Petition for Writ of Certiorari — W. C. Garcia & Associates, Inc. v. Sassi

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B5-A9L

No. ___ | JOSEPH F. SPANIOL, JR.

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IN THE

Supreme Court of the United States

OCTOBER TERM, 1985

—~<p>

W.C. GARCIA & ASSOCIATES, INC.,

Petitioner,

—_V.—

MICHAEL D. SASSI, DISTRICT DIRECTOR,

INTERNAL REVENUE SERVICE,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

JAMES F. KENNEDY

345 Park Avenue

38th Floor

New York, New York 10154

(212) 872-6515

Counsel of Record

GEORGE T. DONOGHUE, JR.

230 W. Monroe Street

Suite 2040

Chicago, Illinois 60606

(312) 236-4711

Attorneys for Petitioner

QUESTION PRESENTED

Section 6213(a) of the Internal Revenue Code provides, in

relevant part, that no assessment of a deficiency in respect of

the tax in issue and no levy or proceeding in court for its

collection shall be made, begun or prosecuted until a notice of

deficiency has been mailed to the taxpayer, nor until the

expiration of 90 days after such mailing, nor if a petition has

been filed with the Tax Court, until the decision of the Tax

Court has become final. It further provides: “. . . [T]he

making of such assessment or the beginning of such proceediag

or levy during the time such prchibition is in force may be

enjoined by a proceeding in the proper court.”

The question presented is whether the court of appeals has

failed to follow this Court’s decision in Rosenman v. United

States, 323 U.S. 658 (1945), and this Court’s implicit holding

in Laing v. United States, 423 U.S. 161 (1976), by holding that

the Taxpayer’s appeal from dismissal of its action for an

injunction became moot when the Taxpayer had a check of

$137,763.31 delivered to the Internal Revenue Service under

threat of having its assets seized by the Internal Revenue

Service to satisfy the balance of an assessment that was made

without first issuing a notice of deficiency.

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TABLE OF CONTENTS

PAGE

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Reasons for granting the petition.................... 8

NER 606-64 045 008 4bA00's ss 00 (eccsbinennegen 17

RES SE ee la

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TABLE OF AUTHORITIES

Cases: PAGE

Campbell v. United States, 532 F.2d 1057 ............ 8

Cool Fuel, Inc. v. Connett, 685 F.2d 309 ....... 2, 3, 4, 8, 16

SPU OS a, GIS UB. SIOe sk cvs issnsncseceses 14

POPE v. Ceeiees Beates, GIS FBS BSF 6 inn vv esas ciccass 7,&9

Fortugno v. Commissioner, 353 F.2d 429............ 8, 9, 11

Koger v. United States, 755 F.2d 1094................ 11, 15

Laing v. United States, 423 U.S. 161................ 3, 4, &,

11, 13, 14, 15, 16

Leich and Co., Charles v. United States, 329 F.2d 649 . .8, 9, 11

Lewyt Corp. v. Commissioner, 215 F.2d 518 .......... 8,9

Maxwell v. Campbell, 205 F.2d 461.................. 8

RR a ee re 12

Peerless Woolen Mills v. Rose, 28 F.2d 661 ........... 8

Pennhurst State School & Hospital v. Halderman, ____

8 ES a ee ere ee 14

Perlowin v. Sassi, 711 F.2d 910.......... 2, 3, 4, 8, 9, 14, 16

Philadelphia & Reading Corp. v. Beck, 676 F.2d 1159.. 8

Rambo v. United States, 492 F.2d 1060................ 8, 11

Rosenman v. United States, 323 U.S. 658 ..7, 8, 9, 10, 11, 14

ee Oh, Ce Oe sik ccbuscbasesavavs 14

ee Oy PU, SUE ID na ncccnccconcececuess 8, 12

United States v. Consolidated Edison Company of New

ey es SPP SPS us Sacco ces vawtcesessecce 1]

PAGE

United States v. Geophysical Corp., 732 F.2d 693...... 12

Weinberger v. Romero-Barcelo, 456 U.S. 305 ......... 3, 16

Constitution, Statutes, and Revenue Procedure:

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Internal Revenue Code of 1954 (26 U.S.C.):

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4, 8, 9, 11, 14, 15, 16

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a EE Peon: err se rrr ree 13

dS caus ¥0Re eee eke Cea 13

I sco cok dues sbeanda se bee e aes 14

Ss en ck oa acd Kas bes bok exhescee 12

Revenue Procedure 82-51, 82-2 C.B. 839 ............. 1]

IN THE

Supreme Court of the United States

OCTOBER TERM, 1985

W.C. GARCIA & ASSOCIATES, INC.,

Petitioner,

—V

MICHAEL D. SASSI, DISTRICT DIRECTOR,

INTERNAL REVENUE SERVICE,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

W.C. Garcia & Associates, Inc. petitions for a writ of

certiorari to review the order of the United States Court of

Appeals for the Ninth Circuit in this case.

OPINIONS BELOW

The order of the court of appeals (App., A) is not reported.

The order of the District Court (App., B) is not reported.

JURISDICTION

The order of the court of appeals (App., A) was entered on

February 11, 1985. A timely petition for rehearing was denied

on July 11, 1985 (App., C). The jurisdiction of this Court is

invoked under 28 U.S.C. 1254(1).

STATUTES INVOLVED

The relevant portions of Sections 6211, 6212, 6213, 6851,

6861, 6863, 7421, and 7430 of the Internal Revenue Code of

1954 (26 U.S.C.) are set out in App., F, infra, 8a-14a.

STATEMENT

Summary

This case was instituted by the Taxpayer in the district court

to obtain an injunction in accordance with Section 6213(a),

Internal Revenue Code of 1954', preventing the Government

from collecting an income tax deficiency that was assessed

without first issuing a statutory notice of deficiency. Duris the

district court proceedings the Government refrained from <¢ Jl-

lection action and an appropriate guarantee was made to the

Government if the Taxpayer did not pay. While the Taxpayer

was preparing its appeal to the court of appeals after being

unsuccessful in the district court and with the guarantee still in

existence, the Government threatened to seize the Taxpayer’s

assets if it did not immediately receive a check for $137,763.31

whicn the Government said was the amount owed on the

assessment in issue. The check of $137,763.31 was mailed to

the Government under protest and, among other things, the

Government was informed that the check was not intended as a

payment of the assessment, and that the Government should

return the check if it changed its mind about seizing the

$137,763.31.

