Petition — Jacobson v. Internal Revenue Service

In The

MICHAEL RODAK, JR.

Supreme Court of the Mnit ites

—_—_@—

October Term, 1976

No.6 = 1025

MARK JACOBSON and RANGER BAKERS, INC.

Petitioners,

vs.

THE ORGANIZED CRIME AND RACKETEERING

SECTION OF THE UNITED STATES DEPARTMENT OF

JUSTICE, THE INTERNAL REVENUE SERVICE OF THE

UNITED STATES, MARTIN SENZER, REVENUE

OFFICER, DOMINICK PALLILA, GROUP MANAGER,

RAYMOND KEENAN, CHIEF, COLLECTION DIVISION,

AND CHARLES BRENNAN, DISTRICT DIRECTOR,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

SECOND CIRCUIT

IRVING MANDELL

Attorney for Petitioners

110-11 Queens Boulevard

Forest Hills, New York 11375

(212) 261-3050

9528

LUTZ APPELLATE PRINTERS, INC.

Law and Financial Printing

South River, N.J. New York, N.Y. Philadelphia, Pa. | Washington, D.C.

(201) 257-6850 (212) 563-2121 (215) 563-5587 (201) 783-7288

TABLE OF CONTENTS

Page

Opinion Below ....-.eeeeeececeeeceeecereseeesesecess 2

Jurisdiction ......cecccccccccccccccccsececsseeseeesees 2

Questions Presented ......-+eeeeeeeeeeeesseseeeceeseees 2

Statutes and Constitutional Provisions .....-+++++++++++* 3

Statement of the Case ......-.eeeeceeeceeeereeeceeeeees 3

Reasons for Granting the Writ .....-.eeeeeeeeeeerereres 7

Conclusion .....ccceccccccccccccssccccsecscscsecsesees 10

TABLE OF CITATIONS

Cases Cited;

Bivens v. Six Unknown Agents of Federal Bureau of

| Narcotics, 403 U.S. 388 (1971) ...---eeeeeeeees 2, 7, 9, 10

Laing v. United States, 423 U. S. 161 (1976) ....eceeee 7, 8,9

United States v. Hall, 423 U.S. 161 (1976) .....+-+++++> 8, 10

Statutes Cited:

%6 U.S.C. Section 6851 .....-eeeeeeeeeeeeererersereeees 9

% U.S.C. Section 6851(a) ...-eeeeeeeeeeeeeeecereeeeees 9

%6 U.S.C. Section 6862 .......ceeeeceeeeeerereeeeereees 2

26 U.S.C. Section 6862(a) ...---eeeeeeererceces 3, 5, 7, 9, 10

Contents

MP UBL. Bortlaw PHBE ococccccccccccccce. ™

ee eae Pee Sera 2

United States Constitution Cited:

i 3, 8

es er cane |

Treasury Regulation 301.6862-1 ................ 3

APPENDIX

Opinion of the United States Court of Appeals

Opinion of the United Sta istri

aor tes District

District of New York ct Court for the Eastern

Relevant Statutes

In The

Supreme Court of the Hnited States

_>—

October Term, 1976

No.

MARK JACOBSON and RANGER BAKERS, INC.

vs.

THE ORGANIZED CRIME AND RACKETEERING

SECTION OF THE UNITED STATES DEPARTMENT OF

JUSTICE, THE INTERNAL REVENUE SERVICE OF THE

UNITED STATES, MARTIN SENZER, REVENUE

OFFICER, DOMINICK PALLILA, GROUP MANAGER,

RAYMOND KEENAN, CHIEF, COLLECTION DIVISION,

- AND CHARLES BRENNAN, DISTRICT DIRECTOR,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

SECOND CIRCUIT

To: The Honorable, the Chief Justice of the United States,

and the Associate Justices of the United States Supreme

Court:

The petitioners, Mark Jacobson and Ranger Bakers, Inc.,

respectfully pray that a writ of certiorari issue to review an order

of the United States Circuit Court of Appeals for the Second

Circuit entered in this proceeding on November 3, 1976.

P 3

OPINION

ceed that collection of the tax will be jeopardized by delay

unconstitutional as vague and uncertain, particularly where

there is no proof whatsoever either before or after the seizure in

question that such a belief was actually formed or could

reasonably have been formed?

The opinion of the Court of A

opi ppeals and of the Uni

States District Court for the Southern District of New sor

appear in the Appendix hereto. The Court of Appeals opinion is

not officially reported. The District Court opinion is at 403 F

Supp. 1332.

JURISDICTION

The order of affirmance of the C

mee ourt of A l

Second Circuit was entered on November 3, 176 s for the

This Court's jurisdiction is i i

em... invoked under 28 U.S.C. Section

QUESTIONS PRESENTED

I. Does a federal court have jurisdiction to enjoin the IRS

and individually named revenue officers from imposing

employment tax jeopardy assessments where they fail to comply

with the express requirements of the unde

statut

purport to act? ‘ ee

The court answered in the negative.

2. Where the individual revenue officers fail to comply with

the express requirements of the statute under which they have

imposed employment tax jeopardy assessments may they be held

accountable to the plaintiffs in damages under the doctrine of

Bivens v. Six Unknown A

gents of Federal ;

403 U.S. 388 (1971)? 4 al Bureau of Narcotics,

The court answered in the negative.

3. Is 26 U.S.C. Section 6862, which empowers the Secretary

or his delegate to make a jeopardy assessment if he “believes”

The court dismissed the argument as having “no merit

whatsoever” without citation of any authority whatsoever.

