James L. Enochs, United States District Director of Internal Revenue for the District of Mississippi v. T. O. Green

270 F.2d 558, 4 A.F.T.R.2d (RIA) 5517, 1959 U.S. App. LEXIS 3339

Opinions

JONES, Circuit Judge.

T. 0. Green, the appellee, brought suit against the District Director of Internal Revenue for the District of Mississippi. In the complaint it was alleged that Green was the major stockholder and an officer of Biloxi Packard Motor Company, Inc., a now defunct corporation which had its place of business at Biloxi, Mississippi. The year 1953 was the last year of the operation of the corporation. Social Security and withholding taxes were deducted by the corporation from the wages of its employees but were not remitted by the corporation to the United States. On April 23, 1956, after the corporation had been liquidated, the District Director assessed a penalty against Green under the provisions of Section 2707 (a) of the Internal Revenue Code of 1939,¹levied upon his bank account and was taking steps to proceed against his salary. ■ Asserting that the penalty so assessed was a deficiency under Section 272 of the Internal Revenue Code of 1939 2 requiring the issuance of a ninety-day letter with a right to petition the Tax Court, before any assessment was made, the taxpayer, Green, claimed the assessment was invalid. Injunctive relief against enforcement of the assessment by levy or otherwise was sought. The District Director moved to dismiss on the ground the Court had no jurisdiction to issue an injunction for the reasons (a) that no ninety-day letter is required, (b) that Green has an adequate remedy at law, and (c) the Internal Revenue Code prohibits injunctions in cases such as this. The Court issued a temporary injunction. The District Director has appealed.

Section 272(a) of the Internal Revenue Code refers to deficiencies in respect of the tax imposed by Chapter 1 of the Internal Revenue Code of 1939 relating to income tax. Similar provisions defining deficiencies are made in Section 870 with respect to estate taxes imposed by Chapter 2, and in Section 1011 with respect to gift taxes imposed by Chapter 3. The Employment Tax which is sometimes known as the Social Security Tax is imposed by the Federal Insurance Contributions Act and is incorporated into the 1939 Code as Subchapter A of Chapter 9 (§§ 1400-1432). This tax is different from and is not related to the taxes imposed under Chapters 1, 2, and 3 of the Code of 1939. The Income Tax at the Source Payable from Wages, known as the Withholding Tax, is imposed by Subchapter D of Chapter 9 of the Internal Revenue Code of 1939 (§§ 1621-1636). It is a “tax in respect of the wages of” employees. § 1625(a). It is referred to as the “tax under this sub-chapter.” There are references to “the tax imposed by subchapter A” and “sub-chapter D” §§ 1635(a),. 1636(a). The so-called Withholding Tax is treated in the statutory scheme as a tax different from, although related to, the Income Tax imposed by Chapter 1. The fact that the Withholding Tax is an income tax does not make it, of course, a tax imposed by Chapter 1. This is further shown by the Chapter 1 provision that

“The amount deducted and withheld as tax under Subchapter D of Chapter 9 * * * shall be allowed as a credit to the recipient of the income against the tax imposed by this chapter * * 26 U.S.C.A. (I.R.C.1939) § 35.

In Subchapter E of Chapter 9 of the 1939 Code are general provisions applicable to the taxes imposed by the other Chapter 9 subchapters. In Subchapter E are the following provisions:

“The amount of any tax imposed by subchapter A of this chapter or subchapter D of this chapter shall (except as otherwise provided in the following subsections of this section) be assessed within three years after the return was filed, and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period.” 26 U.S.C.A. (I.R.C. 1939) § 1635(a).

“Where the assessment of any tax imposed by subchapter A of this chapter or subchapter D of this chapter has been made within the period of limitation properly applicable thereto, such tax may be collected by distraint or by a proceeding in court, but only if begun (1) within six years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the taxpayer.” 26 U.S.C.A. (I.R.C.1939) § 1635(d).

There are no Chapter 9 provisions, such, as are so fully set forth in Chapters 1, 3 and 4, requiring notices of deficiency assessments with a right of petitioning the Tax Court before any distraint can be made. Had the Congress intended! that such procedures should be required in the collection of taxes imposed under Subchapters A and D of Chapter 9, such requirements would have been expressly-provided. Since it was not so provided, we think it was not so intended.

One of the purposes, probably the primary purpose, of the deficiency notice is. to permit the taxpayer, if he wishes, to> seek a review of the Commissioner’s determination by the Tax Court.