In the district court the parties were only concerned about

the principles governing the granting of an injunction and

there was no mootness issue. The Taxpayer argued that Cool

Fuel, Inc. v. Connett, 685 F.2d 309 (9th Cir. 1982) and

Perlowin v. Sassi, 711 F.2d 910 (9th Cir. 1983), which were

relied upon by the Government, were contrary to this Court’s

l All statutory references are to the Internal Revenue Code of 1954 (26

U.S.C.) in effect for the tax year in issue.

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

that Weinberger v. Romero-Barcelo, 456 U.S. 305 (1982), was

misapplied in Cool Fuel, Inc. v. Connett, supra, 685 F.2d at

313. Cool Fuel, Inc. v. Connett, supra, and Perlowin v. Sassi,

supra, stand for the principle that to obtain an injunction

under Section 6213(a) a taxpayer must show irreparable harm

and no adequate remedy at law. The Taxpayer argued that in

Laing v. United States, supra, this Court, in granting an

injunction under Section 6213(a), did not mention irreparable

harm or no adequate remedy at law.

After the Taxpayer filed its appeal, the Government filed its

motion to dismiss the appeal as moot on the ground that the

tax had been paid. The court of appeals agreed and dismissed

the case.

W. C. Garcia & Associates, Inc., a corporation, (the “Tax-

payer”), brought this action by filing its complaint in the

United States District Court for the Northern District of

California against Michael D. Sassi, District Director, Internal

Revenue Service, (the “Government”) to enjoin collection of

the personal holding company tax for the taxable year ended

November 30, 1975, illegally assessed against the Taxpayer, for

the return of all assets seized and held pursuant to the assess-

ment, and for litigation costs. The district court had jurisdic-

tion by reason of Section 6213(a).

In 1979 the Internal Revenue Service (“IRS”) assessed

against the Taxpayer a deficiency in personal holding company

tax in the amount of $82,833.80 for the taxable year ended

November 30, 1975 (App., E). That amount has since in-

creased due to related interest and penalties being assessed.

The IRS failed to mail to the Taxpayer the notice of deficiency

required by Section 6212 (App., E). Accordingly, the assess-

ment is prohibited, illegal and void, but the Taxpayer is not

allowed to file a petition for redetermination cf the deficiency

in the United States Tax Court because the notice of deficiency

was not issued. Section 6213(a).

The position of the Taxpayer set forth in the complaint is

that Congress has deemed irreparable harm per se the making

of the assessment and the denial of access to the United States

Tax Court and has deemed inadequate per se the legal remedy

of a suit for refund after payment of the tax. Assessments that

violate the notice of deficiency requirements of Section 6213(a)

may be enjoined if the effect would be to prevent the Taxpayer

from using the United States Tax Court.

Following a hearing held on January 18, 1984, the district

court (Judge Patel) entered an order on January 27, 1984,

denying the Taxpayer’s application for a temporary restraining

order because it appeared that there were substantial questions

about the probability of success on the merits and because the

Taxpayer had not shown that it was unable to pay the tax and

sue for refund (App., D). At the hearing on January 18, 1984

the Government received a guarantee on the record (Transcript

p. 13) for the ultimate payment of the assessment. Thereafter,

pursuant to Section 6213(a), the Taxpayer filed a motion for a

preliminary injunction, based on the failure of the IRS to

comply with Section 6212(a) in not issuing a notice of de-

ficiency to the Taxpayer.

On March 12, 1984, the district court denied the motion for

preliminary injunction on the authority of Cool Fuel, Inc. v.

Connett, 685 F.2d 309 (9th Cir. 1982), and Perlowin v. Sassi,

711 F.2d 910 (9th Cir. 1983), stating that the law of the Ninth

Circuit is that a taxpayer is not entitled to injunctive relief

under Section 6213(a) absent a showing of irreparable harm

and inadequate legal remedy (App., E). The district court

rejected the claim of the Taxpayer that Cool Fuel, Inc. v.

Connett, supra, and Perlowin v. Sassi, supra, conflict with

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

exclusion from the Tax Court was irreparable injury per se and

that a suit for refund after payment of the tax was per se an

inadequate legal remedy (App., E).

On March 12, 1984, the Government filed a mction for

summary judgment upon substantially the same grounds upon

which it had opposed the Taxpayer’s motion for preliminary

injunction. On May 21, 1984, the district court entered its

order and judgment granting the Government’s motion for

summary judgment and dismissing the Taxpayer’s action and

complaint with prejudice (App., B).

While the Taxpayer was preparing its appeal to the court of

appeals, the Government threatened to seize assets of the

Taxpayer if it did not receive $137,763.31. On May 30, 1984, a

remittance of $137,763.31 was sent to the IRS. The remittance

was accompanied by a letter from James F. Kennedy, an

attorney for the Taxpayer, to the IRS for the attention of

Revenue Officer Robert Yakerson. A copy of the letter is

attached as Exhibit C to the Government’s “Motion to Dismiss

Appeal As Moot Or, In The Alternative, For Summary Affirm-

ance.” It reads, in part, as follows:

Dear Mr. Yakerson:

Enclosed is a check in the amount of $137,763.31. It is

submitted under protest and only submitted because you

said to me on May 24, 1984 in our telephone conversation

that if you did not receive this check you would seize

assets of W.C. Garcia & Associates, Inc. because of an

assessment that has been made as a result of alleged

personal holding comp ay tax liability for the fiscal year

ended November 30, 1975. You told me tha: you did not

care what restrictions were placed on sending this check.

You told me the total of $137,763.31 has not even been

assessed, yet you still demanded that amount and if you

did not receive it you would seize the assets of the

taxpayer in that amount. You also said you would not

send a bill for the amount prior to payment. You read

amounts over the telephone but you said you did not

know what some of them represented.

