1975]

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abuses of the law have occurred. It thus remains to be seen if the protracted methods of legislative remedies will be sufficient or indeed capable of confronting these problems.

RICHARD CANDELORA

JOHN W. HAWKES

Jeopardy and Termination Assessments After Laing and Hall: Jeopardizing the Fourth Amendment

SAMUEL ROSENTHAL*

The physical power to get the money does not seem to me a test of the right to tax. Might does not make right even in taxation.1

Introduction

On January 31, 1973, state troopers searched the home of Elizabeth Jane Hall in Shelbyville, Kentucky, following the arrest of her husband on drug related charges in Texas. The police found controlled substances there. The next day the acting District Director of Internal Revenue notified Mrs. Hall that she owed $52,680.25 in taxes for the first 30 days of 1973.3 Because she was unable to pay the full amount of the assessment immediately, the Internal Revenue Service seized Mrs. Hall's 1970 Volkswagen, offered it for sale, and took $57 from her bank account. The Service justified the summary seizure of Mrs. Hall's assets on the basis of its power to levy termination assessments.

In United States v. Hall, the Supreme Court held that the procedure used against Mrs. Hall failed to comply with the statutory requirement providing for notice to the taxpayer of the tax deficiency within 60 days after the assessment is made and before any seized assets are offered for sale. This notice of deficiency is of critical importance to the taxpayer because it enables him to file a petition with the Tax Court for a redetermination of the deficiency. Because the Court based its decision on the definition of a "deficiency" within the meaning of the Internal Revenue Code, it found it unnecessary to consider the constitutionality of the termination assessment scheme. Nevertheless, the Court specifically

* Cornell University, B.S. 1973, J.D. 1976.

1 International Harvester Co. v. Wisconsin Department of Taxation, 322 U.S. 435, 450 (1944) (Jackson, J., dissenting).

2 United States v. Hall, 96 S. Ct. 473, 478 (1976), aff'g 493 F.2d 1211 (6th Cir. 1974), rev'g Laing v. United States, 496 F.2d 853 (2d Cir. 1974).

3

3 Ibid. The District Director “immediately terminated" Mrs. Hall's taxable year, allowing the Service to make a demand for the immediate payment of the tax which was asserted as due.

Counsel for Mrs. Hall asserted that $57 had been taken from her bank account and that the Service "would, or did, seize her paycheck." Id. at 478 n.10. 5 Because the Court decided the case on the basis of the Service's failure to

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[Vol. 31: identified at least two separate constitutional issues which might arise upon a jeopardy assessment. The jeopardy and termination provisions -sections 6851,6 6861 and 6862 —often have been criticized on con

issue a deficiency notice and on the definition of a deficiency within the meaning of section 6211(a), it found it unnecessary to reach the taxpayer's contentions that the termination provisions constituted a violation of due process under the fifth amendment. See United States v. Hall, 96 S. Ct. 473, 485 n.26 (1976). However, Justice Brennan, in a concurring opinion, indicated that he felt the Court should have considered the constitutional claims and that the procedure did violate fifth amendment due process. Justice Brennan rejected the Service's claim that there were overriding governmental interests at stake which might justify the summary termination assessments. Id. at 487.

Section 6851(a)(1) provides for terminating the taxpayer's taxable year:

If the Secretary or his delegate finds that a taxpayer designs quickly to depart from the United States or to remove his property therefrom, or to conceal himself or his property therein, or to do any other act tending to prejudice or to render wholly or partly ineffectual proceedings to collect the income tax for the current or the preceding taxable year unless such proceedings be brought without delay, the Secretary or his delegate shall declare the taxable period for such taxpayer immediately terminated, and shall cause notice for such finding and declaration to be given the taxpayer, together with a demand for immediate payment of the tax for the taxable period so declared terminated and of the tax for the preceding taxable year or so much of such tax as is unpaid, whether or not the time otherwise allowed by law for filing return and paying the tax has expired; and such taxes shall thereupon become immediately due and payable. In any proceeding in court brought to enforce payment of taxes made due and payable by virtue of the provisions of this section, the finding of the Secretary or his delegate, made as herein provided, whether made after notice to the taxpayer or not, shall be for all purposes presumptive evidence of jeopardy.

