LAING v. UNITED STATES
Legal provision: Internal Revenue Code
Argument of Stuart A. Smith
Chief Justice Warren E. Burger: We'll hear arguments first this morning in Number 73-1808, Laing against the United States and 74-75 United States against Hall, the two cases being consolidated.
Mr. Smith before you proceed let me announce that through Mr. Justice David Marshall is unavoidably delayed in getting here due to the weather conditions of the roads and he will participate in the case on the basis of the tapes up to the time that he actually arrives.
You may proceed, Mr. Smith.
Mr. Stuart A. Smith: Mr. Chief Justice and may it please the Court.
These two cases which have been consolidated come here on writs of certiorari from the United States Courts of Appeals for the Sixth and Second Circuits.
They present a procedural issue under the Internal Revenue Code of 1954 that is whether the Commission of Internal Revenue is required to issue a notice of deficiency in connection with his termination of a taxpayer's taxable year pursuant to that authority granted him by Section 6851 of the Internal Revenue Code.
The Courts of Appeals have divided on this question with the Second Circuit in the Laing case holding that the Commissioner is not so required to issue a notice and the Sixth Circuit holding that the Commissioner is required to issue such a notice.
In our view, the Sixth Circuit in imposing such a requirement on the Commissioner has erroneously merged two different statutory provisions of the Code, determination provision Section 6851 and an early assessment provision which is presently set out in Section 6861 of the Code.
The significance of the way this case has arise and the significance of the issue for purposes of these cases is that if the Commissioner is not so required to issue a notice of deficiency in connection with a termination case as we submit.
The parties have agreed that these suits are barred by the Anti-Injunction Act, a long-standing statute which Congress enacted over a hundred years ago which prohibits suits to enjoin the collection and assessment of taxes by any person in any court.
At the outset, I think it important --
Justice Potter Stewart: But with an explicit exception?
Mr. Stuart A. Smith: With an explicit exception that the --
Justice Potter Stewart: And the question is whether that exception is acceptable here.
Mr. Stuart A. Smith: The scope of that exception is that issue here.
Justice Potter Stewart: Right.
At the outset, I think the Court should bear in mind an important historical fact about how our present system of tax litigation has developed.
The Tax Court which was established by Congress as the Board of Tax Appeals only in 1924 and the United States Government has been collecting taxes for more than a hundred years.
Now for over -- for perhaps the last 125 years, the Treasury has been empowered to assess and collect certain taxes like excise taxes prior to the time they are due to be paid just the way the termination provision works here with respect to income taxes.
Now coupled with the Anti-Injunction Act, a taxpayer subject to a termination or excise taxes cannot bring a suit to enjoin the collection of those taxes and because of Congress' decision that excise taxes are not adjudicable in the Board of Tax Appeals but only in the District Court.
The taxpayers are limited to a refund suit of the amount collected.
Now, we think that the issue here represents very much the same sort of thing.
A congressional decision very much like the congressional decision to limit the jurisdiction of the Tax Court to income, estate, and gift taxes that there has been a congressional decision here which the statutory history demonstrates not to permit the Tax Court to review assessments made by the Commissioner in connection with a terminated taxable period.
In fact, that is still the law today with respect to excise taxes as Section 6862 of the Code so provides.
Now, the facts are in the cases are somewhat parallel and are undisputed and can be stated briefly as follows.
In the Laing case 73-1808, the taxpayer Laing is a citizen of New Zealand.
In May of 1972, he entered the United States from Canada on a temporary visitor's visa.
In late June, he was traveling with two companions in a rented automobile from Northern United States in Vermont and attempting to get into Canada.
Because the Canadian officials were dissatisfied with the identification proffered by one of the passengers they were refused entry into Canada.
They then turned around and returned to the United States and was stopped by United States customs officials at Derby Line, Vermont.
Upon the search of the vehicle in which they were traveling, the customs officials found concealed in the engine compartment of their car suitcase containing more than $300,000.00 in the United States currency.
Now, once this discovery was made by the customs officials they in turn notified the District Director of Internal Revenue in Burlington, Vermont and once having received the information the District Director terminated the taxable years of all three people in the car pursuant to his authority under Section 6851 of the Code, one of the statute here which was employed in both cases.
Assessments were then made against each individual in an amount of approximately $195,000.00 for this terminated period.
That is January 1, 1972 until June 24, 1972, the day that the discovery of the cash was ascertained by the customs officials.
Justice Harry A. Blackmun: Does the record show how that figure was arrived at?
Mr. Stuart A. Smith: The record does not show how the figure was arrived at but perhaps I can help the Court with that.
Apparently what was done was taxpayer, that is Laing and his two companions were subjected to a net worth plus non-deductible expenditures computation.
That is they were asked as to -- Laing was asked as to how long he was in the United States.
It turned out to be some 20 or 30 days.
The District Director then made a computation based on his living expenses for that period.
In turn the value of the cash on the person's was also included as part of the net worth and an income figure was arrived at the sum I think $315,000.00 or so.
There was also a quantity of a hashish found on the person of Laing which was valued at a certain retail value and once that an income, of course income figure was arrived at, then the Internal Revenue Service gave each taxpayer, each person in the car credit for the standard deduction and a personal exemption and then a resulting taxable income figure was arrived at upon which the tax is computed.
It turned out to be something like $195,000.00.
Justice Harry A. Blackmun: Mr. Smith, would you assume that I asked the same question when you cover the Hall case?
Mr. Stuart A. Smith: Yes, I shall and I will be glad to elaborate on that also that the record with similarly silent.
Now, the assessments were then made in the amount of $195,000.00.
Now, Laing and his two companions refused to pay this tax so once having an assessment, the Commissioner exercised his collection powers which are also well settled in the Internal Revenue Code.
Section 6331 provides for levy and restraint power to the Commissioner of Internal Revenue, and as a result since the tangible property that is the cash was available, the Internal Revenue Service levied upon this cash that was found hidden in the engine compartment in the suitcase.
Now, three or four months later then, Laing commenced this action.
In the United States District Court of the District of Vermont seeking to enjoin the Commissioner's assessment and collection of these taxes and prohibiting his continued possession of his money.
Now, the Government defended this suit on the grounds of the Anti-Injunction Act which prohibits this kind of injunctive suits for assessment of collection of taxes.
Justice William H. Rehnquist: Well, the relief he sought then in the District Court was not simply to require you to issue a deficiency notice but actually return them?
Mr. Stuart A. Smith: No the -- yes, the relief he has sought was to enjoin the services continued possession of this money and to return it to him.
There was no attempt to -- although some of this case has involve that kind of relief, these cases involve simply a question of you know, the relief sought by the taxpayer is to prohibit the continued possession by the Internal Revenue Service of the money levied upon.
Justice Byron R. White: Because --
Mr. Stuart A. Smith: Because -- yes, and the ground that the taxpayers urge is that the Commissioner has not issued a notice of deficiency in this case then the Anti-Injunction Act does not apply.
Now the District Court in Laing dismissed the taxpayer's action and on an appeal to the Second Circuit that Court affirmed on the authority of its previous decision in the Irving case.
Justice Harry A. Blackmun: Mr. Smith, would you straighten me out a little bit?
Had this been a jeopardy assessment after the conclusion of the taxable year, a deficiency notice would be issued even after assessment, wouldn't it?
Mr. Stuart A. Smith: That's correct.
Justice Harry A. Blackmun: And does this mean that with a jeopardy assessment that one may then go to the Tax Court even though the assets have been levied upon?
Mr. Stuart A. Smith: That's correct.
I mean that's what the statute that -- once you have a jeopardy assessment with the respect to a full taxable year which we submit involves an entirely different statutory provision.
Section 6861 (b) provides that the Commissioner shall issue a notice of deficiency within 60 days with the making of the assessment if he hasn't already done so.
Justice Harry A. Blackmun: Well, that being the case how would the Government be heard by a ruling that in the event of a termination as distinguished from a jeopardy assessment a notice of deficiency could be issued after the fact enabling the taxpayer to go to the Tax Court.
Mr. Stuart A. Smith: Well, I think that the best way to answer that question is to simply say that the Government has taken the position in these cases that Congress has made a decision that the Commissioner of Internal Revenue need not issue a deficiency notice in connection with a termination of a taxable year simply because Congress has made the other decision in allocating the jurisdiction of the various courts which hear a tax dispute that the Tax Court is not empowered to hear suits involving terminations of taxable years.
I think the Commissioner has preceded on that basis since this termination statute was enacted in Revenue Act of 1918 and as we pointed out in our petition in the Hall case there is some 70 cases now pending in the courts and an additional hundred of cases now pending administratively which involved this issue where the Commissioner has taken the consistent position that he need not issue a notice of deficiency and I suppose that the Government would be heard in the sense that those assessments the validity and propriety of those assessments would be put at issue if the Commissioner was deemed to have to issue a notice of deficiency.
And all the Commissioner is saying here is that, it has filed what it thinks -- he has filed what he thinks is the congressional decision then he need not issue such a notice of deficiency.
I think that the point is here that the review in the Tax Court of these kinds of termination actions does not particularly disadvantaged taxpayers while some of the courts which you held that the Commissioner must issue a notice of deficiency, I think were prompted by what they thought was serious questions of unfairness by not providing immediate access to the Tax Court but --
Justice Harry A. Blackmun: Well, the Commissioner's position then of course raises the constitutional issue.
Mr. Stuart A. Smith: The Commissioner's position raises the constitutional issue, although I think as we pointed out in our brief, not only do we think that the statutory history demonstrates the existence of that kind of congressional decision to allocate jurisdiction in the termination case not to the Tax Court but to the District Courts but that in fact the constitution -- that decision, that congressional decision doesn't pose any serious constitutional problems because of the existence of an adequate remedy in the District Court.
Now the -- so the Second Circuit has held that the Government is correct in its contention that the Commissioner need not issue a notice of deficiency in connection with this termination cases.
Now, the facts on the Hall case are relatively parallel.
What happened to the taxpayer in the Hall case was that she was arrested by the Kentucky state police and charged with narcotics -- charged with being involved in the sale of illegal narcotics.
Chief Justice Warren E. Burger: Before you leave that, trace out the steps of the remedy in the District Court.
What must the taxpayer do before he can assert a remedy on the District Court?
Mr. Stuart A. Smith: Well, what the taxpayer must do before he can assert a remedy in the District Court is to file a claim for refund.
That's what the Code provides because presumably the Commissioner should have an opportunity administratively to be able to determine the validity of the claim.
Chief Justice Warren E. Burger: Before he files a claim for refund there must be something on which the refund can operate --
Mr. Stuart A. Smith: Sure and in this particular case, the refund claim can operate on the amount levied upon in both these cases.
Now once the tax -- once the Commissioner -- the Code provides that the Commissioner has six months to process such a claim.
He doesn't process such a claim in six months, he can bring a suit in the District Court often as we point out in our brief, the six-month period is foreshortened by informal means.
For example, Laing after the close of the taxable year brought a refund suit which he filed on March 1, 1973.
He was denied on March 9, 1973 and indeed --
Justice William H. Rehnquist: Made a claim not a suit, don't you?
Mr. Stuart A. Smith: Yes, he filed a claim but the refund claim was denied by the District Director on March 9, 1973 only eight days later.
Justice Harry A. Blackmun: Well that will put the unusual claim, doesn't it?
Mr. Stuart A. Smith: Well, I don't -- Mr. Justice Blackmun, I don't think it's that unusual because I think in connection I, myself have had experience with filing refund claims on behalf taxpayers where when it becomes clear after in a normal case where you've gone through the ordered process and its services taking one position and you're taking another.
In fact in this case it was obvious even at this juncture that this was going to be an issue that was ultimately going to have to be resolved by this Court since the Courts of Appeals had split on the question.
It seemed obvious that the Commissioner was going to deny the claim and in those circumstances I have, on many occasions, asked that the claim be denied promptly.