The assessment referred to is illegal. Perlowin v. Sassi,

711 F.2d 910 (9th Cir. 1983). Therefore the collection of

any amounts against the assessment is clearly improper

and is subject to recourse in the courts. I told you that we

are going to file an appeal with the Ninth Circuit Court of

Appeals, but you said you stili demand receiving

$137,763.31. This check is not intended in any way as an

admission by the taxpayer that the assessment is proper,

nor is it intended by the taxpayer to be a payment of the

assessment. It is only intended to prevent you from

seizing assets of the taxpayer which conduct would be

illegal since your assessment is illegal and such conduct

would cause serious injury to the taxpayer. The remittance

is not a payment in satisfaction of a tax liability, but is a

deposit in the nature of a cash bond.

We preserve all rights to sue you personally and to sue

the United States for damages for your illegal actions.

See, Bothke v. Fluor Engineers and Constructors Inc., et

al., 713 F.2d 1405 (9th Cir. 1983). If you change your

mind about seizing this $137,763.31, please return it to me

and you will reduce the amount of the damages.

The Taxpayer filed its appeal with the court of appeals and

the Government filed a Motion To Dismiss Appeal As Moot

Or, In The Alternative, For Summary Affirmance. The Gov-

ernment’s mootness argument centered on the receipt of the

check of $137,763.31 which was treated by the IRS as a

payment, resulting in the balance of the assessment in issue

being treated as paid.

The Taxpayer filed Objections To Appellee’s [Government’s]

Motion To Dismiss Appeal As Moot Or, In The Alternative,

For Summary Affirmance and a Memorandum Brief Of The

Appellant W.C. Garcia & Associates, Inc., In Opposition To

Appellee’s Motion To Dismiss Appeal As Moot Or, In The

Alternative, For Summary Affirmance. As to the mootness

issue, the Taxpayer maintained that the remittance of

$137,763.31 was not payment of the tax. The remittance was

accompanied by the aforesaid letter from one of the Tax-

payer’s attorneys. The Taxpayer argued that the letter es-

tablishes that the position of the Taxpayer was that (1) the

assessment was illegal and void; (2) the remittance was made

under protest in order to ay. <a illegal seizure of the assets

of the Taxpayer; (3) the rer. ‘sce was not intended to be a

payment of the illegal assessment made against the Taxpayer;

and (4) the remittance was a mere deposit in the nature of a

cash bond.

On February 11, 1985, the court of appeals entered an Order

granting the Government’s motion to dismiss the Taxpayer’s

appeal as moot without any hearing being held (App., A). The

Order states in relevant part:

. . . In the circumstances of this case, appellant’s satis-

faction of the assessed tax deficiency constituted payment

of the taxes. See Rosenman v. United States, 323 U.S. 658

(1945); Ford v. United States, 618 F.2d 357 (Sth Cir.

1980). The appeal from the dismissal of its action for an

injunction against the collection of taxes is therefore

moot.

On February 22, 1985, the Taxpayer filed a Petition For

Rehearing—Suggestion For Rehearing En Banc.

On July 11, 1985, the court of appeals entered an Order

denying the petition for rehearing and rejecting the suggestion

for rehearing en banc (App., C).

The district court found that the IRS did not send the

Taxpayer a notice of deficiency prior to the assessment as

required by Section 6212(a) and (c) (App., E). Neither the

district court nor the court of appeals found that the Taxpayer

had waived any right to a notice of deficiency (App., A, B, D,

and E).

REASONS FOR GRANTING THE PETITION

This case involves the construction of Section 6213(a), which

provides that the assessment and collection of a deficiency in

income tax may be enjoined if the notice of deficiency autho-

rized by Section 6212(a) has not been mailed to the Taxpayer.

The interpretation of Section 6213(a) by the district court, an

interpretation which has thus far, escaped review, is in direct

conflict with the interpretation of this section in Laing v.

United States, supra, 423 U.S. 161 (1976).

The holding of the district court is based on the authority of

Cool Fuel, Inc. v. Connett, supra, 685 F.2d 309 (9th Cir. 1982),

and Perlowin v. Sassi, supra, 711 F.2d 910 (9th Cir. 1983).

These two cases are in conflict with Laing v. United States,

supra; Steiner v. Nelson, 259 F.2d 853 (7th Cir. 1958); Phila-

deiphia & Reading Corp. v. Beck, 676 F.2d 1159 (7th Cir.

1982); Campbell v. United States, 532 F.2d 1057 (6th Cir.

1976); Rambo v. United States, 492 F.2d 1060 (6th Cir. 1974),

cert. denied, 423 U.S. 1091 (1976); Maxwell v. Campbell, 205

F.2d 461 (Sth Cir. 1953); and Peerless Woolen Mills v. Rose, 28

F.2d 661 (Sth Cir. 1928).

1. The court of appeals’ holding that the Taxpayer’s remit-

tance constituted payment of the tax is in conflict with Rosen-

man v. United States, supra, 323 U.S. 658 (1945). The holding

is also in conflict with Fortugno v. Commissioner, 353 F.2d 429

(3rd Cir. 1965), aff’g 41 T.C. 316 (1963); Lewyt Corp. v.

Commissioner, 215 F.2d 518 (2nd Cir. 1954); and Charles Leich

& Co. v. United States, 329 F.2d 649 (Ct. Cl. 1964).

The court of appeals held that in the circumstances of this

case, the Taxpayer’s satisfaction of the assessed tax deficiency

constituted payment of the tax, citing Rosenman v. United

States, supra; and Ford v. United States, 618 F.2d 357 (Sth Cir.

1980). It therefore held that the Taxpayer’s appeal from dis-

missal of its action for an injunction against the collection of

the taxes was moot (App., A). Unfortunately, the court of

appeals gave no explanation of its holding that the tax had

been paid. The two cases cited by it both held that a remittance

made prior to assessment did not constitute pryment of the

tax.

Neither the court of appeals nor the district court has found

that there was a valid assessment prior to the remittance of

$137,763.31 made on May 30, 1984 (App., A, B, D, and E).

Since the IRS failed to mail a notice of deficiency, the

assessment in this case is invalid under Section 6213(a). Perlo-

win v. Sassi, supra, 711 F.2d at 912. It is also certain that the

Taxpayer has not acquiesced in the proposed deficiency and

that the remittance of May 30, 1984, was not made with the

intention of satisfying an asserted tax liability.

