Homan Mfg. Co., Inc., an Illinois Corporation v. H. Alan Long, Director of Internal Revenue

264 F.2d 158

• Court: Court of Appeals for the Seventh Circuit
• Decided: April 10, 1959
• Docket: 12416
• Status: Published

Opinions

SCHNACKENBERG, Circuit Judge.

H. Alan Long, Director of Internal Revenue, defendant, herein referred to as the Director, has appealed from a final decree of the district court permanently enjoining him and his agents, servants and successors, from making any assessment or levy against Homan Mfg. Co., Inc., an Illinois corporation, plaintiff, herein referred to as Homan, for alleged income, declared value excess profit and excess profit taxes for the years 1944, 1945 and 1946 based (a) in whole or in part on determinations of one Charles J. Mammel,¹ or (b) in whole or in part upon any of the documents ordered to be produced by that court’s order of February 19, 1958 and refused to be produced; and from using said determinations in any court or in any proceedings whatsoever to which Homan is a party and in which the purpose, or one of the purposes, is to assess or determine additional income, declared value excess profit or excess profit taxes against Homan for the years 1944, 1945 and 1946, or from using therein any of the material referred to in this clause (b).

Homan’s complaint was filed September 23, 1955. It sought to enjoin the then district director from collecting income and excess profits taxes under a jeopardy assessment² totaling more than $3,000,000. From a judgment granting a permanent injunction, as prayed in the complaint, defendant appealed and we reversed and remanded the case for further proceedings in the district court. Homan Mfg. Co. v. Long, 7 Cir., 242 F.2d 645.

Following the remand, Homan moved under rule 34 of the Federal Rules of Civil Procedure ³ for the production of all documents, reports and memoranda in the government’s possession having anything to do with the assessment levied against it. The district court granted the motion, but the director declined to produce on the grounds that the material in question was privileged. Thereupon the court “by reason of default of the director”, found that all of the “allegations of the complaint, as amended, have been established, and adopts the same as findings herein”. Then, without any hearing on the merits, the district court found that Homan’s returns for the years 1944-1946 were not fraudulently made.

In the decree from which this appeal was taken, the court also enjoined the director and his agents, servants and successors, from using any of the material covered by the production order in any court proceeding brought to determine taxpayer’s income or excess profits tax liability for the years 1944-1946; and lastly, the court permanently enjoined such persons from using the above material to assess additional income, declared value excess profit or excess profits taxes against Homan for the years 1944-1946.

The director contends that the district court erred in not dismissing this suit for lack of jurisdiction.⁴ He relies on 26 U.S.C.A. § 7421(a), which reads:

“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.” (The exception is here irrelevant.)

In Mensik v. Long, 7 Cir., 261 F.2d 45, 47, we stated that “prevailing case law has, on occasion, palliated the strictures Congress enacted in § 7421.” To the same effect see Melvin Bldg. Corp. v. Long, 7 Cir., 262 F.2d 920, in which case we said:

“* * * Significantly it [taxpayer] does not say that the tax itself was illegal, which is one of the facts which it must establish to avoid the bar of § 7421(a). * * *”

In Mensik v. Long, supra, at page 47, we said:

“What constitutes justification for such alleviation has been adequately set forth in Miller v. Standard Nut Margarine Co., 1932, 284 U.S. 498, 52 S.Ct. 260, 76 L.Ed. 422. There the Supreme Court said, 284 U.S. at page 509, 52 S.Ct. at page 263, ‘a suit will not lie to restrain the collection of a tax upon the sole ground of its illegality.’ It then went on to say ‘where complainant shows that in addition to the illegality of an exaction in the guise of a tax there exist special and extraordinary circumstances sufficient to bring the case within some acknowledged head of equity jurisprudence, a suit may be maintained to enjoin the collect- or.’

“Hence in order to affirm the order of the District Court we must conclude that the tax is not only ‘illegal’ but that ‘special and extraordinary circumstances’ also here exist creating a situation warranting the enjoining of the jeopardy assessment.”

Homan challenges the steps taken by the government to collect income, declared value excess profit and excess profits taxes from Homan, which during the taxable years was a candy manufacturing corporation. It does not assert that, as to Homan, these taxes are illegal because not applicable to such a business, or for any other reason. As to the taxpayer involved in Miller v. Standard Nut Margarine Co., 284 U.S. 498, 52 S.Ct. 260, the tax attempted to be collected was illegal. There is no contention in the case at bar that the tax attempted to be collected from Homan is illegal. That the arguments made by Homan attack the steps taken to collect taxes, the legality of which is not even questioned, appears from its brief in this court. Thus, Ho-man says that the assessment is arbitrary, capricious and void. It admits that its “case is bottomed on the proposition that the assessment is so arbitrary and capricious that it is illegal.” In addition, Homan says “We believe the facts reasonably show that the assessment was deliberately put at this fantastic and insupportable figure simply so that Homan couldn’t pay it, thus creating the appearance of jeopardy, * * -X ”

Inasmuch as we conclude that Homan’s complaint is not based upon a charge that the director is attempting to collect an illegal tax, within the meaning of Miller V. Standard Nut Margarine Co., supra, Homan cannot prevail. It is unnecessary for us to decide whether Homan has not shown (as contended by the Director) that there is present the additional necessary ingredient, i. e., special or extraordinary circumstances sufficient to bring the case within some acknowledged head of equity jurisprudence. Miller v. Standard Nut Margarine Co., supra, 284 U.S. at page 509, 52 S.Ct. at page 263.

For these reasons, the decree entered by the district court on March 24, 1958 is reversed.

Reversed.

1 . Mammel was a United States internal revenue agent and according to Homan Ms figures constitute the basis of an assessment against it.

2 . Act May 28, 1938, c. 289, § 273, 52 Stat. 537, 1939 code, 26 U.S.C.A. § 273 (a). In all material respects § 6861 of the 1954 code, 26 U.S.C.A. § 6861, is identical with the 1939 code.

3 . 28 U.S.C.A., Rule 34.

4 . This point, although mentioned, was not decided in the previous appeal to this court. Homan Mfg. Co. v. Long, 7 Cir., 242 F.2d 645.