy of the official Certificate of Assessments and Payments submitted by the Government in ruling on the motion for summary judgment. 28 U.S.C. § 1733(b); and Rule 44(a), Fed.R.Civ.P. That document shows that assessment entries were made on March 8, and April 13, 1956, in the manner prescribed by the statute and the applicable regulation. Since the [**5] present suit was filed by the Government on March 2, 1962, it was not barred by the applicable statute of limitations.
Bothke v. Fluor Engineers and Constructors, Inc. 713 F.2d 1405 (1983)
For a levy to be statutorily authorized in the circumstances here, two conditions must be fulfilled. First, a 10-day notice of intent to levy must have issued. See 26 U.S.C. § 6331(a). Terry ascertained that this had been done. Second, the taxpayer must be liable for the tax. Id. Tax liability is a condition precedent to the demand. Merely demanding payment, even repeatedly, does not cause liability.
For the condition precedent of liability to be met, there must be a lawful assessment, either a voluntary one by the taxpayer or one procedurally proper by the IRS. Because this country's income tax system is based on voluntary self-assessment, rather than distraint, Flora v. United States [**25] , 362 U.S. 145, 176, 4 L. Ed. 2d 623, 80 S. Ct. 630 (1960), the Service may assess the tax only in certain circumstances and in conformity with proper procedures.
In re Western Trading Company 340 F.Supp. 1130 )1972
We, nevertheless, conclude that the law applicable to ordinary bankruptcy is inapplicable to this Chapter XI proceeding. The salutary purposes of Section 397 are two-fold. It not only recognizes the need of taxing authorities for additional time to determine and assess taxes which may be asserted [**8] late as a priority claim under Section 64 of the Act, but it also fixes a time limit qualification upon the type of claims which will be accorded such preferred treatment. While the bankruptcy court may be required to reconsider its order of confirmation or to modify the plan of arrangement or dismiss the proceeding on account of the impact of such a late filed claim (see In re Gates, supra, 256 F. Supp. at page 4), it need do so only if the delayed claim is for a tax "found to be owing" within one year of the filing of the petition. "Found to be owing," as used in this section, means "assessed." The Internal Revenue Code provides for a specific procedure for assessment (26 U.S.C. ß 6203). An assessment is an administrative determination of tax liability. Kurio v. United States, 281 F. Supp. 252 (S.D.Tex.1968); United States v. Miller, 318 F.2d 637 (7th Cir. 1963). And until the assessment has been made, the tax has not been found to be owing.
We note that the Advisory Committee on Bankruptcy Rules appointed by the [*1134] Chief Justice of the United States under the program of the Judicial Conference of the United States is in accord with this interpretation. In the [**9] Preliminary Draft of Proposed Bankruptcy Rules and Official Forms under Chapter XIII of the Bankruptcy Act, September, 1971, the Committee of bankruptcy experts has proposed Rule 13-405, as follows:
"Upon application accompanied by a proof of claim the court may allow the following claims to participate in distributions under the plan:
"(a) Claims for taxes owing to the United States, or to any state, or any subdivision thereof, at the time of the filing of a petition under Rule 13-103 or 13-104 which had not been assessed prior to the date of confirmation of the plan, but which are assessed within one year after the date of the filing of the petition.
"(b) Claims for taxes owing to the United States, or to any state, or any subdivision thereof, after the filing of a petition under Rule 13-103 or 13-104 and which are assessed while the case is pending * * *."
In this instance, we consider Section 397 of the Bankruptcy Act to be "an overriding statement of federal policy" (Randall, supra, at p. 515, 91 S. Ct. at p. 993) to the effect that a tax liability to participate in a plan of arrangement must have been assessed before confirmation of the plan or within one year after the filing of the petition, or must have become owing on account of the operations of the trustee, receiver or debtor in possession (In re Gates, supra).
The instant claim for estimated 1969 corporate income tax deficiencies does not qualify under any category. It has never been assessed, it has never "been found to be owing." It is, thus, barred from participating in the plan of arrangement as a priority claim. It is, nevertheless, not discharged (Section 78a (1) of the Act, 11 U.S.C. ß 35). Its collectibility as a non-priority claim may be left for future determination.
Radinsky v. United States 622 F.Supp. 412 (D.C.Colo. 1985)
28 U.S.C. ß 1346(a)(1) confers jurisdiction upon this court and waives the sovereign immunity of the United States regarding claims for sums wrongfully collected under the internal revenue laws. In a suit under this section, a plaintiff "may challenge the constitutionality, legality or fairness of any tax statute or amount assessed or collected." White v. C.I.R., 537 F.Supp 679 (D.Colo. 1982). In the two briefs filed in this action, the IRS has not explained where it finds statutory authority to employ its tax collection procedures to collect from the plaintiffs a sum of money that has never been assessed as a tax. Since the IRS had no authority to adjust the plaintiffs' account or employ deficiency procedures in these circumstances, it is self-evident that the collection of the sum in this manner was wrongful.
The United States misperceives the issue in this matter as whether the plaintiffs were initially entitled to the money. The dispositive issue is instead whether the IRS has followed the law in collecting the money it mistakenly sent to the plaintiffs. While this court is aware that the plaintiffs may receive a windfall, the IRS can only recover the sum pursuant to powers granted by Congress  The short answer to the defense is that the Radinskys are entitled to the money unless the IRS brings a civil action within two years. 26 U.S.C. 6532(b).
Brafman v. United States 384 F.2d 863 (1967)
July 23, 1956, a purported assessment was levied against the Estate of Abraham Lazarowitz for the unpaid taxes, the penalty, and interest to the date of assessment. August 28, 1956, the Commissioner notified the Estate of the assessment made demand for payment. The Estate is without assets with which to pay any debts or obligations.
