Reply Brief — W. C. Garcia & Associates, Inc. v. Sassi

| i SUPT BITS VUUTL, U.0,

FILED

FEB 10 1986

JOSEPH F. SP

LF. SPANIOL, JR.

(ys

No. 85-591

CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1985

oe

W.C. GARCIA & ASSOCIATES, INC.,

Petitioner,

—V.—

MICHAEL D. SASSI, DISTRICT DIRECTOR,

INTERNAL REVENUE SERVICE,

Respondent.

ON PETITION FOR AWRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

REPLY BRIEF FOR THE PETITIONER IN RESPONSE

TO BRIEF FOR THE RESPONDENT IN OPPOSITION

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

TABLE OF CONTENTS

PAGI

PR S54 506s BUS Aa ee VES Coke ep RERE NEES Rakes l

wo BETA Tee EER TT Cee er Tee Tee Terr Tee 7

TABLE OF AUTHORITIES

Cases:

PAGE

Cool Fuel, Inc. v. Connett, 685 F.2d 309............. 6

Dierks v. United States, 215 F.Supp. 338 ............. 3

Laing v. United States, 423 U.S. 161............ a oe

sae eas ie. 0 | Se 6

Rosenman v. United States, 323 U.S. 658 ............ 1, 4, 6

Weinberger v. Romero-Barcelo, 456 U.S. 305......... 6

Statutes and Rules:

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

ics gos bo aa Gets 6.345 ne SY oO 5

I ae Aas oye eck oes vc ewe aes 3,4, 5,6

Rn Es bois os kb Pak pn ea kT eek Oe RO ee ee 3

SE og | Re ee ere pee 3

IN THE

Supreme Court of the United States

OCTOBER TERM, 1985

No. 85-591

>

W.C. GARCIA & ASSOCIATES, INC.,

Petitioner,

—_—V.—

MICHAEL D. SASSI, DISTRICT DIRECTOR,

INTERNAL REVENUE SERVICE,

Respondent.

ON PETITION FOR AWRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE NINTd CIRCUIT

oe

REPLY BRIEF FOR THE PETITIONER IN

RESPONSE TO BRIEF FOR THE RESPONDENT

IN OPPOSITION*

ARGUMENT

The Government ought not be allowed to moot the Tax-

payer’s injunction argument by seizing its assets and applying

them to an invalid assessment particularly where this Court has

implicitly held such a seizure does not moot such arguments.

Laing v. United States, 423 U.S. 161 (1976). Nor should the

Government be successful in arguing that Rosenman v. United

States, 323 U.S. 658 (1945), supports its contention that a cash

bond applied to an invalid assessment is a payment of such an

* The Rule 28.1 listing was complied with by letter to the Clerk of the

Court dated October 10, 1985. That letter is currently accurate.

assessment. If the Government is successful in such arguments

it will have the power to deny taxpayers the right Congress

gave them to resolve such disputes through injunction actions.

The Taxpayer asks this Court to state explicitly that which this

Court has implicitly stated.

1. The Government argues that any assessment, even an

invalid assessment (Br. 8, n. 4)', that is followed by the

Government’s seizing assets of the Taxpayer* can only be

remedied by filing a claim for refund and then, if necessary,

filing a suit for refund (Br. 8-9). Such argument, however, is

contrary to the implicit holding and the result in Laing v.

United States, supra, (Pet. 14).

The chronology of the relevant facts in Laing v. United

States, supra, is similar to that in this case. The IRS made an

assessment against Mr. Laing, he refused to pay the tax, the

IRS seized currency that had been found in the automobiie in

which Mr. Laing and two companions were traveling, and the

IRS applied a portion of the seized funds to the tax assessed

I Br. refers to the Brief For the Re,pondent In Opposition.

2 The Government incorrectly attempts to establish that the Taxpayer

had a choice of remitting the check of $137,763.31 or seeking a stay

pending appeal (Br. 4, 8-9). The letter sent with the check in issue (Pet.

