COMMISSIONER v. SHAPIRO
Legal provision: Internal Revenue Code
Argument of Baum
Chief Justice Warren E. Burger: Mr. Baum, I think you may proceed now.
Mr. Baum: Mr. Chief Justice and may it please the Court.
This case arises on certiorari to the District of Columbia Circuit and presents once again the problem which this Court has dealt with in its preceding two terms namely, injunctions against the assessment and collection of taxes and the prohibition against such injunctions which is contained in Section 7421 of the Internal Revenue Code.
This Court dealt with it two years ago in Bob Jones University and Americans United.
It dealt with it several years earlier in Williams Packing, and briefly again last term in American Friends Service Committee.
The Court of Appeals, on the very same day on which this Court announced its opinions in Bob Jones University and Americans United, reversed a decision of the District Court for the District of Columbia, dismissing this complaint for injunction and held that the case should be remanded for a hearing at which the Commissioner of Internal Revenue would be required to make a factual submission as to the basis for the tax assessment here involved and in which the respondent taxpayer would be permitted discovery.
The commission has sought rehearing on the basis of this Court’s opinions in Bob Jones University and Americans United, but the Court of Appeals refused to modify its decision and accordingly, we sought and obtained certiorari.
The controversy arises in the following circumstances.
Mr. Shapiro is a citizen of Israel who came to the United States in 1970.
At some time in that year or shortly thereafter, he was indicted in Israel for security fraud and the government of Israel requested the government of the United States to permit his extradition.
The question of his extradition was litigated in the District Court for the Southern District of New York and in the Court of Appeals for the Second Circuit.
Both courts held that Mr. Shapiro was extraditable and ordered his surrender.
He then filed a petition for certiorari with this Court.
While that petition was pending, Mr. Shapiro negotiated an agreement with the State of Israel under which he would withdraw his petition and would surrender for extradition, if the State of Israel would allow him to remain here until his then unborn child was born and we would allow him to remain on bail until his trial in Israel.
The petition for certiorari in this Court from that extradition was then withdrawn and Mr. Shapiro was scheduled to surrender for extradition on December 9th 1973.
On December 6 of that year, three days earlier, the commissioner, upon learning from the Immigration and Naturalization Service that this extradition was to take place, and pursuing an investigation which had begun in September ’73, issued a jeopardy assessment against Mr. Shapiro for income taxes amounting to approximately $7,000.00 for the year 1970 and $85,000.00 for the year 1971 and levied on some bank accounts maintained by Mr. Shapiro which represented some, but not all of his property.
This of course was a recognition of the fact that had Mr. Shapiro been allowed to depart, the bank accounts would have also departed and there would have been no funds available to the United States to collect taxes which it believed to be due.
At this point, I think it is appropriate to point out the procedure for these assessments.
Normally, in income tax cases, the commissioner, if he determines a deficiency is due from a taxpayer, must under the code issue a statutory notice of deficiency, which provides that within 90 days thereafter, the tax payer may file a petition for review in the tax court of the United States.
This is the procedure described in Section 6212 and 6213 of the Internal Revenue Code which appear in the appendix to our brief.
If he does not follow that procedure, that statute expressly provides that he may be enjoined.
But, Section 6213 contains an express exception, namely for a jeopardy assessment under Section 6861.
That section provides that if the commissioner believes that the assessment or collection of a deficiency may be in jeopardy, he shall, not withstanding the provisions of Section 6213, immediately assess such deficiency.
If he does this before a notice of deficiency has been issued, the statute further provides that he must issue a notice of deficiency within 60 days of that assessment.
Thus, in jeopardy assessments, the procedure is essentially reversed.
The assessment comes first and the notice of deficiency comes second.
Justice William J. Brennan: Mr. Baum?
Mr. Baum: Yes Mr. Justice.
Justice William J. Brennan: Bring me up to date on the facts about Mr. Shapiro. Is he back in his country?
Mr. Baum: He is in Israel now, Your Honor.
Justice William J. Brennan: Has he been tried over there?
Mr. Baum: He has not been tried as far as we are aware.
Justice William J. Brennan: Is he free on bond over there?
Mr. Baum: He is free on bond.
This was represented in a District Court by counsel for Mr. Shapiro.
Section 6861 also provides that Notice and Demand for Payment shall be made by the commissioner in a case of a jeopardy assessment, without waiting the ten days which we have found to exist in other statutes.
The taxpayer has raised a point in brief and he raised it below that Mr. Shapiro never did receive notice.
This is contradicted, however, by an affidavit of the revenue service center official who is responsible for the mailing of the notice and a copy of that affidavit is printed at pages and 10A and 11A of respondent’s brief.
Justice William H. Rehnquist: At what stage of the proceeding was that affidavit filed?
Mr. Baum: After the decision of the decision of the Court of Appeals, Mr. Justice Rehnquist.
Justice William H. Rehnquist: This is -- one thing that kind of raises some problems for me about the case is that, are we entitled to consider in reviewing the judgment of the Court of Appeals proceedings that transpired after the judgment of the Court of Appeals and the District Court?
Mr. Baum: I would like to say in response to that, if Your Honor please, if the proceedings in a District Court were dismissed before any question was raised about the non-receipt of the notice.
The non-receipt of notice came in the subsequent proceedings and it has placed an issue by counsel before the court now.
Justice William H. Rehnquist: So, both the contention and the response occurred in the post Court of Appeals hearing in the district --?
Mr. Baum: Part of my best recollection is, Your Honor.
Justice Thurgood Marshall: Is that not a matter that should be litigated and if this case goes back, there would be a point that it would be litigated?
Mr. Baum: If that were all to be litigated, we would not be here, Mr. Justice Marshall.
Justice Thurgood Marshall: It is not my question.
It is a matter that should be litigated?
Mr. Baum: We think we have established it.
Justice Thurgood Marshall: After somebody says “Yes” and somebody else says “No”, that is litigation in my book.
Mr. Baum: Yes, Your Honor.