And in most cases the service is perfectly happy to do that.
There is no reason to keep these claims that is obviously going to deny any way pending for the six-month period, and if for some reason the six-month period is consumed then the taxpayer can bring the suit on the day after the six-month period expires.
Justice Harry A. Blackmun: Well, it's of no significance.
My experience has just been the opposite that you wait and wait and wait despite the request.
Mr. Stuart A. Smith: But in any event I don't think that the six-month period poses any significant constitutional problems and I think the Court in the Philips case, Justice Brandeis simply said that when you have the summary collection remedies the important thing is that the taxpayer have an opportunity for post collection review.
And if that posed collection review here takes place after six months you know that is an administrative decision made by Congress that the service should have an adequate opportunity to be able to appraise the validity of the claim or claims are not easy to handle and the service should have a minimum amount of time to handle these claims.
Justice William H. Rehnquist: Mrs. Hall's position is a little bit different in Mr. Laing's, isn't it in that regard?
Because as I understood the amount assessed against her was considerably more than the value of what was seized.
Mr. Stuart A. Smith: That is true although again we don't think that that makes any difference in terms of her remedy or she could have still filed the claim for refund in our view and gone to the District Court and indeed that's what make this case somewhat curious because here you have taxpayers, who in their briefs, are strenuously arguing that they have been denied some very important right and that is to be able to get a notice of deficiency and go to the Tax Court but the Tax Court is not necessarily a particularly favorable form for the adjudication of these type of cases if what the taxpayers are concerned with is speed, because it's been recently estimated that it takes about two years from filing a petition to final decision to litigate a case in the Tax Court.
The Tax Court is a busy form.
Justice William H. Rehnquist: But a good argument can be made certainly that is the only form for someone who can't pay all the amount of the assessment under the Flora case, isn't it?
Mr. Stuart A. Smith: There is an argument that the Flora case would bar litigation in the District Court in these types of cases with respect to someone in Mrs. Hall's position.
We think that argument misreads this Court in Flora's opinion.
What this Court held in Flora was that under general circumstances a taxpayer cannot bring a refund suit until he has paid the full amount of the assessment.
In reaching that decision, the Court painstakingly went through the legislative history in connection with the creation of Board of Tax Appeals and there were indications going both ways as to what Congress really intended but I think that the really operative portion of the Chief Justice's opinion in Flora was the fact that there the taxpayer had another remedy.
He could have gone to the Tax Court and that made all the difference in Flora because essentially you have a situation where if you had subjected to an assessment of $100.00 and you want to pay $2.00 and go to the District Court.
Well then this Court said in Flora “You can't do that."
"You have to pay the whole $100.00.”
And the reason the Court said that in Flora was because as the Chief Justice said he could have gone to the Tax Court without paying a single cent and the fact of the existence of that Tax Court review convinced the Court that if they had held to the contrary in Flora they would have infringed upon the pre-payment jurisdiction of the Tax Court because essentially you'd have a situation where you could split the course of action.
You could in effect litigate the refund suit of $2.00 and perhaps litigate the $98.00 case in the Tax Court.
This Court held that Congress didn't want to split those courses of action and of course these two different systems that is refund suits and Tax Court review to infringe upon each other.
Here that rationale has no application because we say that Congress has made a conscious decision not to give the Tax Court jurisdiction over these termination cases.
Once that is accepted as we think the statutory history demonstrates, then Flora is no bar to the bringing of these kinds of suits whether the whole amount is seized or not in the District Court.
And that brings me to the point that I wanted to make about the Tax Court not being a particular -- this taxpayers have complained in effect that they have been frozen out of the Tax Court or blocked to immediate access to the Tax Court but given the two-year time that it takes to litigate a tax case in a Tax Court, it seems to us that it would be far more favorable for these taxpayers subject to terminations to bring a refund suit for the amount seized and bringing that suit in the District Court.
In most District Courts, the time for bringing a refund suit is considerably shorter than two years.
I think that is quite plain with respect to the District Court in Kentucky and certainly it's clear with respect to the District Courts in Vermont.
In fact, that refund suit in Vermont with respect to Laing case is now waiting -- is now being held up awaiting the decision of this Court.
In effect that this action had never been brought, Laing would have had long ago with disposition with respect to the propriety of his refund claim in the District Court in Vermont.
Justice Harry A. Blackmun: Of course your argument assumes that speed is the only criterion.
Mr. Stuart A. Smith: Oh, I think that in this particular case, speed is an important criterion for the taxpayers in the sense that their assets have been levied upon if you read the complaints of the taxpayers in the record of appendixes Laing complains that money was taken away from him and business opportunities were lost.
It seems to me that a prompt adjudication of his claim is really the most important thing that he wants and having brought this action to enjoin on the basis of the so-called exception to the Anti-Injunction Act is in effect delaying what we think is this most meaningful and effective remedy and that is a refund suit in the District Court.
Justice Lewis F. Powell: Mr. Smith, as I understand your position you are saying that when a Government precedes under 6851 the taxpayer should not have the normal action going either to the District Court after he paid the tax or going immediately to the Tax Court itself.
What reason and policy or otherwise is that for denying that option to taxpayers who've been preceded against under 6851?
Mr. Stuart A. Smith: Well it is a congressional decision.
Justice Lewis F. Powell: Well, in line of that it should --
Mr. Stuart A. Smith: Well, I suppose the only way to analogize is to say is to compare it to the congressional decision to exclude excise tax jurisdiction from the Tax Court.
It is hard to imagine if we were planning a new kind of procedure we perhaps would say the tax were what to have jurisdiction of excise tax cases.
But Congress has quite plainly said that court is only to have jurisdiction over income state and gift taxes.
Congress could have decided the other way and given the tax code jurisdiction over those cases once having decided the other way, the Commissioner has more or less dealt himself bound by that congressional decisions and has refrain consistently from assuming those of efficiency with respect to these cases.
Justice Lewis F. Powell: But I retain to the question Mr. Justice Blackmun asked.
In what way would the Government be prejudiced if the Court Of Appeals of the Sixth Circuit reading blending these two statutes together where construed by the Commissioner to be the correct interpretation?
Mr. Stuart A. Smith: Well I don't think the Government you know it is hard to imagine how you know the Government would be prejudiced other than the fact that you know because of the Commissioner's consistent policy perhaps some $100 million of assessments that we point out in our petition and the Hall case would be endangered.
I think that is a significant prejudice to the Commissioner operating under a fair reading of these statutes that he was not so required to issue a notice of efficiency.
I mean, I suppose the answer also lies in what we are talking about here when we are talking about people who turn up subject to these terminations.
These are not normal taxpayers these are people who are committing some act that the Commissioner believes will tend to defeat the collection of their future tax law ability.
I think that if you look at words of Section 6851 it says that if the secretary finds that a taxpayer designs quickly to depart from the United States, or to remove his property therefrom, or to conceal him self or his property therein, or to do any other act tending to prejudice or to rend a wholly or partly in effectual preceding to collect the income tax.
Justice Lewis F. Powell: Mr. Smith that is very clear in the Laing case for example where money was about to be transported in the United States.
Is it equally cleat to you in whole case where --
Mr. Stuart A. Smith: I think it is in the sense that in the Hall case you have a taxpayer who would respect to whom the Commissioner has received information that she is involved in illegal clandestine activities of an income producing nature.
And I think that is a fair assumption that people who are involved in clandestine income producing activities which are illegal often do not report the income, do not declare the income from on their income tax return in fact in this particular case Mrs. Hall filed a fully year income tax return reporting a gross income from wages of $530.00 for the whole year.
Justice Lewis F. Powell: What was the Commissioner I had read that someone had burglarized say a liquor store or a grocery store and made off with $10,000.00 or bank, would that justify in the sense?
Mr. Stuart A. Smith: I think it would and you see I think that Mr. Justice Powell, you're concentrating with respect to the Laing case with respect to the statutory language about intending quickly to depart and that indeed is an important part of this statute.
In fact a departing aliens who leave this country every day who are subject to U.S. income tax have their taxably use terminated that is a normal kind of thing.
They have to secure a certificate of compliance and it is called Colloquially Sailing Permit, they must and the Commissioner terminates their taxable year.
But the statute by its term is not limited to alien taxpayers it is also subject to domestic taxpayers as well.
For example, in the Irving case that was a celebrated case where Clifford Irving perpetrated a very notable hoax, in which he receive some $765,000.00 from a publishing company in connection whit a false biography.
Once that hoax was discovered, the Internal Revenue Service, like your case of a burglar, could easily come to the conclusion that Irving was not going to pay taxes on that amount of money.
So in the Irving case, Irving's taxable year was terminated and an amount was assess based on that receipt of that money and an amount was levied upon and the Second Circuit rejected Irving's claim which is the same claim of the taxpayers make in these cases that the Commissioner must issue a notice of deficiency with respect to these cases.
I think that illegal activity raises a connotation that if people are breaking other laws in the clandestine way, I think it is a fair assumption by the internal revenues to assume that they are not going to meet their tax liability.
Indeed the tax -- are tax system is based on a voluntary disclosure and the people are involved in illegal activity.
It is a fair assumption that they're not going to meet that voluntary obligation and those circumstances Congress has given the Commissioner power to provide, to make this artificial termination of a taxable year because instead of having to wait until the following April 15, Congress has said to the Commissioner you may terminate some ones taxable year and collect taxes on that terminated period.
Justice William H. Rehnquist: But nobody is questioning that as I understand it.
Aren't there revenues adequately protected by the Commissioner's power to summarily levy and keep in his possession this property?
Mr. Stuart A. Smith: The protection of the revenue is not at issue here with respect to whether the Commissioner should or should not issue a notice of deficiency, I do not think that is in dispute.
What concerns us is the fact that Congress has made a legislative decision back in the Revenue Act of 19 -- which is evidence in the Revenue Act of 1921 through the Revenue Act and through the creation of the Board of Tax Appeals that the Tax Court is not to have jurisdiction over these termination cases.
Now I think that, I think I can demonstrate that, we point -- we set forth in great detail inour brief but I think it would demonstrate it by the sequence of legislative events that occurred from 1918 through the Revenue Act of 1926.
Justice Byron R. White: If this suit was -- if what this was all about in the District Court in the Laing case was to get the money back, I would suppose that if the Government can keep the money whether notice has to be issued or not pending litigation somewhere, the plaintiff could never win in the District Court in such a suit.
Mr. Stuart A. Smith: I'm not definitely sure why you say that I mean once the -- once a refund suit is brought and if the District Court for example orders that the taxpayers entitled to a refund I suppose --
Justice Byron R. White: Oh!
I understand that.
Mr. Stuart A. Smith: Yes.
Justice Byron R. White: They can get the money back when he wins his law suit.
Mr. Stuart A. Smith: Yes.
Justice Byron R. White: But pending litigation under this kind of an assessment or a jeopardy assessment the Government can keep the money while litigation is going on.
Mr. Stuart A. Smith: Well Congress is made that --
Justice Byron R. White: Isn't that right?
Mr. Stuart A. Smith: That is right.
Justice Byron R. White: Well then how could the plaintiff have ever won this case in the District Court?
Mr. Stuart A. Smith: You mean in these particular cases?
Justice Byron R. White: Yes where he said “I want the money back because you did not issue a notice of deficiency.”
Mr. Stuart A. Smith: Well the whole point is that he is not entitled to win his case by raising --
Justice Byron R. White: Well, I know, but that would be true whether he went to the Tax Court or whether he went to the District Court.
Mr. Stuart A. Smith: Well indeed, indeed that so and --
Justice Byron R. White: Well then I don't -- I still do not think you've given glimmers to how the Government is hurt in this case so that making a legalistic argument which is a fair argument alright, but not so intended.
Mr. Stuart A. Smith: Well we think that -- we think essentially that the service has failed, you know it is a legal argument in the sense that we are construing statutes --
Justice Byron R. White: Well let us assume you loose this suit what will happen in the Laing case?