5.6) establishes the only choice the taxpayer had was to send the check

or have its other assets seized. The district court refused to grant even a

temporary restraining order while the injunction action was being

considered (CR 7, p. 12). The district court stated that collection

action was being withheld at the “sufferance” of the Government (CR

7, p. 14). The Summary Judgment hearing was on May 21, 1984, a

Friday (CR 24). On Monday, May 24, 1984, the threat of seizure of

assets was made by the IRS (Pet. 5-6). If the IRS did not then obtain a

verbal commitment that a check would be mailed, it stated it would

seize the Taxpayer’s bank accounts. The first business day after

Summary Judgment was granted to the Government, the threat of

immediate seizure was made, which prevented the Taxpayer from

taking any step but to send the check of $137,763.31. There was no

time to make any motion for a Stay.

3 Such argument also proves the validity of the Taxpayer’s argument

as to what the Government can do, at least in the Ninth Circuit, if the

order of the court of appeals is allowed to stand (Pet. 15).

3

against Mr. Laing. Laing v. United States, supra, at 165-166.

This Court did not find the amounts seized and applied against

Mr. Laing’s assessment to be a “payment”, thus causing his

injunction action to be moot. There is no mention of an

argument by the Government that Mr. Laing should have

obtained a stay which the Government argues in this case. The

Government’s argument in this case (Br. 8) ignores the implicit

holding by this Court in Laing v. United States, supra. (Also

see Pet. 13-14). Here the Government argues that even if the

assessment is illegal, once the Taxpayer’s assets have been

seized by the IRS and applied to such assessment, the injunc-

tion action becomes moot (Br. 8).

The Government has not attempted to reconcile its position

concerning invalid assessments with Laing v. United States,

supra, nor with the absolute prohibition contained in Section

6213(a), IL.R.C. of 1954, against such assessments.

2. Notwithstanding its argument that the validity of an

assessment is not relevant, the Government does attempt to

have its assessment in this case recognized as being valid. The

Government has introduced some arguments relative to a Form

870-C, “Waiver of Restrictions on Assessment and Collection

of Deficiency in Tax and Acceptance of Overassessment” (Br.

2-3).

Waiver is an affirmative defense (Fed.R.Civ.P. 8(c)). There-

fore, the Government was required to raise the issue by answer

or motion (Fed.R.Civ.P. 12(b)), but it never did.* Indeed, the

Government expressly stated in oral argument in the district

court that the waiver issue was not relevant (CR 28, pp. 14-15)

and the Government conceded that it did not mail a notice of

deficiency (CR 28, p. 15).

4 See also, Dierks v. United States, 215 F.Supp. 338 (S.D.N.Y. 1963),

where an assessment was based on a stipulation in a Tax Court case but

the taxpayer contested the validity of the stipulation and so the court

held that the Government must show the validity of the stipulation.

4

Even when the Government filed its Notice and Motion For

Summary Judgment (CR 13), it did not raise the issue of

waiver. The motion for summary judgment is based solely on

the claim of the Government that the Taxpayer is not entitled

to injunctive relief because it cannot establish irreparable

injury and lack of an adequate legal remedy. The motion is

devoid of any reference to any alleged waiver by the Taxpayer

of the restrictions under Section 6213(a), I.R.C. of 1954, on

assessment and collection of tax (CR 13, pp. 1-2). The Tax-

payer never had the opportunity to litigate the waiver issue nor

had there ever been a need to do so. The Taxpayer has always

denied that the Form 870-C ever became effective.

Since there is no basis in the record to find that the

assessment was based on an effective Form 870-C, and since

the Government has conceded that no notice of a deficiency

has been mailed to the Taxpayer, there is no basis to find that

the assessment is valid.

3. The Government contends that the decision below does

not conflict with Rosenman v. United States, 323 U.S. 658

(1945), because the remittance was made almost five years

after the assessment and it thus became a payment immedi-

ately; that the remittance was a payment even if the assessment

was illegal and void; and that it is the fact, not the validity, of

the assessment that determines the status of the Taxpayer’s

remittance as a “payment” rather than a “cash bond” (Br., pp.

7-8). The Government cites no authority which supports this

novel proposition of law and the Taxpayer has found none.

The Government asserts that the taxpayers in Rosenman vy.

