United States District Court, Northern District of Illinois, E. D
August 6, 1973
JOHN M. WHITE AND ANGELA B. WHITE, PLAINTIFFS,
THE UNITED STATES OF AMERICA ET AL., DEFENDANTS.
The opinion of the court was delivered by: Bauer, District Judge.
MEMORANDUM OPINION AND ORDER
This cause comes on the defendants motion to dismiss the
This is an action for an interlocutory and permanent
injunction restraining the enforcement of the levy of a
jeopardy assessment provided for under 26 U.S.C. § 6862(a) and
to restrain the collection of the Federal tax claimed to be due
and owing on the grounds that the asserted assessment is
allegedly excessive, arbitrary, capricious, without factual
foundation, and based on illegally obtained evidence. The
plaintiffs also seek a declaratory judgment pursuant to
28 U.S.C. § 2201 as to the invalidity of the purported assessment.
The plaintiffs are John M. White and Angela B. White, who
are both citizens of the United States and residents of the
City of Chicago, Illinois. The individual defendants are Roger
C. Beck, Director of the Internal Revenue for Chicago,
Illinois; Johnnie M. Walters, Commissioner of Internal Revenue
of the United States; and James B. Conlisk, Superintendent of
the Chicago Police Department.
The plaintiffs, in the complaint, allege, inter alia, the
1. On or about March 16, 1971 a jeopardy
assessment of $9,320.20 was made against
plaintiff, John M. White, by the United
States of America acting through its agents,
Edwin P. Trainor, then District Director of
Internal Revenue for Chicago, Illinois, and
Randolph W. Thrower, then Commissioner of
Internal Revenue of the United States. On
March 17, 1971 a similar jeopardy assessment
of $9,320.00 was made against the plaintiff
Angela B. White.
2. On or about March 16 and 18, 1971, a notice
of levy was filed by the United States of
America, in the amount of $9,320.00 against
certain funds in the possession of the
Chicago Police Department which funds are the
property of the plaintiffs and were allegedly
seized from the possession of the plaintiffs.
No indication was given to the plaintiffs
that assessments made were for unpaid
wagering, excise and occupational taxes,
pursuant to the provisions of 26 U.S.C. § 4401
and 26 U.S.C. § 4411 and 4412. A conference
between attorneys for plaintiffs and agents of
the Internal Revenue Service indicated that the
taxes assessed were, in fact, taxes on wagering
for the period from January 1, 1971 to March
21, 1971. No information was made available to
plaintiffs or their attorneys concerning the
basis for such assessments, and plaintiffs
believe that it was made on the basis of
illegally seized evidence. No returns
concerning the excise tax imposed by
26 U.S.C. § 4401 or for the special occupation tax
imposed by 26 U.S.C. § 4411 and § 4412 were
filed by the plaintiffs.
3. On August 20, 1971 a written request was made
to the District Director of Internal Revenue
to cancel the jeopardy assessment and to
release the notice of levy. No action on such
request has been taken and requests for a
further conference with the District
Director's staff have been ignored. On
November 4, 1971 an order was entered by the
Circuit Court of Cook County, Illinois,
directing that the sum of $6,771.00 seized
from the possession of John M. White be
returned to him by the Chicago Police
Department subject only to the levy of the
Internal Revenue Service. Under the provision
of 26 U.S.C. § 6321 and 6862, a tax claim
becomes a lien in favor of the United States
Government on all property of the taxpayer upon
4. Unless the plaintiffs can restrain the
assessment and collection of the taxes
alleged to be due and owing, the plaintiffs
will be compelled to waive their Fifth
Amendment privilege against self
incrimination by filing a suit for refund.
The remedy available to the plaintiffs of
filing a suit for a refund is inadequate,
since in any suit for refund the plaintiffs
would have the burden of proving (a) that the
assessment is invalid and (b) the amount of
tax, if any, to which the United States
Government would be entitled. To meet the
burden of proof required of them under a suit
for refund, the plaintiffs would necessarily
be forced to testify as to gambling
activities thereby exposing themselves to
prosecution under state and federal law.