The remittance of $137,763.31 on May 30, 1984, was accom-

panied by a letter from James F. Kennedy, an attorney for the

Taxpayer, to the IRS (supra, p. 5). The check of $137,763.31

was issued subject to whatever restrictions the Taxpayer chose

to put on it (first paragraph, last sentence). The Taxpayer

stated, among other things, that the check was being seized by

the Government and asked that it be returned (last sentence).

In this case, there was neither a valid assessment nor an

acquiescence in the proposed deficiency. “[T]he factors of

‘contest’, coupled with the fact of no assessment, are sufficient

to negate ‘payment.’ ” Charles Leich & Co. v. United States,

supra, 329 F.2d at 653 (Ct. Cl. 1964). Here the remittance was

made under protest and the amount remitted was only for the

purpose of avoiding an illegal seizure of other assets of the

Taxpayer. Cf. Rosenman vy. United States, supra. The remit-

tance was being tendered with one hand and the liability for

the tax being contested with the other. Lewyt Corp. v. Com-

missioner, supra, 215 F.2d at 522-523 (2nd Cir. 1954); Fortugno

v. Commissioner, supra, 353 F.2d at 435-436 (3rd Cir. 1965).

Neither Rosenman v. United States, supra, 322 U.S. 658,

nor Ford v. United States, supra, 618 F.2d 357 (Sth Cir. 1980),

the oniy authority cited by the court of appeals (App., A),

supports the court of appeals’ holding that the remittance

made by the Taxpayer on May 30, 1984, constituted payment

of the tax. Indeed, the holding conflicts with Rosenman v.

United States. In Rosenman vy. United States, the petitioners,

faced with an absolute deadline for the payment of estate

taxes, delivered to the IRS a check for $120,000, “‘as a

payment on account of the Federal Estate Tax. . .. This

payment is made under protest and duress, and solely for the

purpose of avoiding penalties and interest, since it is contended

by the executors that not all of this sum is legally or lawfully

due.’ ” Rosenman vy. United States, supra, 323 U.S. at 660.

The Court rejected the assertion of the Government that the

tax was “paid” when the executors delivered the money and,

therefore, the claim for refund was time barred. 323 U.S. at

662. It held that when the executors remitted the money to the

Government, “the taxpayer did not discharge what [was]

deemed [to be] a liability nor pay one that was asserted. There

was merely an interim arrangement to cover whatever con-

tingencies the future might define. The tax obligation did not

become defined until [the deficiency was assessed].” Jd.

On its facts, the instant case is indistinguishable from Rosen-

man v. United States. The letter which accompanied the

remittance in this case states unequivocally that the remittance

was not intended to discharge what the Taxpayer deemed to be

a liability. As in Rosenman v. United States, the remittance was

made under protest. In Rosenman v. United States, the remit-

tance was made solely for the purpose of avoiding penalties

and interest. In the instant case, the remittance was made in

order to avoid an illegal seizure of other assets of the Taxpayer.

In Rosenman v. United States, the executors maintained that

not all of the amount of the remittance was legally due. In the

instant case, the Taxpayer maintained that none of the remit-

tance was legally due. Rosenman v. United States held that the

remittance did not become a payment prior to assessment of

the tax. In the instant case there has been no valid assessment

of the tax.

The published position of the Government accords with that

of the courts that a deposit in the nature of a cash bond is not

a payment of tax, is not subject to a claim for credit or refund,

and, if returned to the taxpayer, does not bear interest. Reve-

nue Procedure 82-51, 82-2 C.B. 839 (1982).

The remittance made on May 30, 1984, was not a payment

of the void and illegal assessment, but was a mere deposit in

the nature of a cash bond. The court of appeals’ holding that

the remittance made on May 30, 1984, constitutes payment of

the tax, is in conflict with Rosenman v. United States, supra,

at 662; Charles Leich and Co. vy. United States, supra; and

Fortugno v. Commissioner, supra.’ The holding is also in

conflict with United States v. Consolidated Edison Company

of New York, Inc., 366 U.S. 380 (1961), holding a remittance

of real estate taxes under protest and while contesting them did

not result in a deduction for an accrual basis taxpayer. The

Court held that the remittance, which did not admit, but

specifically denied, liability for, and was not intended to

satisfy, the contested assessments of real estate taxes was a

2 Koger v. United States, 755 F.2d 1094 (4th Cir. 1985), concerns an

injunction action becoming moot because the assessment was “paid”

while the appeal was pending. 755 F.2d at 1096. Since the assessment

was not paid in the instant case, Koger v. United States has no weight

as to the mootness issue in this case.

3 The Court in Laing v. United States, supra, 423 U.S. at 183-184,

n. 26, acknowledged without deciding that due process under the Fifth

Amendment may also be violated where a taxpayer is denied access to

a judicial determination of the validity of a tax prior to payment. See

also, Rambo v. United States, supra, 492 F.2d at 1064-1065, for similar

concern, but without deciding the issue.

This Court did not decide the due process issue in Laing v. United

States, supra, because the case was decided on the application of

Section 6213(a) in requiring an injunction. Likewise, we believe this

case should be resolved under Laing v. United States, supra, and

Rosenman v. United States, supra, without having to resolve the due

process issue.

mere deposit in the nature of a cash bond, made to prevent

seizure of the taxpayer’s property during the contest and was

noi a payment of the taxes.

Even if the injunction issue were moot, that would not mean

the entire case would be moot. See, Murphy v. Hunt, 455 U.S.

478 (1982); United States v. Geophysical Corp., 732 F.2d 693

(9th Cir. 1984). The Taxpayer, in its complaint in the instant

case, alleged that the assessment was illegal and prayed that an

injunction be issued, that the Government be ordered to return

all assets seized pursuant to the assessment, and that litigation

costs be awarded to it pursuant to Section 7430. There has

been no ruling on whether the assessment is illegal, on whether

the assets that were seized should be returned and, on whether

litigation costs should be awarded. If the assets are ordered

returned, then litigation costs may properly be awarded. See

Section 7430.