United States, supra, similarly complained on the merits of an

“alleged illegal assessment”, but that allegation did not stop

the assessment from converting the deposit into a “payment”

(Br., p. 8, n. 4).

The facts in Rosenman y. United States, supra, establish the

validity of the assessments therein. On February 25, 1935, the

taxpayers filed their estate tax return showing tax due of

$80,224.24, which amount was assessed under their return.

Upon completion of the audit of the return, the IRS deter-

mined that the total net tax due was $128,759.08 and issued a

notice of deficiency. No appeal to the Board of Tax Appeals

(the former name of the Tax Court) having been taken, in

April 1938, a deficiency of $48,534.84 was assessed. The IRS

thereupon applied the balance of $39,775.76 standing to thy

credit of the taxpayers in the suspense account in partial

satisfaction of the deficiency and on April 22, 1938, the

taxpayers paid the IRS the additional amount of $10,497.34,

which covered the remainder of the deficiency plus interest.

Neither party contended that the assessments were illegal

and void. The assessment of the tax shown due on the return

was made under the authority of the predecessor of Section

6201(a)(1), I.R.C. of 1954. The assessment of the deficiency

was made pursuant to the deficiency procedures authorized by

the predecessor of Section 6213(a), I.R.C. of 1954, after a

notice of deficiency had been issued and the taxpayers had

failed to file a petition in the Board of Tax Appeals contesting

the deficiency. Far from complaining that the assessment had

converted their deposit into a payment, the taxpayers relied on

the assessment in contending that the balance of $39,775.76

standing to the credit of the taxpayers, part of a remittance of

$120,000 which they had made in 1934, did not become a

payment of tax prior to the assessment of the deficiency. True,

the taxpavers claimed that on the merits, the tax was erro-

neously assessed, that is, that the assessment was greater than

their correct estate tax liability. But they did not contend, and

the Court did not hold, that the assessment was illegal and void

as having been made in contravention of the procedures in the

controlling revenue laws for the making of assessments of

estate tax.

Laing v. United States, supra, refutes the Government’s

contention that the remittance made under the circumstances

of this case became a payment of the tax by virtue of the illegal

and void assessment herein (Pet. 14).

6

Rosenman v. United States, supra, stands for the proposi-

tion that a remittance which does not admit, but specifically

denies, liability for, and is not intended to satisfy, an asserted

deficiency in income, estate or gift tax, does not become a

payment prior to a legal and valid assessment of the tax under

the procedures in the controlling revenue laws for the making

of assessments of such tax. In this case, there was neither an

acquiescence in the proposed deficiency nor a legal and valid

assessment of it, since no notice of deficiency was issued.

Therefore, the court of appeals’ holding, that the remittance

constitutes payment of the tax, is in conflict with Resenman v.

United States, supra. Under that decision and the facts in this

case, the remittance made on May 30, 1984, was not payment

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

the nature of a cash bond.

The Government’s argument that a refund suit is an ade-

quate remedy begs the question. Congress has already given

this Taxpayer, and all other taxpayers similarly situated, a

different remedy. Under Section 6213(a), I.R.C. of 1954,

Congress gave all taxpayers the right to an injunction in cases

such as this. The Government’s argument, if successful, will

deny this Taxpayer, and all taxpayers similarly situated, that

right to an injunction.

From a review of the Taxpayer’s petition for a writ of

certiorari and the Government’s brief, there is no basis to find

that the assessment is valid and there is no basis to find that the

check of $137,763.31 was a “payment” of the assessment.

Accordingly, by granting certiorari in this case and reversing

the court of appeals on the mootness issue, the Taxpayer will

be enabled to maintain before the court of appeals that Coo/

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

Perlowin v. Sassi, 711 F.2d 910 (9th Cir. 1983), 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, 456 U.S. 305 (1982), concerning the correct

rule of law to follow in applying equitable principles in Section

6213(a), I.R.C. of 1954, 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

For the foregoing reasons and the additional reasons stated

in the petition, the petition for a writ of certiorari should be

granted,

Respectfully submitted.

JAMES fF. 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, !llinois 60606

(312) 236-4711

Attorneys for Petitioner

February 1986