Mr. Stuart A. Smith: Well what will happen in the Laing case --
Justice Byron R. White: You will keep the money aren't you pending litigation in the Tax Court?
Mr. Stuart A. Smith: Well I am not so sure that we'll be able to keep the money.
Justice Byron R. White: Now that is what I want to know.
Mr. Stuart A. Smith: Okay, well I suppose that --
Justice Byron R. White: Is it late for you to issue a notice?
Mr. Stuart A. Smith: Well for example one of the ground upon which the decisions holding that we have to issue a notice are premised on merging Section 6861 into Section 6851.
Section 6861 (b) requires the Commissioner to issue a notice within 60 days of the making of the assessment.
I suppose the taxpayer could urge that if we did not issue it within 60 days, the whole assessment is invalid.
Now the Board of Tax Appeals in a case called JH Reese which is not cited in our brief, I think it is on 15 BTA, has held when the Commissioner has fails to issue a notice of deficiency in connection with a straight jeopardy assessment not a termination in case the jeopardy assessment is invalid.
Now I think that in that sense the Government --
Justice Byron R. White: Well then you make a new one.
Mr. Stuart A. Smith: Well but I am not -- I do not know whether the statute is still open to make a new one in this case and I suppose that --
Justice Byron R. White: Well then apparently there -- but at least prospectively, the collection of the revenue would not be the least be impaired if you lost this case.
Mr. Stuart A. Smith: I suppose.
Justice Byron R. White: If you knew what the rule was in advance.
Mr. Stuart A. Smith: I suppose that is right although -- I suppose that is right the collection of the revenue prospectively, although again I would like to point out that retroactively they would be a good deal of revenue loss in this case.
Justice Byron R. White: Then you're afraid that your failure to issue the notice may have foreclosed your collecting the tax at all.
Mr. Stuart A. Smith: In these cases because of the operation of the statutes of limitations and with respect to when we were supposed to issue the notice. I mean it's --
Justice William H. Rehnquist: Well in Laing though, a guy going across the boarder with $300,000.00 in the engine compartment, I would think that would justify that sort of an assessment perhaps ever two years after you found him doing it.
Mr. Stuart A. Smith: That is true but you know, when did this -- when did this occur, this occurred in 1972 the Commissioner normally has three years in which to issue an assessment.
I am not sure after the termination after the conclusion of this case whether the statute would still be open but in any event I think that we are on sound grounds statutorily for taking the position that we do not have issue a notice of deficiency.
Justice Byron R. White: Well have the taxable years are involved are long since been over, aren't they?
Mr. Stuart A. Smith: I think they are.
Justice Byron R. White: Has any body filed a return, has any body --
Mr. Stuart A. Smith: Both of them have filed returns.
I can tell the Court it is not in the record.
Justice Byron R. White: I suppose then you are in the position if you think it is proper to make it jeopardy assessment after the close of the taxable years.
Mr. Stuart A. Smith: Well with the statute of limitations still operate with respect to jeopardy assessments I am not -- I really don't know the answer as to whether the years would be open in these cases but there is a significant problem as to if we the service should be subjected to the issuance of notice of deficiency I think that would be a lot of these cases backed up in the courts would the revenue would be endangered with respect to that and that --
Justice Potter Stewart: It looks as though these years are open for these taxpayers.
Mr. Stuart A. Smith: It would appear so although I --
Justice Harry A. Blackmun: First off, a notice could be issued tomorrow.
Mr. Stuart A. Smith: What?
Justice Harry A. Blackmun: A notice could be issue tomorrow.
Mr. Stuart A. Smith: A notice could be issue tomorrow Mr. Justice Blackmun but of course the pendency of this case makes that likelihood you know impossible because Commissioner has taken the position that his statutory construction does not require him to issue a notice of deficiency in fact the Tax Court has held --
Justice Harry A. Blackmun: Well that is an administrative decision.
Mr. Stuart A. Smith: That is administrative decision although you know it is a consistent decision which we have made which the services made since this the statute has been enacted in 1918 because you see the notice of deficiency require -- issuance of the notice of deficiency requirement is tied to the jurisdictional question as to whether the Tax Court has jurisdiction in these cases.
We say that Congress decided not to give the Tax Court jurisdiction in these cases and as a result, the notice of deficiency requirement that is which is been termed the ticket to the Tax Court, you can not get in the Tax Court with out a notice of deficiency has no application in this case.
The reason we say that is as follows: this termination provision existed in the Revenue Act of 1918.
Justice Harry A. Blackmun: Mr. Smith, I think we all can see this as you argued it but I gather there is a little concern up here why if the Government is so disturbed about the possibility of these revenues slipping away, they do not issue a deficiency tomorrow as a matter of preservation of the revenues.
Mr. Stuart A. Smith: Well it is more -- I think it is more complicated than that I am not sure with respect to these cases the Commissioner can -- whether these years are open would anymore.
But even more importantly the Tax Court has held that it doesn't have jurisdiction in these cases.
It held that in the Ludwig Littauer case in 37 BTA and has consistently held today.
Now I'm not sure that even if the Commissioner issued a notice of deficiency in these cases the taxpayer would be able to get in to the Tax Court because the Tax Court itself has construed the statutes in accordance with our position that it doesn't have jurisdiction in these termination cases I suppose --
Justice Harry A. Blackmun: Well this has nothing to loose by it?
Mr. Stuart A. Smith: Well there is nothing to loose by it other than the fact that our posture has been in these cases and we think it's soundly grounded on reading of the statutory history that we need not issue a notice of deficiency and I think the reason we need not is evidence than the statutory history.
You have first this termination provision came in the Revenue Act of 1918.
Justice William H. Rehnquist: Well let me interrupt you with one more question.
Mr. Stuart A. Smith: Sure.
Justice William H. Rehnquist: Is it your position that you need not or that you are not even authorize to?
Mr. Stuart A. Smith: That we're not even authorized in the sense that because we're only authorize to do that in a case where the Tax Court has jurisdiction and what I suppose I would be a meaningless act in the sense the Tax Court has consistently held that it would not take jurisdiction of the case involving a short period year so that the issuance of the a notice deficiency in these cases would not give the taxpayers in these termination cases any added advantage.
They wouldn't be able go to the Tax Court and in our view they should pursue the remedy that Congress provided for them, a rapid remedy and one that does not pose in our view any constitutional problems.
Chief Justice Warren E. Burger: Is it reasonable to assume that if your friends on the other side of the table thought that you could reach this money by this other process that we wouldn't have any more than academic controversy here?
Mr. Stuart A. Smith: Well that's what makes this controversy a strange one in the sense that we have these taxpayers here Mr. Chief Justice who are vying to get this, you know, piece of paper which permits then entrance to the Tax Court which in our view is not a particularly favorable mode of obtaining re-dress in this case.
Tax Court generally involves a long and lengthy proceeding.
They want to get there money back and it seems to us that the way to get it back is just to pursue the remedy that Congress has provided that is District Court refund suits.
Chief Justice Warren E. Burger: Well let's assume for a moment hypothetically that these intonations are correct that your condition of deficiency notice now and that they could go into the Tax Court, them is the Government -- would the Government be harmed or would the taxpayers be benefited anymore?
Mr. Stuart A. Smith: I don't think the -- let me put it to you this way let me emphasize one part of that question.
I don't think that taxpayers wouldn't be particularly benefited in these cases.
They have brought these suits based on the statutory exception to the Anti-Injunction Act urging that they are entitled to go in to the Tax Court, but that is not a particularly favorable mode of re-dress in these cases.
I suppose if the world would not come to an end if these cases were heard in the Tax Court but it simply our position is that as a statutory matter, Congress has allocated the jurisdiction of the Tax Court and the District Court in a particular way.
And that termination cases are not allocated to the Tax Court.
That court is a creature of statute and it doesn't have the power.
I suppose the Tax Court could easily take the position based upon its consistent holdings which go up until last year which sort of based on the Ludwig Littauer case that it doesn't have jurisdiction so even if the Commissioner would to issue a notice of deficiency, the Tax Court could take the position that it didn't have to hear these cases involving assessments for terminated is.
Chief Justice Warren E. Burger: Where would the money be in the mean time, the amount of money?
Mr. Stuart A. Smith: The money would still be in the hands of the Government because that is another decision that Congress has made.
That would respect to people like these taxpayers who presumably, the Commissioner has made a finding that they have taken steps to defeat the collection of tax affirmative steps during the taxable year.
The Commissioner has made a finding -- the Congress has decided that they are to be subjected to summary collection procedures, and while the litigation proceeds the Commissioner is entitled to keep the money because I think that these kind of taxpayers that Congress set out in Section 6851 are not people who are expected to reliably pay their tax liability.
There is a provision --
Justice Lewis F. Powell: Well, Mr. Smith?
Mr. Stuart A. Smith: Excuse me?
Justice Lewis F. Powell: Is it really realistic to suggest that a taxpayer like Mrs. Hall has a remedy which is based on her paying the deficiency, in this case $52,000.00 when the Government has assessed -- has made a levy on all of her known assets, arguably she mighty get a bond and release them but the likelihood of one and have plight getting a bond is not terribly bright is it?
Mr. Stuart A. Smith: Well the likelihood of I don't know what the likelihood of her getting a bond would be but the point is that she has brought these suit Mr. Justice Powell, to enjoin the Commissioner's action.
I suppose that she is expended funds in connection with these suit and we would think that if she had channeled her litigation energies toward the right remedy she would have had this -- she would be well on her way to a disposition in these case.
Justice Lewis F. Powell: She really didn't have to pay $52,000.00 to get in the court though to bring it here.
Mr. Stuart A. Smith: Exactly she doesn't have to pay $52,000.00 to get into court as in my colloquy with Mr. Justice Rehnquist, I think and we point it out in our brief, we don't' think that the, you know, the Flora bar applies here.
Now the courts that have held against us that is the Sixth Circuit in these case.
The fifth circuit in Clark versus Campbell and the Shrek case which the District Court of Maryland which more or less started with the first decision on this issue have made quite a good deal about the fact that Flora would bar this such a refund.
So we don't think it would.
We don't think that a fair reading of this Court Flora decision yield such a result and the Second Circuit has held Flora hasn't what wouldn't bar such a suit in both in the Irving case and presumably in this case too, because the Second Circuit in this case said she could bring a refund suit at any time.
Justice Byron R. White: But you wouldn't mind if the Court said so.
Mr. Stuart A. Smith: I wouldn't mind if the Court said so, no not at all.
I don't think the Commissioner would mind either.
Chief Justice Warren E. Burger: Would that be a declaratory judgment in this context or would that be an essential holding?
Mr. Stuart A. Smith: I think that it would -- without attempting to classify and I think that it would be both beneficent for both the Commissioner's point of view in the Tax Court point of view.
Chief Justice Warren E. Burger: I meant advisory rather than declaratory.
Mr. Stuart A. Smith: I suppose it would if the Court held here as we urge that the Tax Court has no jurisdiction in these cases and concomitantly, I think it concomitantly would have to reach the question as to bar of Flora because the bar of Flora is a significant bar.
If you can't get to the District Court with respect to if you don't pay the whole thing, then I think that the taxpayers here have a significant problem because in effect they are barred for quite a long time.
Justice William J. Brennan: Well I think, more than the following wherever there's a significant constitutional claim, doesn't it?
Mr. Stuart A. Smith: Indeed and I don't think that the code, I don't think -- I think since we're right on this statutory question and the interpretation of Flora, I think the constitutional question vanishes. Quite frankly and I --
Justice Byron R. White: But you have to play what is right about Flora in support of the constitutional claim.
Mr. Stuart A. Smith: Indeed, indeed, yes.
Justice Byron R. White: But not only that you don't you mind, but you contemplate on it?
Mr. Stuart A. Smith: I think that is right Mr. Justice White.
Well indeed and I think it is important point Mr. Justice Brennan and I think that the courts that have held against us have acknowledged.