We [**5] do not reach the complex and tantalizing issue of a trust-fund theory of transferee liability for the transfer of a contingent insurance interest. The threshold issue of the validity of the assessment is crucial. We reverse on the ground that a valid assessment against the transferor's estate was not made, because of an assessment officer's failure [*865] to sign the certificate of assessment. The Government's claim against the transferee is proscribed by the statute of limitations governing this action.
For a tax to be collected upon any deficiency, an assessment must be made against the taxpayer within three years after his return is filed. Int. Rev. Code of 1939, § 874 (§ 6501 of the 1954 Code). The mailing of a ninety-day letter of deficiency or the filing of any court action will suspend the running of the statute of limitations, and the time will not begin to run again until sixty days from the entry of final judgment of that court or until ninety days following the mailing of the letter of deficiency if no proceedings are begun. See Int. Rev. Code of 1954, § 6213. In the case of a transferee, a separate section provides that the assessment must be filed [**6] against the transferee within one year after the expiration of the period of limitation for assessment against the original transferor. Int. Rev. Code of 1939, § 900(b)(1) (§ 6901(c)(1) of the 1954 Code)
If the estate is not assessed within the statutory period there can be no transferee liability. United States v. Updike, 1930, 281 U.S. 489, 50 S. Ct. 367, 74 L. Ed. 984. For the Government to collect any tax from the transferee, Mrs. Brafman, a valid assessment must have been made against the estate of the transferor, Abraham Lazarowitz, by September 28, 1957.
Section 6203 of the Internal Revenue Code of 1954 specifies that an assessment n4 shall be made by recording the liability of the taxpayer in the office of the Secretary or his delegate in accordance with rules or regulations prescribed by the Secretary or his delegate.
The Treasury [**7] Regulations set forth the procedures governing the assessment process as follows:
The District Director shall appoint one or more assessment officers, and the assessment shall be made by an assessment officer signing the summary record of assessment. The summary record, through supporting records, shall provide identification of the taxpayer, the character of the liability assessed, the taxable period if applicable, and the amount of the assessment. The amount of the assessment shall in the case of tax shown on a return by the taxpayer, be the amount so shown, and in all other cases the amount of the assessment shall be the amount shown on the supporting list or record. The date of the assessment is the date the summary record is signed by an assessment officer. * * * Treas. Reg. § 301.6203-1 (1955)(emphasis added.)
The assessment certificate involved in this case, a photostated copy of which is in the record, is not signed by an assessment officer or by any other official. The certificate refers to July 23, 1956, but shows that it was "prepared" August 1, 1956. Apparently this is the [*866] date on which the assessment was to be formally certified, as it appears twice in the certification portion of the form. Since the certificate lacks the requisite signature, it cannot constitute a valid assessment.
We are not moved by the Government's argument that the assessment was valid and effective on July 23rd because it is certified for authenticity under the seal of the United States Treasury. There is no question as to the authenticity of the document or its admissibility into evidence. n5 But authenticity of the certificate cannot be equated with validity of the assessment on the alleged date: a seal establishes the former, a signature of the assessment officer -- as required by the Treasury Regulations -- establishes the latter.
We find section 301.6203-1 of the Treasury Regulations reasonably adapted to carry out the intent of Congress as reflected in § 6203 of the Code. n6 We therefore adhere to our pronouncement in United States v. Fisher, 5 Cir. 1965, 353 F.2d 396, 398-399, that:
In the absence of any better test, we give effect to the generally recognized rule that Regulations issued by the Secretary of the Treasury, pursuant to statutory authority, and when necessary to make a statute effective, although not a statute, may have the force of law. Fawcus Machine Co. v. United States, 282 U.S. 375, 51 S. Ct. 144, 75 L. Ed. 397; Commissioner of Internal Revenue v. South Texas Lumber Co., 333 U.S. 496, 501, 68 S. Ct. 695, 92 L. Ed. 831.
The Treasury Regulations are binding on the Government as well as on the taxpayer: "Tax officials and taxpayers alike are under the law, not above it." Pacific National Bank of Seattle v. Commissioner, 9 Cir. 1937, 91 F.2d 103, 105. n7 Even the instructions on the reverse side of the assessment certificate, Form 23C, specify that the original form "is to be transmitted to the District Director for signature, after which it will be returned to the Accounting [**10] Branch for permanent filing. * * *"
Case after case has quoted Treasury Regulation § 301.6203-1 and cited it approvingly, and the treatises on taxation take its literal application for granted. n8 In United States v. Miller, 7 Cir. 1963, 318 F.2d 637, the administrator of an estate executed an estate tax Waiver of Restrictions on Assessment, which was accepted by the Commissioner on February 16, 1956. The Commissioner made assessments by certificate on March 8 and April 13, 1956. Suit for collection was not brought until March 2, 1962. An intervenor argued on appeal that acceptance of the waiver amounted to assessment which commenced the running of the statute of limitations. The Court rejected this [**11] argument, saying that "assessment", as referred to in § 6502 of the Code, "has a technical meaning spelled out in the Code and that [*867] meaning is binding on this court." n9 The Court continued:
The district court properly considered the copy of the official Certificate of Assessments and Payments submitted by the Government in ruling on the motion for summary judgment. * * That document shows that assessment entries were made on March 8, and April 13, 1956, in the manner prescribed by the statute and the applicable regulation. Since the present suit was filed by the Government on March 2, 1962, it was not barred by the applicable statute of limitations. 318 F.2d at 639, (emphasis added).
The taxpayer in Filippini v. United States, N.D. Cal. 1961, 200 F. Supp. 286, argued that the assessment was not effective until notice was sent to him, and notice was not sent until three days after the running of the statute of limitations. The Court found that the assessment was "made and complete" when the procedure outlined in the Code and Regulations -- including the signing of the summary record by the assessment officer -- was followed. In accord with Filippini and Miller are Graper v. United States, E.D. Wis. 1962, 206 F. Supp. 173; In re Milwaukee Crate & Lumber Co., E.D. Wis. 1961, 206 F. Supp. 115. See also Commissioner of Internal Revenue v. Welch, 5 Cir. 1965, 345 F.2d 939, 948 n. 33.