Unless the plaintiffs are granted an
injunction as requested they will suffer
immediate and irreparable damage, and all of
their property will become subject to seizure
for the payment of the tax claim asserted by
the United States Government, and plaintiffs
have no adequate remedy at law. The levy and
seizure of plaintiffs' funds violates the
Fourth Amendment of the Constitution of the
United States in that such levy and seizure
Were not based upon reasonable cause. The
Seizure of plaintiffs' records and funds upon
which the jeopardy assessment was made
violates the Fifth Amendment of the
Constitution of the United States in that the
use of such personal records compels
plaintiffs to be witnesses against
5. The plaintiffs are entitled to and desire
that this Court issue an interlocutory
injunction and in due course a permanent
injunction restraining and enjoining the
defendants, acting through their agents,
servants, employees and attorneys, and any
and all other persons in active concert or
participation with them, from continuing the
following unconstitutional and unlawful acts:
(a) continuing to detain, seize, and hold
(b) refusing to return to plaintiffs
forthwith the said money that has been
(c) instituting any further proceedings
seeking to forfeit the money seized and held
pursuant to the assessment and levy.
The defendants, in support of their motion to dismiss,
1. The Court lacks jurisdiction over the subject
matter of this action.
2. The complaint fails to state a claim upon
which relief can be granted.
3. The injunctive relief sought in the complaint
is prohibited by Section
7421 of the Internal Revenue Code of 1954.
4. The complaint seeks a declaratory judgment
with respect to federal taxes and is
prohibited by Section 2201, Title 28, United
The plaintiffs, in opposition to the instant motion, contend
that the instant action is a proper exception to 26 U.S.C. § 7421.
It is the opinion of this Court that the defendants' motion
to dismiss is meritorious.
I. THE INSTANT ACTION IS CLEARLY PROHIBITED BY 26 U.S.C. § 7421(a).
Section 7421(a) of the Internal Revenue Code of 1954
provides, in relevant part, that "no suit for the purpose of
restraining the assessment or collection of any tax shall be
maintained in any court by any person." The purpose of this
statute is to permit the United States to assess and collect
taxes alleged to be due without judicial intervention, and to
require that the legal right to disputed funds be determined
in a suit for refund. Enochs v. Williams Packing Co.,
370 U.S. 1, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1961).
In exceptional cases, this statutory prohibition may be
inapplicable. However, in order to come within this exception,
a taxpayer must meet the requirements of a stringent two part
test. First, the taxpayer must establish that under no
circumstances could the government prevail in its claim for
the tax. Secondly, the taxpayer must establish that he
qualifies for equitable relief by showing that absent
injunctive relief he will suffer irreparable harm and he does
not have an adequate legal remedy. Enochs v. Williams Packing
A. The Plaintiffs Failed to Establish That The Government
Cannot Ultimately Prevail in its Claim for the Instant
The mere allegations that taxes assessed against them are
arbitrary, capricious and without factual foundation is not
enough to overcome the statutory bar to this action. The
taxpayer must establish that there is no chance that the
government could prevail. Collins v. Daly, 437 F.2d 736
Cir. 1971); Trent v. United States, 442 F.2d 405
1971); McAlister v. Cohen, 308 F. Supp. 517 (S.D.W.Va. 1970),
aff'd, 436 F.2d 422
(4th Cir. 1971).
It is well settled that the question of whether the
government has a chance of ultimately prevailing is to be
determined on the basis of the information available to it at
the time of suit. If under the most liberal view of the law
and facts, the United States cannot establish its claim, the
suit for an injunction may be maintained, otherwise it must be
dismissed. Enochs v. Williams Packing Co., supra.