I think Judge Kaufman's opinion in Shrek which we think erroneous because we don't think that it focuses on the statutory history in this case.
We think that it has overlooked the Revenue Act of 1921 which more or less introduce the jeopardy assessment provision in to the code as an exemption to the administrative appeal procedure which later became the Tax Court, the jurisdiction of the Tax Court.
I think Judge Kaufman acknowledged in this case that the statutory questions were close and that you can read them either way.
But what prompted his concern and which prompted the results he reached in this case that is holding that the Commissioner is required to issue such a notice is what he thought was significant constitutional questions.
I think that if you look at the statutory history with the point of view in mind as to how the sequence develop and how the Tax Court is not a forum which is mandated by the constitution.
Congress has made a decision that the Tax Court has jurisdiction over certain cases and the District Court and the Court of Claims have jurisdiction to resolve other kinds of tax cases.
And if these cases can go to the District Court as we submit I think Judge Kaufman's concerns and I think the concerns of Judge Brown articulated in the Clark versus Campbell opinion which this Court is holding on our petition vanish.
Once you recognize that the taxpayers can go in the District Court to this rapid remedy of a refund suit I don't think that there are any significant constitutional problems.
My remaining time I would like to talk a little bit about this statutory history because I think that it sheds important light on the congressional decision not to give the Tax Court jurisdiction over these cases. Now --
Justice William J. Brennan: You haven't forgotten your assurance to Mr. Justice Blackmun again, so?
Mr. Stuart A. Smith: Yes perhaps I would have just briefly tell Mr. Justice Blackmun and the Court as to the basis to be assessment in the Hall case.
Now with respect to Mrs. Hall, the Commissioner terminated her taxable year as of the end of January 1973.
Now the –-
Justice Potter Stewart: So it's just one month?
Mr. Stuart A. Smith: It's just one month and the assessment figures were based upon confidential, reliable informants but from the presumably the local law enforcement officers that Mrs. Hall was involved in the sale of illegal drug substances and the volume of that was also communicated to the Internal Revenue Service based on that volume on the daily or presumably daily business, the Internal Revenue Service reached a gross income configure, I suppose if something like over a hundred thousand dollars.
If you're going to be wind up with the $52,000.00 tax liability then gave her credit for the personal exemption and for the standard deduction and then restate $52,000.00 figure.
I think that will be the record doesn't reflect that my information, well I have been advised by the services, that's how they reach this result.
Justice Potter Stewart: And then the valiant value of her property?
Mr. Stuart A. Smith: The value of her property was more by comparison that $52,000.00 figure it was I think a bank account.
I think also a safe deposit box of a few thousand dollars was also levied upon.
Justice Potter Stewart: Was it a Volkswagen automobile and –-
Mr. Stuart A. Smith: A Volkswagen automobile yes, although the District Court ordered the return of that car I think on a preliminary injunction immediately, but that's how that's how the facts arise in those cases.
Well, let me --
Justice Potter Stewart: And that was all her discoverable property, right?
Mr. Stuart A. Smith: That was all her discoverable property yes, that's correct or at least that's all that the Internal Revenue Service could discover as of the time they made this assessment and I'm not aware than the other property that they've been able to discover.
Well I would like to turn to the statutory history in these cases because I think that they shed important ride on this question.
You see the courts that have held against us in these cases and imposed the filing of the notice of deficiency have in our view impermissibly merged two different statutory provisions that is determination provision and the early assessment provision of Section 6861.
We don't think that they can be merged, we think that the statutory history in the case that they're separate and distinct provisions which stand by themselves in the code.
Indeed, the fact that they came in at different times, we think suggest that are separate.
The termination provision is the older provision it came in, in the Revenue Acted of 1918.
Now from 1918 to 1921 there was no early assessment provision.
So Congress had just given the Commissioner power to make terminations of taxable use of people who were engage in tax avoidance activities for that current year.
Now in 1921, Congress decided to established and administrative appeal procedure.
Now that administrator appeal procedure was new and what essentially said was because before the Commissioner would simply make an assessment and then collect the part of the taxpayer didn't pay he had to he was levied upon and then how to suit for refund.
But in 1921 the Commissioner decided to set up a procedure whereby the taxpayers claim that is that he didn't know the disputed amount, could be of adhere at least administratively.
So it set up this procedure we abide the Commissioner would have to issue a notice to the taxpayer and the taxpayer then would have 30 days in which the file protest or some statement of his position and then that administrative appeal would be invoked.
Now Congress also determined that while this administrative appeal was to be invoked, the Commissioner was not permitted to make an assessment or collect the taxes at issue but because of this administrative appeal procedure, Congress realized that there would be cases in which the delay of the administrative appeal would produce a danger to the revenue and that perhaps the taxpayer assets might be wasted or they might be competing creditors or waiting in the wings, so Congress authorized in a proviso.
And I think that proviso was important we set it out at pages 70 and 71 of our appendix (b) to our brief.
Proviso, which is sort of at the end to first paragraph on page 71 says “Provided that in cases where the Commissioner believes that the collection of the amount due will be jeopardized by such delay.
He may make the assessment without giving such notice or awaiting the conclusion of such hearing.”
Now this is the statutory predecessor of Section 6861.
It came into the code only to provide a means for the Commissioner to have means of collection wildly administrative appeal procedure was invoked.
It has nothing to do with determination provision.
Now it's important for the Court to remember that once the Commissioner terminates somebody's taxable year that termination does not -- that statute that is 6851, does not provide the Commission with any assessment authority.
That assessment authority derives from the general assessment authority of Section 6201 of the code which is set forth in our appendix (a) of our brief on page 53.
Justice William H. Rehnquist: When did 6201 first come into play?
Mr. Stuart A. Smith: That is a very old statute Mr. Justice Rehnquist, I'm not exactly sure when it came in but it came in at probably at the beginning of the time when the Internal -- when the treasury was empowered, when taxes began.
Justice William H. Rehnquist: Before 1918?
Mr. Stuart A. Smith: Oh!
Much before 1918, in fact I know that it derives at least from Section 3226 of the revised statutes, which I think you know or that's about 1866 I think, but I think it probably even you know has roots, historical roots before that.
So essentially you have these two provisions in the code standing separately you have the termination provision and you have the early assessment provision which is an exception for the administrative appeal.
And now in 1924 Congress decided that the administrative appeal was not a sufficient remedy for taxpayers, because essentially it was conducted by Bureau of Internal Revenue employees, so they established an independent form for the review of these cases and it was called the Board of Tax Appeal.
Now the important thing to remember is that the jurisdiction of the Board of Tax Appeals was roughly equivalent to this administrative appeal and again because they would be a delay, possible delay, in the Board of Tax Appeals proceeding and the Commissioner was not permitted in general to assess or collect taxes while a Board of Tax Appeal proceeding was being invoked Congress again provided this kind of proviso that is despite the fact that you have this Board of Tax Appeal proceeding that the Commissioner could assess and collect taxes while the thing was you know even though the taxpayer had invoked the Board of Tax the jurisdiction of the Board of Tax Appeals.
Now that essentially in our view demonstrates two things.
Number one it demonstrates the determination provision and the early assessment provision which originated as the proviso are entirely separate provisions and they shouldn't be merged.
Now one of the assumptions on of the really in basic assumptions upon which the decision of the Sixth Circuit here and the decision of Fifth Circuit and Clark against Campbell rest is that the Commissioner as assessment authority in the termination case derives from Section 6861 this early assessment provision and that the Commissioner can -- that in effect, the early assessment provision must be invoked as part of determination process but that as the statutory history demonstrates that is not so.
The early assessment provision came in simply as an exception to the administrative appeal procedure and that administrative appeal procedure, as Congress laid sort of transform it that into the jurisdiction of the Board of Tax Appeals, was never intended adds the statutes indicate to cover these termination cases.
Now I have five minutes left I would prefer to save it for rebuttal unless the Court has any further questions.
Chief Justice Warren E. Burger: Very well.
Justice William H. Rehnquist: Mr. Stuart Smith.
The language in 6851 that set forth on page 60 of your brief, the last two lines on page 60 it talks about effectual proceedings to collect the in contacts.
Now on the next line on page 61, unless such proceedings your view then would be that the word proceedings reviews to -- refers to proceedings under 6201.
Mr. Stuart A. Smith: Well in other words these are summary administrative proceedings.
Yes that these are the proceedings that is the proceedings you know that connote assessment and the levy a power and distraint power in the Section 6331 in other words first you have this determination and then you have administrative acts proceedings so to speak which include the assessment on the 6201, yes and if the taxpayer refuses then to pay the involuntary means of extracting payment by levy and distraint, yes.
Justice William H. Rehnquist: But under 6851 you've already levied.
Mr. Stuart A. Smith: No, no, no we haven't levied.
The levy provision is in Section 6331 on page 57 of our brief all Section 6851 authorizes the Commissioner to do is to terminate someone's taxable year and then determine that an amount is due immediately due in payable without more that the collection cannot be just on that statutory language alone collection cannot be affected.
In order for collection to be affected the Commissioner of then has to make and that the administrative act of recording the taxpayers, tax liability on the Service's books account as an assessment and then once having taken that act, which is entitled to tremendous presumption of correctness and operates very much like the civil judgment, then the Commissioner it presents that assessment for the taxpayer and says “Pay this assessment” and if he doesn't pay then the Commissioner must invoke other statutory remedies to effect collection.
But 6851 simply authorizes termination and the determination of an amount immediately doing payable, because without that statute the taxes would not be immediately -- would not be due in payable until the following April.
Justice Byron R. White: What construction specifically will 6331 authorizes that (Inaudible)
Mr. Stuart A. Smith: Yes.
Section 63 --
Justice Byron R. White: Even without saying the word (Inaudible)
Mr. Stuart A. Smith: Without saying -- I'm not sure exactly.
Justice Byron R. White: What did you do before you seized the money involved?
Mr. Stuart A. Smith: What did we do with for the money we make -- we seized the money we made an assessment and we asked the taxpayer to pay the assessment.
Justice William H. Rehnquist: But the 6331 starts up by seeing pay this in within ten days.
Mr. Stuart A. Smith: Oh yes but if you down at the bottom it says “If the secretary is delegated, makes the finding of the collection such taxes and jeopardy notice and demand for immediate payment maybe made upon failure or refusal to pay collection thereof by levy shall be lawful without regard to the ten day period provided in this section.”
Chief Justice Warren E. Burger: Mr. Heavrin.
Argument of Donald M. Heavrin
Mr. Donald M. Heavrin: Mr. Chief Justice and may it please the Court.
I'm Don Heavrin, I'm the attorney for Elizabeth Jane Hall the respondent in the case of the United States versus Elizabeth Jane Hall.
I'd like to start out and say this morning that the issue simply stated is what restrictions if any are there on the Internal Revenue Service when the Internal Revenue Service undertakes to collect tax that the service believes is due in owing.
Now under the Code Section 6203 provides that the Regional Director can issue an assessment and the way he issues the assessment is by writing in the ledger in the Regional Directors office the name of the taxpayer and the amount of money that's owed.
The interesting aspect of this mechanical procedure is that as soon as the Regional Director makes the entry and writes down your name as Mr. Smith said that‘s very akin to a civil judgment.
In fact that has the same way because as soon as that entry has made the taxpayer at that moment is in debt to the United States Government for whatever amount the Regional Director puts in the book.
Now, the Regional Director can make this entry without any particular knowledge about the taxpayer.
He can make this entry without any evidence whatsoever that the taxpayer used the money.
In other words he can choose any person in any amount and put in the book under 6203 and at that moment the taxpayer becomes indebted to the United States.
Now, I would submit to this Court that such a situation is dangerous under the best of conditions, but the dangerous greatly magnified when the Government is not making a sincere effort to collect taxes.
In the case at bar, the Government had no interest in Mrs. Hall's tax liability, what the IRS was doing was endeavoring to punish Mrs. Hall non-judicially for an activity that they had concluded that she was involve in.