Section 6861(a) provides for jeopardy assessments of income, estate and gift

taxes:

If the Secretary or his delegate believes that the assessment or collection of a deficiency, as defined in section 6211, will be jeopardized by delay, he shall, notwithstanding the provisions of section 6213(a), immediately assess such deficiency (together with all interest, additional amounts and additions to the tax provided for by law), and notice and demand shall be made by the Secretary or his delegate for the payment thereof.

8

* Section 6862(a) provides for jeopardy assessments of taxes other than income, estate and gift taxes:

If the Secretary or his delegate believes that the collection of any tax (other than income tax, estate tax, gift, and certain excise taxes) under any provision of the internal revenue laws will be jeopardized by delay, he shall, whether or not the time otherwise prescribed by law for making return and paying such tax has expired, immediately assess such tax (together with all interest, additional amounts, and additions to the tax provided for by law). Such tax, additions to the tax, and interest shall thereupon become immediately due and payable, and immediate notice and demand shall be made by the Secretary or his delegate for the payment thereof.

1976]

JEOPARDY AND TERMINATION ASSESSMENTS

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stitutional grounds and have frequently been the subject of calls for legislative reform.10

To date, constitutional challenges have focused on the issue of whether or not jeopardy assessments result in a denial of due process in violation of the fifth amendment. Any comprehensive analysis of the jeopardy provisions must also take into account the fourth amendment prohibition against unreasonable searches and seizures"-a protection of a set of values different from that which the due process clause safeguards. This article concludes that the fourth amendment is applicable to summary tax seizures and requires the approval of any assessment by a neutral, detached magistrate prior to the seizure of assets. The first part of this article describes the summary seizure procedures available to the Service, the effect that they may have on an assessed taxpayer, and the failure of existing remedies to provide meaningful safeguards against abuse. The second and third parts discuss the constitutionality of the summary seizure provisions in light of the fourth and fifth amendments. The last part analyzes the most recent proposal calling for independent review of jeopardy assessments and considers what remedy should be made available to a taxpayer who has had his assets illegally seized.

Defining the Problem

Procedures for Determining and

Collecting Jeopardy Assessments

The Service's authority to impose summary tax assessments gives it wide latitude to deal with delinquent tax payments. Present law au

9

See, e.g., Tarlow, Criminal Defendants and Abuse of Jeopardy Tax Procedures, 22 U.C.L.A.L. Rev. 1191 (1975); Note, Jeopardy Assessment: The Sovereign's Stranglehold, 55 GEO. L.J. 701 (1967); Note, Jeopardy Terminations Under Section 6851: The Taxpayer's Rights and Remedies, 60 Iowa L. Rev. 644 (1975); Note, Termination of the Taxable Year: The Need for Timely Judicial Review, 48 S. CAL. L. REV. 184 (1974).

10 See, e.g., Tax Reform Act of 1975, H.R. 10612, 94th Cong., 1st Sess. § 1209 (1975); Gould, Jeopardy Assessments: When They May Be Levied and What to Do About Them, 18 N.Y.U. INST. 937 (1960); Odell, Assessments: What Are They-Ordinary? Immediate? Jeopardy?, 31 N.Y.U. INST. 1495 (1973); Note, Jeopardy Assessment: The Sovereign's Stranglehold, 55 GEO. L.J. 701 (1967); Note, Jeopardy Terminations Under Section 6851: The Taxpayer's Rights and Remedies, 60 Iowa L. Rev. 644 (1975); Note, Termination of the Taxable Year: The Need for Timely Judicial Review, 48 S. CAL. L. REV. 184 (1974); Note, Termination of Taxable Year: Procedures in Jeopardy, 26 TAX L. REV. 829 (1971).