The plaintiffs in the complaint do not sufficiently state
facts which would lead to the conclusion that the assessments
per se are arbitrary, capricious, or without any factual
foundation. Nowhere in the complaint is it alleged that the
plaintiffs were not engaged in accepting wagers or that
plaintiffs are not liable for the taxes assessed against them.
Nowhere in the complaint is it alleged that there has been a
judicial determination that evidence upon which the assessment
was made has been illegally seized; nor have facts been alleged
which support the contention that evidence has been illegally
seized. The plaintiffs' objections to the instant assessments
are apparently that they are excessive and not accurate. Such
allegations cannot by themselves overcome the statutory
prohibition against suits of this type. Hamilton v. United
States, 309 F. Supp. 468 (S.D.N.Y. 1969), aff'd, 429 F.2d 427
(2nd Cir. 1970), cert. denied, 401 U.S. 913, 91 S.Ct. 881, 27
L.Ed. 2d 812 (1971); Campbell v. Guetersloh, 287 F.2d 878 (5th
Cir. 1961); United States v. Parenti, 326 F. Supp. 717 (E.D.Pa.
1971), aff'd, 470 F.2d 1175 (3rd Cir. 1972).
The defendants have represented that the taxes assessed
plaintiffs were calculated on the gross wagers shown in the
betting records seized by the Chicago Police. The search
resulted in the discovery of betting records on sporting
events. The instant jeopardy is based on the records seized
rather than a method of projection. The instant assessment is
not per se unreasonable nor do the facts surrounding the
assessment disclosed by the parties to date, suggest that the
government cannot ultimately prevail in its claim for these
The plaintiffs also contend that the assessments against
them are illegal in that they are based on evidence illegally
seized. In Pizzarello v. United States, 408 F.2d 579 (2nd Cir.
1969), cert. denied, 396 U.S. 986, 90 S.Ct. 481, 24 L.Ed.2d
450, the Court held an assessment to be invalid which was
based wholly or in large part on evidence that had been
illegally seized. Two crucial factors present in the
Pizzarello case are not involved in the instant action. First,
in Pizzarello the court was obviously swayed by the "grossly
excessive" assessment determined by the projection method, an
element clearly not present in the instant action. Second,
there had been a judicial determination by the District Court
in the taxpayer's criminal case that much of the evidence upon
which the assessment was based had been illegally seized
pursuant to an invalid search warrant and that evidence was
ordered suppressed. The instant complaint contains no
suggestion that there has been a judicial determination that
the evidence used in preparing the assessment against the
taxpayer was illegally seized nor does the complaint state any
supporting factual basis for the conclusory allegation that the
evidence was illegally seized.
It is well settled that taxpayers cannot bring an injunctive
suit to obtain a determination as to the admissibility of
evidence supporting assessments against them. Hamilton v.
United States, supra; Zamaroni v. Philpott, 346 F.2d 365 (7th
Cir. 1965); Koin v. Coyle, 402 F.2d 468 (7th Cir. 1968);
Kennedy v. Coyle, 352 F.2d 867 (7th Cir. 1965). The
admissibility and sufficiency of such evidence can be tested in
a suit for refund before an appropriate court. The plaintiffs
have alleged that the jeopardy assessment and levy of their
funds based on seizure of their records violates the Fifth
Amendment in that the use of such personal records compels the
plaintiffs to be witnesses against themselves. The plaintiffs
predicate their argument on two major Supreme Court cases and
numerous lower federal court cases which follow the logic of
the Supreme Court. Marchetti v. United States, 390 U.S. 39, 88
S.Ct. 697, 19 L.Ed.2d 889 (1968); Grosso v. United States,
390 U.S. 62, 88 S.Ct. 709, 19 L.Ed.2d 906 (1968). See also United
States v. United States Coin & Currency, 401 U.S. 715, 91 S.Ct.
