Opposition — Jacobson v. Internal Revenue Service

No. 76-1025

o~-

In the Supreme Court of the United States

OcTOBER TERM, 1976

MARK JACOBSON and RANGER BAKERS, INC., PETITIONERS

Vv.

THE INTERNAL REVENUE SERVICE OF

THE UNITED STATES, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE SECOND CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

DANIEL M. FRIEDMAN,

Acting Solicitor General,

Myron C. Baum,

Acting Assistant Attorney

General,

JONATHAN S. COHEN,

James E. Crowe, Jr.,

Attorneys,

Department of Justice

Washington, D.C. 20530.

In the Supreme Court of the Hnited States

OCTOBER TERM, 1976

No. 76-1025

MARK JACOBSON and RANGER BAKERS, INC., PETITIONERS

Vv.

THE INTERNAL REVENUE SERVICE OF

THE UNITED STATES, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR

THE SECOND CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

OPINIONS BELOW

The memorandum and order of the district court

(Pet. App. 8a-18a) are reported at 403 F. Supp. 1332. The

opinion of the court of appeals (Pet. App. la-7a) is reported

at 544 F. 2d 637.

JURISDICTION

The judgment of the court of appeals was entered

on November 3, 1976 (Pet. 2). The petition for a writ of

certiorari was filed on January 26, 1977. The jurisdiction

of this Court is invoked under 28 U.S.C. 1254(1).

(1)

2

QUESTIONS PRESENTED

1. Whether petitioners’ suit to enjoin the assess-

ment of federal employment taxes was barred by the

Anti-Injunction Act.

2. Whether the district court correctly dismissed peti-

tioners’ suit for compensatory and punitive damages

against government officials for alleged harassment and

discriminatory enforcement of the tax laws.

3. Whether Section 6862(a) of the Internal Revenue

Code of 1954, which permits the Commissioner to issue

a jeopardy assessment for federal employment taxes if

he believes the collection of the tax will be jeopardized

by delay, is constitutional.

STATUTES INVOLVED

The pertinent provisions of Sections 6862 and 7421

of the Internal Revenue Code of 1954, as amended (26

U.S.C.), are set forth at Pet. App. 18a-19a. ‘3

STATEMENT

In October, 1974, petitioner Ranger Bakers purchased

the assets of Silvercup Bakers, Inc., which was then in

bankruptcy proceedings. Shortly thereafter, Ranger Bakers

had financial difficulties. For the second quarter of 1975,

Ranger had an unpaid federal employment tax liabili-

lity of approximately $264,500.' On September 30, 1975,

the Internal Revenue Service notified Ranger Bakers

'Sections 3102 and 3402 of the 1954 Code (26 U.S.C.) require an

employer to withhold social security taxes and income taxes, re-

spectively, from its employees’ wages. Section 3111 provides for the

employer's share of the social security tax, which is the employer's

independent obligation. The vast majority of the taxes involved in

this case were withholding taxes, which constitute a special trust

fund for the United States. See Section 7501 of the Code.

3

that these taxes were due and owing, and that payment

should be made by October 9, 1975 (Pet. App. 3a-4a, 10a).

That same day, petitioner Mark Jacobson, the president

and sole shareholder of Ranger Bakers, met with Internal

Revenue officials, including Dominick Pallila and Martin

Senzer, and explained the corporation’s plight. He re-

quested that Ranger Bakers be permitted to pay the

delinquency in weekly installments of $10,000. However,

no decision was reached on Jacobson’s request. On October

1, 1975, the Commissioner notified Jacobson that his

request to pay the delinquency in installments was denied

(Pet. App. 4a, 10a-1 1a).

Pursuant to his authority under Section 6862(a) of the

Code, the Commissioner issued a jeopardy assessment

on that day against Ranger Bakers, permitting collection

of the unpaid taxes by means of immediate levy on the

corporation’s property. Levies were placed on Ranger's

payroll account and on several of its customers’ accounts

payable. Jacobson paid the corporation’s entire liability

(including interest) with the help of outside sources on

October 2, 1975, and the Service released the levies (Pet.

6; Pet. App. 4a, 10a-1 1a).

Ranger Bakers was likewise delinquent in paying its

employment taxes during the third quarter of 1975. On

October 14, 1975, the Commissioner made a jeopardy

assessment against Ranger Bakers for these taxes and

placed further levies on its property. Jacobson also paid

this assessment with the help of outside sources, and the

Service immediately released the levies. Ranger Bakers

ceased operations in November, 1975 (Pet. App. 4a-Sa).