And they elected to punish Mrs. Hall because of the Presidential Directive which is reproduced in the appendix of our brief where then present in the United States Mr. Nixon suggested that anyone who is expected of being involved in the drug trafficking, the Government used the most vigorous procedures imaginable to enforce the collection of taxes.
Now, the trap as I sit in the brief were set and through fortuity of circumstances, Mrs. Hall stepped into the trap and the Government presented her the $52,000.00 tax bill and they said pay up.
Now the $52,000.00, yes Mr. Chief Justice.
Chief Justice Warren E. Burger: I find that trap description a little bit opaque.
Do you mean that the informants informed the police --
Mr. Donald M. Heavrin: Yes. Mr. Chief Justice.
Chief Justice Warren E. Burger: -- and then the police informed the Internal Revenue?
Mr. Donald M. Heavrin: No, the reliable informant that Mr. Smith referred to was not a reliable informant.
Mrs. Hall was not involved in any illegal drug trafficking.
Mrs. Hall was residing quietly at her rental home in Shelby County, Kentucky when the Internal Revenue Service showed up and said “Pay this bill.”
Now she was trapped, the fortuity of circumstances, her husband was arrested, prosecuted and convicted and the state trooper, Powers who is referred to in my brief for some reason which I have never been able to determine, concluded that Mrs. Hall must likewise be involved in her husbands illegal activities.
So he obtained a search warrant and went out and thoroughly searched Mrs. Hall's premises.
The search produced two narcotic -- not narcotic substances but two controlled substances.
One of them was less than one gram of hashish and one was one amphetamine crystal both of these narcotic substances were not the property of Mrs. Hall but were substances that had been used by her husband and Mrs. Hall quite frankly thought that they had all been removed from her home.
This, the husbands difficulty had caused some marital problems, I don't want to go outside the record, but I'm trying to explain to Your Honor what led up to this.
Now when the Government showed up and presented the tax bill to Mrs. Hall, the bill was approximately ten times her entire worth.
Now in the questioning for Mr. Justice Blackmun and Mr. Justice White, I see that the Court his understanding and seizing on the issue.
Now Mr. Smith says that's very simple matter for the taxpayer to go into the United States District Court after he has filed a tax return.
But the insidious and extremely dangerous thing about this situation is that the tax bill continues so when they deliver the $52,000.00 tax bill to Mrs. Hall they seize her Volkswagen, they take it, they immediately put it up for sale which is exactly what happened in this case.
Assume for the purposes of this argument the sale of the Volkswagen produce as a thousand dollars, well they take the thousand dollars and they apply it to the $52,000.00 tax bill.
Now Mrs. Hall owes $51,000.00 and the collection procedures are still moving.
The collection procedures have in no way stopped.
They have been no way been abated by the fact that they have seized and sold her Volkswagen.
So if Mrs. Hall goes to work the following Monday morning and she works a week and she gets a pay check from her employer, the Government seizes the pay check.
The Government seize $57.00 from her bank account, the Government said that they were going to come back and take certain aspects --
Justice William H. Rehnquist: Mr. Heavrin?
Mr. Donald M. Heavrin: Yes Mr. Justice.
Justice William H. Rehnquist: Wouldn't it be true whether you get into the Tax Court or the District Court.
Mr. Donald M. Heavrin: Mr. Justice Rehnquist that's very important.
The reason that's so important is that you see filing the suit in the Tax Court tolls the levy and distraint power of the Government so the $52,000.00 tax bill is then stopped until the deficiency can be redetermined but -- yes sir.
Justice William H. Rehnquist: You mean, so that in the case of your fellow well a petitioner in that case Mr. Laing he would then get the $300,000.00 and the suitcase back while the tax deficiency has been determined.
Mr. Donald M. Heavrin: Mr. Justice Rehnquist and with due respect to the Court I think that that is a correct statement of the law.
We have eluded this morning to the fact that they did not get the money back.
Under the conditions there, maybe a certain portions of the code not in question in at this time that wouldn't able the Government to keep it I don't know exactly what status Mr. Laing is in.
I do know that the two taxpayers are in radically different positions because the money that was assessed against Mr. Laing was available, but the money that was assessed against Mrs. Hall was not available so my research is not been directed towards the issue of what happens if the money is available and can be readily paid.
My research has been directed towards what happens if money cannot be paid.
Justice William H. Rehnquist: Well, read the Sixth Circuit opinion and where they ruled in your clients favor is simply saying that Government had to issue and notice that deficiencies and not going on to say that your client was entitled to relief from distraint there.
Mr. Donald M. Heavrin: No, I think that if we take a look at the 6213 the taxpayer can file for redetermination within 90 days and then if we look at 6321 for the lien for the taxes and then the person refuses to pay and so on and then 6331 which is levy and distraint and then 6335 which is sale of seized property.
I think that an examination of those sections will reveal that the collection procedures stopped.
Now I'm not so much concerned about the Volkswagen, you see that was taken I'm more concerned about the continuing collection procedures.
Now you have a right to redetermine the deficiency and Tax Court.
The Government sends the taxpayer the notice.
The door of the Tax Court is open within the 90 day period the taxpayer files the suit.
When the suit is filed for the redetermination of the deficiency assume they sold the Volkswagen and there's $51,000.00 sill owed when she files the suit that prevents the IRS from then trying to collect the other $51,000.00 until the deficiency has been redetermined and this is the protection.
Justice Harry A. Blackmun: Even though the IRS feels that the collection is in jeopardy.
Mr. Donald M. Heavrin: Yes Mr. Justice Blackmun because again this is, this is a really a tricky constitutional problem the due process calls as right here between the taxpayer and the Government and the Government clearly, to illustrate the absurdity, go ahead sir.
Justice William H. Rehnquist: I don't mean to interrupt your replenish but I thought your argument are the one that which Mr. Justice Blackmun acquitted, you're arguing as a statutory matter that the property should be returned -- that the distraint should be relieved.
Mr. Donald M. Heavrin: As a statutory matter the property should be returned.
I'm not sure that I follow your question Mr. Justice Rehnquist.
Justice William H. Rehnquist: Well, let – I may have interrupted Mr. Justice Blackmun let me make this observation to you.
I think you probably sense during Mr. Smith's argument a feeling on the part of several members of the Court that if the revenue is more than jeopardy and all we were talking about was a notice of deficiency in a fairly close legal question, if the Government wasn't prejudice and the taxpayer would be denied and after they litigate, there was some reason on the close case to resolve that in favor of the taxpayer.
But now you're in effect arguing that the revenues will be in jeopardy that this man who had $300,000.00 in this suitcase or in the engine compartment will just be free to leave the country until his tax determination is finally determined that was the equities in quite a different position.
Mr. Donald M. Heavrin: Okay, yes I agree with you that the shifts the equities if I could say that this is probably a two or three tiered argument.
One, in my case I think the facts are so radically different.
Mrs. Hall was making no effort to leave the country.
I can't argue with your logic that if you catch someone at the border who's trying to get out of the country, the Government should have the right to seize the property and hold it until such time as the actual tax liability can be litigated but I'm not entirely sure that that analogy applies to a taxpayer who was not trying to depart the country.
In other words if the Court holds the way you're thinking Mr. Justice Rehnquist, this could produce some incredible inequities.
In Mrs. Halls case when she filed the 1973 tax return the Government after the most scrupulous audit imaginable refunded her $77.00 in taxes so it was clear that it no time that she owe a $52,000.00 tax bill or anything like that so when the Government -- yes
Justice Harry A. Blackmun: So we can have the jeopardy --
Mr. Donald M. Heavrin: Yes.
Justice Harry A. Blackmun: -- with a domestic taxpayer who isn't living in the country suppose she had $50,000.00 went of to Las Vegas and started putting it in the slot machines?
Chief Justice Warren E. Burger: Or concealed them.
Justice Harry A. Blackmun: Are you saying that Government can't move in even though she has instituted a suit in the tax, correct?
Mr. Donald M. Heavrin: No.
I'm saying that after the Government has moved the initial seizure is made and litigation begins.
You see, the -- I've obviously not made myself clear.
Let me step back one step, the bill, $52,000.00, the Government comes in to collect.
The Government makes the seizure of her property and all available assets.
The seizure does not equal the amount of the assessment.
Mrs. Hall now owes the Government $50,000.00 after everything has taken.
Is it the court's position that the Government can then use this machinery to continue to strip her over assets forever?
She can never take another paycheck home.
She can never have another bank account.
She can never have any clothing, any furniture that exceeds $250.00 and so forth?
Is the court's position that the Government can continue to strip her of her assets?
She continuous to work.
The Government continuous to take in satisfaction to that bill? Clearly, some place along the line, the Internal Revenue Service must be stopped because to hold otherwise would give the opportunity to the Government to destroy Mrs. Hall financially and put her into a condition of indigency on the whim of a Regional Director.
There must be some way to stop the repeated collections.
So if the Government issues this deficiency notice which was so argued about this morning, that opens the door to Tax Court.
That gives the taxpayer the opportunity to redetermine the deficiency and if takes two years to do it, during that two year period, the taxpayer is not continually stripped of his assets.
He's not continually impoverished in other words he can continue working, he can continue producing, he continue to have a bank account, he can continue to hold assets.
Justice Harry A. Blackmun: And you're saying that by filing a petition to the Tax Court --
Mr. Donald M. Heavrin: I'm saying that that --
Justice Harry A. Blackmun: -- is impossible.
Mr. Donald M. Heavrin: I am saying that that tolls the collection procedure or should --
Justice Lewis F. Powell: Mr. Heavrin?
Mr. Donald M. Heavrin: Yes, Mr. Justice?
Justice Lewis F. Powell: Are you familiar with Clark against Camel?
Mr. Donald M. Heavrin: Yes, very.
Justice Lewis F. Powell: Decided recently by the Fifth Circuit.
The court in that case addressing this very issue expressly said that the Government did have the right, under the circumstances you've described, to continue to hold the taxpayers property in an amount sufficient to cover the assessed deficiency.
Do you disagree with that?
Mr. Donald M. Heavrin: No, I think that's correct Mr. Justice Powell.
The problem though is that if the taxpayer does not have it.
Now, in all of these other cases that we've discussed in the Sixth and Second Circuit to thought it out over, the taxpayers had the money.
For example, in the Irving case at $650,000.00, I believe and Laing, they had $300,000.00, so the Government wasn't asking for an amount that exceeded what the taxpayer had.
So they could make that seizure of the $600,000.00 or the $300,000.00.
But in the Hall case, they've asked for $52,000.00, Mrs. Hall by no stretch of the imagination had anything that even approached $52,000.00.
So if the Government was not enjoined and stopped from coming back again and again and again throughout the course of the litigation, they could continue to strip Mrs. Hall of every dime that she made, but in the Clark case and in the Irving case and the Laing case, there wasn't any additional money being taken from the taxpayer.
Am I making myself clear, Mr. Justice Powell?
In other words, they took what they found, the $300,000.00 and then they fought it out over who is entitled to the $300,000.00.
In the Hall case, they said its $52,000.00 and they found approximately a thousand dollars in total assets.
Now what happens to that other $51,000.00 bill?
If they had assessed $50,000.00 and she had $50,000.00 then she could continue her life in a normal way while the Government held on to the money.
But when they assessed the $52,000.00 and she didn't have it and they took everything she had, and everything she had did not satisfy the amount of the assessment.
Justice Potter Stewart: But then you think the deficiency notice what say is required stops the Government in his tracks from --
Mr. Donald M. Heavrin: Further.
Justice Potter Stewart: --from further --
Mr. Donald M. Heavrin: Yes.
Justice Potter Stewart: -- levying?
Mr. Donald M. Heavrin: Yes, Mr. Justice Stewart.
Justice Potter Stewart: And what is your statutory support for that or is it purely constitutional?