When § 6203 of the Internal Revenue Code of 1954 was before Congress, the detailed discussions of the proposed section in both the House and Senate was substantially the same:
This section is a substantial clarification of existing law. It provides that the assessments shall be made by recording the liability of the taxpayer in accordance with rules or regulations of the Secretary. This will permit recording of liability, and hence assessment, through machine operations [**13] or through any other modern procedure. The Secretary is directed to furnish to the taxpayer, upon request, a copy of the record of the assessment of that taxpayer's liability. n10
It appears to us that the requirement of the applicable Treasury Regulation -- that an assessment officer sign the assessment certificate -- is consistent with the literally mechanical procedures for recording of liability. The recordation is to be accomplished through "machine operations", but the actual and final assessment step, that step which establishes a prima facie case of taxpayer liability, n11 can be taken only with the approval of a responsible officer of the Internal Revenue Service. The Government may want to postpone assessment in certain cases because of the limitations on collection and lien perfection that begin to run at the time of assessment. [**14] This might be accomplished, after the computers have run their course, only by the assessment officer refusing to sign the already prepared certificate. n12 What is important in any case is that assessment is not automatic upon recordation; it requires the action of an assessment officer. That action, as defined explicitly in the Treasury Regulations, is the signing of the certificate.
We recognize that in sustaining Mrs. Brafman's contention regarding lack of proper assessment within the limitations period we are disposing of this case on what could be termed a "technical defense". As the district court said in [*868] United States v. Lehigh, W.D. Ark. 1961, 201 F. Supp. 224, 234, this [**15] is both true and immaterial:
Any procedural defense is in a sense "technical." The procedures set forth in the Internal Revenue Code were prescribed for the protection of both Government and taxpayer. Neglect to comply with those procedures may entail consequences which the neglecting party must be prepared to face, whether such party be the taxpayer or the Government.
Certainly the courts have not hesitated to enforce strictly the Code requirement that a taxpayer's returns must be signed to be effective. Thus, unsigned returns, even with remittances, have been viewed as nullities from the standpoint of imposition of penalties n13 and of commencement of the running of the statute of limitations. n14 It has availed the taxpayer little that his failure to sign was inadvertent. n15
Finally, where state taxation is involved compliance with a statutory provision requiring an assessment list to be signed by the assessors is usually considered essential to the validity of further proceedings. 84 C.J.S. Taxation § 473 (1954).
Girard Trust Bank v. United States 643 F.2d 725 (1981)
Section 6401 does not define an "overpayment," but does provide that the term "includes" certain enumerated items which will be treated as or "considered" overpayments. An "overpayment" is not necessarily a form of "payment." It can be the "amount" by which an "amount allowable as credits" exceeds "the tax imposed." n6 Use of the term "the tax imposed" rather than "the liability for tax," disposes of any argument that an overpayment, for purposes of section 6611, necessarily occurs with respect to an interim liability. In fact, under the provisions of section 6401(c), an amount paid as tax may constitute an "overpayment" even though there was no tax "liability" in respect of which such amount was paid. On the other hand, one may not unilaterally establish an "overpayment" by the "deposit" of money with the district director in "payment" of an amount designated as a "tax." n7 "Liability" and amounts "due" normally depend upon "assessment," and the latter is entirely a Government, not a taxpayer, function. n8 Thus an actual "liability" can eventually constitute an "overpayment" for the reason that the "tax imposed" by law, which [*370] is to say the correct amount [***9] of the "entire tax liability" as finally determined, is less than the total of the amounts paid by or credited to the taxpayer, as tax. This is not to say that the "overpayment" does not occur until the final determination of the tax; it merely means that there cannot be an ascertainment that there has been an overpayment of tax until the "tax imposed" has been ascertained.
n8 I.R.C. § 6201(a). The oft-repeated description of the American system of taxation as a system of "self-assessment" is a rhetorical taradiddle. For example, the Internal Revenue Service does not recognize officially an "'amended return', so-called." Treas. Reg. § 301.6211-1(a) (1980). Assessment of United States taxes has, since time immemorial, been made by the Government's recording the liability of the taxpayer. I.R.C. § 6203. Originally this was done by a Government employee by hand, by inscribing the amount of the liability next to the name of or in the account of the taxpayer. The entry may now be an entirely mechanical process, but there are some old-timers who believe that deep in the bowels of the giant computer at the service center there still sits a little old man in green eyeshade, meticulously enrolling on parchment the figures banged out by the machine.