On October 15, 1975, petitioners instituted this action

in the United States District Court for the Eastern Dis-

trict of New York seeking injunctive relief against the

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Internal Revenue Service and damages against various

officials of the Service. Petitioners alleged that the

Organized Crime and Racketeering Section of the

Department of Justice, which was investigating possible

criminal violations concerning Ranger Bakers, Silvercup

Bakers and others, provided information to several news-

papers, which published articles indicating that Jacobson

operated Ranger Bakers as a “front” for his father, who

was described as involved in underworld gambling activi-

ties. Petitioners alleged that the Department of Justice

sought to destroy Ranger Bakers’ business by disclosing

this information, and that the Internal Revenue Service

and its employees had conspired with the Department

of Justice to accomplish this objective (Pet. App.

4a, 9a).

Petitioners sought an injunction against any further

investigation by the Department of Justice and against

the Internal Revenue Service’s refusal to permit payment

of the employment tax delinquencies on an installment

basis. In addition, petitioner Jacobson sought compensa-

tory damages of $1,500,000 under 42 U.S.C. 1981 and 1985,

and punitive damages of $3,000,000 (Pet. App. 2a-3a, 7a,

9a).

After a hearing, the district court denied petitioners’

request for a preliminary injunction against the Internal

Revenue Service and its named officials because the suit

was barred by the Anti-Injunction Act, and dismissed the

complaint against the Internal Revenue Service and its

officials (Pet. App. 9a-16a).2 The court of appeals affirmed.

It held that the Anti-Injunction Act prohibited petitioners’

2In a separate order, the district court dismissed the complaint as

to the Department of Justice and petitioners did not appeal from

that aspect of the decision (Pet. 7).

5

suit for injunctive relief, and that the allegations with

respect to damages “clearly state no claim for relief”

(Pet. App. la-7a).

ARGUMENT

1. The Anti-Injunction Act, 26 U.S.C. 7421(a), pro-

vides that “* * * 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.” In

Enochs v. Williams Packing Co., 370 U.S. 1, the Court

stated that the purpose of the statute was to protect the

government’s need to assess and collect taxes as expedi-

tiously as possible with a minimum of pre-enforcement

judicial interference. The Court held that the statute

barred equity suits against the tax collector unless the tax-

payer could show: (1) irreparable injury, the essential pre-

requisite for injunctive relief; and (2) that “it is clear that

under no circumstances could the Government ultimately

prevail * * *” (370 U.S. at 7). Accord: Bob Jones Univer-

sity v. Simon, 416 U.S. 725, 736-737.

The court of appeals correctly held that the Anti-Injunc-

tion Act barred petitioners’ suit. Indeed, since petitioners

have not contested the employment tax assessments, they

did not show under the second requirement of Williams

Packing that the government would not prevail on the

merits of its claim.

Contrary to petitioners’ argument (Pet. 7-9), nothing in

Laing v. United States, 423 U.S. 161, supports their claim

that the Anti-Injunction Act is not applicable. The question

in Laing was whether income taxes found owing, but not

reported, pursuant to the termination of a taxpayer's

taxable year under Section 6851 of the Code, were a

“deficiency” within the meaning of Section 6211(a). In

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holding that the amount was a “deficiency,” the Court ruled

that where the Internal Revenue Service has not sent a

notice of deficiency in connection with its termination of a

taxpayer's taxable year, Section 6213(a) permits an

injunction against such an assessment pending the issuance

of a notice of deficiency (423 U.S. at 184-185, n. 27). But as

the courts below correctly recognized (Pet. App. Sa-6a, | la-

12a), the statute does not require that a notice of deficiency

be issued with respect to employment taxes. The rule of

Laing therefore has no application to this case.

2. Contrary to petitioners’ further assertion (Pet. 8-10),

the court of appeals correctly rejected their claim for

damages against the Internal Revenue Service officials on

the ground that they were denied due process. Petitioners’

allegations involve nothing more than the usual actions

taken by Internal Revenue Service officials to collect

employment tax delinquencies from a failing business; their

conclusory charge of “harrassment” is insufficient to show

any violation of constitutional rights.

3. Finally, the court of appeals correctly rejected peti-

tioners’ argument (Pet. 9) that the jeopardy assessment

provisions of Section 6862(a) are unconstitutionally vague.

This Court has long upheld the constitutionality of such

summary collection procedures. See Phillips v. Commis-

sioner, 283 U.S. 589, 595-596; Mitchell v. W. T. Grant Co.,

416 U.S. 600, 611. The provision in that section that the

Internal Revenue Service may make a jeopardy assess-

ment if it “believes” that the collection of any tax “will be

jeopardized by delay” is not unconstitutionally vague; it

provides a sufficiently definite standard to enable the Ser-

vice to act in an infinite variety of situations when prompt

collection is necessary to protect the revenue. See Arnett

v. Kennedy, 416 U.S. 134, 158-164; Jordan v. DeGeorge,

341 U.S. 223, 231.

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CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

DANIEL M. FRIEDMAN,

Acting Solicitor General.

Myron C. BAuM,

Acting Assistant Altorney

General.

JONATHAN S. COHEN,

James E. Crowe, JR.,

Attorneys.

MARCH 1977.

DOJ-1977-03