Mr. Donald M. Heavrin: I think it is constitutional and I would have to sit down here and read these statutes one word at a time and I will say that if that's not provided in those four sections that I cited to the Court then it clearly it's unconstitutional.
I believe that it is embodied in either 6213, 6321, 6331 or 6335 but I have to sit down and just carefully pick it out but if it's not embodied in those Sections then I think there very serious constitutional questions because the Regional Director could on the whim destroy any citizen of this country, and --
Justice Harry A. Blackmun: What division of the country?
Mr. Donald M. Heavrin: Fifth Amendment.
Justice Harry A. Blackmun: Taking?
Mr. Donald M. Heavrin: Due process, taking without due process of law and the fascinating thing in the -- at the same time the extremely dangerous thing is that if -- this is probably the most important point in the whole argument if the Government has allowed his power, there is no one who is beyond to the reach of the Internal Revenue Service because they can simply --
Justice Harry A. Blackmun: Incidentally this same argument was made the last term and Americans United.
This was a tax exempt organization, originally but the argument doesn't prevail.
Mr. Donald M. Heavrin: Well --
Justice William H. Rehnquist: I think we also stipulate that no one is beyond the reach of the Internal Revenue Service.
Mr. Donald M. Heavrin: Yes, I think that you -- I think that, that's pretty clear and you see the amount of the assessment.
This is what happen in this case, the amount of the assessment can be anything that the director writes down, which is extremely dangerous because they can write down an amount that exceeds the assets of anyone and if nothing else has gotten out of my rambling up here, I hope the Court sees that there is an inherent danger when the -- if you were a multi-millionaire, they could just simply write in the assessment book a figure bigger than what you owed or what you owned and take everything away from you and then continue to seize your property until the assessment was satisfied and -- yes, Mr. Chief Justice --
Justice Harry A. Blackmun: But I think it was best I have difficulty in drawing lines that way of suppose she had $49,000.00?
Mr. Donald M. Heavrin: Okay, the Government takes it.
Justice Harry A. Blackmun: Or suppose she had exactly the amount that they assessed?
Mr. Donald M. Heavrin: The Government takes it.
Justice Harry A. Blackmun: The rent is still due next month maybe, the grocery bills.
It seems to me that she's then just as distrust is in the situation you painted for us.
Mr. Donald M. Heavrin: Well --
Justice Harry A. Blackmun: Or she had $3,000.00 more than they assessed, she could be distressed.
Mr. Donald M. Heavrin: The point is well taken -- the point is well taken and to carry at one step further, I think tier number one, they shouldn't be allowed to do this, tier number two if they're allowed to do it and they're to take the taxpayers property as security while the litigation goes on then we're entitled to go in the Tax Court and there's a sum of money $100.00.
The Government says “You owe $100.00” they take the hundred dollars then we litigate it in Tax Court and the Government continues to hold the $100.00 as security to make sure that the taxpayer does not squander it.
But if the Government says ”You owe $200.00 and you only have the $100.00 and we do not get in Tax Court.”
In other words, if they pick a figure that's bigger than the total assets of the taxpayer, a figure is chosen that exceeds the total assets of the taxpayer.
That's puts a taxpayer in a much worst position Mr. Justice Blackmun, than it would if they seized an amount of tax then that would be in one lump sum and one ball so to speak that they could fight over.
But if the amount assessed was 10 times greater than what she had as she continued to work to pay the rent and as she continued to work to buy food and so on, as you've described.
The Government would continue to strip her of her additional income.
So if the Government can wrap it up in a package in a package in a $300,000.00 in a suitcase under the hood of a car and put the suitcase in a safe and fight it out over that without effecting Mr. Laing's other income making potentials.
I think that's a different situation then when the Government makes an assessment that's 10 times greater than the amount of money that you have with your total assets.
Chief Justice Warren E. Burger: Let me bring this down to where you are with the Volkswagen.
You hypothesized that they sold for a thousand dollars and the Government has a thousand.
If you prevail here would that be your claim that you are entitled to get that thousand dollars back or only that future property could not be distraint?
Mr. Donald M. Heavrin: I think that if we prevail here the status quo is maintained until we litigate.
Actually the tax of year for 1973 is closed, the Government refunded $77.00 to Mrs. Hall and there's some question in my mind as to where did they would now be entitled anything because they scrupulously audited --
Chief Justice Warren E. Burger: Well would that be added to your constitutional argument if the Government can hold the money the property which is already seized?
Mr. Donald M. Heavrin: Okay, now, Mr. Chief Justice, our district judge and his wisdom said with this highly impractical.
The Government couldn't derive more than a thousand dollars in sale of the car and that isn't even going to make a dent in the tax bill.
Mrs. Hall needs to get to in and from work so he said “If you'll pose the bond that will equal the approximate value, the car we'll let you have it back.”
So we've got a corporate surety company and we went over and posted a bond on the Volkswagen and Mrs. Hall has had it in her possession, she's been driving it ever since.
If the Court decides in our favor, I don't think there will be any enormous repercussions anywhere because the status quo will simply be maintained.
Mrs. Hall will continue to drive her 1970 Volkswagen.
Chief Justice Warren E. Burger: Well, am I to take that response as meaning yes the Government can continue to hold what it seized that can't seize anything additional?
Mr. Donald M. Heavrin: No, Mr. Justice, three tiers of this --
Chief Justice Warren E. Burger: Well does the amount stay there or doesn't it?
Mr. Donald M. Heavrin: I think that Government shouldn't be allowed to do this.
I think that it's unconstitutional to seize a taxpayer's property on an arbitrary assessment from a Regional Director.
Step number two, if the court disagrees with that premise, I think step number two at least the taxpayers entitled to is to maintain the status quo, the Government comes and seizes what it can.
It doesn't equal the amount of the tax bill, what they've seized but I don't think the Government should then be allowed to continue to come in and take her weekly paycheck and so on.
Chief Justice Warren E. Burger: But you're still leaving me doubt if that's answer is.
The status quo is that the Government is got a bond for sum of money.
Mr. Donald M. Heavrin: For her car?
Chief Justice Warren E. Burger: For her car.
Mr. Donald M. Heavrin: Yes, Mr. Chief Justice.
Chief Justice Warren E. Burger: Stands in the place of the car?
Mr. Donald M. Heavrin: Yes.
Chief Justice Warren E. Burger: Does that status quo continue until the end of the litigation if you prevail or must the bond be dissolved?
That's what I'm trying to put at.
Mr. Donald M. Heavrin: I can answer that by saying, I don't know sir.
It's a very interesting –-
Chief Justice Warren E. Burger: That's -- well perhaps we'll hear something --
Mr. Donald M. Heavrin: Proposition.
Chief Justice Warren E. Burger: -- about that from your friends.
Mr. Donald M. Heavrin: I hate to admit my total ignorance but that is an interesting situation.
Mr. Donald M. Heavrin: I would say that the bond would be dissolved because the 1973 texture has been completely concluded apparently to the satisfaction of the Internal Revenue Service and to the satisfaction of the taxpayer.
Justice Potter Stewart: Mr. Heavrin?
Mr. Donald M. Heavrin: Yes Mr. Justice Stewart.
Justice Potter Stewart: Is this argument of yours that made in your brief?
Mr. Donald M. Heavrin: Which of the argument is that sir?
Justice Potter Stewart: The argument that once a deficiency notice is sent, there can be more levies on the part of the Government?
Mr. Donald M. Heavrin: I don't think that I specifically said that.
I believe that I have said that the Government in -- was not interested in a fast resolution of this thing and I believe that we have discussed that one, let me see if I can find that for you sir, if you --
Justice Potter Stewart: I thought with the question before was somewhat narrower and somewhat different that is whether after a termination by the Commissioner, there was an obligation to send the deficiency levy?
Mr. Donald M. Heavrin: Yes.
This is --
Justice Potter Stewart: And an opportunity the tax -- and a consequent opportunity for the taxpayer to go to Tax Court.
Mr. Donald M. Heavrin: Yes.
That is before the Court, definitely.
The question of whether further collections can be made during at period of time is a collateral issue but its vital because if the Government is allowed to continue its collection procedures, during the pendency of the action, when the taxpayer does not have the money to pay the assessment, she -- Mrs. Hall would have been forced into indigency and would have been kept there.
She would have been on welfare because nothing that she would have produced could have been applied to the rent as Mr. Justice Blackmun said.
Justice Potter Stewart: Let alone to hire a lawyer?
Mr. Donald M. Heavrin: Let alone to hire a lawyer and that's very important.
Justice Potter Stewart: Is that -- that argument really isn't made in your brief, is it or have I missed something in your brief?
Mr. Donald M. Heavrin: I don't know, to be quite frank, I would have to read the thing again.
I reread these things so many times.
This is a collateral issue which the Court seized upon, during Mr. Smith's statement about who withhold the property.
My position, the respondent's position is that the Government shouldn't be allowed to seize the property, if the Court so holds that the Government can seize the property has collateral.For payment of the taxes, then the respondent's position is that at least we should keep the status quo until we can get this thing litigated.
Justice Potter Stewart: That's the third tier?
I don't know that you ever --
Mr. Donald M. Heavrin: The third tier -- excuse me is the -- the second tier and first tier entwined with the codal aspects of the thing.
The third tier is I think that the thing is unconstitutional but I'm not you know -- it's more or less an equity situation and it's not an easy case because the code is extremely complicated and the Government has the first used one section and then another and then argue that the history and the aspects of these things.
I think that codal argument alone that fits the Government's position.
For example, in the codal argument, if you read that section 6201, that grants assessment authority for taxes that are to be paid by stamps and the Government continues to ignore that provision in chapter (a) of 6201.
Then the last sentence of the first paragraph says this authority for the secretary to asses taxes shall extend to and that enlist four other situations, but none of those situations equal or approach or approximate what we have in the case at bar.
So it seems that the Government has grasped this one code section and said now this is empowers us to do what we've done in the Instant case and I don't think that it does.
I think the Government's wrong in the codal argument, Mr. Stewart -- Mr. Smith said that a fair reading of the code illustrates if the Government's correct.
I think that a fair reading of the code indicates the opposite is true, right? I can't get it through my thick head, that's 6201 really gives him the authority to make assessments and jeopardy situations.
I think I've covered about everything I want to.
One interesting aspect which the second circuit suggested that a bond be posted and the Government has -- Mr. Smith argued that the bond aspect was viable.
Well, as soon that it is viable, 6863 is the code Section that provides for the posting of bonds but Section 6863 does not refer to Section 6851 of the code.
It refers to 6861 of the code, so the Government is saying under a 6851 situation you can post to bond but really the code provides for the posting of a bond only under a 6861 situation.
I believe that's it and I thank you all for your attention.
Chief Justice Warren E. Burger: Thank you Mr. Heavrin.
Argument of Joseph S. Oteri
Mr. Joseph S. Oteri: Mr. Chief Justice, may it please the Court.
My situation unfortunately is somewhat different than my brothers.
I have a foreign national who had been in the United States for 25 days, was departing the United States over the Canadian border, was turned back was now returning to the United States because he was unable to get into Canada and on a search of his car, the Government found $310,000.00.
I think it's important to first state that in answer to the question asked by the Chief Justice.
I expect or I'm asking this Court to return the $310,000.00.
It's my contention --
Justice William H. Rehnquist: You are, you're saying?
Mr. Joseph S. Oteri: Yes, Your Honor, I am.
I'm saying --
Chief Justice Warren E. Burger: Otherwise there wouldn't be really much point in your being here with that?
Mr. Joseph S. Oteri: Absolutely, Your Honor.
Chief Justice Warren E. Burger: You wouldn't be --
Mr. Joseph S. Oteri: I'm not a --
Chief Justice Warren E. Burger: -- in to all these trouble over just whether -- over purely legal points at this stage.
Mr. Joseph S. Oteri: I'm not a charitable institution, Your Honor.