But, under the Internal Revenue code however --
Justice Thurgood Marshall: If this case would proceed without us ruling with you, that would be one of the points that would be litigated.
Mr. Baum: There are numerous decisions, Mr. Justice Marshall, which hold that in a case of internal revenue notices, there is no statutory requirement that they would be received.
It is efficient if there is proof that they have been sent.
This has happened in a number of times in a tax court because of the statutory notices and we submit that we have established in a usual fashion and under the fashion required by the federal rules that it was mailed in due course.
Indeed, a copy of the notice appears in the taxpayer’s brief at the following pages, 12A and 13A.
And the taxpayer however says, “The form says, taxpayer’s copy.”
It says taxpayer’s copy because he has failed to take into account the computerization of the revenue service, The revenue service file copy is a piece of magnetic tape, and the only way the service can reproduce a document is to push the appropriate button if that would be the device on the machine and it will print out on the form which has printed on a taxpayer’s copy because they do not make copies for themselves, they have the permanent magnetic tape.
In accordance with the prescribed procedure, the commissioner issued a statutory notice of deficiency to this taxpayer within 15 days, not 60, but within 15 days on December 21, 1973.
And shortly thereafter, on January 3, 1974, Mr. Shapiro filed his petition in the tax court of the United States.
That petition is still pending and is awaiting trial and that is a factor which distinguishes this case from your prior decisions where there was no tax court petition pending.
In a meantime however, he filed this action for an injunction on December 13th in a District Court for the District of Columbia seeking to have the levies removed and also seeking to have his extraditions stayed.
The latter part has been disposed off in the Court of Appeals and is no longer before this Court, that is the extradition and it was after that that he departed and returned to Israel.
After hearings before the District Court in December 1973 and after a copy of the notice of deficiency was filed with court, it dismissed the action for lack of jurisdiction on the authority of your decision in Williams Packing Company.
But the Court of Appeals reversed and held that that dismissal was incorrect because the court should have held a hearing at which the commissioner would be required to come forward with a factual submission to determine whether there was a rational basis for the assessment.
It also held --
Justice William H. Rehnquist: Do you know Mr. Baum whether the Court of Appeals had any precise civil procedure type of thing in mind?
Would it have been enough if the government had filed an answer to the complaint?
Mr. Baum: I think Your Honor has asked me two questions and I would like to answer them.
Now, the Court of Appeals did not indicate exactly what procedure.
In fact, in conclusion of its opinion appearing on 16A of our petition for certiorari, it says that the District Court is not required to explore the matter and precisely the same manner as in Lucia and Pizzarello, each case is different and should be considered on its particular facts, which frankly I must admit, leaves us very little guidance.
On the second point, it is exactly what happened in a District Court while we were considering and filing a petition for certiorari in this proceeding that illuminates it because the District Court has imposed a much more onerous burden on us than possibly even the Court of Appeals contemplated, I do not know.
Justice William J. Brennan: May I ask Mr. Baum about (Voice Overlap) that paragraph 5 it does not -- may I properly draw the influence from this that they are talking about a probable cause here?
Mr. Baum: I did not hear you.
Justice William J. Brennan: A probable cause hearing.
The commissioner has to come up with some showing from which an inference of probable cause to levy the tax, maybe inferred?
Mr. Baum: You could call it that, Your Honor, yes.
But, I do not know what a probably cause hearing is in a tax context.
Justice William H. Rehnquist: Well, we are in the context with the rules of civil procedure here I take it.
An action was filed seeking injunctive relief and that would be governed whether or not by the rules of civil procedure.
Mr. Baum: And the rules of Civil procedure, if Your Honor please, require that the taxpayer, the plaintiff must establish by some means that there has been some taint of illegality in this assessment.
Instead, the whole burden has been placed upon the government to justify its action by the mere filing of an injunction complaint.
Justice William H. Rehnquist: Well, the rules of simple procedure do not necessarily supplant whatever may have been said in Enochs. Conceivably, Enochs may mean that the government has to file an answer in a case like that, but do you know of any provision in the rules of civil procedure that talks about a probable cause hearing?
Mr. Baum: Not at all, Your Honor.
The Court of Appeals also held that the taxpayer had met the other test of Williams Packing namely the Equity of Jurisdiction test.
We submit that the Court of Appeals was an error on both counts.
This Court said in Williams Packing and in Bob Jones University that injunctions restraining the assessment and collections of taxes might not issue unless the taxpayer can prove that it is clear that under no circumstances would the government prevail.
In my humble opinion, that goes way beyond a probable cause requirement.
It also of course reiterated the necessity for requirement of equity jurisdiction.
And, this is nothing, but a recognition as this Court is well aware of the danger of a wave of injunction suits flooding the courts and delaying the collection of taxes.
Justice William H. Rehnquist: Well, is not Mr. Shapiro’s contention here that all of a sudden this just came like a bolt out of the blue and if the government did not tell him why they were after him, he had no way of evaluating their claim or arguing that it was baseless?
Mr. Baum: He says that, Your Honor, but the Notice of Deficiency which was before the District Court and the Court of Appeals states that for the year 1970, he had $18,000.00 in unexplained bank deposits.
Under numerous decisions of which one might be O’dwyer versus Commissioner, that is sufficient to carry the commissioner’s burden of showing that there may be a tax liability and that the burden is then on the taxpayer to show that those, that $18,000.00 in this case, does not represent taxable income.
As to year 1971, the notice of deficiency stated expressly that he had $137,000.00 from narcotics transactions in taxable income and a tax was imposed accordingly for the year 1971.
Now, I submit that is a – certainly, he was not completely uninformed as to the basis for the commissioner’s action.
Indeed, he was put on ample notice of the basis for it.
In fact, the commissioner -- the Court of Appeals in its opinion says that the District Court should obtain some evidence to determine whether the tax was arbitrary or excessive.
In other words, the commissioner is the one who is on trial, and all we had before the District Court was an affidavit, accompanying a motion for a preliminary injunction which says, “I had no taxable income for 1970 and my 1971 tax return was correct.”
