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LAING v. UNITED STATES ET AL.

*fn*: January 13, 1976.

LAING
v.
UNITED STATES ET AL.



CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

Burger, Brennan, Stewart, White, Marshall, Blackmun, Powell, Rehnquist; Stevens took no part in the consideration or decision of the case.

Author: Marshall

[ 423 U.S. Page 163]

 MR. JUSTICE MARSHALL delivered the opinion of the Court.

These companion cases involve two taxpayers whose taxable years were terminated by the Internal Revenue Service (IRS) prior to their normal expiration date pursuant to the jeopardy-termination provisions of § 6851 (a)(1) of the Internal Revenue Code of 1954 (Code), 26 U.S.C. § 6851 (a)(1).*fn1 Section 6851 (a)(1) allows the IRS immediately to terminate a taxpayer's taxable period when it finds that the taxpayer intends to do any act tending to prejudice or render ineffectual the collection of his income tax for the current or preceding taxable

[ 423 U.S. Page 164]

     year. Upon termination the tax is immediately owing and, after notice, the IRS may, and usually does, levy upon the taxpayer's property under § 6331 (a) of the Code, 26 U.S.C. § 6331 (a), to assure payment.

We must decide 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 § 6861 et seq. of the Code, 26 U.S.C. § 6861 et seq., for the assessment and collection of a deficiency whose collection is in jeopardy.*fn2 The answer, as we shall see, depends on whether the unreported tax due upon such a termination is a "deficiency" as defined in § 6211 (a) of the Code, 26 U.S.C. § 6211 (a) (1970 ed. and Supp. IV). The Government argues that the tax liability that arises after a § 6851 termination cannot be a "deficiency," and that the procedures for the assessment and collection of deficiencies in jeopardy are therefore inapplicable. We reject this argument. We agree with the taxpayers that any tax owing, but unreported, after a § 6851 termination is a deficiency, and that the assessment of that deficiency is subject to the provisions of § 6861 et seq. We reverse in No. 73-1808 and affirm in No. 74-75.

I

A. No. 73-1808, Laing v. United States. Petitioner James Burnett McKay Laing is a citizen of New Zealand.

[ 423 U.S. Page 165]

     He entered the United States from Canada on a temporary visitor's visa on May 31, 1972. On the following June 24, Mr. Laing and two companions sought to enter Canada from Vermont but were refused entry by Canadian officials. As they turned back, they were detained by United States customs authorities at Derby, Vt. Upon a search of the vehicle in which the three were traveling, the customs officers discovered in the engine compartment a suitcase containing more than $300,000 in United States currency. The IRS District Director found that petitioner Laing and his companions were in the process of placing assets beyond the reach of the Government by removing them from the United States, thereby tending to prejudice or render ineffectual the collection of their income tax.*fn3 He declared the taxable periods of petitioner and his companions immediately terminated under § 6851 (a). An assessment of $310,000 against each was orally asserted for the period from January 1 through June 24, 1972. The assessment against Mr. Laing was subsequently abated to the amount of $195,985.55 when a formal letter-notice of termination and demand for payment and the filing of a return were sent. Mr. Laing received no deficiency notice under § 6861 (b) and no specific information about how the amount of the tax was determined.*fn4

After Mr. Laing and his companions refused to pay the tax, the IRS seized the currency that had been found

[ 423 U.S. Page 166]

     in the vehicle. A portion thereof was applied to the tax assessed against Mr. Laing.*fn5

On July 15, petitioner filed suit against the United States, the Commissioner of Internal Revenue, the District Director, and the Chief of the Collection Division, District of Vermont, in the United States District Court for the District of Vermont. He asserted the absence of a notice of deficiency, which he claimed was required under § 6861 (b), and he challenged as violative of due process both the provisions of the levy and distraint statute, § 6331 (a), and the actions of the IRS in seizing and retaining the currency "without any finding of a substantial or probable nexus between that money and taxable income." App. in No. 73-1808, p. 20.*fn6

The District Court, relying on its controlling court's decision in Irving v. Gray, 479 F.2d 20 (CA2 1973), held that a notice of deficiency is not required when a taxable period is terminated pursuant to § 6851 (a)(1), and dismissed the suit as prohibited by the Federal Anti-Injunction Act, § 7421 (a) of the Code, 26 U.S.C. § 7421 (a), and as within the plain wording of the exception to the Declaratory Judgment Act, 28 U.S.C. § 2201, for a controversy with respect to federal taxes. 364 F. Supp. 469 (1973).