I'm in here to --
Chief Justice Warren E. Burger: You want this money in your hands --
Mr. Joseph S. Oteri: Yes sir.
Chief Justice Warren E. Burger: -- so that the client's free to do with it whatever he wants to do with it, including taking it to Zurich or Atowa?
Mr. Joseph S. Oteri: Anywhere it like, Your Honor after he leaves my fee, but the fact of it your -- the fact of the matter, Your Honor is that in this instance they seized this money and I we think ought to look at how the money was seized.
There were three people involved, Your Honor.
There was a lady and two gentlemen in the car.
They were stopped at the border.
The Government agents, the custom agents call the IRS District Director in Vermont.
He sent down a Mr. O'Cain, he was his Chief of Intelligence and a Mr. Perry who was his collector, and they interviewed the three people.
It's my information that the two people other than Mr. Laing, the petitioner disclaimed any knowledge of the money.
They disclaimed any ownership.
Mr. Perry in the appendix in our brief Your Honor, Mr. Perry's testimony limited as it was, is very revealing.
Mr. Perry says on again an answer to a question that he went down there with the preordained concept, the idea.
It was a foregone conclusion he says to asses a jeopardy assessment on these people, but did they do?
He didn't asses $310,000.00 against Mr. Laing only.
He assessed the $310,000.00 assessment against all three people.
Chief Justice Warren E. Burger: Well, at that stage was he in possession of sufficient facts to determine which potential taxpayer owned how much and owed how much taxes?
Mr. Joseph S. Oteri: Precisely the question, Your Honor.
He was not insufficient in possession of any kind of facts that would jeopardize and kind of an assessment against anyone.
All he had was the fact as he says that there was $310,000.00 attempting to be taken out of the country.
Now, I can see if he wants to assess it against Mr. Laing who admits the ownership of the money. Laing doesn't deny it.
Why is it important Your Honor that he assessed it against the three people, its important because at a later time, the Government then reduces the $310,000.00 assessment to a $195,985.55 against each of the three people involved in the car.
Now, Mr. Laing --
Justice Potter Stewart: Divided among them wasn't it?
Mr. Joseph S. Oteri: No, no Your Honor.
It's against each of them because subsequently --
Justice Potter Stewart: So it's a total of almost $600,000.00?
Mr. Joseph S. Oteri: Sure Judge.
They assess $930,000.00 worth the assessments based on finding $300,000.00 in money then they had to give us a break and they reduce it to a $195,000.00 against each and what they do to us?
We then file a tax return showing no zero tax liability because its our contention that our client did not earn the money in the United States and no taxes due, but not only do we not have a forum in an attempt to get a forum to prove this, we file for a refund, and what do they tell us?
We say we have a $114,000.00 coming to us fellows.
They say no "We have assessed the $300,000.00 taken in the following manner, $100,100.00 each to each of the three of you on the $195,000.00 tax you owe."
Now, I'm here with a refund suit filed and I'm staring the Flora decision right in the face and despite what Mr. Smith says to you, I know that the Government when we come to go before the judge up in Vermont, the Government's going to say to me, “You haven't complied with the full payment requirement of Flora and your out.”
Unless of course you remedy that in this opinion which I'm certainly hopeful you will do.
Chief Justice Warren E. Burger: Now let's back up a minute here when you speak of these concessions by Laing that it was all his money and therefore by implication all his tax liability if any.
Mr. Joseph S. Oteri: Right, Your Honor.
Chief Justice Warren E. Burger: Where would the Government be if later on the other two people came in for litigation and said, “Oh no, it's ours and it's our money and if any are tax liability.”
Do you suggest that the Governments bound by a concession made by Mr. Liang at that time?
Mr. Joseph S. Oteri: I don't suggest that its bound by it in the strictly legal sense Your Honor, but I do suggest one that as the Government must have some valid basis for making some form of a seizure of person's property, I think Mr. Liang has the equal right to say the property is mine and its no one else but mine.
I think if your going to give the Government the right to without any kind of a hearing and this is probably the only case, or the only situation under the code, the short year jeopardy taxpayer is probably the only person with no form, he can go to under the codal provisions and yet you allow his property to be taken with no kind of a preliminary hearing.
Maybe, Your Honor and I say just assuming our arguendo, maybe the Government has a right because this man was leaving the country and he had the money and there was a good chance of the Government is going to lose its ability to collect the tax in fact one was ought.
Maybe the Government has the right to seize that property but upon seizing it, I maintain the due process demands that the petitioner in this case be given a meaningful hearing and at meaningful time and a meaningful place and by that I mean within at least 30 days, the Government should go before some judicial officer and allow the defendant the petitioner to be there and convince that officer that basically there is some -- the money is in jeopardy, doesn't seem to be a difficult thing to do.
Two, that there is some authenticity to the figure assessed.
And three that the money was earned in America.
Now I think that's the minimum due process standard my man is entitled to.
A simple answer to those three questions determined by a judicial officer not quite the Commissioner of Internal Revenue who is very much busy in ferreting out criminals as well as collecting revenue today Your Honor, because this whole jeopardy provision thing my -- well my understanding is there are some 1800 uses of this provision last year.
There's been an enormous upswing in the number of them and I can say basically based upon my practice as a criminal lawyer, who defends people generally charged with drug offences, every time a person is caught with any kind of significant amount of money, the Government seizes the money, notifies the IRS and the IRS comes in and levies on that money.
This has been the rule since the war on drugs was declared in 1972, it's not the exception.
And I maintain in these situations Your Honor, a pornographer judge, a man who purveys film is entitled to prior determination is to whether or not its filmed or whether is protected.
A criminal who has a stolen property in his home is entitled to a prior determination by a judicial person to determine whether or not there is probable cause to one of his own.
My man --
Justice William H. Rehnquist: What about that Philip's case?
Mr. Joseph S. Oteri: Excuse me sir.
Justice William H. Rehnquist: Didn't the Philip's uphold substantially the kind of proceedings we have here.
Mr. Joseph S. Oteri: No, Your Honor.
The Philip's case said that you have a right to protect the revenue but the Philip's case, one of the holding's in Philip's was that there wasn't immediate, there was a hearing going to be granted.
There was a deficiency notice, there was a hearing.
My man has no deficiency notice, just if I may Mr. Justice Rehnquist.
My man was grabbed.
The money was grabbed on the 24th of June.
Today, even though in March of '73, we filed tax return we still have not received the deficiency notice.
We still do not have a ticket to the Tax Court.
My brother, and beware of prosecutors who worry about your clients, my brother tells us, the Government doesn't want to burden us with the Tax Court appeal because after all it takes two years.
They want to make sure we get a quick return, a quick suit for our money.
But what they're not telling us is that the Tax Court is a place where they know tax law.
The average loyal like myself which I'll practicing criminal law says “I don't know anything about taxes”, this is been the most painful preparation to my life trying to get even conversant with this law.
We don't know what's happening if we go the Tax Court to experts, they will decide and they will decide in way and everybody will be bound by those decisions.
If we --
Argument of Unk
Rebuttal of Joseph S. Oteri
Mr. Joseph S. Oteri: If we have to be in the North Dakota District Court, in the Florida District Court, Your Honor there will be 700 different opinions on every single case that courts will be just barred down with litigation.
Justice William H. Rehnquist: But this true of the whole body of tax law.
You have duplicate adjudication two systems of adjudication of tax law, one on the District Courts and one on the Tax Court.
I mean that's not peculiar to your situation.
Mr. Joseph S. Oteri: No, but It is Your Honor in this respect.
In this case and I can't understand why.
All the Government has to do and maybe my brother can answer a question if you choose to ask him.
Why won't they give us a deficiency notice?
I mean they tell us that there is no jurisdiction in the Tax Court in a track year jeopardy preceding.
I don't buy that.
Justice William H. Rehnquist: Well he says “Why won't you supra refund?”
Mr. Joseph S. Oteri: I have.
I have Your Honor but nothings happen.
We're holding in advance until this case had decided but why they don't I want a suit for refund immediately?
Because they're going to hit me with Flora rule.
They say I owe you 195,000 in taxes.
They took 310,000.00 away from me but they only gave me credit for 100,000.
They give the other 100,000 to my --
Justice William H. Rehnquist: But the Government says now that its view of Flora is that you got a perfect right to supra refund.
Mr. Joseph S. Oteri: That's what they say here Your Honor and I know to choose my brother of any kind of bad faith, but when you're up there in the District Court of Vermont, somebody's going to raise Flora against me unless somebody tells them can't do it.
And the other thing Judge is, presenting from that right now, the fact of the matter is back at its inception they were wrong.
They took my client's money.
They've held it for two and a half years and won't give us any kind of an opportunity to get a shot at getting that money back.
I filed the motion asking that they put it in an interest bearing account.
My client could get 12 to 15% interest on that money.
He's living in a houseboat New Zealand.
He hasn't got the money to call me.
He calls me collect because he doesn't have any money.
Now all I want is an interest bearing account, Judge.
I mean it just -- it defies my imagination when we see the Government acting in this kind of totally high handed manner.
Chief Justice Warren E. Burger: Well, would you tell me again why you haven't gone ahead with a trial with the case in the District Court in Vermont?
Mr. Joseph S. Oteri: Well in my refund suit Your Honor?
Chief Justice Warren E. Burger: Yes.
Mr. Joseph S. Oteri: I haven't gone ahead on the refund suit because we've agreed to wait until there's an adjudication of this case because --
Chief Justice Warren E. Burger: But you didn't have to agree, did you?
Mr. Joseph S. Oteri: Well I didn't have to Judge, but if I didn't I was going to get Flora stuff down my throat.
And I would've been thrown out, and I would've had nothing.
At least this way I'm here in front you on what I think is the basic remedy that's available to me getting all the money back because the Government did not give us the deficiency notice which is required by law to give us.
Chief Justice Warren E. Burger: But I go back.
You could have put this case on the calendar for trial and forced the trial in the Vermont District Court long since, it's probably the latest court calendar.
Mr. Joseph S. Oteri: Very likely Your Honor.
Chief Justice Warren E. Burger: In any District Court in the whole United States.
Mr. Joseph S. Oteri: I don't dispute that Judge.
Chief Justice Warren E. Burger: So that you --
Mr. Joseph S. Oteri: But I would've been thrown out.
Chief Justice Warren E. Burger: Well you're assuming that.
Well I'm not assuming it Your Honor.
Mr. Joseph S. Oteri: I can only say again Your Honor --
Chief Justice Warren E. Burger: Had you gone in, we would know that and you might be here on that route.
Mr. Joseph S. Oteri: Yes, I very well might be Your Honor except --
Chief Justice Warren E. Burger: Instead of now seeking an advisory opinion from the Court.
Mr. Joseph S. Oteri: Well, I don't think it's really an advisory opinion Your Honor in the sense that I am asking you to say that the Government is required to issue a deficiency notice when it makes a short year termination under 6851, and its failure to make that vitiates their seizure of my client's money and I'm trying to have that in junction grant that to return that money to me.
Chief Justice Warren E. Burger: Does the giving of that deficiency notice require that the Government return the money to you?
Mr. Joseph S. Oteri: No Your Honor, it doesn't but what it does do is it then -- if they give me the deficiency notice now Your Honor, I don't think it does.
But if in fact you'll find that they were required to give me a deficiency notice by statute, as a I think they are, then I think that would compel the District Court judge to grant my injunction and return the money to me.
I know that Court is probably very reluctant to return the money, but I do think that's the --
Justice Byron R. White: What makes you think that?
Mr. Joseph S. Oteri: Well, I just -- I am certainly we're all interested in protection the revenue of the United States Your Honor.
I as a taxpayer am, and --
Justice Byron R. White: Do you think that just a matter of equity if the Government has omitted a statutory duty, they just thought of give the money back, is that your --
Mr. Joseph S. Oteri: I think it's more than a matter of omitting a statutory duty Your Honor.
I think that it goes beyond that.