The court of appeals still should determine if the assessment

is illegal and, if so, whether the return of all assets seized and

held pursuant to the assessment should be returned to the

Taxpayer. See, Steiner v. Nelson, supra, 259 F.2d at 858 (7th

Cir. 1958). In addition, the court of appeals should then rule

on whether the Taxpayer is entitled to litigation costs both of

which are sought in the prayer of the complaint.

In Murphy v. Hunt, supra, 455 U.S. at 481-482 this Court

found the claim to be moot once Mr. Hunt was convicted, and

went on to state:

“

. . . The question was no longer live because even a

favorable decision on it would not have entitled Hunt to

bail. For the same reason, Hunt no longer had a legally

cognizable interest in the result in this case. He had not

prayed for damages nor had he sought to represent a class

of pretrial detainees.”

In the instant case, the court of appeals has not fully ruled

on the relief sought in the prayer. At least part of the case

remains alive.

2. The holding of the court of appeals also conflicts with the

implicit holding in Lais:g v. United States, supra, 423 U.S. 161

(1976), that the tax therein had not been paid and the case had

not become moot. In Laing v. United States, which is irdisiin-

guishable from the instant case, this Court held that the failure

of the Internal Revenue Service to issue notices of deficiency in

income tax and the consequent unavailability of a remedy in

the Tax Court entitled the taxpayers to injunctive relief against

assessments of income tax made in violation of that section,

without any showing by the taxpayers of irreparable injury or

inadequacy of legal remedy other than the inability of the

taxpayers to contest the deficiencies in the Tax Court.

Laing v. United States, involved two unrelated taxpayers,

Mr. Laing and Mrs. Hall, whose taxable years were terminated

prior to their normal! expiration date pursuant to the jeopardy

termination provisions of Section 685i. The issue was whether

the IRS, when assessing and collecting the unreported tax due

after the termination of a taxpayer’s taxable period, must

follow the procedures mandated by Section 6861 et seq. for the

assessment and collection of a deficiency whose collection is in

jeopardy. The answer depended on whether the unreported tax

due upon such a termination is a “deficiency” as defined in

Section 6211(a) (423 U.S. at 163 and 164). The Government

did not seriously challenge the taxpayers’ conclusion that if the

termination of their taxable periods created a deficiency whose

assessment or collection was in jeopardy, the assessments and

collections in the cases should have been pursuant to the

procedures of Section 6861 ef seq. (423 U.S. at 173). It was

held that any tax owing, but unreported, after a Section 6851

termination is a deficiency whose assessment and collection are

subject to the procedures of Section 6861 ef seqg.; that Section

6861(b) requires that a notice of deficiency under Section 6212

be mailed to the taxpayer within 60 days after the jeopardy

assessment; that Section 6863 bars the offering for sale of

property seized until the taxpayer has had an opportunity to

litigate in the Tax Court; and that because the District Director

failed to follow the procedures mandated by Section 6861 ef

seq., the Section 6213(a) exception to the Anti-Injunction Act,

Section 7421(a), became operative and the taxpayers’ suits to

enjoin collection of the taxes were not barred by the Anti-

Injunction Act (423 U.S. at 184-186, n. 27).

In Laing v. United States, the IRS had seized more than

$300,000 of Mr. Laing’s money and applied a portion of it to

the termination assessment of income tax in the amount of

$195,985.55 made against him pursuant to the provisions of

Section 6851. (423 U.S. at 165-166). The termination assess-

ment was illegal and void since the IRS had failed to mail a

notice of deficiency to Mr. Laing. Perlowin v. Sassi, supra, 711

F.2d at 912. Mr. Laing had not acquiesced in the proposed

deficiency, but was contesting it, both in the action brought by

him for an injunction against collection of the deficiency and

in a suit for refund of the tax. (421 U.S. at 165-166, n. 6).

Although the facts in Laing v. United States, with respect to

whether the tax had been paid are basically the same as those

herein, in Laing v. United States, the Government made no

claim that the tax had been paid and the case had thus become

moot. Since there was neither a valid assessment nor an

acquiescence in the proposed deficiency, IRS’ seizure of Mr.

Laing’s money and application of some of it to the termination

assessment did not result in payment of Mr. Laing’s tax

(Rosenman v. United States, supra, 323 U.S. 658) and his case

had not become moot. The holding of the court of appeals

herein that the tax has been paid and the case has thus become

moot conflicts, therefore, with the opposite holding implicit in

Laing v. United States.‘

4 In Sosna v. Iowa, 419 U.S. 393 (1975), the Court addressed a

question of mootness before reaching the merits of the claim. In

holding that the controversy was alive, the Court stated, “This prob-

lem was present in Dunn v. Blumstein, 405 U.S. 330 (1972), and was

there implicitly resolved in favor of the representative of the class.

. . .” 419 U.S. at 400. The Court then said: “The rationale of Dunn

controls the present case. . . .” 419 U.S. at 401. In Pennhurst State

School & Hospital v. Halderman, ___ U.S. ___, 104 S.Ct. 900, at

918 (1984) the implicit holdings in cases on jurisdictional issues were

held not to be binding on the Court. There is no jurisdictional issue in

this case.

3. The holding of the district court, that the Taxpayer is not

entitled to injunctive relief under Section 6213(a) absent a

showing of irreparable harm and the absence of an adequate

legal remedy, a holcing which conflicts with Laing v. United

States, supra, 423 U.S. 161 (1976), has evaded review. Review

has thus far been evaded because of the remittance made under

threat of seizure of the Taxpayer’s assets unless the Taxpayer

mailed a check for the void and illegal assessment in this case.

We do not know the number of times the Government has

employed these tactics in an attempt to deny taxpayers access

to the Tax Court, or to deny taxpayers a hearing on their right

to an injunction under Section 6213(a) against collection of an

illegal and void assessment of income tax made without prior

issuance of a notice of deficiency.’ If the order of the court of

appeals dismissing the appeal in this case as moot is allowed to

stand, one may expect that, at least in the Ninth Circuit, the

Government will use this newly discovered device to prevent a

hearing in an injunction action by merely demanding “pay-

ment” of the illegally assessed tax prior to the hearing, thus

attemp‘ing to make the injunction issue moot. Since the record

is silent on the point, the Government has left us to speculate

why a check of $137,763.31 was demanded in May 1984 while

the appeal to the court of appeals was being prepared, even

though the illegal assessment was made in 1979 and even

though the ultimate payment of the assessment was guaran-

teed.

