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MORTON v. WHITE

April 9, 1959

CLARENCE MORTON, D/B/A WHIRL A WAY NITE CLUB, PLAINTIFF,
v.
H.J. WHITE, DISTRICT DIRECTOR OF INTERNAL REVENUE FOR THE UNITED STATES OF AMERICA, DEFENDANT.



The opinion of the court was delivered by: Juergens, District Judge.

Plaintiff filed his complaint for injunction asking this Court to enjoin the defendant and all those acting in concert with him, or as his agent or servant, from collecting the assessment heretofore made against him until a final determination is had as to the liability of plaintiff in connection with alleged cabaret tax due and that this Court determine the question of plaintiff's liability with respect to mechanical music in his place of business and the liability, if any, due under the provisions of the cabaret tax (Section 1700(e), Internal Revenue Code, 1939; Section 4231, Internal Revenue Code, 1954, 26 U.S.C.A. § 4231).

The defendant filed his motion to dismiss the complaint for lack of jurisdiction of this Court because it appears on the face of the complaint that this is a suit to restrain the collection of internal revenue taxes, the maintenance of which is prohibited by Section 7421(a) of the Internal Revenue Code of 1954, 26 U.S.C.A. § 7421(a); that the complaint fails to state a claim upon which relief may be granted in that the relief prayed is specifically prohibited by Section 7421(a) of the Internal Revenue Code of 1954; that this is in the nature of a declaratory judgment action to determine the question of a taxpayer's liability with respect to taxes assessed, the maintenance of which is prohibited by Section 2201, Title 28, U.S.C. and for other reasons.

The complaint alleges that the plaintiff is now and has been for a substantial period of time since November, 1952, engaged in the business and occupation of operating a tavern, night club, or dramshop near Belleville, Illinois; that the defendant is a duly authorized director of Internal Revenue in the district in which plaintiff resides and is an authorized agent of the United States Government for the purpose of assessing and collecting Federal taxes, including the cabaret tax; that for some period prior to filing this complaint a dispute has existed regarding the liability of the plaintiff for certain alleged penalties due under the provisions of the Internal Revenue Code known as the Cabaret Tax Act; that since July, 1953, plaintiff has offered at various times entertainment consisting of live music in the form of small bands, orchestras, or combos; that during the period of this entertainment a cabaret tax has been collected by the plaintiff from his patrons; that this tax has been paid; that the plaintiff has in his place of business mechanical or "juke box" music which is used when live entertainment is not provided; that the plaintiff has not permitted dancing to the mechanical music but has directed patrons against dancing through the use of signs and through instructions to his agents and servants; that the defendant has arbitrarily and capriciously taken the position that dancing was permitted to the mechanical music and has assessed a tax on plaintiff's gross sales.

Under the provisions of Section 7421 of the Internal Revenue Code, 1954, suits to restrain assessment or collection of any tax are prohibited.

Section 7421 provides in pertinent parts as follows:

    "§ 7421. Prohibition of suits to restrain
  assessment or collection.
    "(a) Tax. — Except 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."

Sections 6212(a) and (c) and Section 6213(a), 26 U.S.C.A. §§ 6212(a, c), 6213(a), do not apply in any manner to the question here presented. The prohibition against suit for the purpose of restraining assessment or collection of any tax is, therefore, pertinent to the present situation.

The plaintiff asserts that Section 7421 of the Internal Revenue Code of 1954 does not prohibit suits to enjoin the collection of a tax in all situations; that there are exceptions to the rule and where exceptional circumstances exist a court may enjoin the collection of a tax notwithstanding the provisions of said section.

In Miller v. Standard Nut Margarine Co., 284 U.S. 498, 52 S.Ct. 260, 76 L. Ed. 422, the court enjoined the collection of a tax on the grounds that the complaint in that case showed that there existed special and extraordinary circumstances, sufficient to bring the case within equity jurisprudence and enjoin the collection of the tax.

An examination of the Miller case and the case here in suit shows that there is no similarity as concerns the extraordinary circumstances. A court of equity may not grant an injunction contrary to the statute unless there exists simultaneously an illegal tax and special and extraordinary circumstances. If either element is lacking, injunctive relief will be denied. Homan Mfg. Co. v. Long, 7 Cir., 242 F.2d 645. Huston v. Iowa Soap Co., 8 Cir., 85 F.2d 649, 108 A.L.R. 173. Gehman v. Smith, D.C., 76 F. Supp. 805.

The plaintiff alleges that the assessment is not a tax but rather a penalty and that the attempted collection thereof is illegal, which is the first requirement necessary to bring into play the waiver of prohibition.

The tax here in controversy was imposed under the provisions of Section 1700(e) of the Internal Revenue Code of 1939 and Section 4231 of the Internal Revenue Code of 1954. The two ...


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