11 The fourth amendment to the Constitution reads: "The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized."

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[Vol. 31: thorizes the summary assessment and collection of taxes at any time,12 even before the taxpayer has had a chance to litigate the validity of the assessment. The power to make such assessments is delegated to each of the 64 District Directors and is limited only by agency discretion.15

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1.2

14

Jeopardy assessments are authorized at any time after the assessed tax is payabie and due. I.R.C. ¦¦ 6861(a). 6862. If the Commissioner determines that a tax payment is in jeopardy before the end of a taxpayer's taxable year he may terminate the taxable period and assess the tax which is due based on the terminated period. I.R.C. § 6851. Finally, where there is any claim for income, estate and gift taxes in bankruptcy and receivership proceedings, the Commissioner may immediately assess any deficiency. L.R.C. § 6871.

While termination assessments are not technically jeopardy assessments (CCH Internal Revenue Manual 9329, at 28,142 (1974)), because both types of assessments give the Service summary seizure power, this article will discuss both. The Service has stated that it utilizes the same procedures for jeopardy assessments as it does for terminations of a taxpayer's taxable year (except where departing aliens are concerned). Ibid. Until recently, the Service maintained that a termination taxpayer need not be given the notice of deficiency which is required in the jeopardy assessment situation. See N. 27 infra.

13 Under normal procedures, the Service must send the taxpayer a notice of deficiency, and wait 90 days before seizing the taxpayer's assets. I.R.C. §§ 6212 (a), 6213(a). The taxpayer has that 90 days in which to petition the Tax Court for a redetermination of the deficiency. I.R.C. § 6213(a).

"Section 6861(a) provides for the Secretary or his delegate to make the determination as to the propriety of each jeopardy assessment. I.R.C. §§ 6861(a), 6851(a). In practice, the recommendation for a jeopardy assessment is processed through the Service division in which it originates, either audit or intelligence, and then is approved by the chief of the division. However, prior to actually levying the assessment all recommendations must be channelled through the audit division and approved by the District Director or acting District Director. Reg. § 1.68511(a); CCH INTERNAL REVENUe Manual ¶ 9329, at 28,142 (1974).

15

The decision by the District Director is nonreviewable. See, e.g., Transport Mfg. & Equipment Co. v. Trainor, 382 F.2d 793, 799 (8th Cir. 1967) (“[C]ourts have refused to scrutinize the grounds underlying the Director's determination of jeopardy and have accordingly declined to substitute their judgment for that of the Director."); Lloyd v. Patterson, 242 F.2d 742, 744 (5th Cir. 1957) ("It is within the sole legal discretion and judgment of the Commissioner to determine when this authority is to be exercised."); Homan Mfg. Co. v. Long, 242 F.2d 645, 655 (7th Cir. 1957), cert. denied, 361 U.S. 839 (1959); Publishers New Press, Inc. v. Moysey, 141 F. Supp. 340, 343 (S.D.N.Y. 1956); Communist Party, U.S.A. v. Moysey, 141 F. Supp. 332, 336 (S.D.N.Y. 1956); Foundation Co. v. United States, 15 F. Supp. 229, 246 (Ct. Cl. 1936); Estate of Kohler, 37 B.T.A. 1019, 1030 (1938); Brown-Wheeler Co., 21 B.T.A. 755 (1930); Continental Products Co., 20 B.T.A. 818, 828 (1930); James Couzens, 11 B.T.A. 1040, 1158 (1928). See also Tarlow, Criminal Defendants and Abuse of Jeopardy Tax Procedures, 22 U.C.L.A.L. REV. 1191, 1195 (1975); Odell, Assessments: What are They-Ordinary? Immediate? Jeopardy?, 31 N.Y.U. INST. 1495, 1507 (1973); Note, Jeopardy Assessment: The Sovereign's Stranglehold, 55 GEO. L. J. 701, 702 n.13 (1967); Note, Termination of Taxable Year: Procedures in Jeopardy, 26 TAX L. REV. 829 (1971).

Judicial review may be available, however, to determine whether the District Director's decision to levy a jeopardy assessment was such an abuse of discretion