That is far from showing that the commissioner acted wholly, irrationally, arbitrarily or in any capricious manner.
The court does not only ignore that the fact – or the two-fold test at Williams Packing Company and the fact a simple denial is not sufficient to carry the burden would have posed on a taxpayer.
But, it assumed that there was a lack of good faith.
For lack of good faith and the necessity for speed here which gave rise to the accusation of lack of good faith was of course as I said earlier, the question of imminent departure.
And, nothing in any decision of this Court supports the view that there should be a heavier burden on a tax -- on the commission when the taxpayer brings an injunction suit, then there should be -- if he bought a refund suit or filed a petition in the tax court.
Chief Justice Warren E. Burger: Instead of responding as he did in the conclusion terms, he had submitted a certified copy of a final decree of his grandmother’s estate showing that at the time of these deposits inherited precisely or substantially that amount, would you say that would have carried the taxpayer’s burden?
Mr. Baum: I would think so, Your Honor, as to that branch of the case. Of course, that would not affect the narcotics transactions.
Chief Justice Warren E. Burger: Well, it would not affect -- it would not with finality determine all of the tax aspects either, would it not?
Mr. Baum: No it would not Your Honor.
What is most serious to us about this case (Voice Overlap)
Chief Justice Warren E. Burger: What burden would it have on the jeopardy assessment?
Mr. Baum: If what I think allow the court some basis for coming in and saying, “Now Mr. Commissioner, it is incumbent upon you to examine the -- to acquaintance us with the facts underlying this case.”
Chief Justice Warren E. Burger: As the condition to the continued impoundment?
Mr. Baum: That is correct.
Justice Byron R. White: Where would this showing be made?
Mr. Baum: In the District Court.
Justice Byron R. White: In the District Court, so you do not -- you say that it is proper to file this suit and it is just in face of the Anti-injunction Act and that one or the other, the party is going to show something?
Mr. Baum: That is correct, Your Honor.
That is absolutely correct.
Justice William H. Rehnquist: Would some of the problem that is followed here have been saved if the government simply filed an answer to the complaint for an injunction outlining in very tough form the basis for the imposition of the tax?
Mr. Baum: I doubt that it would, Mr. Justice Rehnquist, because some of the government’s evidence was based upon confidential informants that would not have been (Voice Overlap)
Justice William H. Rehnquist: Well, under the pleadings we have now you do not answer in great detail as to what witnesses will testify.
Do you just answer the same way that you allege in a complaint?
You can be fairly a cursive it.
Mr. Baum: Well, I submit that is what we did when we filed a notice of deficiency on the 21st of December 1973.
Justice William H. Rehnquist: Yes.
But procedurally, in a District Court, instead of answering, you filed a motion to dismiss.
Mr. Baum: Well, I do not think that changes it, Your Honor.
It had before on motion to dismiss other materials even though that was the procedural framework in which the issue arose.
Because essentially, if Your Honor please what the court has done, is not only inverted the burden of proof, but it has changed the forum for the resolution of tax disputes.
If this decision stands, any taxpayer can ignore his right to go to the tax court, can ignore the proper possibly of refund suits and file an action for an injunction with a general denial that he owes any money.
And, he is then in the position of letting the commissioner come forward and produce the evidence which stays the assessment having the court decide whether that evidence is sufficient and possibly deciding the whole merits of the controversy in advance.
Justice William H. Rehnquist: Indeed, you can enforce the commissioner to come forward by discovery under the Court of Appeals rule?
Mr. Baum: That is correct.
Justice William H. Rehnquist: Long before he could on the tax --
Justice Byron R. White: (Inaudible) He had his company locked up and he cannot get it.
Mr. Baum: He cannot get it.
That is true, Your Honor.
Justice Byron R. White: Well, I suppose that you would assume it because (Inaudible) and he would go forward in the tax court and the Court of Appeals said you ought to show something if you are going to hold this property.
Mr. Baum: But if Your Honor please, this has been in existence since 1924 and we have been using this statute in a direct statutory purpose as contained in the statute is to shorten the time and, that is why the 60-day period for giving a statutory notice of deficiency, allowing him to go to the tack, but we may not sell the property, we can only hold it and having accelerated the whole statutory scheme, that is what the Congress and which has been upheld many, many times.
There is no problem on that and if he had made some showing, some substantial showing that there was a wholly arbitrary tax here or something just based upon retribution as might be his claim, then I would understand the point.
But, I see nothing when a straight forward tax assessment is made based upon alleged items of income and where you are immediately at issue as to whether those items of income are true, incorrect or not as we are in thousands of tax cases every year.
Justice Potter Stewart: By the time he filed his complaint in the District Court and am I right in understanding that all he knew was that he was scheduled to be deported or rather extradited in a very short time and that the United States government had seized all of his assets in the United States and he knew nothing else, is that not right?
That is what his complaint said.
Mr. Baum: That is correct.
Justice Potter Stewart: So, it would then be incumbent upon the government to file something as a pleading in that court to allow the District Court to apply the very test that this Court has established in the Enochs case.
Otherwise, the court would find it absolutely impossible to do what this Court has told it has to do it, that is to apply the test?
Mr. Baum: But then in every jeopardy case, Your Honor, we would have been accused of seizing a man’s property and proceeding without any basis for him to challenge and he would then get an immediate trial --
Justice Potter Stewart: No.
It would be incumbent on you to file a pleading in a court, which is -- well, that is what is incumbent upon any defendant in any court anywhere when he is sued.
There is no discrimination against you at all.
Mr. Baum: Well, I think what happened here discloses it.
That is not quite true, Your Honor.
We filed an affidavit in the District Court.
The District Court says, “That is wholly insufficient.
We want you to bring in your confidential informants.”
Justice Byron R. White: (Voice Overlap) but you say that the – you are mostly dismissed and said, “Dismiss this case because in fact the taxpayer has given his burden.”
Mr. Baum: That is correct, Your Honor.