United States v. Coson 286 F.2d 453
This brings us to the merits of the case. The court's opinion, which the Judge treated as his findings, found there had been no notice or demand respecting these taxes given to Coson, individually, prior to commencement of his action. He also found: 'Between March and August of 1955, plaintiff invested $ 31,000 in a newly organized Las Vegas, Nevada, hotel and gambling establishment known as the 'Moulin Rouge,' and obtained a 1.70 per cent interest therein. He reasonably and in good faith thought he was investing as a limited partner in a limited partnership. The Moulin Rouge was note, however, [**14] a limited partnership. Upon first ascertaining this, plaintiff promptly mailed notices of renunciation.' n10 (169 F.Supp. 672)
All of this is significant in view of the fact that on December 27, 1956, when this suit was started, no notice or demand concerning these taxes had been given to or served upon Coson. This procedural prerequisite to the securing of a Government lien for such taxes is made plain by the statute. See Detroit Bank v. United States, 317 U.S. 329, 335, 63 S.Ct. 297, 87 L.Ed. 304. § 6321 of Title 26 U.S.C. recites that the amount of taxes shall be a lien upon the property of a person liable to pay the tax who 'neglects or refuses to pay the same after demand.' n15 The procedure for making such demand is set forth in § 6303(a) of the same title as follows: 'Where it is not otherwise provided by this title, the Secretary or his delegate shall, as soon as practicable, and within 60 days, after [**23] the making of an assessment of a tax pursuant to § 6203, give notice to each person liable for the unpaid tax, stating the amount and demanding payment thereof. * * *'
In developing that conclusion many circumstances tend to show that not only were these required procedures not complied with but [**25] that Coson was not a taxpayer and not liable for the tax to begin with. Whether that non-liability could also constitute the basis for a suit of this kind, or for relief under § 2410(a) of Title 28, we need not here decide. The recent case of Pipola v. Chicco, 2 Cir., 274 F.2d 909, 914, appears to give a negative answer to that question. But that case agrees with what we hold here, that in an action of the kind here involved plaintiff may attack the Government lien for taxes as irregular or valueless 'from a procedural standpoint', and may raise the question whether the Government 'complied with required procedures * * * or whether by error the assessment was made against a taxpayer other than the one intended.' n16
Bothke believes that the IRS had to follow the deficiency proceedings of 26 U.S.C. § § 6212, 6213(a), under which he was entitled to a preassessment notice of deficiency which gave him 90 days to petition the Tax Court. Terry argues that the IRS was proceeding properly under an exception to the statutory requirement, whereby no deficiency notice is necessary if the amount assessed is the result of a mathematical or clerical error on the face of the return. Id. § 6213(b)(1), (g)(2).
Even under this exception, the regular deficiency-proceeding safeguards are mandatorily triggered if the taxpayer requests an abatement within 60 days. Id. § 6213(b)(2). Bothke responded to the IRS's Correction to Arithmetic well within that time.
The IRS failed to construe his protest as a request for abatement because he did not cite this statute. But the notice to Bothke did not suggest that the IRS expected a statutory reference before it would conclude that the taxpayer's procedural rights under the statute had been triggered. [**26] Rather, it indicated that Bothke could challenge the correction merely by "let[ting] us know if you believe that the balance due is incorrect."
More importantly, the statute does not require that the taxpayer put a legal classification on his protest. The Service, however, with its expertise, is obliged to know its own governing statutes and to apply them realistically. Bothke's strongly worded protest should reasonably have been construed as a request for abatement. It seems the IRS proceeded illegally even under its interpretation of the proper procedure to use for his tax return. n4
The date of overpayment, from which date the statutory interest runs, is determined in accordance with Treas. Reg. § 301.6611-1(b) (1980). In the instant case, when the tax reported on the estate tax [**728] return n9 was satisfied, there was an overpayment because that "payment" exceeded the "correct liability," or "entire tax liability," which means the "tax imposed," i.e., the tax as finally determined to have been imposed by the statute. In Girard I we held that the overpayment was measured by the value, not the face, of the bonds tendered in payment. In so holding, the special considerations surrounding this special form of satisfaction of tax liability were recognized by us as applicable until final determination of the tax imposed.
The IRS insists that only "taxpayers" have recourse against the United States under 28 U.S.C. ß 1346(a)(1), and that the plaintiffs are not "taxpayers" because no tax has been assessed. "The United States agrees that taxpayers do have recourse against the United States under 28 U.S.C. ß 1346(a)(1). But in this case, the plaintiffs are not taxpayers." [**3] (Defendant's motion for summary judgment at 2).
The government is wrong on both counts. First, the statute provides federal district court jurisdiction for a civil action to recover any tax, penalty, or sum alleged to have been wrongfully collected under the internal revenue laws. There is no requirement that the plaintiffs be taxpayers challenging some assessment. The government's interpretation of the statute would make "sum" superfluous. In the course of holding that ß 1346(a)(1) requires full payment of an assessment before an income tax refund suit can be maintained in federal district court, the Supreme Court has noted:
. . . We believe that the statute more readily lends itself to the disjunctive reading which is suggested by the connective "or." That is, "any sum," instead of being related to "any internal-revenue tax" and "any penalty," may refer to amounts which are neither taxes nor penalties. Under this interpretation, the function of the phrase is to permit suit for recovery of items which might not be designated as either "taxes" or "penalties" by Congress or the Courts.
Flora v. United States, 362 U.S. 145, 149, 4 L. Ed. 2d 623, 80 S. Ct. 630 (1960). [**4] Accepting the argument that the amount in question is not a tax or penalty, this action is clearly maintainable to recover a "sum." Therefore plaintiffs who are not "taxpayers" as defined by the United States in this action, i.e. persons who are challenging an assessment, can indeed use ß 1346(a)(1). The plaintiffs have standing to bring this action since they were the target of the IRS's collection efforts.
United States v. Coson 286 F.2d 453 (1961)
[Read this entire case for discussion of 28 U.S.C. §§ 1340 & 2410 suits. It is particularly important with respect to "quiet title" actions.]
Estate of Goetz v. United States 286 F.Supp. 128 (1968)
It does not follow from the fact that the Service had the taxpayers' money in hand prior to the running of the statute of limitations, that the money was duly collected. In order for the tax liability to have been duly collected, it must have been properly assessed and such was not the case here in that the assessment was made at a time subsequent to the running of the statute of limitations.
It is this reasoning which apparently impelled the defendant to admit that the plaintiffs are entitled to recover the $1,736.20 interest payment in that said payment was not in the hands of the Service [**10] prior to the running of the statute (nor was it in their hands prior to its assessment).
We cannot accept the distinction that the defendant would have us draw, that the mailing of plaintiffs' check in response to the statutory notice of deficiency amounted to a payment and that, therefore, the tax in question was duly collected. On the contrary, we believe that plaintiffs' check served as a deposit to be utilized by the Government in the event a tax obligation were subsequently defined and imposed.