STATUTES AND CONSTITUTIONAL PROVISIONS

The provisions of the foregoing are set forth in the

appendix:

% U.S.C. Section 7421 (The Anti-Injunction Act);

% U.S.C. Section 6862(a) (The Jeopardy Assessment

Provision);

Treasury Regulation 301.6862-1 (The Jeopardy Assessment

Regulation);

The Fifth Amendment of the Constitution (Due Process

Clause).

STATEMENT OFTHE CASE

The petition is limited to a review of the dismissal of the

entire complaint against the individually named IRS

representatives and the IRS.

The plaintiff-appellant Ranger Bakers, Inc. (hereinafter

plaintiff “Ranger”), acquired certain assets of Silvercup Bakers,

Inc., pursuant to an order of the Bankruptcy Court on October

29, 1974. The plaintiff-appellant Mark Jacobson (hereinafter

plaintiff “Jacobson”), was the president and sole stockholder of

Ranger at the time of the acquisition. The company employed

approximately 500 persons.

4

. Plaintiff Ranger paid its federal employment taxes amount-

ing to several hundred thousand dollars faithfully until March

30, (1975. Thereafter it fell behind in its payments. Plaintiff.

attribute their financial problems to a concerted effort b i

Organized Crime and Racketeering Section of the De A ;

of Justice (“Strike Force”) as well as other law bo ce

agencies and the Internal Revenue Service to drive them out of

business. Plaintiffs allege that these agencies were involved in

long standing, ongoing vendetta with plaintiff Mark diner

father Sam, whom these agencies have characterized as a “m >

figure . Plaintiffs claim that starting in April, 1975 a New York

City newspaper published a series of articles about Sam

Jacobson, culminating in an article on May I1, 1975, which

alleged that plaintiff Mark Jacobson was a front at Silverce fo

mob figure Sam Jacobson, who manages underworld king “

Meyer Lansky’s gambling cartel in this area”. =

Plaintiffs contend that the article is untrue and libelous and

was deliberately “planted” by certain law enforcement a enci

as part of their ongoing vendetta against Sam ‘eccdiaan The

plaintiffs have sued the newspaper for libel. or

Plaintiffs contend that because of the publication of the

newspaper articles and because of actions of law enforcement

agents who intimidated plaintiffs’ customers and banks. thei

business suffered financial reverses, their credit was me bec

and as a result thereof they were unable to meet their feden l

obligations as they accrued. ore

The plaintiffs received their first notice from the IRS of a

tax deficiency for the second quarter of 1975 on September 30,

1975. The written notice called for payment of approximately

$264,000 by October 9, 1975. Tne plaintiffs immediately

requested a meeting to discuss payment of the obligation and in

fact a meeting was held at the plaintiffs’ plant the following day

The meeting was attended by plaintiff Mark Jacobson and his

attorney and by defendant Revenue Officers Martin Senzer and

5

his Group Manager Dominick Pallila. The plaintiffs offered to

liquidate the arrears at the rate of $10,000 a week and to

commence making immediate withholding tax deposits for the

current quarter. This proposal would have enabled the taxpayer

to liquidate the debt in 26 weeks thereby securing the jobs of its

500 employees. The defendants stated that they would convey

the proposal to their superiors and agreed to meet the following

day at the local IRS office.

The following day, immediately prior to the scheduled

meeting, the plaintiffs learned from their bank and customers

that the defendants had filed a lien and had levied on plaintiff

Ranger’s bank accounts, including its payroll account. The

defendants had also levied on numerous customers’ accounts of

plaintiffs. The plaintiffs’ 500 employees were due to receive their

week's pay the following day.

The foregoing action was a jeopardy assessment made by

defendants under the authority of Section 6862(a) of the 1954

Internal Revenue Code. It was taken:

1. Without prior oral or written notice to plaintiffs;

2. Without oral or written demand for immediate payment,

the only existing notice of which plaintiffs were aware called for

payment by October 9, 1975;

3. Without any showing or proof whatsoever that the

District Director had formed a belief that the collection of the

tax would be jeopardized by delay, or the factual basis of that

belief.

Section 6862(a) of the Code mandates these prerequisites to

justify a jeopardy assessment. The defendants Keenan, Chief of

the Collection Division and Brennan, District Director approved

the actions taken by defendants Senzer and Pallila.

6

Plaintiffs paid the debt by borrowed money and by

inducing several of its customers to anticipate their accounts

pavable.

Two weeks later the defendants repeated the performance

with respect to the third quarter taxes, although the report for

that quarter was not yet due. This time, however, a demand for

immediate payment was made but plaintiffs’ request for two

hours to raise the funds was denied. The plaintiffs paid this levy

in full with monies borrowed from a third party (the check being

made payable directly to the IRS). However, the strain of these

assessments, together with Ranger’s loss of business and credit

because of harassment and intimidation of its customers and

banks by the IRS and law enforcement officials forced the

plaintiffs to cease operation on November 15, 1975. This

resulted in a loss of jobs by some 500 Ranger employees.

At approximately the same time that the second jeopardy

assessment was made, the plaintiffs sued the named defendants

alleging the following:

(a) That the defendant Strike Force had engaged in a

continuing series of acts designed solely to harass the plaintiffs

and to destroy their business operations (First and Second

Causes of Action). Injunctive relief was sought.

(b) That the defendant IRS and the individually named

defendants had singled plaintiffs out for unusual and special, but

unevenhanded treatment with respect to their tax liabilities

primarily for the purpose of destroying their operations (Third

Cause of Action). Injunctive relief was sought.