Adhering to its earlier ruling in Irving, the Second Circuit affirmed per curiam. 496 F.2d 853 (1974). It expressly declined to follow the Sixth Circuit's decision in Rambo v. United States, 492 F.2d 1060 (1974).*fn7 These rulings of the Second Circuit, and one of the

[ 423 U.S. Page 167]

     Seventh Circuit, Williamson v. United States, 31 A.F.T.R. 2d 73-800 (1971), appeared to be in conflict with holdings by other Courts of Appeals, Rambo v. United States, supra; Hall v. United States, 493 F.2d 1211 (CA6 1974); and Clark v. Campbell, 501 F.2d 108 (CA5 1974).*fn8 Suggesting that the conflict was irreconcilable and noting that some 70 pending cases in the federal courts depended on its resolution, the Solicitor General did not oppose Mr. Laing's petition for certiorari. We granted certiorari to resolve the conflict.*fn9 419 U.S. 824 (1974).

B. No. 74-75, United States v. Hall. Respondent Elizabeth Jane Hall is a resident of Shelbyville, Ky. After the arrest of her husband in Texas on drug-related charges, Kentucky state troopers obtained a warrant and searched respondent's home on January 31, 1973. They found controlled substances there. The next day the Acting District Director notified respondent Hall by letter that he found her "involved in illicit drug activities, thereby tending to prejudice or render ineffectual collection of income tax for the period 1-1-73 thru 1-30-73." App. in No. 74-75, p. 11. Citing § 6851, the Acting Director declared respondent's taxable period for the first 30 days of 1973 "immediately terminated" and her income tax for that period "immediately due and payable." Ibid. He further informed respondent that a tax in the amount of $52,680.25 for the period "will be immediately assessed" and that "[d]emand for immediate payment of the full amount of this tax is hereby made." Ibid. A return for the terminated period, pursuant to § 443 (a)(3) of the Code, 26 U.S.C. § 443

[ 423 U.S. Page 168]

     (a)(3), was requested but not filed. The formal assessment was made on February 1. As was the case with Mr. Laing, Mrs. Hall received no deficiency notice under § 6861 (b) and no specific information about how the amount of the tax had been determined.

Respondent was unable to pay the tax so assessed. Therefore, the IRS, acting pursuant to § 6331, levied upon and seized respondent's 1970 Volkswagen and offered it for sale.*fn10

Respondent Hall instituted suit on February 13 in the United States District Court for the Western District of Kentucky, seeking injunctive relief and compensatory and punitive damages. The court issued an order temporarily restraining the IRS from selling the automobile and from seizing any more of respondent's property. Thereafter, relying upon Schreck v. United States, 301 F. Supp. 1265 (Md. 1969), the court held that the Federal Anti-Injunction Act, § 7421 (a), was inapplicable because of the IRS's failure to follow the procedures of § 6861 et seq. The court ordered the return of respondent's automobile upon her posting a bond in the amount of its fair market value.*fn11 It issued a preliminary injunction restraining the defendants (the United States, the Acting District Director, the Group Supervisor of Internal Revenue, and a lieutenant of the Kentucky State Police) "from harassing or intimidating [respondent] in any manner including but not limited to trespassing on, seizing or levying upon any of her property of whatever nature, be it rental property or not." Pet. for Cert. in No. 74-75, p. 5a.

[ 423 U.S. Page 169]

     On appeal, the United States Court of Appeals for the Sixth Circuit affirmed per curiam, 493 F.2d 1211 (1974), relying upon its opinion and decision in Rambo v. United States, supra, decided one month earlier. In Rambo the court had held that the failure of the IRS to issue a deficiency notice for a terminated taxable period, and the consequent unavailability of a remedy in the United States Tax Court, entitled the taxpayer to injunctive relief. Because of the conflict, indicated above, we also granted certiorari in Mrs. Hall's case. 419 U.S. 824 (1974).

II

In these cases, the taxpayers seek the protection of certain procedural safeguards that the Government claims were not intended to apply to jeopardy terminations. Specifically, the taxpayers argue that the procedures mandated by § 6861 et seq. for assessing and collecting deficiencies whose collection is in jeopardy also govern assessments of taxes owing, but not reported, after the termination of a taxpayer's taxable period under § 6851. Resolution of this claim requires analysis of the interplay between these two basic jeopardy provisions -- § 6851, the jeopardy-termination provision, and § 6861, the jeopardy-assessment provision.