1041, 28 L.Ed. 2d 434 (1971); Hill v. Philpott, 445 F.2d 144
(7th Cir. 1971), cert. denied, 404 U.S. 991, 92 S.Ct. 533, 30
L.Ed.2d 5 (1971). The essence of the plaintiffs' argument is
that an assessment of gambling taxes under 26 U.S.C. § 4401 has
the same consequences as a forfeiture proceeding pursuant to
26 U.S.C. § 7302. Not only is there an absence of authority with
respect to such a contention, but there is an essential
difference between the two types of proceedings. Urban v.
United States, 445 F.2d 641 (5th Cir. 1971); United States v.
Donlon, 355 F. Supp. 220 (D.Delaware, 1973). Furthermore the
plaintiffs' attempt to equate forfeiture penalties in Marchetti
and Grosso to a civil tax assessment and thereby suggest that
criminal protections equally apply to civil tax assessments.
The Supreme Court in Grosso
specifically disavowed any such determination:
"We cannot accept such an argument. We do not
hold today either that the excise tax is as such
constitutionally impermissible, or that a proper
claim of privilege extinguishes liability for
taxation; we hold only that such a claim of
privilege precludes a criminal conviction
premised on failure to pay the tax." 390 U.S. 62
at 70, footnote 7, 88 S.Ct. 709 at 714, 19
It is clear to this Court that the doctrine of
Marchetti and Grosso is not applicable to the instant action.
Further, it is well settled that the seizure of illegal
gambling paraphernalia per se does not amount to compulsory
self incrimination. Romanelli v. Commissioner of Internal
Revenue, 466 F.2d 872 (7th Cir. 1972).
B. The Plaintiffs Have Failed to Establish that They Are
Entitled to Equitable Relief.
In addition to the plaintiffs' failure to meet the first
part of the two part test set out in Enochs v. Williams
Packing Co., supra, the plaintiffs have also failed to meet the
second part, namely, that of qualifying for equitable relief.
Although the plaintiffs claim that they are in danger of
irreparable damage unless an injunction is granted, the mere
allegation of the possibility of irreparable damage is not
enough. There must be supporting facts. Hamilton v. United
States, supra; Cole v. Cardoza, 441 F.2d 1337
(6th Cir. 1971).
The plaintiffs have failed to properly set forth the factual
basis for their alleged irreparable harm, which would outweigh
the judicial reluctance to interfere with the collection of
In addition the plaintiffs have failed to show that they do
not have an adequate legal remedy. A suit for refund of a
disputed federal tax is recognized as an adequate legal
remedy. Enochs v. Williams Packing Co., supra; Bowers v. United
States, 423 F.2d 1207 (5th Cir. 1970); Walker v. Internal
Revenue Service, 333 F.2d 768 (9th Cir. 1964).
The Third Circuit has held that a taxpayer fearful of
criminal prosecution and possible self incrimination may file
his refund suit and request that further civil proceedings be
deferred until the conclusion of related criminal proceedings
or until all applicable periods of limitations on prosecution
have run. Iannelli v. Long, 487 F.2d 317 (3rd Cir., 1973). It
is the opinion of this Court following the reasoning of
Iannelli that the plaintiffs have an adequate remedy at law.
II. THIS COURT LACKS JURISDICTION TO GRANT THE DECLARATORY
JUDGMENT REQUESTED IN THE INSTANT ACTION.
The plaintiffs seek a declaration from this Court that the
assessments against them have been made arbitrarily,
capriciously, and without factual foundation and are illegal
and void. Federal District Courts are specifically prohibited
from granting declaratory judgments in actions dealing with
federal taxes. See 28 U.S.C. § 2201. The law affords taxpayers
appropriate methods for contesting a claim for federal taxes;
however, these methods do not include the granting of
declaratory relief. Koin v. Coyle, 402 F.2d 468
1968); Mitchell v. Riddell, 402 F.2d 842 (9th Cir. 1968);
Jolles Foundation v. Moysey, 250 F.2d 166
(2nd Cir. 1957).
Accordingly, it is hereby ordered that the defendants'
motion to dismiss is granted.