Our conclusion that no deficiency-notice is required before distraining for social security and withholding taxes is. consistent with the statutory provisions creating and fixing the jurisdiction of the Tax Court. The Tax Court has not been given a general overall jurisdiction to review tax determinations of the Commissioner. On the contrary,

“The Tax Court and its divisions shall have such jurisdiction as is conferred on them by chapters 1 [Income Tax], 2 [Personal Holding,. Excess Profit and Unjust Enrichment Taxes], 3 [Estate Tax], and 4-[Gift Tax] of this title, by Title II [Income Tax] and Title III [Estate Tax] of the Revenue Act of 1926, 44 Stat. 9, or by any laws enacted. subsequent to February 26, 1926.” 26 U.S.C.A. (I.R.C.1939) § 1101.

So it seems that the Tax Court has no jurisdiction to review determinations of the Commissioner with respect to social security taxes or withholding taxes.

By Section 3661 of the 1939 Code it is provided that,

“Whenever any person is required to collect or withhold any internal-revenue tax from any other person and to pay such tax over to the United States, the amount of tax so collected or withheld shall be held to be a special fund in trust for the United States. The amount of such fund shall be assessed, collected, and paid in the same manner and subject to the same provisions and limitations (including penalties) as are applicable with respect to the taxes from which such fund arose.” 26 U.S.C.A. (I.R.C.1939) § 3661.

If this were a case where a penalty had been imposed for the non-payment of a tax withheld on tax-free covenant bonds, or on the income of a non-resident alien, or on the income of a foreign corporation pursuant to the Chapter 1 provisions of Section 143 or Section 144, 26 U.S.C.A. (I.R.C.1939) §§ 143, 144, it seems that distraint for the collection of such penalty could be enjoined unless a deficiency notice had been given. Houston Street Corporation v. Commissioner, 5 Cir., 1936, 84 F.2d 821; G.C.M. 17274, C.B. 1937-1, p. 159. Such is not the case before us. The fund for which the appellee was responsible did not arise from a tax where notice was required before distraint. The penalty payable by an employer who has deducted such contributions and taxes from the wages of employees and failed to remit is not a deficiency and the ninety-day notice is not required. See McAllister v. Dudley, D.C.W.D.Pa.1956, 148 F.Supp. 548; 9 Mertens Law of Federal Income Taxation Ch. 49, p. 215, § 49.210. This being so, there is no right to the ninety-day notice and no right to petition the Tax Court. Unless some equitable ground is shown for staying the collection, an injunction should not issue. Miller v. Standard Nut Margarine Co., 284 U.S. 498, 52 S.Ct. 260, 76 L.Ed. 422; United States v. Curd, 5 Cir., 257 F.2d 347, certiorari denied 358 U.S. 920, 79 S.Ct. 290, 3 L.Ed.2d 239. The avenue is open for Green to pay, file a claim for refund and bring suit to recover in the event the penalty is improperly assessed. The hardships to Green, of which he complains, of having his bank account and his salary levied upon are not circumstances which will permit collection to be stayed by injunction. Reams v. Vrooman-Fehn Printing Co., 6 Cir., 1944, 140 F.2d 237; 26 U.S.C.A. (I.R.C. 1939) § 3653.

Deciding, as we do, that the appellant had no right to a deficiency notice nor to petition the Tax Court for a determination of his liability, the cause will be reversed and remanded with directions to vacate the injunction and dismiss the complaint.

Reversed and remanded.

Footnotes

1

. “Any person who willfully fails to pay, collect, or truthfully account for and pay over the tax imposed by section 2700 (a), or willfully attempts in any manner to ovado or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty of the amount of the tax evaded, or not paid, collected, or accounted for and paid over, to be assessed and collected in the same manner as taxes are assessed and collected. No penalty shall be assessed under this subsection for any offense for which a penalty may bo assessed under authority of section 3612.” 26 U.S.C.A. (1.R.C.1939) § 2707 (a).

2

. “If in the case of any taxpayer, the Commissioner determines that there is a deficiency in respect of the tax imposed by this chapter, the Commissioner is authorized to send notice of such deficiency to the taxpayer by registered mail. Within ninety days after such notice is mailed (not counting Saturday, Sunday, or a legal holiday in the District of Columbia as the ninetieth day), the taxpayer may file a petition with The Tax Court of the United States for a redetermination of the deficiency. No assessment of a deficiency in respect of the tax imposed by this chapter and no distraint or proceeding in court for its collection shall be made, begun, or prosecuted until such notice has been mailed to the taxpayer, nor until the expiration of such ninety-day period, nor, if a petition has been filed with the Tax Court, until the decision of the Tax Court has become final. Notwithstanding the provisions of section 3653(a) the making of such assessment or the beginning of such proceeding or distraint during the time such prohibition is in force may be enjoined by a proceeding in the proper court. In the case of a joint return filed by husband and wife such notice of deficiency may be a single joint notice, except that if the Commissioner has been notified by either spouse that separate residences have been established, then, in lieu of the single joint notice, duplicate originals of the joint notice must be sent by registered mail to each spouse at Ms last known address.” 26 U.S.C.A. (I.R.C.1939) § 272(a) (I).