Justice Byron R. White: And that is the fact that if there be any burden at all, it would be -- if he only knows as if you have seized his property and he says, “I do not know any tax and I have no idea why the government thinks I owe some tax.”
Now, maybe if the government comes in and says so or says something, maybe then he has some burden I do not know of.
Mr. Baum: Well, that as I submit what we did, Mr. Justice White.
Justice William H. Rehnquist: You filed a motion to dismiss which says in effect that the complaint does not state a claim.
If you had answered the test might well be that unless the claimant can obtain the judgment for motion of the judgment on the pleadings, the thing should be dismissed, but you did not even answer?
Mr. Baum: We filed a motion to dismiss for lack of jurisdiction, Your Honor, which was in accordance with this Court’s holdings and the rules provide that on a motion to dismiss, the court may consider affidavits in and other materials in deciding the motion.
Justice Lewis F. Powell: Mr. Baum.
Mr. Baum: Yes Mr. Justice.
Justice Lewis F. Powell: I do not think you filed a definitive affidavit until after the decision (Voice Overlap)
Mr. Baum: That is correct, Your Honor.
Justice Lewis F. Powell: That prompts me to ask a question I think was alluded to by one of the other justices earlier, what is before us?
We granted certiorari from the decision and judgment of the Court of Appeals.
Your brief and I think the brief of the opponent tell us about what happened subsequently and you have been speaking a good deal of what happens subsequently.
Is anything before us beyond the decision of the Court of Appeals?
Mr. Baum: That is a very anomalous situation, Your Honor.
We have lodged with this Court the proceedings subsequent to the Court of Appeals because we are in the position of the District Court refusing to await our filing of a petition for search -- for written certiorari.
The District Court ordered us to proceed and we had to do something and we would not willing to be in contempt to the District Court.
So, we are in a position of having been proceeding in two courts at once.
I have never had that experience before.
Justice Lewis F. Powell: May I ask this?
The Court of Appeals based its judgment on the two tests laid down in Enochs.
One of them was irreparable injury because the taxpayer was not able to obtain bond and would be imprisoned in Israel.
The District Court proceeding that followed the decision of the Court of Appeals revealed that the taxpayer is out on bail.
So now, there is no irreparable injury.
Does that dispose the case under the Enochs?
Mr. Baum: It could, Your Honor, because we submit that there is no longer any showing of irreparable (Voice Overlap)
Justice Lewis F. Powell: That is good under Enochs and under the decision of the Court of Appeals so that brings me back to my question.
What do we look at with what you say on your briefs or we grant a certiorari to consider?
Mr. Baum: Well, of course, we would prefer that you look at what you granted certiorari to consider because we think that it is a misapplication of Your Honor's opinion of two years ago.
Justice Byron R. White: You say you were not required in order to get relief to file what you filed in the District Court?
Mr. Baum: That is correct.
The affidavit on the subsequent proceedings, that is correct.
We were compelled to do that.
We think that went far beyond the requirements of any of the cases.
In Williams Packing, as this Court knows, the taxpayer came in and said, “I do not owe the tax” and this Court said, “We are sorry, that does not get you an injunction, pursue your remedies and we do not have the problem here.”
The trouble Mr. Justice Blackmun in Americans United of no problem of a tax liability.
We have a real tax liability which is before the tax court and the tax court is in a position to decide it as it does everyday and this Court would then be in a position to review it if it so desired at a later date.
But, we are not in a position of sitting on the man’s property for an indefinite period and keeping it.
Justice Byron R. White: But, your position of sitting on it until the tax court acts and you say you do not have to prove anything until then?
Mr. Baum: Until the taxpayer has come forward with some showing that this assessment is made out of whole cloth.
That is, I submit, what the burden is in this case and I do not think that the taxpayer by any remote stretch of the imagination, by a mere general denial that he owes any tax has made that showing.
Justice Lewis F. Powell: If you had filed the affidavit initially, that was ultimately filed after the decision of the Court of Appeals, you probably would not be here today, would you?
Mr. Baum: I doubt that, Your Honor, because the District Judge said the affidavit was wholly insufficient.
Of course, he had the benefit of the Court of Appeals (Voice Overlap)
Justice Lewis F. Powell: Right.
It is in light of that decision I would assume?
Justice Byron R. White: Originally, the District Court dismissed?
Mr. Baum: The District Court originally dismissed in (Voice Overlap) of Williams Packing, yes Your Honor he did and --
Justice Byron R. White: A fortiori if you had filed something more than just your motion.
It would have --
Mr. Baum: Well, he did not think it made any difference at that point and his mind has been changed, at least for the time being.
Justice Harry A. Blackmun: So I suppose, he feel he has too much government -- the government is forcing him out of the country on the one hand and then taking all of his property away from him on the other?
Mr. Baum: Well, I hardly think it is fair to say that the government is forcing him out of the country. It is his home government that was requesting his presence for an urgent appointment with a criminal court there.
Justice Harry A. Blackmun: Well, he has been extradited.
Mr. Baum: Lastly if I may, if the Court please, I would like to point out that the Court of Appeals did rely on two decisions namely Pizzarello and Lucia, Pizzarello in the Second Circuit and Lucia in the Fifth Circuit and both of those, I think illustrate the point that possibly you Mr. Justice Stewart and Mr. Justice White were making.
These are the extremes.
In Pizzarello, on the basis of three day's transactions, we projected a wagering tax for a five-year period in a face of an indictment for two months.
In Lucia, we did it for over four years on a basis of a one day's transaction.
I might add in Pizzarello that there was the additional factor that the evidence was obtained by an illegal search and seizure.
Thank you, Your Honor.
Chief Justice Warren E. Burger: (Inaudible) Right now, I have been waiting to get your reaction to it, somewhat to point that Justice Powell was pursuing.
I read the last paragraph of the Court of Appeals opinion at 17A of the cert petition as indicating that the irreparable injury which seems to be the fulcrum was that if he did not get this money, he would not be able to put a bond when he was extradited to Israel and that it was the incarceration.