(c) That all of said defendants by reason of the specific

facts alleged in the complaint had violated “plaintiff's

constitutional rights .. . and more particularly under the Fifth

Amendment thereof .. .” (Fourth Cause of Action). Injunctive

relief was sought.

;

(d) That all of said defendants had violated plaintiff's wr

rights (Fifth and Sixth Cause of Action; the Fifth omg .

Action was abandoned on appeal). Money damages

sought.

(e) That all defendants conspired among nor petted =

destroy plaintiff's property and business and cediedones

acts in furtherance of said conspiracy (Seventh Cause 0 ion).

Money damages were sought.

The District Court dismissed the complaint against the

defendant Strike Force on the grounds that it lacked jurisdiction

of the subject matter of the action, the Strike Force not ——

juridical entity subject to suit eo nomine. No appeal was take

from that judgment.

Subsequently _ the District Court denied cw meccad

application for a preliminary injunction and en = =

complaint against the Internal Revenue Service and ge

individual defendants. The petitioners urge that the dismissa

the entire complaint as to the remaining defendants is —

because of the prior decisions of this Court in Bivens v.

Unknown Federal Narcotics Agents, 403 U.S. 388 (1971) an

Laing v. United States, 423 U.S. 161 (1976).

The petitioners also urge that the lack of specific ———

in 26 U.S.C. Section 6862(a) to guide the Secretary or -

delegate in forming a “belief” that the collection of the tax =

be jeopardized by delay renders the statute unconstitutionally

vague and uncertain.

REASONS FOR GRANTING THE WRIT

Judge Neaher’s decision that because of the ere

Statute, the court lacked jurisdiction to grant SS

for injunctive relief, did not require a dismissal ” 9 = .

complaint. This was particularly true of the Fourt

Action in which the petitioners alleged numerous instances

which constituted a denial of their constitutional rights under

the Constitution and more particularly under the Fifth

Amendment thereof.

Since the respondents had not yet filed an answer, the

allegations should have been taken as true. They were more than

vague and conclusory allegations constituting mere “use

of... rhetoric . . . supplemented by claims of many millions of

dollars of damages”, as stated by the Circuit Court.

Petitioners urge that if the IRS and the individual

defendants are permitted to act completely outside the limits of

their authority and without any restraints whatsoever merely

because the taxes “were not only due but .. . were actually paid

in full...” then a new and dangerous standard of justice has

been applied. The courts below have concluded that the end

justifies the means!

It is inconceivable that such a result is mandated for fear.

that the courts would be confronted with countless

“constitutional tort suits by criminals .. . narcotics importers on

down to muggers. .. .” The comparison of the petitioners in this

civil suit to criminals was a gratuitous affront and hardly

necessary to the decision of the Court. In fact, the Supreme

Court in United States v. Hall, a companion case to Laing v.

United States, supra, granted relief to Mrs. Hall although the

District Director found her “involved in illicit drug activities

thereby tending to prejudice or render ineffectual collection of

income tax... .”

Furthermore, petitioners submit that the holding in Laing,

supra, has broader implications than the Circuit Court allows:

Mr. Justice Brennan in his concurring opinion (423 U.S. 185,

188 (1976)), while noting that the Court's Opinion does not

address itself to the appellants’ claims that they were denied

procedural due process secured by the Fifth Amendment, voices

his opinion that due process requires some supporting rationale

to support the validity of the basis for a jeopardy assessment.

26 U.S.C. Section 6851(a) under which Laing was decided

at least provides certain guidelines under which the Secretary or

his delegate may make a jeopardy assessment. Section 6862(a)

provides none at all.

Petitioners submit therefore that Section 6862(a) is

unconstitutional as vague and uncertain and ! permits the

Secretary or his delegate to act without first having formed a

belief; or to act, having formed a belief without basis in fact.

Certainly, the second jeopardy assessment made within two

weeks after the first was paid in full could not have been

supported by a rational belief that the collection of the tax,

except by jeopardy assessment, would be jeopardized by delay.

Indeed, none of the defendants, all of whom were in court at the

hearing was permitted to testify that he had formed a belief. _

Petitioners therefore urge that the constitutionality of

Section 6862(a) and the actions of the individual defendants

under it constitute an important question of constitutional law

which has not been dealt with by the courts below.

Similarly Laing suggests that the failure of the IRS to act in

accordance with the specific requirements of Section 6851

renders the Anti-Injunction Act inapplicable. Petitioners urge

that the mere fact that income taxes rather than employment

taxes were involved in Laing does not distinguish the Supreme

Court’s rationale for barring the applicability of the Anti-

Injunction Statute.

Finally petitioners urge that the dismissal of the entire

complaint and particularly the Fourth Cause of Action based

upon uncontroverted allegations of violations of their

constitutional rights diminishes the holding of this Court in

Bivens, supra. The gravamen of the petitioners’ complaint is not

so much that they were given discriminatory treatment by the

individual defendants but that such treatment resulted from

actions taken in violation of Section 6862(a). They urge that

their property was seized without due process of law by IRS

agents acting without lawful authority. Unless IRS agents enjoy

a greater immunity than Federal Bureau of Narcotics Agents

they must be held to the same standard applied in the Bivens

case.

It is noteworthy that in Hall, the companion case to Laing,

supra, Mrs. Hall sought not only injunctive relief against the

IRS but compensatory and punitive damages as well. Not only

did the Supreme Court grant injunctive relief but it permitted

the claims for money damages to stand. Petitioners therefore

contend that the dismissal of the entire complaint as to the

individual defendants is in conflict with applicable decisions of

this Court. Petitioners should have been granted leave as argued

below to amend their Fourth Cause of Action to demand money

damages as well as injunctive relief.