The initial workings of the jeopardy-termination provision, which essentially permits the shortening of a taxable year, are not in dispute. When the District Director determines that the conditions of § 6851 (a) are met -- generally, that the taxpayer is preparing to do something that will endanger the collection of his taxes*fn12 -- the District Director may declare the taxpayer's

[ 423 U.S. Page 170]

     current tax year terminated. The tax for the shortened period and any unpaid tax for the preceding year become due and payable immediately, § 6851 (a), and the taxpayer must file a return for the shortened year. § 443 (a)(3).

The disagreement between the taxpayers and the Government focuses on the applicability of the jeopardy-assessment procedures of § 6861 et seq. to the assessment*fn13 and collection of taxes that become due upon a § 6851 termination. Section 6861 (a) provides for the immediate assessment of a deficiency, as defined in § 6211 (a), whenever the assessment or collection of the deficiency would be "jeopardized by delay." By allowing an immediate assessment, § 6861 (a) provides an exception to the general rule barring an assessment until the taxpayer has been sent a notice of deficiency and has been afforded an opportunity to seek resolution of his tax liability in the Tax Court.*fn14 Certain procedural safeguards are provided, however, to the taxpayer whose deficiency is assessed

[ 423 U.S. Page 171]

     immediately under § 6861 (a). Within 60 days after the jeopardy assessment, the District Director must send the taxpayer a notice of deficiency, § 6861 (b), which enables the taxpayer to file a petition with the Tax Court for a redetermination of the deficiency, 26 U.S.C. § 6213 (a) (1970 ed., Supp. IV). The taxpayer can stay the collection of the amount assessed by posting an equivalent bond, § 6863 (a). Any property seized for the collection of the tax cannot be sold until a notice of deficiency is issued and the taxpayer is afforded an opportunity to file a petition in the Tax Court. If the taxpayer does seek a redetermination of the deficiency in the Tax Court, the prohibition against sale extends until the Tax Court decision becomes final. § 6863 (b)(3)(A).*fn15

The taxpayers view the provisions of § 6861 et seq. as complementary to those of § 6851. They contend that to the extent the tax owing upon a jeopardy termination has not been reported, it is a "deficiency" as that term is defined in § 6211 (a) and used in § 6861 (a), and that the deficiency, being of necessity one whose assessment or collection is in jeopardy,*fn16 must be assessed and collected in accordance with the procedures of § 6861 et seq.

Under the Government's view, on the other hand, §§ 6851 and 6861 are aimed at distinct problems and have no bearing on each other. "Section 6851," according to the Government, "advances the date when

[ 423 U.S. Page 172]

     taxes are due and payable, while Section 6861 advances the time for collection of taxes which are already overdue [i.e., already owing for a prior, normally expiring taxable year]." Brief for United States 10. The validity of this distinction rests on the Government's claim that a deficiency can arise only with respect to a nonterminated taxable year, so that no deficiency can be created by a § 6851 termination. If there is no deficiency to assess, of course, the provisions of § 6861 et seq. cannot apply.

Thus, under the Government's reading of the Code, the procedures for assessment and collection of a tax owing, but not reported, after the termination of a taxable period are not governed by § 6861 et seq.*fn17 The Government argues that, with the sigle exception of the bond provision of § 6851 (e), the taxpayer's only remedy upon a jeopardy termination is to pay the tax, file for a refund, and, if the refund is refused, bring suit in the district

[ 423 U.S. Page 173]

     court or the Court of Claims. See 28 U.S.C. § 1346 (a)(1). Since the IRS has up to six months to act on a request for a refund, the taxpayer, under the Government's theory, may have to wait up to half a year before gaining access to any judicial forum. See 26 U.S.C. §§ 6532 (a), 7422 (a) (1970 ed. and Supp. IV).

The Government does 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 these cases should have been pursuant to the procedures of § 6861 et seq. The question, then, is whether the tax owing, but not reported, upon a jeopardy termination is a deficiency within the meaning of § 6211 (a).