It is reasonable to expect that, as was done in this case, the

Government may continue to make assessments of income tax

without having issued notices of deficiency and may continue

to threaten to seize assets of taxpayers unless the taxpayers pay

the illegal assessments. Taxpayers who can pay under such

5 The latest reported decision evidencing a continuation of such tactics

by the Government is Koger v. United States, supra, n.2, 755 F.2d 1094

(4th Cir. 1985). We have no way of knowing whether there are other

unreported cases, such as the instant case, that also show the Govern-

ment’s attempt to deny injunction hearings on assessments by use of

this mootness argument.

threats will be denied an injunction hearing in the Ninth

Circuit because the question would become moot before the

hearing could be finalized. This would then prevent taxpayers

from attempting to convince the court of appeals to overrule

itself in Cool Fuel, Inc. v. Connett, supra, and Perlowin v.

Sassi, supra, as to its error in applying the principles es-

tablished by this Court for granting an injunction under

Section 6213(a). Such tactic would also prevent taxpayers from

petitioning this Court to reverse the court of appeals in the

Cool Fuel, Inc. v. Connett and Perlowin v. Sassi type cases.

By granting certiorari in this case and reversing the court of

appeals on the mootness issue, this Taxpayer will be enabled to

maintain before the court of appeals that Coo/ Fuel, Inc. v.

Connett, supra, and Perlowin v. Sassi, supra, are contrary to a

prior decision of this Court, Laing v. United States, supra, and

misapply a prior decision of this court, Weinberger v. Romero-

Barcelo, supra, concerning the correct rule of law to follow in

applying equitable principles in Section 6213(a) injunction

cases. Should the court of appeals not overrule its own two

decisions, the Taxpayer could then seek review by this Court

on the injunction issue.

CONCLUSION

The petition for a writ of certiorari should be granted.

October 1985

Respectfully submitted,

JAMES F. KENNEDY

345 Park Avenue

38th Floor

New York, New York 10154

(212) 872-6515

Counsel of Record

GEORGE T. DONOGHUE, JR.

230 W. Monroe Street

Suite 2040

Chicago, Illinois 60606

(312) 236-4711

Attorneys for Petitioner

APPENDICES

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

No. 84-2234

DC # CV-84-0224 MHP

Northern California

W. C. GARCIA & ASSOCIATES, INC.,

Plaintiff-Appellant,

MICHAEL D. SASSI, District Director,

Internal Revenue Service,

Defendant-A ppellee.

~<a

ORDER

Filed: February 11, 1985

Before:

SCHROEDER, FARRIS and REINHARDT, Circuit Judges.

Apyellee’s motion to dismiss this appeal as moot is granted.

In the circumstances of this case, appellant’s satisfaction of the

assessed tax deficiency constituted payment of the taxes. See

Rosenman vy. United States, 323 U.S. 658 (1945); Ford v.

United States, 618 F.2d 357 (Sth Cir. 1980). The appeal from

the dismissal of its action for an injunction against the collec-

tion of taxes is therefore moot.

The appeal is dismissed and the case remanded to the district

court with direction to vacate the orders and judgment from

which the appeal was taken. United States v. Munsingwear,

Inc., 340 U.S. 36 (1950).

MoCal 1/28/85

APPENDIX B

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

No. C-84-0224-MHP

W. C. GARCIA & ASSOCIATES, INC.,

Plaintiff,

_—Vi—

MICHAEL D. SASSI, District Director,

Internal Revenue Service,

Defendant.

ORDER

Filed: May 21, 1984

This matter having come on for hearing on defendant’s

motion for summary judgment and the Court having consid-

ered the memoranda and the record to date, and for good

cause shown, it is hereby

ORDERED that defendant’s motion is hereby GRANTED and

plaintiff’s complaint and action are hereby dismissed. Judg-

ment shall be entered accordingly.

ORDERED this day of MAY 21 1984, at San Francisco,

California.

/s/ M H PATEL

United States District Judge

ORDER

APPENDIX C

IN THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

No. 84-2234

D.C. #CV-84-0224-MHP

(Northern California)

W. C. GARCIA & ASSOCIATES, INC.,

Plaintiff-Appellant,

—vs.—

MICHAEL D. SASSI, District Director,

Internal Revenue Service,

Defendant-Appellee.

>_>

ORDER

Filed: July 11, 1985

Before:

SCHROEDER, FARRIS and REINHARDT, Circuit Judges.

The panel as constituted above has voted to deny the petition

for rehearing and to reject the suggestion for rehearing en

banc.

The full court has been advised of the suggestic . for re-

hearing en banc, and no judge of the court has requested a

vote on the suggestion for rehearing en banc. Fed. R. App.

P. 35(b).

The petition for rehearing is denied and the suggestion for

rehearing en banc is rejected.

APPENDIX D

IN THE UNITED STATES COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

No. C-84-0224-MHP

W. C. GARCIA & ASSOCIATES, INC.,

Plaintiff,

—_—VvV.—

MICHAEL D. SASSI, District Director,

Internal Revenue Service,

Defendant.

ORDER

Filed: January 27, 1984

This matter came on for hearing on plaintiff’s motion for a

temporary restraining order to enjoin the Internal Revenue

Service from collecting a tax assessment made against plaintiff.

Based on the pleadings filed by plaintiff and arguments of

counsel, the Court finds that there is no immediacy that

requires it to act prior to 1aving the matter set for a motion for

preliminary injunction. The Court is not satisfied that the

plaintiff could prevail on the merits because it appears there is

substantial questions about the waiver and the probability of

success on the merits. In addition, the plaintiff has not shown

that it is unable to pay the tax and sue for a refund in district

court. Accordingly, the Motion for Temporary Restraining

Order is therefore denied.

ORDERED this day of JAN 27 1984, at San Francisco,

California.

/s/ M_H PATEL

United States District Judge

APPENDIX E

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

No. C-84-0224-MHP

W. C. GARCIA & ASSOCIATES, INC.,

Plaintiff,

—Vvs.—

MICHAEL D. SASSI, District Director,

Internal Revenue Service,

Defendant.