CONCLUSION

For these reasons, a writ of certiorari should be issued to

review the opinion and judgment of the Court of Appeals for the

Second Circuit.

Respectfully submitted,

s/ Irving Mandell

Attorney for Petitioners

|

la

APPENDIX

OPINION OF THE UNITED STATES COURT OF

APPEALS

At a Stated Term of the United States Court of Appeals, in

and for the Second Circuit, held at the United oo

Courthouse in the City of New York, New York, on the I3t

day of October, one thousand nine hundred and seventy-six.

Filed November 3, 1976.

UNITED STATES COURT OF APPEALS

For The Second Circuit

No. 23—September Term, 1976.

(Argued October 13, 1976 Decided November 3, 1976.)

Docket No. 76-6015

MARK JACOBSON and RANGER BAKERS, INC.,

Plaintiffs- Appellants,

-against-

THE ORGANIZED CRIME AND i

SECTION OF THE UNITED STATES DEPARTMENT ne

JUSTICE, THE INTERNAL REVENUE SERVICE OF T

UNITED STATES, MARTIN SENZER, Revenue ei

DOMINICK PALLILA, Group Manager, yn geeny

KEENAN, Chief, Collection Division, and CHAR

BRENNAN, District Director,

Defendants- Appellees.

2a

Opinion of the United States Court of Appeals

Before:

MEDINA, ANDERSON and MULLIGAN,

Circuit Judges.

Appeal from a judgment of the United States Distri

ay trict Court

for the Eastern District of New York, Edward R. Neaher pa

Plaintiffs Mark Jacobson and Ranger Bakers, Inc. appeal

from a judgment denying their application for a preliminary

injunction and dismissing their complaint. ini

reported at 403 F. Supp. 1332. ’ saieoca

Affirmed.

IRVING MANDELL, Forest Hills, New

York, for Plaintiffs-Appellants.

JAMES E. CROWE, Jr., Attorney, Tax

Division, Department of Justice,

Washington, D.C. (Scott P. Crampton,

Assistant Attorney General, Gilbert E.

Andrews and Jonathan S. Cohen,

Attorneys, Tax Division, Department of

Justice, Washington, D.C., and David G.

Trager, United States Attorney for the

Eastern District of New York, Brooklyn,

New York, on the brief), for Defendants- |

Appellees Internal Revenue Service and

its Officials.

MEDINA, Circuit Judge:

Plaintiffs Mark Jacobson and Ranger Bakers, Inc., appeal

from a judgment denying their application for a preliminary

injunction and dismissing their complaint against the Internal

3a

Opinion of the United States Court of Appeals

Revenue Service and the four individual defendants, Senzer,

Pallila, Keenan, and Brennan.' This action was taken, after a

hearing, by Judge Edward R. Neaher of the Eastern District of

New York, and the opinion is reported at 403 F. Supp. 1332.

While plaintiffs present 2 number of alleged grievances, the

thrust of their case begins with and centers around the Service’s

declaration and collection of two employment tax jeopardy

assessments for the second and third quarters of 1975. The facts,

as set out in the complaint and affidavit of Mark Jacobson

submitted in support of plaintiffs’ motion for a preliminary

injunction, are as follows.

Mark Jacobson is the president and sole stockholder of

Ranger Bakers, Inc. On October 29, 1974, Ranger purchased

certain assets of Silvercup Bakers, Inc., then in bankruptcy

proceedings under Chapter XI, and took over the running of the

company. Ranger paid its federal employment taxes for the first

quarter of 1975, which ended March 30.

However, beginning around May of 1975, Ranger fell into

financial difficulties, and failed to make the weekly withholding

tax deposits required under the Internal Revenue Code,’

amassing a delinquency of approximately $264,500 for the

second quarter of 1975.

Ranger maintains that its financial problems were caused by

the concerted efforts of the Organized Crime and Racketeering

Section of the Department of Justice and the Internal Revenue

1. The complaint was dismissed against defendant Organized Crime and

Racketeering Section of the United States Department of Justice on April 12, 1976, and

judgment was entered on April 14. Apparently no appeal was taken from that judgment,

and the Organized Crime Section is not involved in this appeal.

2 2% USC. Sections 3102 and 3402, Treasury Regulations Section 3!.6302(c)-I.

4a

Opinion of the United States Court of Appeals

Service. which, it claims, were resolved to drive it out of

business. Appellants allege that the Organized Crime Section,

carrying on a “personal vendetta” against the Jacobson family

(App. 7a, 26a), “leaked” to a New York City newspaper a story

which appeared in May 1975 to the effect that Jacobson was a

front for his father, Sam, who, the article asserted, manages an

underworld gambling cartel. Appellants also allege vaguely that

the Organized Crime Section intimidated and spread “false and

malicious stories” among plaintiffs’ customers, vendors, and

banks in an effort to dissuade them from dealing with or

extending credit to appellants. They claim it was as a result of

the consequent loss of business and credit that they were unable

to meet their federal tax obligations.

On September 30, 1975, appellants received a deficiency

notice for the second quarter employment taxes, requesting

payment by October 9. A meeting was held on September 30 in

Ranger's office, between Jacobson and his atiorney and three

IRS officers, including defendants Senzer and Pallila, at which

time Jacobson explained Ranger’s financial “plight” (App. 32a)

and sought to be allowed to pay their tax debt in weekly

installments of $10,000. No decision was reached, however, and

the next day the Service made a jeopardy assessment under

Section 6862 of the 1954 Code, and levied on Ranger’s payroll

account and on a number of its customers. Despite Ranger’s

representations to the IRS agents the day before that it would

have difficulty raising the money, it paid the assessment and

accrued interest on October 2nd.