I think they've encroached upon a serious right of, as a person, a citizen or a non-citizen who has the same right as a citizen.
They've denied him any kind of summary hearing where he can justify his possession of that money then deprived him of his property for 30 months Your Honor.
For almost two and a half years thus far, without any interest and maybe they pay 6% of what if something if we gets it back.
But the fact of the matter is the man has been really reduced to status of poverty because of this kind of action and I think of all the cases Your Honor Kelly and Goldberg and all the rest of them where this Court has said.
There is some kind of a hearing before property right is terminated.
Justice Byron R. White: Or at least immediately thereafter?
Mr. Joseph S. Oteri: Or at least immediately there -- I say this maybe one of the few very few exceptions Your Honor.
And I'm in a very untenable position that I -- my everything about me cries out that you can't take property rights away from a person without a prior year.
But in this case, I think maybe there is some justification because of the fact that the man was leaving the country with the good of money.
But I think that if in fact this is one of those exceptions that have been recognized in other times, there must be engrafted upon that kind of a ruling, a requirement that within a meaningful time and place, he has an opportunity to get an answer to those three question as to the validity of the assessment the amount and the rest with Your Honor, whether or not the tax was under -- the money was in the United States and there was in fact jeopardy but being removed from the United States.
This man, Judge could very well have $5 million in a bank prepared to pay the tax.
He doesn't, but the Government doesn't know that.
When you look at a case like when Reniere which was decided in New York, Your Honor, you see that a Frenchman was arrested in the United States with $247,000.00 on him.
After 46 months, he finally got a hearing and a tax agent named Mr. Silva was asked on cross-examination.
What was the basis for the assessment?
And he hemmed and he hooed through a number of answers, and finally he was forced to state that the basis for the assessment was that was the amount of money they man had, that's what he was told to assess and that what he assessed.
And I maintain that exactly what happened in my case.
Only in my case they took 310 because there were three people they multiplied it by three.
Well if that kind of convict can be countenanced on the part of the IRS I maintain there are substantial due process violations.
And I think for that reason if for no other reason, this man should be have his money returned and to be at least granted a hearing within 30 days of any seizure in the future.
Because Judge, among other things, you are talking about statutes of limitations.
One of the things I have to be afraid of in this case Your Honor is that in fact, the money is returned to me as counsel for this man I think the Government has the right to re-seize it.
And I mean that that happens to be one of the options that I think is available to the Government.
The other question you're talking about statutes of limitations, the Government has three years in which to issue a notice of deficiency.
That three years has not expired yet.
They still have not issued the notice to me.
And I think that was another one of the statutory questions you're asking.
At this time Your Honor.
If I could address myself briefly to the problem of the statutory problem such as it is.
This short year termination was made under the aegis of 6851 of the code.
That's a provision as a section of the code entitled jeopardy and 6851 as the short year provision under jeopardy.
The Government claims that it can go to 6201 of the code which is the general assessment power and does carry in at the statement by stamp which may mean that it can only collect taxes under that section or assessed by stamp, but nonetheless its general assessment power.
They go to that for their assessment authority.
They don't in their brief “Section (d)” of that particular statute which in effect directs the Section 6201 (d) specifically states for special rules applicable to deficiencies of income etcetera see Subchapter B.
Subchapter B being Section 6211 to 6216.
When you go to Section 6216 of the code Your Honor, Section 6216 too they say for procedures relating to jeopardy assessments see Subchapter A of Chapter 70.
In effect, what we are saying is the Government when you follow its argument to its completion had they included that Section (d) in their brief referring them to Section 6216, you would find that they'd make it complete circle.
They start under the jeopardy assessment provisions of Chapter 70 subtitle A.
They go to 6201, they get sent to 6216 which sends them back to Chapter 70.
I think that its pretty obvious that they have to if they're going to make an assessment under 6251 it has to be done under the authority of 6261 -- 6861, I'm sorry Your Honor.
Now why don't they want will assess under 6861 which is the net following statute.
They terminate the short year under 6851 but they don't have the authority to assess under that.
Justice William H. Rehnquist: Of course you say its the next following stats does have a provision in the code, isn't that says the judge to position of sections after all this revisions since to be given any great way.
Mr. Joseph S. Oteri: Absolutely Judge.
I don't in any way say that because if follows it invariable means that it has to be applied but Judge, when you look at it, both of them under the jeopardy had, both of them concerning jeopardy assessments, they're being no other sections concerning jeopardy assessments.
I think you'd have to be somewhat blinded not feel there must be some correlation between the two of them. And practically Your Honor, if in fact the Government doesn't use 6861 there in effect avoiding the necessity of giving the taxpayer a deficiency notice which allows him to go into the Tax Court for adjudication.
And that's exactly why they don't want to use 6861.
They had much rather take a taxpayer assets and deny him the rights to go the Tax Court for any kind of pre-payment or any kind or even post-payment decision.
Thank you very much.
Justice Harry A. Blackmun: Mr. Oteri, what is your answer to the question that was showered on your co-counsel if you have a way into the Tax Court, is the Government forthwith distraint from levy?
Mr. Joseph S. Oteri: If you have a way into the Tax Court?
Well Your Honor, if again in short year jeopardy assessment, it's my feeling that they can assess but they cannot distrain they may levy, but they can't distrain, I don't think they can sell the property.
They maybe able to take the property provided the due process requirements are granted by giving you an immediate or at least the reasonable hearing in a meaningful time and place and manner so that you can have a determination by a judicial officer as to the validity of this whole thing.
You see Your Honor, the difference in this particular case, this type of situation is that this is a totally capricious and arbitrary act by the Commissioner, and it's done generally in cases involving a means of punishing people who are suspected of drug dealings or gambling.
It's not a bona fide attempt to collect a tax because if in fact it was, and I can't speak for my brother, Mrs. Hall is a very inoffensive young little lady sitting there in a rented house with little Volkswagen.
She's not hurting anybody, they don't have to destroy her at the collective tax and I think that this is when you see in fact that it's really a means of law enforcement of punishment not a means of obtaining revenue for the Government you then see then the necessity for putting an impartial magistrate between the Government and the citizenry of the United States.
Justice William H. Rehnquist: We'll of course your client's case quite different from Mrs. Hall's perhaps does suggest that the Government may have been motivated by desire to protect the revenues I would think.
Mr. Joseph S. Oteri: Don't dispute that at all Your Honor, I just say if that is true, if in fact that's true, there's no reason why they couldn't seize the rest, seize the money and hold it for a reasonable period of time, 30 days, 20 days some such time where they have to go before a judge, all I want is a judge, somebody who can sit there and say “Look fellows, you are not acting in accordance with the constitutional standards of the United States.”
When you have to go to the Commissioner of Internal Revenue who maybe a great guy I don't even know his name.
He maybe a wonderful man, but he still the Commissioner of Internal Revenue and he still a law enforcement officer and he still helping enforce a situation that in fact may well have terminated by now, but he still law enforcement and when this law enforcement on one side there is no impartial determination.
The way I see things in light of best interest of my client, he sees in the best interest of the Government.
Give me a fellow on a black robe who has no interest who merely wants to see justice done in the abstract, and I think we've got what this country is all about.
Chief Justice Warren E. Burger: Thank you Mr. Oteri.
Do you have anything further Mr. Smith?
Rebuttal of Stuart A. Smith
Mr. Stuart A. Smith: Just a few points Mr. Chief Justice, I think that the record in both these cases cannot support any inference that the Commissioner's efforts in this regard are anything but tax collection efforts. There is no suggestion on these records that these cases involve any harassment.
Indeed the Court last term involved Jones University and Americans United said simply that you cannot impute that kind of motivation other than tax collecting efforts to the Commissioner without a solid factual foundation.
Justice Potter Stewart: Now in the Hall case maybe I misunderstand it, but some $52,500.00 was assessed, they levied on a couple of thousand dollars and then at the end of the year turned off that --
Mr. Stuart A. Smith: Well that's --
Justice Potter Stewart: She got a refund?
Mr. Stuart A. Smith: Yes, I want to make that clear.
What happen in the whole case was she filed the tax return reporting $530.00 of gross income for the full taxable year and claiming a refund of some $76.00 on taxes withheld.
Now the Commissioner was subject to an injunction by the District Court which was affirmed in the Sixth Circuit in Hall which said that he was not permitted to make any tax collection steps against her for the assessment for the terminated period.
It was determined that unless the refund was paid because no stay was sought that the Commissioner might well be in contempt of the District Court's order.
So that amount was paid.
That payment in no way can notes that the Commissioners satisfied that Mrs. Hall has fully complied with the tax law liability for the year 1973.
To the contrary, it was simply made in order to avoid any suggestion that the Internal Revenue Service might be violating a court order by applying the $76.00 claim to the amount to the assessment.
I think I want to make something else clear because there's been some confusion on the point of the effect of the filling of a notice of deficiency.
The effect of a filling of a notice of deficiency in a jeopardy situation does not restrain and the invocation of Tax Court jurisdiction does not restrain the Commissioner of Internal Revenue from continuing to collect taxes.
If you look at Section 6213 (a) which is set forth at page 56 of appendix A of our brief, you see that there is an exception down at the last three lines, exceptions otherwise provided in Section 6861 no assessment or deficiency so forth and so on.
So the jeopardy situation is an exception to the normal rule that attacks court preceding states collection.
But what I want to emphasize --
Justice Potter Stewart: Will you give us that reference again?
Mr. Stuart A. Smith: 6213 (a).
Justice Potter Stewart: On what page?
Mr. Stuart A. Smith: Page 56 of our brief.
Justice Potter Stewart: Thank you.
Mr. Stuart A. Smith: But what I want to emphasize here is that what this case really involves is a congressional decision to allocate jurisdiction in these particular cases forthe District Courts and not to the Tax Court.
And indeed, sending a notice of deficiency to the taxpayers so I think the Court is well aware doesn't really provide them with any particular benefit in these cases.
Justice Byron R. White: Well Mr. Smith, what's the earliest possible time assuming your right that he has to go to the District Court that he could ever get anybody to rule a judicial officer to rule on or even that there was probable cause to believe that you were right in probably --?
Mr. Stuart A. Smith: Oh!
I suppose the earliest possible time is I suppose the day after the levy and, you know, the collection was made, the taxpayer could file a claim for refund with the district directors office.
Justice Byron R. White: Well I know, but he -- it takes him what six months, I mean --
Mr. Stuart A. Smith: Well it takes -- you know that is --
Justice Byron R. White: Well I know, but he doesn't have to --
Mr. Stuart A. Smith: That is the maximum.
Justice Byron R. White: Well he can't -- the court, I mean the taxpayer can't go to court until he gets it turned down.
Mr. Stuart A. Smith: Exactly.
Justice Byron R. White: And he can take six months to do it.
Mr. Stuart A. Smith: Commissioner they can take six months under I think its Section 6532 of the code so and then he can file a complaint the day after that.
Mr. Stuart A. Smith: So that's a six months the earliest possible time?
Mr. Stuart A. Smith: Yes so I don't think, quite frankly I think on the basis of what the Court said long ago in Philips case, I think that that constitutes an adequate post collection judicial remedy.
Justice Byron R. White: For the -- that maybe for the total resolution of the case.
Mr. Stuart A. Smith: Yes.
Justice Byron R. White: I mean for a decision on the merit.
But there's no way that anybody can even -- that plainly erroneous levy assessments could be sorted out.
Mr. Stuart A. Smith: Well that's not quite so, I mean because the Court ought to be aware of the fact that if something is completely without any foundation, this Court has created an exception to the Anti-Injunction Act in the Williams Packing case.
That is if the taxpayer can demonstrate that under no circumstances could the Government prevail on the merits of its claim and then if equity jurisdiction otherwise exist.
So there is that narrow remedy for the case in which the Commissioner has made a totally wild and unsupported claim.
Chief Justice Warren E. Burger: Thank you gentlemen.
The case is submitted.