ORDER DENYING

PRELIMINARY INJUNCTION

Filed: March 12, 1984

Plaintiff has filed a motion for preliminary injunction seek-

ing to enjoin the Internal Revenue Service (“Service”) from

collecting an income tax deficiency assessed against it. The

court reviewed the papers filed in support of and in opposition

to the motion and heard oral argument, and having considered

all the foregoing makes the following order.

The Service assessed an income tax deficiency in the amount

of $82,883.80 in plaintiff’s income taxes for the taxable year

ended November 30, 1975. The Service did not send plaintiff a

notice of deficiency prior to the assessment as required by 26

U.S.C. §§ 6212(a) and (c). The Service contends that by

plaintiff’s execution of a Waiver of Restriction on Assessment

and Collection of Deficiency in Tax, plaintiff waived any right

to a deficiency notice. Plaintiff has moved to restrain the

assessment and collection of the deficiencies, pursuant to 26

U.S.C. § 6213(a), based on the failure of the Service to comply

with the requirements of 26 U.S.C. §§ 6212(a) and (c). Section

6213(a) provides that any assessment or collection may be

enjoined until a notice of deficiency has been issued to the

taxpayer.

Plaintiff contends that pursuant to § 6213(a), it is entitled to

an injunction without a showing that it has suffered an

irreparable injury or that the payment of the deficiency and

subsequent suit for refund constitutes an inadequate remedy at

law. According to plaintiff, under the plain language of the

statute, plaintiff is entitled to an injunction upon proof that

the deficiency assessment was made cr collection attempted

prior to the issuance of a notice of deficiency by the Service.

The law of this circuit, however, is to the contrary. In Cool

Fuel, Inc. v. Connett, 685 F.2d 309 (9th Cir. 1982), and

Perlowin v. Sassi, 711 F.2d 910 (9th Cir. 1983), this circuit held

that a taxpayer is not entitled to injunctive relief under

§ 6213(a) absent a showing of irreparable harm and the ab-

sence of an adequate legal remedy. Cool Fuel, 685 F.2d at

313-14; Perlowin, 711 F.2d at 912. Plaintiff has alleged that its

exclusion from the Tax Court is per se an irreparable injury. No

Ninth Circuit authority supports such a contention. Nor has

plaintiff shown payment of the deficiencies under protest, and

subsequent suit for a refund to be an inadequate remedy of

law.

Plaintiff has attempted to persuade this court that the Ninth

Circuit cases of Cool Fuel and Perlowin conflict with the

position of the Supreme Court in Laing v. United States, 423

U.S. 161 (1976). Plaintiff’s argument is specious. The issue, of

whether a taxpayer is entitled to injunctive relief pursuant to

§ 6213(a) to restrain any a*sessment or collection of a defi-

ciency prior to the issuance of a notice of deficiency, was not

before the Court in Laing. Laing does not discuss the equitable

considerations for injunctive relief. Its silence does not justify

plaintiff’s reading that ordinary equitable considerations do

not obtain under § 6213(a). In its 1983 decision in Perlowin,

the Ninth Circuit considered Laing in another context. How-

ever, it did not see fit to read Laing in the manner urged by

plaintiff. Rather, it went on to reaffirm its holding in Cool

Fuel that the taxpayer must show irreparable injury and lack of

an adequate remedy at law.

Accordingly, plaintiff’s motion for preliminary injunction is

DENIED.

IT IS SO ORDERED.

Dated: MAR 12 1984

/s/ M_H PATEL

Marilyn Hall Patel

United States District Judge

APPENDIX F

Internal Revenue Code of 1954 (26 U.S.C.)

SEC. 6211. Definition of a Deficiency.

(a) In General.—For purposes of this title in the case of

income, estate, and gift taxes imposed by subtitles A and B and

excise taxes imposed by chapters 41, 42, 43, 44, and 45, the

term “deficiency” means the amount by which the tax imposed

by subtitle A or B, or chapter 41, 42, 43, 44, or 45, exceeds the

excess of —

(1) the sum of

(A) the amount shown as the tax by the taxpayer upon

his return, if a return was made by the taxpayer and an

amount was shown as the tax by the taxpayer thereon,

plus

(B) the amounts previously assessed (or collected

without assessment) as a deficiency, over—

(2) the amount of rebates, as defined in subsection (b)(2),

made.

* * * *

SEC. 6212. Notice of Deficiency.

(a) In General.—If the Secretary determines that there is a

deficiency in respect of any tax imposed by subtitle A or B or

chapter 41, 42, 43, 44, or 45, he is authorized to send notice of

such deficiency to the taxpayer by certified maii or registered

mail.

(1) General rule.—If the Secretary has mailed to the

taxpayer a notice of deficiency as provided in subsection

(a), and the taxpayer files a petition with the Tax Court

within the time prescribed in section 6213(a), the Secre-

tary shall have no right to determine any additional

deficiency of income tax for the same taxable year, of gift

tax for the same calendar year, or estate tax in respect of

the taxable estate of the same decedent, of chapter 41 tax

for the same taxable year, of chapter 43 tax for the same

taxable year, of chapter 44 tax for the same taxable year,

of section 4940 tax for the same taxable year, of chapter

42 tax (other than under section 4940) with respect to any

act (or failure to act) to which such petition relates, or of

chapter 45 tax for the same taxable periods, except in the

case of fraud, and except as provided in section 6214(a)

(relating to assertion of greater deficiencies before the Tax

Court), in section 6213(b)(1) (relating to mathematical or

clerical errors), in section 6851 (relating to termination

assessments), or in section 6861(c) (relating to the making

of jeopardy assessments).

* * * *

SEC. 6213. Restrictions Applicable To Deficiencies; Petition

To Tax Court.

(a) Time for Filing Petition and _ Restriction § on

Assessment.—Withir 90 days, or 150 days if the notice is

addressed to a person outside the United States, after the

notice of deficiency authorized in section 6212 is mailed (not

counting Saturday, Sunday, or a legal holiday in the District of

Columbia as the last day}, the taxpayer may file a petition with

the Tax Court for a redetermination of the deficiency. Except

as otherwise provided in section 6851 or section 6861 no

assessment of a deficiency in respect of any tax imposed by

subtitle A or B, chapter 41, 42, 43, 44, or 45 and no levy or

proceeding in court for its collection shali ve made, begun, or

prosecuted until such notice has been mailed to the taxpayer,

nor until the expiration of such 90-day or 150-day period, as

the case may be, nor, if a petition has been filed with the Tax

Court, until the decision of the Tax Court has become final.