We are persuaded in so holding by the reasoning of the court in Rosenman v. U.S., 323 U.S. 658, 65 S. Ct. 536, 89 L. Ed. 535 (1945) which recognized that payments prior to assessment are deposits and not payments of taxes duly collected.
. We believe that the holding of the court, that money paid to the Internal Revenue Service prior to the imposition of a valid assessment is a deposit rather than a payment, should have the same meaning regardless of whether it is the Government who seeks to preclude suit by the taxpayer or whether it is the taxpayer who seeks to recover a refund.
In U.S. v. Dubuque Packing Company, 233 F.2d 453 (8th Cir. 1956) the court followed the Rosenman case, supra, and held that transfers of money in anticipation of further assessments did not have the status of payments until tax deficiencies were formally assessed by the commissioner
IT IS THEREFORE, our conclusion that the statute of limitations had expired at the time the assessment was made, and that the plaintiffs [**12] are entitled to recover the amounts paid to the Internal Revenue Service prior thereto, and that the Motion for Summary Judgment should be and is sustained.
[The following is Footnote 2 from the Coson case where the amended brief set out specific allegations]
n2. In his brief here, and pending the appeal, plaintiff asked leave to amend his complaint by adding a paragraph reading as follows: 'That the said claim of lien was arbitrarily and capriciously imposed by reason of the following facts:
1. No assessment upon which said lien was based was ever made against plaintiff;
2. No notice or demand for payment of taxes had been served upon plaintiff at the time of the commencement of this action;
3. No notice of the assessment had ever been furnished to plaintiff, within sixty days from the making of the assessment, or otherwise; and
4. Plaintiff was not a partner in the Moulin Rouge.
That the continued imposition of said lien upon plaintiff's real property will ruin and destroy plaintiff's property rights for the reason that plaintiff borrowed $ 133,500.00 from the California Bank which he used to purchase real property for $ 108,000.00 and did then enter into a twenty-year lease to erect a department store building on the said real property incurring and paying a leasing commission of $ 20,000.00; that thereafter, to-wit, on November 15, 1955, the defendant did file a Claim of Lien upon the said real property and plaintiff is by reason thereof unable to erect the department store pursuant to the terms of said lease; that unless said lien is speedily removed plaintiff will become liable to the lessee for non-performance of the terms of said lease and may be required to file a petition in bankruptcy.' [**28]
Executive officials have long enjoyed some form of immunity for acts performed in the course of their official duties. The underlying rationales are (1) the injustice of imposing personal liability on one whose public office obliges the exercise of discretion and (2) the danger that potential liability will compromise the forthright performance of official duties. See, e.g., Scheuer v. Rhodes, 416 U.S. 232, 239-40, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974).
The rules governing official immunity are largely of judicial making and have changed considerably over the years. Earlier cases wrestled with the issue with varying results. See id. at 241. In some instances courts did not foreclose recovery on immunity grounds, see, e.g., Bates v. Clark, 95 U.S. 204, 24 L. Ed. 471 (1877), and were reluctant to formulate a rule that would do so irrespective of the circumstances, see O'Campo v. Hardisty [**9] , 262 F.2d 621, 625 (9th Cir. 1958).
Eventually, executive officials performing discretionary functions were protected from damage suits by absolute official immunity, if they had acted within the "outer perimeter" of their duties. E.g., Barr v. Matteo, 360 U.S. 564, 575, 3 L. Ed. 2d 1434, 79 S. Ct. 1335 (1959) (opinion of Harlan, J.).
This general rule was applied to IRS agents. Sowders v. Damron, 457 F.2d 1182, 1184 (10th Cir. 1972); Bridges v. IRS, 433 F.2d 299, 300 (5th Cir. 1970); David v. Cohen, 132 U.S. App. D.C. 333, 407 F.2d 1268, 1271-72 & n.2 (D.C. Cir. 1969); Bershad v. Wood, 290 F.2d 714, 716, 719 (9th Cir. 1961).
A major change occurred when the Supreme Court concluded that absolute immunity was inappropriate for state executive officials sued under 42 U.S.C. § 1983 for violating federal rights. Scheuer v. Rhodes, 416 U.S. 232, 238-49, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974). The Court recognized that Congress had not intended to abrogate entirely the immunity accorded some officials by common law. Id. at 243. While judges and legislators acting within their traditional roles continued to enjoy absolute immunity, id. at 243-44, state [**10] executive officials would have only qualified immunity. Id. at 247-48.
The Court left the immunity question for federal officials to the courts of appeals when it acknowledged a damages remedy against those persons in suits for federal constitutional violations. Bivens v. Six Unknown Named Federal Narcotics Agents, 403 U.S. 388, 390-98, 29 L. Ed. 2d 619, 91 S. Ct. 1999 (1971). This circuit reasoned that immunity accorded federal officials in Bivens actions should be no greater than that accorded state officials under section 1983 for identical violations. Mark v. Groff, 521 F.2d 1376, 1380 (9th Cir. 1975).
Quoting Mark v. Groff, the Supreme Court agreed with this court and most circuits, [*1410] which had reached similar conclusions. Butz v. Economou, 438 U.S. 478, 486 & n.9, 498-500, 505-07, 57 L. Ed. 2d 895, 98 S. Ct. 2894 (1978). A different holding would "stand the constitutional scheme on its head." Id. at 504. Qualified immunity for federal executive officials struck a balance between the interests underlying immunity and the need for a remedy for constitutional violations. Id. at 497, 504-06.
