The opinion of the court was delivered by: PENN
The plaintiffs, in this summary proceeding filed pursuant to the Internal Revenue Code of 1954 (Code), as amended, specifically 26 U.S.C. § 7429(b), seek to have the Court determine the reasonableness of a jeopardy assessment made pursuant to 26 U.S.C. § 6861. The Court has jurisdiction of the proceedings pursuant to 26 U.S.C. § 7429(b) and 28 U.S.C. § 1346(e).
The case is now before the Court on plaintiffs' motion for leave to take depositions within 30 days after commencement of the action. See Fed.R.Civ.P. 30(a). The Complaint was filed on March 17, 1982.
Very briefly, the facts alleged in the complaint are as follows: On January 29, 1982, the District Director, Internal Revenue Service, Baltimore, Maryland, made a jeopardy assessment against the plaintiffs for allegedly unpaid taxes for the taxable year ending December 31, 1980 in the amount of $ 439,230 plus a penalty under 26 U.S.C. § 6653(b) in the amount of $ 219,863, together with accrued interest of $ 41,732.87. The District Director notified the plaintiffs of the assessment in a letter dated January 29, 1982.
Immediately after making the assessment, representatives of the defendant engaged in collection activities whereby various assets of the plaintiffs and business entities with which William Hohman was or is associated were seized.
Within 30 days of the making of the assessment, plaintiffs filed a timely Protest and Request for Administrative Review of Jeopardy Assessment.
See 26 U.S.C. § 7429(a) (2). As of the date of the complaint, no portion of the assessment had been abated.
A taxpayer who is the subject of a jeopardy assessment may file for administrative review of the assessment pursuant to 26 U.S.C. § 7429(a) and thereafter for judicial review of the assessment pursuant to 26 U.S.C. § 7429(b). In the latter event, the Court must determine within 20 days after the action is commenced, whether the making of the assessment is reasonable under the circumstances and whether the amount so assessed or demanded is appropriate under the circumstances. 26 U.S.C. § 7429(b)(2)(A) and (B). If the Court determines that the making of the assessment is unreasonable or that the amount assessed or demanded is inappropriate, the Court may order the Secretary to abate the assessment, redetermine, in whole or in part, the amount assessed or demanded, or take such other action as the Court finds appropriate. 26 U.S.C. § 7429(b)(3).
The Secretary has the burden of proof of demonstrating that the making of the assessment is reasonable and the taxpayer has the burden of proof on the question of the unreasonableness of the amount of the assessment. 26 U.S.C. § 7429(g).
The plaintiffs challenge both the reasonableness of the making of the assessment and the amount assessed.
The plaintiffs contend that they require discovery in order to prepare for the hearing which must be held within 20 days of the date of the summons and complaint.
The Government opposes the motion to take depositions on two grounds. First, it argues that the proceedings are summary in nature, the Court is required to make a determination within 20 days, and the statute contains no provision for shortening the normal time for discovery. The Government asks the Court to infer that, in view of the above, discovery was not contemplated in these cases and is inconsistent with the statute. Second, the Government contends that there is a specific provision for the furnishing of certain information by the Internal Revenue Service under Section 7429(a)(1). At oral hearing, the Government also argued that the taxpayer has other remedies available including the right to petition the Tax Court of the United States. The Government also expressed concern over allowing discovery in a case in which a criminal investigation may be underway.
When Congress enacted Section 7429, it was well aware that taxpayers who were the subject of jeopardy assessments had other remedies. However, notwithstanding any other remedies available to the taxpayer, Congress recognized that "a taxpayer who (is) subjected to such an assessment (jeopardy) may suffer considerable hardship." H.R.Rep.No.94-658, 94th Cong., 2d Sess. 302, reprinted in 1976 U.S.Code Cong. & Ad.News, 2897, 3198. Congress noted that a General Accounting Office (GAO) draft report indicated that most jeopardy assessments or termination assessments were utilized against taxpayers engaged in "illegal activities" and that the GAO had "generally found that these types of assessments had not been misused." Id. Nevertheless, while recognizing that the jeopardy and termination procedures are "valuable tools for the collection of taxes", Congress concluded that "a taxpayer subjected to such procedures should have a timely right to obtain judicial review of the propriety of the use of these procedures in his case." Id., H.R.Rep. 303, reprinted in, 1976 U.S.Code Cong. & Ad.News 3199.
Section 7429 clearly establishes a new remedy for the taxpayer and one that is exclusive of any other remedies provided under the Code. Moreover, the taxpayer has no obligation to demonstrate that he should be permitted to utilize Section 7429 rather than some other procedure provided in the Code. Once IRS makes the jeopardy assessment, the provisions of Section 7429 become available to the taxpayer who seeks to challenge the reasonableness of the making of the assessment or the reasonableness of the amount of the assessment. The plaintiffs are entitled to rely on Section 7429 exclusive of any other provision of the Code.
The Government correctly argues that Section 7429 contemplates a summary procedure. Its purpose is to grant immediate relief in those cases where IRS may have overstepped the bounds of reasonableness. In making a determination under Section 7429, the Court is not determining the ultimate tax liability. See id.; H.R.Rep. 304, reprinted in, 1976 U.S.Code Cong. & Ad.News 3200; S.Rep.No.94-938, 94th Cong., 2d Sess. 365, reprinted in 1976 U.S.Code Cong. & Ad.News 3439, 3794. But the procedure is not pro forma; it is designed to afford the taxpayer an opportunity to initiate a meaningful challenge to the assessment. This contemplates that the taxpayer will be fully informed of the underlying reasons for the making of the assessment; that is, why a jeopardy assessment instead of a regular assessment, and the reasonableness of the ...