Shapiro, the opinions says that after extradition, Shapiro will be incarcerated, an incarceration that will cause irreparable injury for which he has no remedy at law and so, the Court of Appeals then decided.
Now, that was a premise that had some flaws in it, was it not?
Argument of Nathan Lewin
Mr. Nathan Lewin: Well, Mr. Chief Justice, I think that as matters develop subsequent to Mr. Shapiro’s return to Israel, it is true that that factor was dropped out of the case.
He is now on bail.
Chief Justice Warren E. Burger: Is that the fulcrum of this opinion?
Mr. Nathan Lewin: At the time, the Court of Appeals reviewed the case that was the basis that we were relying on to establish irreparable injury.
However, we think that if we were back in the District Court today, we could demonstrate irreparable injury from the fact that I think Mr. Justice White pointed out, which is that all of these man’s assets in the United States are presently being held by the internal revenue service which means that he is not able to pay counsel to litigate the tax claim that he suffers the same kind of irreparable injury that the Court of Appeals have held, for example, in the Village case which we cite an hour brief and the Sherman case, Third Circuit, the Fifth Circuit have both held that jeopardy assessments which essentially forfeit a man’s entire assets, deprive him of the possibility of living during that period of time, do constitute irreparable injury.
Chief Justice Warren E. Burger: What evidence is there in this record that these constitute his entire assets since he has now apparently been able to make bail in Israel?
Mr. Nathan Lewin: Well, the representation that we made to the District Court, Mr. Chief Justice, was that he may bail because a relative came forward at the last moment and posted in apartment as security, a relative who had no legal obligation to Mr. Shapiro, but simply out of a family feeling rather than seeing him in jail for an extended period.
I might point out in that regard.
Mr. Baum has said that he had an urgent appointment for criminal prosecution in Israel.
In fact, he has not even been put to trial by this date in Israel.
He is out on bail this entire period of time.
And if indeed, I might say in that regard, if indeed the United States thought that Mr. Shapiro had some evidence that he was engaged in a kind of conduct that they allege at the last minute at the eleventh hour in the civil proceeding, we submit they could very usually have asked the Israeli authorities to defer any extradition so that they could institute criminal narcotics proceedings against him.
That was not done and I think that the fact that it is not done is a factor that this Court ought to consider in determining the question of good or bad faith or whether there is at least enough of a colorable or enough ground for questioning good faith to have a District Court look into this issue.
Unknown Speaker: Mr. Lewin if everything you said indicate, not that you are going to argue in affirmance, but that we ought to vacate and send this back to the District Court for redetermination of the irreparable injury component of your (Voice Overlap)
Mr. Nathan Lewin: No, Your Honor.
I think we are arguing in affirmance because the court – what I think…
Unknown Speaker: The way you have been arguing, I rather feel (Voice Overlap)
Mr. Nathan Lewin: No.
The Court of Appeals has remanded for further considerations and that is one of the things for further proceedings.
Now, if subsequent developments in the course of litigation are such that the further proceedings warrant, either an amendment to the complaint to allege a different form of irreparable injury, we think we are entitled to do that.
We certainly think we are entitled to a remand and that is what is before the Court at the present time.
The government is asking for an affirmance, essentially a recessive reversal of the Court of Appeals and an affirmance of the dismissal.
We say that we are entitled to further proceedings in the District Court on various issues.
And I think that what the government overlooks is that there are three different issues in this case, which should be available to us in the District Court.
One is the procedural issue, which I think I almost understood Mr. Baum to concede is an appropriate issue if raised by the pleadings and if properly presented to the District Court.
Now, we said in a complaint, and it is very clear on the complaint, that there was no notice or demand before the seizure of these assets on December 6, that appears at paragraph 18 which is page 11 of the appendix.
Now, Mr. Baum says -- affidavit subsequently submitted to the District Courts says that this notice was set out and in fact, he says, “There is a copy of that that appears in our brief in pages 12A to 13A.”
We pointed out in that hearing in the District Court that that affidavit was the taxpayer’s copy to which Mr. Baum responds as the trial counsel date in the District Court, well, that was just simply produced from the computer records.
Well, the interesting thing which I do not think comes out quite clearly on the photo stat in the brief, is that the copy has a jagged edge, at least the copy that we received, which certainly makes it look as if it was torn off from some other copies.
These forms is I have seen them, as the taxpayer have several copies that you can tear off the top.
The taxpayer tears off the top, keeps it, sends back the second copy.
It looks to me if we would have a hearing that we might very well develop that the Internal Revenue Service has in its records the physical copy that should have been sent to Mr. Shapiro and never was.
Now, if in fact that is true, then there was no proper jeopardy assessment under Section 6861 and the introductory language to the Anti-injunction Act which says, “Accept for Section 6213A, there may not be an injunction.”
It would apply because the exception would apply.
6213A says that the only time that you can fail to follow the procedure in 6213A is with a proper jeopardy assessment.
Justice William H. Rehnquist: Rather than pursuing a kind of 13, a dinner (ph) thing, we really have to review what the Court of Appeals did, do we not?
There may be issues that it did not reach, but I would think that we would not reach them either?
Mr. Nathan Lewin: Well, I think, Your Honor, to the extent of the complaint alleges though raises those issues and they are not answered by the government’s pleadings or indeed we submit by any subsequent submission.
We are not disputing the procedural question of whether the Court may look to maybe the subsequent hearing.
The government has lodged the hearing.
We certainly do not want pirate (ph) victory in this Court.
We are not interested in coming here and taking the court’s time to get a rule that says well, if the government files what it filed in that subsequent hearing, the case is over.
We think that that is not true.
In fact, I think that what the facts develop really is that the basis for the Government’s claim that the taxpayer was unnoticed was a notice of deficiency served on him at 12:20 pm on the date that the complaint was dismissed.
The judge said, “I will be reconvene court at 3:00 pm on Friday afternoon, December 21.
At 12:20 pm, we received as counsel, copies of this notice of deficiency which for the first time said, “This man is, in the government’s view, a dealer in narcotics.”