Significantly for our purposes here, Mark [**11] v. Groff was a suit against IRS officials, as were three of the other circuit cases cited and followed in Butz. See Weir v. Muller, 527 F.2d 872, 874 & n.1 (5th Cir. 1976); n2 Black v. United States, 534 F.2d 524, 527 (2d Cir. 1976); G.M. Leasing Corp. v. United States, 560 F.2d 1011, 1015 (10th Cir. 1977), cert. denied, 435 U.S. 923, 55 L. Ed. 2d 516, 98 S. Ct. 1485 (1978).
n2 The Fifth Circuit's attempt to overrule this case insofar as it may have implied a right of action under the due process clause of the Fifth Amendment was reversed by the Supreme Court. Davis v. Passman, 571 F.2d 793, 801 (5th Cir. 1978), reversed, 442 U.S. 228, 60 L. Ed. 2d 846, 99 S. Ct. 2264 (1979).
The Supreme Court seemingly accepted no more than qualified immunity for IRS officials in the remand that preceded the last-mentioned case. G.M. Leasing Corp. v. United States, 429 U.S. 338, 360, 50 L. Ed. 2d 530, 97 S. Ct. 619 (1977). The Fourth Circuit also had selected the qualified immunity standard for [**12] IRS officials. White v. Boyle, 538 F.2d 1077, 1080 (4th Cir. 1976).
After Butz, circuit cases have continued to apply the qualified immunity standard to tax officials sued for constitutional torts. See Hall v. United States, 704 F.2d 246, 249, 250 & n.2 (6th Cir. 1983) (levy without statutory deficiency notice); Granger v. Marek, 583 F.2d 781, 784 (6th Cir. 1978).
Cases in this circuit also have applied that standard. Hutchinson v. United States, 677 F.2d 1322, 1328 (9th Cir. 1982) (qualified immunity for activities including levies); Miller v. DeLaune, 602 F.2d 198, 199 (9th Cir. 1979).
Apparently the only exception was a brief per curiam opinion in this circuit, Stankevitz v. IRS, 640 F.2d 205 (9th Cir. 1981), n3 the case relied on by the court below in holding Terry absolutely immune. Stankevitz accorded absolute immunity to IRS officials who audited the plaintiff's tax return and assessed a deficiency.
n3 One other Ninth Circuit case, in a footnote, cited Bershad v. Wood as an example of a case granting absolute quasi-judicial immunity to some officials other than judges. Pomerantz v. County of Los Angeles, 674 F.2d 1288, 1291 n.1 (9th Cir. 1982). The immunity in Bershad was not quasi-judicial, but the then-existing absolute official immunity for executive officers. The Pomerantz court did not discuss the intervening changes in the law wrought by Scheuer v. Rhodes, Butz, Mark v. Groff, and related cases. We do not, however, criticize the holding in Pomerantz that jury administrators rendering decisions as to eligibility of prospective jurors were cloaked with quasi-judicial immunity.
A comparable oversight occurred with regard to the current scope of executive immunity in general in a criminal case against an executive official adverting to civil liability by way of analogy. See Clifton v. Cox, 549 F.2d 722, 726 (9th Cir. 1977) ("It is well-settled that a federal official cannot be held personally liable in a civil suit for acts committed within the outer perimeter of his line of duty").
In so doing, the opinion followed another part of Butz, which stated that executive officials have absolute immunity if, in an administrative proceeding, they assume a role analogous to that of a judge or prosecutor in a traditional trial setting. 438 U.S. at 508-17. Quoting Butz, Stankevitz accorded the IRS defendants absolute immunity because they were " 'responsible for the decision to initiate or continue a proceeding subject to agency adjudication. '" 640 F.2d at 206 (quoting 438 U.S. at 516).
Taken out of context, this line quoted from Butz might easily be read to imply a broader spectrum of immunity than the Supreme Court intended. In using the term "proceeding subject to agency adjudication," Butz was not referring broadly to an official's exercise of judgment in the course of agency action directed at a private person. [*1411] "Adjudication" was a technical term for a quasi-judicial, formal, on-the-record proceeding under the Administrative Procedure Act. See 5 U.S.C. § § 554-557.
The quasi-judicial absolute immunity Butz accorded certain executive officials was predicated on the close similarity of this formal agency adjudication to a traditional [**14] courtroom trial. The Supreme Court recently re-emphasized that absolute immunity for participants in judicial proceedings "stem[s] 'from the characteristics of the judicial process.'" Briscoe v. LaHue, 460 U.S. 325, 335, 103 S. Ct. 1108, 75 L. Ed. 2d 96, 51 U.S.L.W. 4247, 4249 (1983) (quoting Butz, 438 U.S. at 512). See also Sellars v. Procunier, 641 F.2d 1295, 1298-1300 & nn.6-9 (9th Cir.), cert. denied, 454 U.S. 1102, 102 S. Ct. 678, 70 L. Ed. 2d 644 (1981).
Formal administrative adjudication shares with judge-supervised trials two key qualities that diminish the need for individual suits to correct constitutional transgressions: (1) the impartiality of the decision maker and (2) the reliability of the information forming the basis of the decision. See Butz, 438 U.S. at 512-13. Safeguards inherent in both forums foster these qualities.
The first quality is fostered in formal agency adjudication by the checks and balances afforded when a different person assumes the roles comparable to those of prosecutor and judge, with the adjudicator independent of agency control. Hearing examiners are neither required to perform prosecutorial and investigative functions [**15] inconsistent with their judicial role nor to answer to those who do. Id. at 513-14. This unbiased adjudicator provides a check on agency zeal. Id. at 515. One group of quasi-prosecutorial agency officials immunized in Butz were those who brought a proceeding to seek sanctions. Id. at 515. They did not impose the sanctions.
The second quality is fostered by having the transcript and exhibits of oral and documentary evidence constitute the exclusive record on which the decision must be based. The decision maker must explain the decision with findings and conclusions. An adversarial procedure allows cross-examination of witnesses, a challenge to the government's theories, and the sobering requirement of airing these theories in a public forum. Id. at 512-13, 517.