Notwithstanding the provisions of section 7421(a), the making

of such assessment or the beginning of such proceeding or levy

10a

during the time such prohibition is in force may be enjoined by

a proceeding in the proper court.

* * * *

(d) Waiver of Restrictions.—The taxpayer shall at any time

(whether or not a notice of deficiency has been issued) have the

right, by a signed notice in writing filed with the Secretary, to

waive the restrictions provided in subsection (a) on the assess-

ment and collection of the whole or any part of the deficiency.

* * * *

Sec. 6851. Termination Assessments of Income Tax.

(a) Authority for Making.—

(1) In general.—If the Secretary finds that a taxpayer

designs quickly to depart from the United States or to

remove his property therefrom, or to conceal himself or

his property therein, or to do any other act (including in

the case of a corporation distributing all or part of its

assets in liquidation or otherwise) tending to prejudice or

to render wholly or partially ineffectual proceedings to

collect the income tax for the current or the immediately

preceding taxable year unless such proceeding be brought

without delay, the Secretary shall immediately make a

determination of tax for the current taxable year or for

the preceding taxable year, or both, as the case may be,

and notwithstanding any other provision of law, such tax

shall become immediately due and payable. The Secretary

shall immediately assess the amount of the tax so deter-

mined (together with all interest, additional amounts, and

additions to the tax provided by law) for the current

taxable year or such preceding taxable year, or both, as

the case may be, and shall cause notice of such determina-

tion and assessment to be given the taxpayer, together

with a demand for immediate payment of such tax.

* * * *

lla

(b) Notice of Deficiency.—If an assessment of tax is made

under the authority of subsection (a), the Secretary shall mail a

notice under section 6212(a) for the iaxpayer’s full taxable year

(determined without regard to any action taken under subsec-

tion (a)) with respect to which such assessment was made

within 60 days after the later of (i) the due date of the

taxpayer’s return for such taxable year (determined with regard

to any extensions), or (ii) the date such taxpayer files such

return. Such deficiency may be in an amount greater or less

than the amount assessed under subsection (a).

* * * *

SEC. 6861. Jeopardy Assessments of Income, Estate, Gift,

and Certain Excise Taxes.

(a) Authority for Making.—If the Secretary believes that the

assessment or collection of a deficiency, as defined in section

6211, will be jeopardized by delay, he shall, notwithstanding

the provisions of section 6213(a), immediately assess such

deficiency (together with all interest, additional amounts, and

additions to the tax provided for by law), and notice and

demand shali be made by the Secretary for the payment

thereof.

(b) Deficiency Letters.—If the jeopardy assessment is made

before any notice in respect of the tax to which the jeopardy

assessment relates has been mailed under section 6212(a), then

the Secretary shall mail a notice under such subsection within

60 days after the making of the assessment.

* * * *

SEC. 6863. Stay of Collection of Jeopardy Assessments.

(a) Bond to Stay Collection.—When an assessment has been

made under section 6851, 6861, or 6862, the collection of the

whole or any amount of such assessment may be stayed by

filing with the Secretary, within such time as may be fixed by

regulations prescribed by the Secretary, a bond in an amount

equal to the amount as to which the stay is desired, condi-

12a

tioned upon the payment of the amount (together with interest

thereon) the collection of which is stayed, at the time at which,

but for the making of such assessment, such amount would be

due. Upon the fil'ag of the bond the collection of so much of

the amount assessed as is covered by the bond shall be stayed.

The taxpayer shall have the right to waive such stay at any time

in respect of the whole or any part of the amount covered by

the bond, and if as a result of such waiver any part of the

amount covered by the bond is paid, then the bond shail, at the

request of the taxpayer, be proportionately reduced. If any

portion of such assessment is abated, the bond, shall, at the

request of the taxpayer, be proportionately reduced.

* * * *

SEC. 7421. Prohibition Of Suits To Restrain Assessment Or

Collection.

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

6213(a), 6672(b), 6694(c), 7426(a) and (b)(1), and 7429(b), 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. 7430. Awarding Of Court Costs and Certain Fees.

(a) In General.—In the case of any civil proceeding which

1S——

(1) brought by or against the United States in connec-

tion with the determination, collection, or refund of any

tax, interest, or penalty under this title, and

(2) brought in a court of the United States (including

the Tax Court and the United States Claims Court),

the prevailing party may be awarded a judgment for reason-

able litigation costs incurred in such proceeding.

* ¥ * *

13a

(b) Limitations.—

* * * *

(2) Requirement that administrative remedies be

exhausted.—A judgment for reasonable litigation costs

shall not be awarded under subsection (a) unless the court

determines that the prevailing party has exhausted the

administrative remedies available to such party within the

Internal Revenue Service.

(3) Only costs allocable to this United States.—An

award under subsection (a) shall be made only for reason-

able litigation costs which are allocable to the United

States and not to any other party to the action or

proceeding.

(4) Exclusion of declaratory judgment proceedings.—

(A) In general.—No award for reasonable litigation

costs may be made under subsection (a) with respect to

any declaratory judgment proceeding.

(B) Exception for section 501(C)(3) determination

revocation proceedings.—Subparagraph (A) shall not

apply to any proceeding which involves the revocation

of a determination that the organization is described in

section 501(c)(3).

* * * *

(2) Prevailing party.—

(A) In general.—The term “prevailing party” means

any party to any proceeding described in subsection (a)

(other than the United States or any creditor of the

taxpayer involved) which—

(i) establishes that the position of the United

States in the civil proceeding was unreasonable, and

l4a

(ii)(1) has substantially prevailed with respect to

the amount in controversy, or

(II) has substantially prevailed with respect to

the most significant issue or set of issues pre-

sented.

(B) Determination as to prevailing party.—Any de-

termination under subparagraph (A) as to whether a

party is a prevailing party shall be made—

(i) by the court, or

(ii) by agreement of the parties.

* * * *

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.