The government rather extraordinarily says, “In light of that with Mr. Shapiro being in New York, being of the Orthodox Jewish faith, unable to come to Washington to appear at a hearing in response to that,” his counsel came into court saying that Mr. Shapiro was called on the phone and denies this.
The government says in its brief, “The only thing that the respondent did was have one of his counsel tell the District Court the respondent had advised another of his counsel that the commissioner’s determination of income from narcotics dealings was false.”
Well, that is all that he could do in the two hours and forty minutes that he had before the District Judge turned around and said that the case is dismissed.
Thereafter, Mr. Shapiro filed a verified petition in the tax court in which he denied being a narcotics dealer.
Thereafter, at the hearing which Mr. Baum refers to, he filed an extended petition in the District Court which said, “I am not a narcotics dealer.”
I think Mr. Chief Justice, you asked, “What would happen if the taxpayer came back with an affidavit or a document that established where he had received the funds.”
That is exactly what Mr. Shapiro did in the hearing in the District Court, the record of which has been lodged with this court.
We filed an affidavit from a resident of Switzerland who had described in detail that she had held cash from Mr. Shapiro while he was in Switzerland and that she sent it over to the United States.
All of that is in the record in the District Court.
It is referred to in that transcript that has been lodged with the Court.
Chief Justice Warren E. Burger: That does not remove it automatically from the category of taxable income, does it?
Mr. Nathan Lewin: Well, I think if he had it in Switzerland before he came here, I think it does, Mr. Chief Justice.
Chief Justice Warren E. Burger: Did she say how long she held it and what she was holding it for?
Mr. Nathan Lewin: Well, if she had it in 1970 before he arrived in the United States and she had it at that time and he then came to the United States and she sent it to him --
Chief Justice Warren E. Burger: Now, those are the kind of issues you try out in the law suit on tax liability and not the way you are trying them out now?
Mr. Nathan Lewin: No, Your Honor.
Our view is that if we are entitled to something other than merely arbitrary action on the part of the government, there has to be some minimal showing before the government can seize a man’s entire assets.
Mr. Justice Brennan spoke with the probable cause hearing.
The fourth amendment says, “You cannot seize a man’s papers or effects without probable cause when you got criminal allegations against him.”
Chief Justice Warren E. Burger: What about the general credit?
What if he had a general creditor of the same amounts that are involved here who use the typical attachment processes that apply to a departing debtor, would your situation be much different?
Mr. Nathan Lewin: Well, I think this Court’s rulings, whether it is Fuentes and Shevin or substantial other cases have said that there has to be a meaningful hearing attached to that and only in extraordinary circumstances may the hearing follow the seizure.
Now, we are not challenging the fact that the Internal Revenue Service has authority in appropriate circumstances to take the extraordinary step of a jeopardy assessment.
Justice William H. Rehnquist: Mr. Lewin, did you raise any constitutional issue like this in the Court of Appeals?
Mr. Nathan Lewin: Yes, we did.
We said -- our basic argument in the Court of Appeals Mr. Justice Rehnquist and one that we argued there and I think we argued in the District Court, was a variety of Constitutional Arguments.
One was, I guess what Mr. Justice Blackmun referred to, the government on the one hand excluding a man for the country and on the other hand, seizing all of his assets.
But if what you mean by these constitutional arguments is the fact that there should be some minimal showing on the part of the government, I think we did raise that on the Court of Appeals.
Chief Justice Warren E. Burger: You said, the government excluding him from the country, at the same time they are seizing all of his assets, was the United States excluding him from the country?
Mr. Nathan Lewin: No.
But pursuant --
Chief Justice Warren E. Burger: Was Israel plucking him?
Mr. Nathan Lewin: Well, what the United States certainly was doing and we ---- let me correct that if I might.
Chief Justice Warren E. Burger: The United States was fulfilling a treaty obligation, was it not?
Mr. Nathan Lewin: But the result of the treaty obligation on the part of the United States was to keep him from being able to litigate the tax claim.
True, it was fulfilling a treaty obligation, but there were times it seems to us when the government maybe has to make a hard choice and it does, so I suppose in all extradition cases.
If it fulfills a treaty obligation, it may end up in some circumstances in a position where it is more difficult for it to collect a tax liability and we did raise in the Court of Appeals and although that is not been no how.
We think the Judgment of the Court of Appeals can be sustained on the very narrow grounds that the Court of Appeals took.
The Court of Appeals did not reach our broad constitutional argument and Rule 4.
They simply said, “There is enough here for a remand to the District Court.”
But, we did argue to the Court of Appeals and we continue to think that it is right that if the government puts a man in a position where he cannot litigate the tax claim, particularly when that claim is based as it is here on an allegation that he committed a criminal conduct, which is really very hard to fight in absentia, they may not at the same time seek to forfeit all of his assets on that tax claim.
Chief Justice Warren E. Burger: Even if he won all this money at the races instead of that criminal conduct, it still would be a subject to tax, would it not?
Mr. Nathan Lewin: It would.
But, we think that the difficulty with the government’s theory and the government’s approach in this case is that, if the government is able to use an allegation of criminal violation as a basis for a jeopardy assessment and then cut off all litigation of the basis for that kind of a claim by citing the Anti-injunction Act, it opens up the door for the Internal Revenue Service to become the prosecutor of all kinds of criminal offenses because clearly, most criminal offenses in the United States are committed for private gain and if so, the fruit of that criminal offense is taxable.
I do not think that there can be any question.
Chief Justice Warren E. Burger: Did Mr. Shapiro file any affidavit that corresponds to and dovetails the affidavit of the lady in Switzerland who said that she held his cash for him?
Mr. Nathan Lewin: Yes he did.
Chief Justice Warren E. Burger: His own affidavit?
Mr. Nathan Lewin: His own affidavit.
Chief Justice Warren E. Burger: Where do we find that in the --
Mr. Nathan Lewin: I am sorry.
It is in the record of the District Court.
That affidavit was filed --
Chief Justice Warren E. Burger: Is it in the record before us here?
Mr. Nathan Lewin: No.
