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September 15, 1959


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

Defendant has moved to dismiss plaintiffs' suit for injunctive relief and application for the calling of a three-judge court. The issues before the Court on this motion are:

(1) Do the allegations of the amended complaint state a good cause of action for restraining actions of the defendant which allegedly purport to have been taken pursuant to Sections 6331 and 6672 of the Internal Revenue Code (26 U.S.C. § 6331 and 6672)?

(2) Does the amended complaint set forth such substantial question as to the constitutionality of Section 6672 as to require the convening of the three-judge court as set forth in 28 U.S.C. § 2282 and 2284?

The amended complaint is divisible into two parts. In the first, plaintiffs allege, in substance, that they are president and secretary, respectively, of the R.J. Mrizek Co., Inc.; that the corporation became delinquent in payment of withholding taxes due during 1955 or 1956; that arrangements for weekly installment payments on account of the delinquent and current taxes were made between the said president and defendant's authorized agents; that the agreed payments were made regularly up to and including March 6, 1958; that on March 13, 1958, defendant, without prior notice to plaintiffs, seized possession of the corporation's assets and demanded immediate payment of $32,474.48 from the corporation; that the said sum comprised the entire amount of delinquent taxes alleged by defendant to be due; that defendant's notice of seizure of the corporation's property "for nonpayment of delinquent internal revenue taxes due from R.J. Mrizek Co., Inc." in that amount is dated five days after the seizure; that on April 12, 1958, defendant advertised a public auction of the corporation's property, to be held on April 16, 1958; that by reason of defendant's said actions one of the corporation's creditors demanded immediate payment of its note; that because of defendant's actions neither the corporation nor the plaintiffs could comply with that demand; that because of the said failure to discharge the note the creditor filed foreclosure proceedings on a trust deed on April 10, 1958, which action is now pending; and that on April 14, 1958, an involuntary petition in bankruptcy was filed in this court against the corporation.

Plaintiffs argue that defendant's said actions in seizing possession of the corporation's property are violative of Section 6331 of the Internal Revenue Code (26 U.S.C. § 6331), which reads, in pertinent part:

    "(a) Authority of Secretary or delegate. — If any
  person liable to pay any tax neglects or refuses to
  pay the same within 10 days after notice and demand,
  it shall be lawful for the Secretary or his delegate
  to collect such tax (and such further sum as shall be
  sufficient to cover the expenses of the levy) by levy
  upon all property and rights to property (except such
  property as is exempt under section 6334) belonging
  to such person or on which there is a lien provided
  in this chapter for the payment of such tax. * * * If
  the Secretary or his delegate makes a finding that
  the collection of such tax is in jeopardy, notice and
  demand for immediate payment of such tax may be made
  by the Secretary or his delegate and, upon failure or
  refusal to pay such tax, collection thereof by levy
  shall be lawful without regard to the 10-day period
  provided in this section.
    "(b) Seizure and sale of property. — The term
  `levy' as used in this title includes the power of
  distraint and seizure by any means. In any case in
  which the Secretary or his delegate may levy upon
  property or rights to property, he may seize and sell
  such property or rights to property (whether real or
  personal, tangible or intangible)."

In the second part of their amended complaint, plaintiffs allege, in substance, that on March 21, 1958, defendant sent letters to each of the plaintiffs proposing to assess penalties against each in the amount of $52,206.68 pursuant to the provisions of Sec. 6672 of the Internal Revenue Code (26 U.S.C. § 6672); that on March 26, 1958, plaintiffs' attorney answered defendant's letters, advising that plaintiffs did not "consent to such penalty assessment" and requesting a conference; that defendant made no reply to the request; that no notice of deficiency has been sent by defendant to the plaintiffs in accordance with Sections 6212 and 6671 of the Internal Revenue Code (26 U.S.C. § 6212, 6671); that plaintiffs have unsuccessfully attempted to obtain information concerning defendant's proposed assessment of the 100% penalty; that on April 28, 1958, defendant recorded a lien against the plaintiffs in the amount of $52,206.68; that on June 13, 1958, defendant recorded a lien in the sum of $58,912.44 against the home owned by Bessie A. Mrizek in Illinois; that on May 2, 1958 and September 2, 1958, defendant filed liens against Florida real estate in which plaintiffs have an interest; that plaintiff Bessie A. Mrizek has exhausted her administrative remedies by reason of the fact that defendant has refused her formal request, filed July 1, 1958, pursuant to Internal Revenue Regulations § 301.6861(F)(1), for abatement of the said liens; that except for her interest in the real estate encumbered by the said liens plaintiff Bessie A. Mrizek has total assets of the approximate value of $2,000; that except for his interest in the real estate encumbered by the said liens and his interest in the R.J. Mrizek Co., Inc., plaintiff John R. Mrizek is without assets; and that because of the said liens plaintiffs are unable to obtain funds from or make any disposition of the encumbered property.