On October 9, the Service having determined that payments

for the third quarter, which ended September 30, were also

delinquent, Revenue Officer Senzer informed appellants that the

third quarter tax was due immediately.) On October 14 a

3. 26 U.S.C. Section 6862 authorizes the Service to assess withholding and

employment tax immediately, whether or not the normal time for making a return and

paying the tax has expired, when it believes that the collection of the tax will be

jeopardived by delay.

<=

Sa

Opinion of the United States Court of Appeals

jeopardy assessment was made with respect to these taxes, and

levies followed. Apparently sometime shortly thereafter Ranger

paid the second assessment. Allegedly as a result of the

consequent strain on its resources, Ranger ceased operations one

month later, on November 15, 1975.

The motion for a preliminary injunction was properly

denied for lack of subject matter jurisdiction. The Anti-

Injunction Act, 26 U.S.C. Section 7421, is specific and it is too

clear for reasonable debate that all the acts sought to be

enjoined constitute in one form or another “the assessment and

collection of taxes.” The denial of “even-handed treatment,”

which appellants choose to describe as required by constitutional

due process, appears on the face of the complaint to be the

refusal to allow appe!!ants to pay their tax debt in installments

as the Treasury Regulations permit.

Nor is the recent Supreme Court decision in Laing v.

United States, 423 U.S. 161 (1976), strongly relied upon by

appellants, of any avail to them. In Laing the taxable years of

two income-tax payers were terminated by the IRS prior to their

normal expiration dates pursuant to the jeopardy termination

provisions of Section 6851(a)(1) of the Internal Revenue Code,

which permits accelerated termination of a taxpayer's taxable

period when the IRS finds that the taxpayer intends to commit

an act which will render ineffectual the collection of his income

tax. The taxpayers failed to pay the tax as demanded, and the

IRS levied upon and seized their property without having sent a

notice of deficiency as required by Section 6861—receipt of such

a notice being a jurisdictional prerequisite to a taxpayer's suit in

the Tax Court for redetermination of his tax liability. The

Supreme Court held that the income tax jeopardy assessment of

Section 6851 is subject to the procedures of Section 6861, and

the failure of the IRS to act as provided in Section 6861

rendered the Anti-Injunction Act inapplicable under the plain

language of the statutory sections involved.

EE

6a

Opinion of the United States Court of Appeals

While appellants here make much of the IRS’s failure to

make an “immediate demand and notice” in this case with

respect to the first of the two jeopardy assessments involved,

suffice it to say that the tax issue and the statutory sections

involved in Laing all dealt with income taxes, not with federal

withholding taxes such as are at issue here, and there simply is

no equivalent statutory exception for withholding taxes to

render the Anti-Injunction Act inapplicable here.

With respect to the large money damage claims against the

IRS and the individual revenue agents, the vague and conclusory

allegations clearly state no claim for relief. Black v. United

States, 534 F.2d 524 (2d Cir. 1976). Appellants’ conspiracy point

is founded on 42 U.S.C. Section 1985, which applies only to

“racial, or perhaps otherwise class-based, invidiously

discriminatory” action. Griffin v. Breckenridge, 403 U.S. 88, 102

(1971). There is no trace of any such allegation in this complaint.

The argument that appellants were “singled out” and thus

deprived of the equal protection of the laws has a hollow sound

when it is recalled that there is no dispute that the withholding

taxes were not only due but they were actually paid in full. Were

this court to find that such allegations constitute a claim for

relief the result would be countless “constitutional tort” suits by

criminals who are arrested or prosecuted, from alleged narcotics

importers and distributors on down to muggers, those parking

or speeding violaters who receive tickets from the police and so .

on endlessly, as each one of these would say he was “singled out”

and given discriminatory treatment.

Part of the relief granted to defendants by Judge Neaher

was the quashing of a variety of subpoenas that appellants had

issued in connection with the hearing on the application for a

preliminary injunction. The issuance of these subpoenas is some

indication of what would happen if we held that the mere use of

Ta

Opinion of the United States Court of Appeals

the rhetoric of conspiracy and harassment, supplemented by

claims of many millions of dollars of damages against these

individual revenue agents, was sufficient to state a claim for

relief in this type of suit.

We find no merit whatever in appellants’ challenge of the

constitutionality of Section 6862(a) of the Revenue Laws and

Section 301.6862-I(a) of the Treasury Regulations, which is

framed in the usual double aspects of “on their face” or “as

applied.”

Judge Neaher did not reach such immunity claims by the

individual defendants as may be involved in this case; nor do we.

Affirmed.

8a

OPINION OF THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF NEW YORK

75 C 1718

(Filed November 14, 1975)

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

MARK JACOBSON and RANGER BAKERS, INC.,

Plaintiffs,

~against-

THE ORGANIZED CRIME AND RACKETEERING

SECTION OF THE UNITED STATES DEP’T OF JUSTICE,

THE INTERNAL REVENUE SERVICE OF THE UNITED

STATES, MARTIN SENZER, Revenue Officer, DOMINICK

PALLILA, Group Manager, RAYMOND KEENAN, Chief,

Collection Division, and CHARLES BRENNAN, District

Director,

Defendants.

APPEARANCES:

IRVING MANDELL, ESQ.

Attorney for Plaintiffs

DAVID G. TRAGER, ESQ.

United States Attorney,

Eastern District of New York

For Defendants

mM.

ee ee ee

9a

Opinion of the United States District Court

for the Eastern District of New York

By PROSPER K.

