Court Opinion

ID: 9448008
Source: CourtListenerOpinion
Date Created: 2023-08-03 23:20:12.677838+00
Date Added: 2024-06-11T17:31:15.354810
License: Public Domain

RIVES, Circuit Judge
(dissenting).
This suit seems to me one to restrain the collection of a tax clearly prohibited by Section 7421(a) of the 1954 Internal Revenue Code.1 Admittedly, the suit does not fall within the express exceptions which relate to insufficiency of the notice of deficiency provided in Sections 6212(a) and (c), and 6213(a). Under familiar rules of construction, the statute having provided express exceptions to its prohibition, it would seem that implied exceptions are excluded. However, both the learned district judge and the majority of this Court feel that implied exceptions are provided by Miller v. Standard Nut Margarine Company, 1932, 284 U.S. 498, 52 S.Ct. 260, 76 L.Ed. 422, and that this suit falls within such exceptions. With deference, I disagree on both scores.
The courts have been prohibited from entertaining suits for the purpose of restraining the assessment or collection of any tax since 1867.2 The rationale and philosophy of that prohibition was first clearly stated in Cheatham et al. v. United States, 1875, 92 U.S. 85, 89, 23 L.Ed. 561:
“If there existed in the courts, State or National, any general power of impeding or controlling the collection of taxes, or relieving the hardship incident to taxation, the very existence of the government might be placed in the power of a hostile judiciary. Dows v. The City of Chicago, 11 Wall. 108 [20 L.Ed. 65]. While a free course of remonstrance and appeal is allowed within the departments before the money is finally exacted, the general government has wisely made the payment of the tax claimed, whether of customs or of internal revenue, a condition precedent to a resort to-the courts by the .party against, whom the tax is assessed. In the internal-revenue branch it has further prescribed that no such suit shall be brought until the remedy by appeal has been tried; and, if brought after this, it must be within six months after the decision on the appeal. We regard this as a condition on which alone the government consents to litigate the lawfulness of the original tax. It is not a hard condition. New governments have conceded such a right on any condition. If the compliance with this condition requires the party aggrieved to pay the money, he must do it. He cannot, after the decision is rendered against him, protract the time within which he can contest that decision in the courts by his own delay in paying the money. It is essential to the honor and orderly conduct of the government that its taxes should be promptly paid, and drawbacks speedily adjusted; and the rule prescribed in this class of cases is neither arbitrary nor unreasonable.”
Since then that reasoning has been often repeated.3 If a fair and adequate administrative remedy is provided, due process does not require an opportunity for judicial review of tax liability.4 The suit in the present ease was filed only after the Appellate Division had “carefully considered your claims for abatement of employment taxes as listed below and the information furnished by your *409representatives,” and had “concluded that there is no overassessment of employment taxes.” While the result is questioned, there has been no contention or holding that such review does not constitute a fair and adequate administrative remedy.
Properly interpreted, Miller v. Standard Nut Margarine Company, supra, is not an attempt of the judiciary to emasculate by implied exceptions the clear .and explicit prohibition of jurisdiction ■contained in the statute. The theory of •that case is that the exaction was not a true tax, but simply an “attempted exaction by a tax official under the guise of an assessed tax.” That theory was thus stated by Judge Walker for this Court,5 and was explicitly adopted by the Supreme Court:
“And this court likewise recognizes the rule that, in cases where complainant shows that in addition to the illegality of an exaction in the guise of a tax there exist special and extraordinary circumstances sufficient to bring the case within some acknowledged head of equity jurisprudence, a suit may be maintained to enjoin the collector.” (Emphasis supplied.)
Miller v. Standard Nut Margarine Company, 1932, 284 U.S. 498, 509, 52 S.Ct. 260, 263, 76 L.Ed. 422.
That Miller v. Standard Nut Margarine Company presented such an exceptional case as to amount to an abuse of jurisdiction by the tax officials is made ■apparent in the extended and able analysis of that case in Homan Mfg. Co. v. Long, 7 Cir., 1957, 242 F.2d 645, 651-653. In no other case has the Supreme Court permitted an injunction to restrain the assessment or collection of a tax. The cases are collected and discussed in 9 Mertens Law of Federal Income Taxation, Zimet Revision, Section 49.212, where it is stated:
“With just one exception, those cases in which the Supreme Court has permitted injunctions restraining Government officials were all cases in which the Court held that the purported tax sought to be restrained was in reality not a tax but a penalty, and the Court said that the statutory prohibition did not apply to the collection of penalties. The decision in Miller v. Standard Nut Margarine Company is the only case in which the Supreme Court clearly held that although no penalty was involved, the circumstances were so special and extraordinary as to render inapplicable the statute prohibiting the maintenance of a suit to restrain the collection of taxes.”