There was an earlier affidavit.
There was an earlier affidavit which was filed at a time when there were no allegations of criminality that were made.
You see the difficulty that (Voice Overlap)
Chief Justice Warren E. Burger: Because it is not even in the appendix?
Mr. Nathan Lewin: It is.
There is an affidavit on pages 20 to 21 of the appendix.
And, it does say in paragraph 4, “Before arriving in the United States, I had made successful investments in Europe and had funds at that time, part of which I brought with me and the other portions of which were brought to me after I arrived in the United States.
I can establish this fact by documentation and by the testimony of witnesses and would be prepared to do so in a bona fide inquiry into my tax obligations.”
Of course, that did not refer to narcotics allegation because there were no narcotics allegation made at that point.
Mr. Shapiro was not alleged to be a narcotics dealer at that point.
It was only at the eleventh hour before the District Court was about to rule that that allegation was made.
And it was in response to that kind of allegation that the subsequent affidavit was filed in the later hearing.
Now, I think I pointed out that as to procedure, I think that is one issue that has open in the District Court.
The second issue which we believe is open in the District Court is simply the question of good faith and I think that this Court’s decisions on Enochs and in Bob Jones make it clear that that is a legitimate issue that can be raised even under the Anti-injunction Act.
In Enochs, this Court said, page 7 of 370 U.S., to require more than good faith on the part of the government would unduly interfere with the objective of protecting the collector from suing.
So implicit in that was that good faith was an element of what the Collector of Internal Revenue had to establish.
The same thing was true with language in Bob Jones.
I think at page 740, the Court said, there is no evidence that that position, the position of the Internal Revenue Service, does not represent a good faith effort to enforce the technical requirements of the tax laws.
Again, there has to be good faith on the part of the commissioner.
Now, we are not in a position where we are simply a taxpayer who has gone through a tax audit, the usual procedure with the Internal Revenue Service and then comes in at the last minute and says, “Well, you are proceeding in bad faith.
There are substantial indicia simply from the allegations in the complaint that this jeopardy assessment was not a good faith collection of revenue measure.”
The waiting until the last minute and I think if the government tries --
Justice William H. Rehnquist: Not in good faith.
You mean that the government, if all the facts were brought out really did not even have a colorable claim of tax liability?
Mr. Nathan Lewin: No.
what I think --
Justice William H. Rehnquist: When you say no --
Mr. Nathan Lewin: What I am referring to Mr. Justice Rehnquist is that the internal revenue service was attempting to use an assessment as a basis for prosecuting or harassing what the government believed to be someone who violated a criminal law.
Justice William H. Rehnquist: That does not really answer the question of whether the government had at least a colorable claim of tax liability?
Mr. Nathan Lewin: The government’s good faith effort has to be to collect revenue. That is what it has to be.
Justice William H. Rehnquist: Well, if it had a colorable claim for revenue, that is the end of the question, is it not?
Mr. Nathan Lewin: No.
With all deference, I think not so if the government’s whole claim is based on an allegation of criminality which should be pursued by other agencies of the government.
Otherwise, every --
Justice William H. Rehnquist: You are saying then if they levied against the Al Capone, for income tax violation, actually he was guilty of an awful lot of other things worst than Income Tax Violation, Al could have come in and got an injunction?
Mr. Nathan Lewin: No.
I think that, I guess Al Capone, the government could not try to use a jeopardy assessment as a substitute for a criminal prosecution and I think that that is what is being done here.
Justice William H. Rehnquist: You mean that if there is criminal liability, the government must prosecute a criminally even though if there is a tax liability conjointly, it cannot pursue the tax liability?
Mr. Nathan Lewin: I think that it may pursue the tax liability and I think that it may pursue it jointly.
But here, it is in a peculiar position of having a man who they know is going to be extradited.
The government says, “Well, we just found that out.”
I think its own answers to the interrogatory show that they knew it back in October of 1973, two months before they levied the jeopardy assessment.
Justice William H. Rehnquist: How does that vary what I take you concede to be the general rule that the government can proceed both criminally and to collect taxes at the same time, the fact that he is just about to be extradited?
Mr. Nathan Lewin: Because I think that the government that he would have no possible way of defending himself against what I believe would have been insubstantial allegations or what he believed to be insubstantial allegations of criminality.
If the government proceeds against someone before he is about to be extradited and seizes his assets and indeed the inference is here are that the government procedure in a way in which it supposed that he might not even learn about it until after he was out of the country.
Justice William H. Rehnquist: But the charge -- the basis of the assessment was tax liability, not criminality?
Mr. Nathan Lewin: But the bottom wrong, the fact out of which the alleged tax liability arose was alleged criminal act?
Justice Byron R. White: (Inaudible)
Mr. Nathan Lewin: Yes I am, Your Honor.
Justice Byron R. White: The Court of Appeals have decided in your favor on this basis.
Mr. Nathan Lewin: No.
What the Court of Appeals…
Justice Byron R. White: (Inaudible) has to do is something a way beyond the Court of Appeals and these things that were not resolved there and are not before us now as far as I can see?
Mr. Nathan Lewin: I did not mean to do that Mr. Justice White.
Justice Byron R. White: (Inaudible) defend the Court of Appeals' judgment, that is what you want to do?
Mr. Nathan Lewin: I think what the Court of Appeals Judgment did is it gave us a day in court and I think that the only things that I am trying to do --
Justice Byron R. White: Do you want it or not?
Mr. Nathan Lewin: That is what I want and that is the only thing that I am trying to do here.
Justice Byron R. White: You want it because you have a Constitutional Argument?
Mr. Nathan Lewin: Pardon?
Justice Byron R. White: You want it because you have a Constitutional Argument?
Mr. Nathan Lewin: No.
I think we have a Statutory Argument and I think --
Justice Byron R. White: What about the Constitutional Argument?
Mr. Nathan Lewin: Yes.
We have a Constitutional Argument as well.
Justice Byron R. White: Well, I think the argument is forced away.