PARKERTON, ESQ.

Assistant U.S. Attorney

and

RICHARD A. SCULLY, ESQ.

Trial Attorney, Tax Division

United States Department of

Justice

NEAHER, District Judge.

Plaintiff Ranger Bakers, Inc. (“Ranger”) and co-plaintiff

Mark Jacobson, its president, have brought this civil rights

action alleging that defendants, the Organized Crime and

Racketeering Section of the Department of Justice (the “Strike

Force”), the Internal Revenus Service (the “IRS”),and named

IRS officers, have carried on a “personal vendetta” against

plaintiffs in violation of their constitutional rights.' Plaintiffs

seek injunctive relief and compensatory and punitive damages

for asserted acts of harassment and discriminatory enforcement

of the laws, particularly the denial of even-handed treatment of

the tax laws.

A temporary restraining order having been denied, the

matter presently before the court is plaintiffs’ motion for a

preliminary injunction which would require the IRS to accept

plaintiffs’ proposal for deferred payment of their current tax

liabilities and to afford plaintiffs the same considerations given

other taxpayers in the collection of taxes due.

Plaintiffs’ motion must be denied. The ultimate effect of

such an injunction would be to prevent the assessment and

collection of federal taxes. Under the Anti-Injunction Act, 26

U.S.C. §7421, this court is without power to grant the injunctive

relief requested.

10a

Opinion of the United States District Court

for the Eastern District of New York

FACTS

The actions of the IRS which plaintiffs seek to enjoin are

two jeopardy assessments and levies for the collection of

employee withholding taxes owed by Ranger for the second and

third quarters of 1975. The events leading up to the assessments

are intertwined with plaintiffs’ claims agaiast the Strike Force

not presently before the court. |

| On October 29, 1974 Ranger acquired the assets of

Silvercup Bakeries, Inc., then in proceedings under Chapter XI

of the Bankruptcy Act.? Ranger with Jacobson at its head began

the struggle for Silvercup’s financial recovery and managed to

remain current with Silvercup’s tax obligations, at least for

employee withholding taxes, up to March 30, 1975, the end of

the first quarter.’ According to plaintiffs, Silvercup’s business

position improved in the hands of Ranger until a newspaper

article appeared in May 1975, which stated, in effect, that

Ranger and Silvercup were controlled by the “mob”. This

information allegedly was disseminated by the Strike Force.‘

As a result of the news item and Strike Force investigations, °

plaintiffs claim Ranger’s business was severely damaged by loss

of | customers, suppliers and financial backing. Plaintiffs

maintain Ranger’s cash supply was so diminished it was unable

to meet “the required weekly withholding tax deposits and [it]

incurred a tax liability for the second quarter of 1975 . . . of

approximately $264,000”.° :

There followed the first jeopardy assessment. On September

30, 1975 plaintiffs received a deficiency notice calling for

payment of the second quarter withholding taxes in 10 days, i.e.,

by October 9, 1975.’ At a meeting on September 30 with IRS

agents, plaintiffs requested that an installment payment schedule

be arranged. Before any plan was approved and on October i

Opinion of the United States District Court

for the Eastern District of New York

the IRS levied on Ranger’s payroll account and on several

customers, demanding paymeni in full of taxes plus penalties.*

By the following day, Ranger had raised and paid the entire

amount due, $280,715.62.°.

Shortly thereafter the IRS made further jeopardy

assessments and moved to collect the withholding taxes due for

the third quarter ending September 30, 1975. On October 14 the

IRS notified plaintiffs the taxes were due “immediately,” again

levying on Ranger’s bank account and customers.'° Plaintiffs

insist the IRS’ actions were taken as part of a conspiracy to

destroy the name of Ranger, Silvercup and Jacobson and not to

ensure the full collection of taxes due.''.

PRELIMINARY INJUNCTION

Section 7421 of the Internal Revenue Code provides in

pertinent part that “[e]xcept as provided in sections 6212 (a) and

(c), [and] 6213 (a) . . . no suit for the purpose of restraining the

assessment or collection of any tax shall be maintained in any

court... ” Thus the plaintiffs are not entitled to injunctive

relief unless (1) the statutory bar of §7421 is lifted by the

statutory exceptions of §§6212 and 6213 or by the judicially

created exception of Enochs v. Williams Packing & Navigation

Company, Inc., 370 U.S. | (1962), and (2) preliminary injunctive

relief is otherwise warranted.

Statutory Exceptions to the Anti-Injunction Act

The taxes whose collection or assessment plaintiffs seek to

enjoin are withholding taxes imposed upon the employer under

§3402, Subtitle C (Employment Taxes), of the Internal Revenue

Code. However, §§6212 and 6213 apply only “in respect of any

tax imposed by Subtitle A [Income Taxes] or B [Estate Taxes].”

See 26 U.S.C. §§6212 (a) and 6213 (a). Clearly then, when

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Opinion of the United States District Court

for the Eastern District of New York

withholding taxes are involved, plaintiffs cannot invoke the

statutory exceptions to the Anti-Injunction Act which refer to

the assessment of income and estate taxes imposed by Subtitles

A and B of the Code. See Bolma v. Nixon, 239 F. Supp. 907

910 (E.D. Mich. 1965); Lipsig v. United States, 187 F. Supp.

826, 828 (E.D.N.Y. 1960). Unless plaintiffs can take advantage

of the judicial exception of Enochs, supra, the statutory bar of

§7421 remains absolute.