Section 6672 reads as follows:

    "Any person required to collect, truthfully account
  for, and pay over any tax imposed by this title who
  willfully fails to collect such tax, or truthfully
  account for and pay over such tax, or willfully
  attempts in any manner to evade or defeat any such
  tax or the payment thereof, shall, in addition to
  other penalties provided by law, be liable to a
  penalty equal to the total amount of the tax evaded,
  or not collected, or not accounted for and paid over.
  No penalty shall be imposed under section 6653 for
  any offense to which this section is applicable."

Plaintiffs claim that the said liens are void because (1) they are not based on a valid assessment, (2) they are patently without relation to the taxes allegedly due and unpaid, (3) they are speculatively separately applied to two individuals, aggregating $104,413.36, whereas the statute pursuant to which the liens were purportedly applied authorizes a penalty "equal to * * * the tax evaded, or not collected, or not accounted for and paid over," (4) any purported assessment of penalties (upon which liens are predicated) is void as having no connection or relation to the outstanding tax deficiency claimed, and (5) notice of the imposition of penalty assessment has never been given.

Plaintiffs further raise issues which concern the constitutionality of Section 6672. Specifically, they argue that if penalty assessments are found to have been made pursuant to the statute (1) they are invalid as imposing punishment without the right to a jury trial, (2) the hearing referred to in the notice of proposed assessment "cannot, as a matter of discretion, be deemed a substantial substitute for the due process of law that the Constitution requires", and (3) since they have "punitive nature and purpose, must be preceded by opportunity to contest their validity".

Plaintiffs allege that they are without an adequate remedy at law, in that (1) they are unable to seek relief under 28 U.S.C. § 1346*fn1 for the reason that by the levy and seizure of the assets of the R.J. Mrizek Co., Inc., and the liens applied to their independent property, they have been rendered without means to pay the alleged penalties, (2) they are unable to obtain a bond in double the amount of the purportedly assessed penalties to stay collection pending determination of the validity thereof, (3) there is no provision made for review of the denial of the requested administrative abatement, and (4) if defendant is not restrained from enforcing the claimed liens, plaintiffs' properties will be sold at distress sale for less than their reasonable value, even though it may ultimately result that plaintiffs owe no money to defendant. Plaintiffs further urge the inadequacy of any legal remedy for an injury they characterize as "punishment without trial by jury and without prior opportunity to contest the validity of the punishment," which injury they allege has resulted from defendant's attempt to enforce 26 U.S.C. § 6672.

Plaintiffs ask this Court to grant whatever relief may be appropriate, and particularly to issue its restraining order and then, pursuant to 28 U.S.C. § 2282 and 2284*fn2, convene a three-judge court to test the constitutionality of 26 U.S.C. § 6672. But the Court is admonished by the authorities that before taking steps to convene a three-judge court it must be satisfied that a substantial question of constitutionality is presented. William Jameson & Co. v. Morgenthau, 1939, 307 U.S. 171, 59 S.Ct. 804, 83 L.Ed. 1189; International Ladies' Garment Workers' Union v. Donnelly Garment Co., 1938, 304 U.S. 243, 58 S.Ct. 875, 82 L.Ed. 1316. See Nye, The Three-Judge Federal District Court, 9 Decalogue J., 6, 7 (Jan.-Feb., 1959).

The Court is of the opinion that plaintiffs' contention concerning the constitutionality of 26 U.S.C. § 6672 cannot be of sufficient substance if the allegations of the amended complaint are sufficient per se to warrant relief from defendant's actions taken under the purported authority of that section. Otherwise stated, it is this Court's opinion that if plaintiffs have a right to relief from alleged unauthorized administrative activity, it is unnecessary to determine the constitutional question and no three-judge court need be convened.

The parties have filed extensive memoranda in support of their respective positions on the motion to dismiss. They have stipulated that the Court shall decide the motion on the briefs and have waived oral argument. The Court will not, therefore, examine questions not raised or argued by the parties, and will consider that such points must be resolved as the parties have assumed them to be. Further, the Court should note that counsel for the defendant has represented in open court that the status quo would be maintained and that no further action would be taken to enforce collection of the alleged assessments by the defendant until further order of this Court. Plaintiffs, too, through plaintiff ...

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