Mr. Nathan Lewin: Well, if what Your Honor is referring to is that if the Internal Revenue Service acted on the basis of what might be arbitrary and excessive procedures, then we are entitled to proceed in the District Court under the procedures that Lucia and Pizzarello set out, then I would like to proceed directly to that point.
Those are two cases which the Court of Appeals applied.
One of which was decided, I might say, by unanimous en banc Fifth Circuit, that is 14 judges of the Fifth Circuit, there was a separate concurring and dissenting opinion which in fact we have got further than the Majority Opinion with Lucia.
And, what the Court of Appeals said in Lucia was that if the government’s jeopardy assessment is alleged to be arbitrary and excessive, then the government must at least come forward with something other than then mere protestations of good faith and the Court of Appeals indicated in Lucia that it was not sufficient if the government simply said, “Well, we made a projection out of this man’s wagering proceeds that he could have made so and so much money over the course of the year.
We think our case, and the same thing was true in Pizzarello, both of which involved admitted gamblers whose assets or who was the subject of a seizure as to which the proceeds of their gambling for a definite period of time was known for one day or for three days and the government made a projection from that.
In this case, we think it follows a fortiori from Lucia and Pizzarello because in this case, Mr. Shapiro denied under oath that he had ever been engaged in the illegal activity.
One does not even reach the question of projection.
In fact, if one looks at what the government relied in the later hearing before the District Court, they did rely on a projection precisely like that that was involved in Lucia and Pizzarello and which the Courts of Appeals in those cases held would be inadequate.
In this case, the government is asking a projection to be applied to the kind of conduct which I would think this Court could almost take judicial notice would not be as regular and repeated as it would be in the case of one who is writing a book making establishment who has regular daily customers.
At most, what the affidavit which appears in our brief and which was filed by the government in that hearing shows was that on several isolated occasions, they believed that the money that Mr. Shapiro received were proceeds of hashish sales.
So, we have here the denial of the illegal activity, and in addition to that, the projection.
We submit that both those things together certainly warranted the Court of Appeals and saying that we were entitled to a day in court in which what the government used as a basis for its claim would come forward in court, what our client said in response to that would come forward in the court and the court would then make a finding.
It is true that the Court of Appeals left vague what the contours of that finding would be and the judge has given -- the Trial Judge has given substantial discretion to proceed under such standards as he might think appropriate to this particular case.
But we do not think that that on anyway undermines the bottom line of the Court of Appeals’ decision which is really that, a complaint of this kind which alleges procedural deficiencies, alleges bad faith on the part of the government, raising constitutional questions and alleges that the basis for the jeopardy assessment which is arbitrary, excessive and beyond the constitutional power, therefore, the Internal Revenue Service warrants a full hearing in the District Court.
Justice Byron R. White: Mr. Lewin, Mr. Powell and maybe others have asked your predecessor just what we have here to review in this case.
Do we -- we granted certiorari to the judgment of the Court of Appeals remanding to the District Court and should we assume that that is all we have and all we know and wholly disregard what has subsequently taken place in the District Court or do we have something more?
Mr. Nathan Lewin: Certainly, on behalf of the respondent, I would consent if the government consents to the Court considering what happened in the District Court subsequent to that time, simply because from our client’s point of view, we think it is important to get them out of resolve.
Now, we think that the entire record that is before the District Court should be before this Court.
I know the transcript is here.
I must submit, I am not sure whether those two affidavits have been filed, but I will check that with the clerk and file them.
But, if the government has filed and lodged that these are the documents and we both discussed them on the briefs, we certainly would urge the Court to consider what happened subsequent to that time.
Justice Byron R. White: You would be agreeable to approach the case by asking if the government had filed immediately in answer to the complaint what it has now filed in the District Court, whether or not then it would be justified in holding your client’s property pending the complete hearing the tax forum?
Mr. Nathan Lewin: And, Mr. Justice White, if we had filed in response to that what we filed in the District Court in response to that.
Justice William J. Brennan: Yes.
But all to the end argument, we ought to look at all this I gather is your submission, only to see whether the remand by the Court of Appeals or the District Court should be sustained or reversed?
Mr. Nathan Lewin: Right.
And I should point out in that regard that what the District said on the basis of those facts is that there should be discovery so that our view is that there should be further proceedings.
Justice William J. Brennan: Well, I suggest, I think you answer to Justice White’s (Inaudible) inconsistent.
Justice Byron R. White: Yes.
Mr. Nathan Lewin: Well, I am sorry in that regard.
But in other words, the District Court has said, the District Court has now said that there will be further proceedings and it has ordered us to proceed with discovery.
Justice Byron R. White: I would take it that your answer to me, that if we look at the record and if we were willing to undertake it and we would say, “Well, the government has filed all that it would ever need to file to satisfy any kind of the Enochs’ burden, therefore, if we decided that, we would say that the District Court was right in dismissing the case.
That is what your answer means to me.
Mr. Nathan Lewin: If the court would have come to that conclusion.
But, we think --
Justice Byron R. White: Well, I know.
I know we may not come to that conclusion, but as a matter of fact, if you say we ought to -- arguably if you -- we should never undertake then arguably we really should say that we remand it to the Court of Appeals to make this judgment on the basis of what is happened in the District Court?
Mr. Nathan Lewin: Except that there has been no subsequent appealable order, I suppose.
The Court of Appeals might consider it, but the Court of Appeals would be considering without an appealable order.
Justice Byron R. White: Well, that would be as much there as it is here?[Laughter]
Mr. Nathan Lewin: Well, I suppose that is true, Your Honor.
But our feeling is that on the basis of the record as it appears, there is reason for further proceedings in the District Court and that is why the Court of Appeals’ judgment remanding it was correct that there should be further proceedings in the District Court.
Justice William J. Brennan: And, everything has happened since you say only supports that conclusion of Court of Appeals (Voice Overlap)
Mr. Nathan Lewin: That is right.
That is our position.
It supports the correctness of that conclusion.
Chief Justice Warren E. Burger: Thank you gentlemen.
The case is submitted.