Judicial Exception to the Anti-Injunction Act

The judicial exception of Enochs, supra, would allow suit

despite §7421 if the taxpayer meets a two-prong test. The

taxpayer must establish that (1) “it is clear under no

circumstances could the Government u'timately prevail,”

Enochs, supra, at 7; and (2) “equity jurisdiction otherwise

exists”. /d. The Enochs test was recently reaffirmed in Bob Jones

University v. Simon, 94 S.Ct. 2038 (1974). There the Supreme

Court refused to create judicial exceptions to §7421 other than

that of Enochs, stating, “the Court’s unanimous opinion in

[Enochs] indicates that the case was meant to be the capstone to

judicial construction of the act [§7421].” Jd. at 2048. See United

States v. American Friends Service Committee, 95 S.Ct. 13, 14-

1S (1974). Plaintiffs must therefore place themselves within the

confines of Enochs.

| Plaintiffs assert the existence of equity jurisdiction, in that

irreparable injury will ensue in the form of Ranger’s inability to

operate its business or pay its employees. This assertion, even if

assumed to be true, is insufficient to lift the bar of §7421. See

Enochs, supra, at 6. Plaintiffs must also establish the

government's inability to prevail on any valid theory of tax

collection. Westgate-California Corporation v United States, 496

F.2d 839, 843 (9 Cir. 1974); Botta v Scanlon, 314 F.2d 392, 394

n. | (2 Cir. 1963). This determination is to be made on the basis

ee

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Opinion of the United States District Court

for the Eastern District of New York

of the information available to the government at the time of

suit. Boh Jones University v. Simon, supra, at 2046.

In making jeopardy assessments to collect unpaid

withholding taxes and in levying on third parties to collect

delinquent taxes, the IRS acted under the authority of §6862 of

the Internal Revenue Code. See 8A Mertens, Law of Federal

Income Taxation §47A.22 and n. 22. That section mandates

that:

“(a) Immediate Assessment. — If the

Secretary or his delegate believes that the

collection of any tax (other than income tax,

estate tax, and gift tax) under any provision of

the internal revenue laws will be jeopardized by

delay, he shall, whether or not the time otherwise

prescribed by law for making return and paying

such tax has expired, immediately assess such tax

(together with all interest, additional amounts,

and additions to the tax provided for by law).

Such tax, additions to the tax, and interest

thereupon become immediately due and payable,

and immediate notice and demand shall be made

by the Secretary or his delegate for the payment

thereof.”

The decision to make a §6862 jeopardy assessment is, like a

jeopardy assessment under §6861 in the case of income, estate

and gift taxes, subject to very narrow review. Under either

section the district director need only believe the collection of

taxes will be jeopardized by delay. This court will not substitute

its judgment for that of the district director. Cf. Westgate-

California Corporation v. United States, supra, at 842-43 n. 3.

However it may inquire whether the IRS has proceeded by

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Opinion of the United States District Court

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proper steps under §6862. See White v. Cardoza, 386 F. Supp.

1397 (E.D. Mich. 1973); cf. United States v. Bonaguro, 294 F.

Supp. 750, 753 (E.D.N.Y. 1968).

Plaintiffs raised at oral argument their claims that no valid

assessment was made and there was no deficiency. As this court

interprets their arguments, plaintiffs contend that the assessment

was invalid because they were given neither proper notice of

deficiency before assessment nor proper notice of demand before

collection by levy. They also urge that as to the third quarter

withholding taxes there was no deficiency because the notice

received should have read “payment due in 10 days” and not

“immediately,” and therefore no deficiency could occur before

the 10-day period expired, and because no return was due until

October 31, one month after the end of the quarter period.

These arguments are without merit. Although the ordinary

collection procedures require a notice of deficiency (26 U.S.C.

§6212 (a)) to precede an assessment of unpaid tax (26 U.S.C.

§6201) and a second notice and demand for payment (26 U.S.C.

§6303) to precede any additional steps to enforce collection and

payment (26 U.S.C. §6331), the notice provisions of §§6212 and

6213 do not apply to the assessment of withholding taxes. See

Lipsig v. United States, supra, at 828; McAllister v. Dudley, 148

F. Supp. 548, 551 (W.D. Pa. 1956); 9 Mertens, Law of Federal

Income Taxation §§49.131 and n. 63.2; 49.211 n. 41.2.

Moreover, the jeopardy assessment route is an extraordinary .

procedure, operating outside the ordinary framework. Section

6862 permits a jeopardy assessment whether or not the time for

filing a return or even payment of the tax has expired. Upon

assessment the tax becomes immediately due and payable, and

the district director must issue notice and demand for payment

in full. See 26 U.S.C. §6862 (a); Treas. Regs. §301.6862-1.

a re a

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Opinion of the United States District Court

for the Eastern District of New York

When a jeopardy assessment is made, the IRS also is

empowered with special methods to effectuate collection. Under

§6331 the district director must send notice and demand for

payment to the taxpayer and the taxpayer normally is required

to pay the amount of the assessment within 10 days. 26 U.S.C.

§6331 (a). However, if the district director “makes a finding that

the collection of such tax is in jeopardy, notice and demand for

immediate payment of such tax may be made . . . and,

upon failure of refusal to pay such tax, collection thereof shall

be lawful without regard to the 10-day period provided in this

section.” 26 U.S.C. §6331 (a) (emphasis added); see Treas. Regs.

§§301.6861-1 (f) (2); 301.6862-1 (b).