The rationale of Miller v. Standard Nut Margarine Company, supra, cannot be extended to bring within some supposedly implied exception cases like the present one without emasculating the prohibition contained in the statute. That much was recognized by Judge Sanborn, speaking for the Eighth Circuit, in a case which seems to me directly in conflict with the holding of the majority in the instant case:
“It is true that where a complainant demonstrates that what purports to be a tax is merely an exaction in the guise of a tax and that there are special and extraordinary circumstances which bring the case under some acknowledged head of equity jurisprudence, a suit may be maintained to enjoin the collection of the pseudo-tax. Miller v. Standard Nut Margarine Co., 284 U.S. 498, 509, 52 S.Ct. 260, 76 L.Ed. 422. The validity of the taxing act under which the assessments against appellant were made has been sustained. Steward Machine Co. v. Davis, 301 U.S. 548, 57 S.Ct. 883, 81 L.Ed. 1279, 109 A.L.R. 1293; Helvering v. Davis, 301 U.S. 619, 57 S.Ct. 904, 81 L.Ed. 1307, 109 A.L.R. 1319. The assessments are for taxes, and not for exactions in the guise of taxes. The appellant may not owe them, but *410that does not change their nature, nor is nonliability a special or extraordinary circumstance. This case presents the ordinary situation of a taxpayer resisting payment of taxes which he believes that he does not owe. That the appellant is in poor financial condition, that it will be a hardship upon him to pay the taxes and sue for their recovery, that to compel him to pay them threatens ultimate ruin to his business, and that a court of Iowa has ruled that appellant was not an employer of the drivers of his cars and was not liable for contributions under the Iowa Unemployment Compensation Law, Chap. 77.2, Code of Iowa 1939, § 1551.07 et seq. [I.C.A. § 96.1 et seq.], we do not regard as ‘special and extraordinary circumstances' which would justify the maintenance of this action to enjoin the collection of these taxes.”
Kaus v. Huston, 8 Cir., 1941, 120 F.2d 183, 185. See also, Homan Mfg. Co. v. Long, 7 Cir., 1959, 264 F.2d 158, 160.
In the present case, the taxes are not attacked as themselves unconstitutional or illegal, nor is any question raised as to the good faith of the tax officials in assessing the taxes against the plaintiff. Instead, the question is closely and hotly litigated purely as a question of fact, thus stated by the district court:
“The main question posed for solution is whether or not the captains and crewmen who performed fishing services aboard trawlers of which the plaintiff was the owner or the lessee, were employees within the meaning of Sections 1426 and 1607 of the Internal Revenue Code of 1939, 26 U.S.C.A. §§ 1426, 1607, and Sections 3121 and 3306 of the Internal Revenue Code of 1954, 26 U.S. C.A. §§ 3121, 3306. If the relationship of employer-employee existed, then the tax was properly assessed. If the relationship of employer-employee did not exist, then the levy was unlawful.”
Williams Packing & Navigation Co. v. Enochs, D.C.S.D.Miss.1959, 176 F.Supp. 168, 170.
This is a more extreme application of Miller v. Standard Nut Margarine Company, supra, than has ever before been countenanced by this Circuit.6 Very clearly, I submit, this case is not one of an illegal exaction in the guise of a tax.
Just as clearly, the case is not brought within the second requisite of the rule, viz., “special and extraordinary circumstances sufficient to bring the case within some acknowledged head of equity jurisprudence.” Miller v. Standard Nut Margarine Company, supra, 284 U.S. at page 509, 52 S.Ct. at page 263. Equity may enjoin vexatious litigation not brought in good faith but instituted for annoyance and oppression. 43 C.J.S. Injunctions § 39; 28 Am.Jur., Injunctions, Sec. 210. I know of no case, however, permitting an injunction merely upon the basis of financial hardship, and so to do would be an obvious unequal application of the law to the poor and to the rich.
Further, under the facts and circumstances of this ease, the taxpayer should not be permitted to establish irreparable damages by hiding behind the corporate fiction, when for all practical purposes, including financial, the taxpayer corporation and the DeJean partnership were parts of an integrated operation under the control and direction of the same two individuals. Southern Pacific Co. v. Lowe, 1918, 247 U.S. 330, 38 S.Ct. 540, 62 L.Ed. 1142.
I therefore respectfully dissent.

. “§ 7421. Prohibition of suits to restrain assessment or collection
“(a) Taos.- — -Except as provided in sections 6212(a) and (c), and 6213(a), no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court.” 26 U.S.C.A. § 7421.

. March 2, 1867, c. 169, § 10, 14 Stat. 475.

. E. g., Graham v. DuPont, 1923, 262 U.S. 234, 254, 255, 43 S.Ct. 567, 67 L.Ed. 965, and the cases there cited.

. Anniston Manufacturing Co. v. Davis, 1937, 301 U.S. 337, 342, 343, 57 S.Ct. 816, 81 L.Ed. 1143.

. Miller v. Standard Nut Margarine Co., 5 Cir., 1931, 49 F.2d 79, 84.

. See for example, United States v. Curd, 5 Cir., 1958, 257 F.2d 347, 350; Enochs v. Green, 5 Cir., 1959, 270 F.2d 558, 561; McDonald v. Phinney, 5 Cir., 1961, 285 F.2d 121, 122.