The disinterested examiner may accept or reject the government's theories, after hearing both sides and all relevant evidence. Id. at 517. The other agency "prosecutorial" personnel granted absolute immunity in Butz were those who present evidence in an agency hearing, the purpose being to encourage the fullest possible presentation of evidence to the decision maker. See id.
These two [**16] qualities are conspicuously absent from Terry's activities, as they will typically be from an agency "proceeding" in the broad sense that is not subject to the safeguards of formal adjudication. First, Terry was not, nor was she restrained by, an adjudicator independent of agency control and of a conflicting prosecutorial role. The role she played, if analogized to a traditional trial, was an amalgam of the roles of prosecutor, judge, jury, and marshal executing the judgment as well, as her duties included agency investigation and enforcement, judgmental functions, assessment of information, and execution of the levy. Second, the intra-agency file forwarded to her as a basis for her decision bears little resemblance to the complete and reliable record created and tested by the adversarial process in a trial or formal agency hearing.
IRS defendants performing functions the Stankevitz defendants did may legitimately be covered by the executive-branch analog to prosecutors' quasi-judicial immunity as outlined in Butz, 438 U.S. at 515-17. Their actions triggered the deficiency proceeding with its procedural safeguards, including preseizure, preassessment notice and an opportunity [**17] for the taxpayer to take his case to the impartial forum of the Tax Court.
[*1412] In contrast, Bothke's complaint is that statutorily prescribed safeguards were circumvented in his case in disregard of his vigorous protests at every stage. The IRS sent him no deficiency notice, a jurisdictional prerequisite for a petition to the Tax Court, and provided no impartial, formal agency hearing.
Stankevitz ruled that the proper forum for taxpayer complaints of unfair treatment is in a subsequent enforcement proceeding by the agency. 640 F.2d at 206. This rule cannot apply when the agency has bypassed the "proceeding" and gone precipitously to enforcement.
Qualified immunity for federal executive officials is the general rule and absolute immunity the exceptional case, a proposition first voiced in Butz, 438 U.S. at 506-08, and recently reiterated in Harlow v. Fitzgerald, 457 U.S. 800, 102 S. Ct. 2727, 2736, 73 L. Ed. 2d 396 (1982). Were we to accord absolute immunity to defendant Terry under the guise of applying Butz, its carefully delineated exception would overwhelm the rule set forth in that case.
That IRS agents performing specific tasks had absolute immunity [**18] in Stankevitz does not mean that all IRS agents are also absolutely immune irrespective of what tasks they perform. There is no such blanket immunity for an arm of government.
The immunity available depends not on an official's job title or agency, but on the function that person was performing when taking the actions that provoked the lawsuit. See, e.g., Richardson v. Koshiba, 693 F.2d 911, 913-14 (9th Cir. 1982) (even judicial personnel are not absolutely immune when performing executive functions); Harlow, 102 S. Ct. at 2735. See also Scheuer v. Rhodes, 416 U.S. at 247.
As demonstrated, Terry does not qualify for the quasi-judicial absolute immunity delineated in Butz. We must inquire if she was entitled to absolute immunity on some other ground.
Absolute immunity is accorded only to those public officials "whose special functions or constitutional status requires complete protection from suit." Harlow, 102 S. Ct. at 2732. These are members of the legislature and judiciary performing their characteristic functions, and the President of the United States. See id. at 2732-33.
For executive officials other than the President, the Supreme Court has extended [**19] absolute immunity to those playing an integral part in judge-supervised trials or in closely analogous proceedings. See id. at 2733 (citing Butz, 438 U.S. at 508-17); Briscoe v. LaHue, 51 U.S.L.W. at 4249-52. It has denied absolute immunity to senior aides to the President, Harlow, 102 S. Ct. at 2736, Cabinet members, see id. at 2734 (citing Butz, 438 U.S. at 506), and state governors, see Harlow, 102 S. Ct. at 2733 (citing Scheuer v. Rhodes, 416 U.S. at 247-48).
Because Terry does not fit within the subcategory of executive officials held absolutely immune in Butz, a new category of absolutely immune executive officials would have to be created to exempt her unqualifiedly from liability. New categories are recognized only in "exceptional situations where it is demonstrated that absolute immunity is essential for the conduct of public business." Butz, 438 U.S. at 507.
A defendant official bears the burden of proving that "public policy requires an exemption of that scope," id. at 506, that "the responsibilities of his office embraced a function so sensitive as to require a total shield from liability." Harlow, 102 S. Ct. at 2735. A [**20] court evaluates this possibility by assessing the importance of public policy considerations through "reference to the common law, or more likely, our constitutional heritage and structure." Id. at 2736 n.20.
Terry has made only a cursory argument that tax collectors are entitled to an absolute immunity independent of the quasi-judicial immunity recognized in Butz. She [*1413] contends that the duties of an IRS official responsible for seizing property invite personal retaliation in the form of vexatious damage suits and that absolute immunity is essential if these officials are effectively to conduct the important public business of tax collection.
Police officers, whose important duty to protect the public may involve deprivations of liberty through arrests, are entitled only to qualified immunity, Scheuer, 416 U.S. at 245, though their actions would seem equally likely to invite retaliatory suits. Law enforcement personnel executing levies were traditionally not protected by any immunity under the common law. IRS agents are "relatively low-level executive officers" with a correspondingly "narro[w] range of official discretion." Mark v. Groff, 521 F.2d at [**21] 1380-81. Cf. G.M. Leasing, 560 F.2d at 1014 (levying is "ministerial" rather than "discretionary" activity).
Other cases addressing IRS agents' damages liability for levy-related activities have chosen the qualified immunity standard. Hall v. United States, 704 F.2d at 249-50 & n.2; Hutchinson v. United States, 677 F.2d at 1328; G.M. Leasing Corp. v. United States, 560 F.2d at 1015.
We recognize the government's interest in collecting taxes. Congress's taxing power is granted by the Constitution, U.S. Const. Art. I § 8, cl. 1; Amend. XVI. The importance of tax collection is reflected in statutes which, for example, prohibit its injunction. See 26 U.S.C. § 7421(a).