Here, jeopardy assessments plus the demand for immediate

payment provided the authorized procedural route under which

the IRS acted to collect withholding taxes admittedly owed by

Ranger. That IRS levied pursuant to the first jeopardy

assessment before the 10-day period, and made the second

jeopardy assessment payment due “immediately” and not in 10

days, does not render the assessment invalid. Similarly, the

notice demanding payment of the third quarter withholding

taxes “immediately” and deleting the 10-day period provided on

the form, does not indicate there was no deficiency until the

expiration of the 10-day period. Undeniably, at the time the

notice was sent (October 14), the third quarter taxes were

already due and had been since September 30.'? Plaintiffs have

admitted that the taxes in question, withholding taxes of second

and third quarters of 1975, were due; they had been delinquent

with respect to withholding taxes for the second quarter; and

they had represented to the IRS, in requesting deferred

payments, that difficulties in payment existed. Plaintiffs have

not shown that under no circumstances could the government

prevail in its claim for their withholding taxes. Consequently this

taxpayer suit is barred by the Anti-Injunction Act.

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Opinion of the United States District Court

for the Eastern District of New York

Moreover, whether this court may entertain an action to

enjoin the collection or assessment of taxes in the face of the

Anti-Injunction Act is a question of this court’s subject matter

jurisdiction. See Bob Jones University v. Simon, supra, at 2052;

Westgate-California Corporation v. United States, supra, at 841.

Having found that the Anti-Injunction Statute, 26 U.S.C. §7421,

applies in this case, this court is without power to grant the

requested injunctive relief. Consequently plaintiffs’ claim to

enjoin the IRS from assessment or collection of these taxes must

be dismissed for want of jurisdiction. |

Accordingly, plaintiffs’ motion for a preliminary injunction

is denied, and the complaint, inasmuch as it seeks to enjoin the

IRS from the assessment and collection of taxes, i dismissed.

SO ORDERED. |

There being no just reason for delay, the Clerk of Court is

directed to enter judgment in favor of defendants Internal

Revenue Service, Martin Senzer, Dominick Pallila, Raymond

Keenan, and Charles Brennan, dismissing the complaint as to

those defendants.

s/ EDWARD R. NEAHER

U.S.D.J.

Dated: Brooklyn, New York

November 12, 1975

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for the Eastern District of New York

FOOTNOTES

1. The action is brought under 42 U.S.C. §§1981, 1985;

jurisdiction is premised upon 28 U.S.C. §§1331, 1343.

2. Affidavit of Mark Jacobson of October 15, 1975, 45

(hereinafter Jacobson Affidavit).

3. Id., G9.

4. Id., 410.

5. Id, $14.

6. Id., $27.

7. Id., $28.

8. Id., 28-33.

9. Id., 37.

10. Plaintiffs’ memorandum in support of its motion, p. 3.

A photocopy of the notice indicates the words “within 10 days”

were crossed out and “immediately” substituted for time of

payment.

11. Jacobson Affidavit, & 39.

12. Plaintiffs have confused the IRS regulations governing

when withholding taxes are to be deposited by the employer and

when a withholding tax return must be filed. The appropriate

regulation for depositing withholding taxes is the following:

Opinion of the United States District Court

for the Eastern District of New York

“If at the close of any monthly period the

aggregate amount of undeposited taxes is $2,000

Or more, the employer shall deposit the

undeposited taxes in a Federal Reserve bank or

authorized commercial bank within 3 banking

days after the close of such quarter-monthly

period.” Treas. Regs. §31.6302(c)-1(a)(1)(i)(b).

In contrast, a return must be filed with respect to income

tax withheld by the employer:

“on or before the last day of the first calendar

month following the period for which it is made.”

Treas. Regs. §31.607\(a)-1(a)(1).

It is therefore clear that Ranger’s deposit for withholding taxes

should have been made by October 3, although the return sees

not have been filed until October 31.

RELEVANT STATUTES

Sec. 7421. Prohibition of Suits to Restrain Assessment or

Collection

(a) Tax. — Except as provided in section 6212(a) and (c),

6213(a), and 7426(a) and (b)(1), no suit for the purpose of —

restraining the assessment or collection of any tax shall be ©

maintained in any court by any person, whether or not such

person is the person against whom such tax was assessed.

Sec. 6862. Jeopardy Assessment of Taxes Other Than Income,

Estate, and Gift, and Certain Excise Taxes.

(a) Immediate Assessment. — If the Secretary or his

delegate believes that the collection of any tax (other than

income tax, estate tax, gift tax and certain excise taxes) under

Me Sade Nee widen TMs. ee

ne al te A its” I A, SA i i tO

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Relevant Statutes

any provision of the internal revenue laws will be jeopardized by

delay, he shall, whether or not the time otherwise prescribed by

law for making return and paying such tax has expired,

immediately assess such tax (together with all interest, additional

amounts, and additions to the tax provided for by law). Such

tax, additions to the tax, and interest shall thereupon become

immediately due and payable, and immediate notice and

demand shall be made by the Secretary or his delegate for the

payment thereof.

Treasury Regulations — 301.6862-1 Jeopardy assessment of

taxes other than income, estate, and gift taxes.

(a) If the district director believes that the collection of any

tax (other than income, estate, or gift tax) will be jeopardized by

delay, he shall, whether or not the time otherwise prescribed by

law for filing the return or paying such tax has expired,

immediately assess such tax, together with all interest, additional

amounts and additions to the tax provided by law.

(b) The tax, interest, additional amounts, and additions to

the tax will, upon assessment, become immediately due and

payable, and the district director shall, without delay, issue a

notice and demand for payment thereof in full. Upon failure or

refusal to pay the amount demanded, collection thereof by levy

shall be lawful without regard to the 10-day period provided in

section 6331(a).

Amendment V to the Constitution of the United States

“No Person shall be . . . deprived of life, liberty

or property, without due process of law... .”