III

In essence, a deficiency as defined in the Code is the amount of tax imposed less any amount that may have been reported by the taxpayer on his return.*fn18 § 6211

[ 423 U.S. Page 174]

     (a). Where there has been no tax return filed, the deficiency is the amount of tax due. Treas. Reg.§ 301.6211-1 (a), 26 CFR § 301.6211-1 (a) (1975). As we have seen, upon terminating a taxpayer's taxable year under § 6851, the District Director makes a demand for the payment of the unpaid tax for the terminated period and for the preceding taxable year. The taxpayer is then required to file a return for the truncated taxable year. § 443 (a)(3). The amount due, of course, must be determined according to ordinary tax principles, as applied to the abbreviated reporting period. The amount properly assessed upon a § 6851 termination is thus the amount of tax imposed under the Code for the preceding year and the terminated short year, less any amount that may already have been paid. To the extent this sum has not been reported by the taxpayer on a return, it fits precisely the statutory definition of a deficiency.*fn19

The Government resists this conclusion by reading the definition of "deficiency" restrictively to include only those taxes due at the end of a full taxable year when a return has been or should have been made. It argues that a "deficiency" cannot be determined before the close of a taxable year. Of course, we agree with the Government

[ 423 U.S. Page 175]

     that a deficiency does not arise until the tax is actually due and the taxable year is complete. The fact is, however, that under § 6851 the tax is due immediately upon termination. Moreover, upon a § 6851 termination, the taxpayer's taxable year has come to a close. See Sanzogno v. Commissioner, 60 T.C. 321, 325 (1973).*fn20 Section 441 (b)(3) defines as a " taxable year" the terminated taxable period on which a return is due under § 443 (a)(3). See also § 7701 (a)(23). Under the statutory definition of § 6211 (a), the tax owing and unreported after a jeopardy termination, which in these cases and in most § 6851 terminations is the full tax due, is clearly a deficiency. We see nothing in the definition to suggest that a deficiency can arise only at the conclusion of a 12-month taxable year; it is sufficient that the taxable period in question has come to an end and the tax in question is due and unreported.*fn21

[ 423 U.S. Page 176]

     Besides conflicting with the plain language of the Code provisions directly before us, the Government's position in these cases would, for no discernible purpose, isolate the taxpayer subjected to a jeopardy termination from most other income-tax payers. If the unreported tax due after a jeopardy termination is not a deficiency, the IRS need not issue the taxpayer a deficiency notice and accord him access to the Tax Court for a redetermination of his tax. Denial of an opportunity to litigate in the Tax Court is out of keeping with the thrust of the Code, which generally allows income-tax payers access to that court. Where exceptions are intended, the Code is explicit on the matter. See, e.g., § 6871 (b). Denying a Tax Court forum to a particular class of taxpayers is sufficiently anomalous that an intention to do so should not be imputed to Congress when the statute does not expressly so provide. This is particularly so in view of the Government's concession that the jeopardy-assessment procedures of § 6861 et seq. are sufficient to protect its interests, and that providing taxpayers with the

[ 423 U.S. Page 177]

     limited protection of those procedures would not impair the collection of the revenues.*fn22

IV

While the plain language of the provisions at issue here and their place in the legislative scheme suggest that the unreported tax due upon a § 6851 termination is a deficiency and that the deficiency, its collection being in jeopardy, must be assessed and collected according to the procedures of § 6861 et seq., the Government attempts to undercut this conclusion by pointing to the legislative history of the several provisions at issue in this case. We are unpersuaded. The jeopardy-assessment and jeopardy-termination provisions have long been treated in a closely parallel fashion, and nothing that the Government points to in the early codifications suggests the contrary.

As the Government points out, the Revenue Act of 1918 (1918 Act) contained a termination provision, § 250 (g), 40 Stat. 1084, that was very similar to the present § 6851. Under the 1918 statute all assessments were made under the authority of Rev. Stat. § 3182,*fn23 and the taxpayer could attack an assessment only by paying the amount claimed and bringing suit for a refund in district court. Since there was no way for the taxpayer to contest assessments prior to payment, the Government had no need for any expedited jeopardy-assessment procedure

[ 423 U.S. Page 178]

     such as is now authorized in § 6861.*fn24 When a termination was made under § 250 (g), the tax assessment and collection thus proceeded exactly as in any other case -- the taxpayer had to pay first and litigate later.

In the Revenue Act of 1921 (1921 Act), 42 Stat. 227, Congress added both a special procedure for prepayment challenges to assessments and an exception to that procedure. The special procedure made available, under certain circumstances, a limited administrative remedy within the Bureau of Internal Revenue (predecessor to the IRS) by which taxpayers could question assessments before ...


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