But the law reflects also a Congressional determination that the taxpayer should be afforded certain procedural rights, which the IRS is bound to respect. See, e.g., Laing v. United States, 423 U.S. 161, 46 L. Ed. 2d 416, 96 S. Ct. 473 (1976). In balancing these interests, Congress has determined that violations of the procedural rights at issue here are exceptions to the Anti-Injunction Act. See 26 U.S.C. § § 6213(a), (b)(2), 7421(a).
Private ownership of property and its enjoyment secure [**22] from arbitrary governmental interference are cherished, fundamental concepts, see U.S. Const. Amends. III, IV, V, X, XIV, and are two of the features distinguishing this society from those with oppressive governments.
Unjustified governmental invasion of property rights by seizure can occasion physical hardship, see Commissioner v. Shapiro, 424 U.S. 614, 629-30 & n.11, 47 L. Ed. 2d 278, 96 S. Ct. 1062 (1976), but the affront to the citizen's notions of the place of government in our society, when personally confronting the misuse of its awesome power, may engender a turmoil that is more profound than the physical effects of the deprivation. Cf. Bivens, 403 U.S. at 391-92, 394-96.
The Service, with its broad authority including that of levying property, has power that is considerable, and in some ways unique, to disrupt taxpayers' lives. The needs of the public fisc are vital, but their mere invocation cannot override all rights of the public for whom it exists, without reference to the propriety of that invocation.
With the IRS's broad power must come a concomitant responsibility to exercise it within the confines of the law. The Court has emphasized that no official [**23] is above the law, and that broad powers present broad opportunities for abuse. Butz, 438 U.S. at 505-06. Cf. Mark v. Groff, 521 F.2d at 1380 n.4.
We conclude that agents in Terry's position do not meet the Supreme Court's test for creating new categories of absolutely immune executive officials.
The decision below reflects a determination that Terry acted with subjective good faith. However, when it was rendered, officials asserting the qualified immunity defense had to demonstrate that they met an objective standard of good faith as well. See, e.g., Wood v. Strickland, 420 U.S. 308, 321, 43 L. Ed. 2d 214, 95 S. Ct. 992 [*1414] (1975). Ignorance or disregard of settled, undisputable law negates this defense even if subjective good faith exists. Id.
The Supreme Court has since revised the summary judgment test for qualified immunity, making objective good faith the only requirement. The district court is to place its "reliance on the objective reasonableness of an official's conduct." Harlow, 102 S. Ct. at 2739. "Government officials performing discretionary functions generally are shielded from liability for civil damages [**24] insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known." Id. at 2738 (emphasis supplied).
Bothke argues that Terry has not met this standard, because (1) the IRS allegedly did not follow statutory procedures, and (2) he warned Terry twice that she was proceeding illegally. Because of the lower court's disposition on the immunity issue, it did not reach the question whether the IRS proceeded correctly.
n4 Terry has in the alternative suggested briefly that the procedure used was proper because no determination of a prior notice of deficiency is required when the assessment is based on the return as filed. The authority offered is Collins v. United States, 8001 U.S. Tax Cas. (CCH) 9130, 45 A.F.T.R. 2d 616 (E.D. Mo. Dec. 3, 1979). In that case, the taxpayers had self-assessed the taxes but failed to pay them. Under the facts here, this argument is frivolous. As the magistrate noted, when Terry's counsel suggested this below, "if you read [Bothke's Form 1040] literally it indicates that the $1,100 should come back to him. It doesn't indicate that he owes anything."
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If Terry had this protest or was aware of its substance, it is questionable whether she can meet the objective good [*1415] faith standard. n5 This information is not in the record on appeal. n6
n5 This is not to be read to imply that where the file passed to the field officer masks, either carelessly or systematically, facts pertinent to the legality of the levy, immunity will automatically result. If the field officer has reasonable notice of possible irregularities that would make a levy illegal, whether the notice comes by examination of the file or otherwise, the matter must be resolved, if the exercise of discretion to levy is to have a factual basis of adequate scope. This is especially true in a routine case where no jeopardy assessment is involved and the circumstances are not exigent. This follows from an application of good faith immunity standards to the fact that field officer job duties include investigating an account before determining that a levy is warranted.
We recognize that several agents may deal with a case before it reaches the field officer and that any procedural error in these earlier stages are committed by officials other than the one ultimately assigned the account for investigation and levy.
Bothke's March 15 protest to the Correction to Arithmetic exemplifies the sort of thing which, if known to the field officer, would provide reasonable notice of preexisting procedural improprieties. It is the item which, after a review of the record in this case, stands out as raising a genuine issue of Terry's good faith under the objective standard. The district court's findings of her subjective good faith survives the clearly erroneous test. [**28]
n6 Terry did have the "Taxpayer Delinquent Account," but we cannot decipher the abbreviations and transaction codes for the items in the printout. The date of one item corresponds approximately with the date the IRS received Bothke's March 15 protest.
Our consideration of this matter was hampered in other ways. The copy of Terry's handwritten "TDA History Record" in the record on appeal is so poorly reproduced as to be partially illegible. We are unable to decipher the numerical codes Terry used. There appears to be an unexplained hiatus on lines 9 and 13.
We remand for a determination whether Terry met the objective good faith standard. The matter of Bothke's protest to the Correction to Arithmetic and Terry's knowledge of it will be considered.
Bothke is clearly not without fault in the creation of this situation in view of the manner in which he prepared his 1977 tax return. The Service, however, has efficient methods for dealing with such returns. Our decision will not hamper it from pursuing those proper methods in similar situations. Cf. Fullerton Market Cold Storage Co. v. Cullerton [**29] , 582 F.2d 1071 at 1078 (7th Cir. 1978).