MICHAEL E. BALLARD, PETITIONER V. UNITED STATES OF AMERICA No. 89-977 In The Supreme Court Of The United States October Term, 1989 On Petition For A Writ Of Certiorari To The United States Court Of Appeals For The Fourth Circuit Brief For The United States In Opposition TABLE OF CONTENTS Question Presented Opinions below Jurisdiction Statement Argument Conclusion OPINIONS BELOW The opinion of the court of appeals (Pet. App. A1-A5) is unpublished, but the decision is noted at 887 F.2d 1078 (Table). The opinion and order of the district court (Pet. App. A6-A19 are unreported. JURISDICTION The judgment of the court of appeals was entered on September 21, 1989. The petition for a writ of certiorari was filed on December 20, 1989. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). QUESTION PRESENTED Whether the Due Process Clause requires that a responsible person receive a hearing prior to the assessment of his personal liability under 26 U.S.C. 6672 for willfully failing to pay over withholding taxes to the government. STATEMENT 1. At all relevant times until April 1, 1980, petitioner was the sole stockholder and president of Mida Engineers, Inc. Mida failed to pay timely FICA and federal withholding taxes for several quarters in 1978, 1979, and 1980. On April 1, 1980, petitioner sold Mida to Thomas Foster for $30,000 in cash and a $25,000 promissory note, payable, with interest, in 60 monthly installments. On May 1, 1980, Mida sent a check to the IRS for its FICA and withholding payments for the first quarter of 1980. That check was returned by the bank because of insufficient funds. The IRS then levied upon the monthly payments from Foster to petitoner, and it applied them to petitioner's 1974 and 1975 individual tax liabilities and to Mida's withholding tax liability. Pet. App. A2. In 1982, Foster sold Mida and stopped paying petitioner. At that time, withholding taxes were still outstanding for Mida for the third quarter of 1979 and part of the first quarter of 1980. The IRS discussed petitioner's liability for these taxes with him in March 1983. In a letter dated March 25, 1983, the IRS indicated that petitioner would be assessed the responsible officer penalty for these taxes, pursuant to Section 6672 of the Internal Revenue Code. /1/ On March 28, 1983, petitioner signed a waiver extending until December 31, 1983, the time for the IRS to assess the Section 6672 liability against him. Pet. App. A2-A3. On December 22, 1983, the IRS made an assessment against petitioner for $7,111 for Mida's withholding taxes for the third quarter of 1979 and the first quarter of 1980. On the same day, the IRS sent petitioner a notice of assessment and demand for payment. Petitioner did not pay the assessed taxes. /2/ On July 26, 1985, the IRS levied upon petitioner's bank account. On August 1, 1985, the IRS released the levy upon receiving information from petitioner of his inability to pay the assessed taxes. On August 6, 1985, petitioner paid $8,585 in taxes, interest, fees, and costs. /3/ Pet. App. A3-A4. 2. After the IRS failed to act upon his administrative refund claim within six months, petitioner brought this refund suit in the United States District Court for the District of Maryland. Ruling from the bench, the district court granted summary judgment in favor of the IRS (Pet. App. A6-A19). The court found that petitioner was a responsible person of Mida and had willfully failed to pay over its withholding taxes to the United States (id. at A10-A12). The court also ruled that petitioner's due process rights were not violated when the IRS assessed the taxes against him without affording him a prior hearing (id. at A13-A14). The court explained that the Code provisions requiring that a notice of deficiency be sent to a taxpayer do not apply to responsible officer penalties imposed under Section 6672, and it noted that petitioner properly was sent a notice of assessment and demand for payment (Pet. App. A13-A14). The court also explained that it is well established that a taxpayer's right to post-assessment judicial review satisfies due process (id. at A13). The court of appeals affirmed (Pet. App. A1-A5). The court stated that there is no right to a judical hearing before collection of a Section 6672 assessment (Pet. App. A5). The court further explained that there is no constitutional infirmity in the procedure established by Congress for the assessment and collection of Section 6672 liabilities (Pet. App. A5): "Because (petitioner) had been afforded notice and demand prior to the assessment and subsequent levy, he was not deprived of due process; indeed, he was afforded the opportunity to file, and in fact filed, this refund action in federal district court." ARGUMENT Petitioner contends (Pet. 5-6) that the system established by Congress for assessing and collecting Section 6672 liabilities violates due process because it fails to provide an opportunity for a pre-assessment judicial hearing. This contention uniformly has been rejected by every court of appeals that has considered it, and their conclusion is fully consistent with the decisions of this Court. Accordingly, there is no reason for further review. 1. This Court has long recognized the reasonableness of the general requirement of our tax system that taxpayers first pay their taxes before contesting their tax liability in a judicial forum. In Cheatham v. United States, 92 U.S. 85, 89 (1876), the Court noted that Congress had "wisely made the payment of the tax claimed * * * a condition precedent to a resort to the courts by the party against whom the tax is assessed" and that this rule "is neither arbitrary nor unreasonable." In Phillips v. Commissioner, 283 U.S. 589, 593-601 (1931), the Court rejected the taxpayer's contention that the summary procedure established by Congress for collecting certain transferee liabilities was unconstitutional for failure to provide an opportunity for a judicial determination of liability at the outset. The Court stated that "(w)here, as here, adequate opportunity is afforded for a later judicial determination of the legal rights, summary proceedings to secure prompt performance of pecuniary obligations to the government have been consistently sustained" (id. at 595). The Court explained that this result was justified because, if it is important that the government need be satisfied immediately, "mere postponement of the judicial enquiry is not a denial of due process, if the opportunity given for the ultimate judicial determination of the liability is adequate" (id. at 596-597). This Court has consistently observed that tax collection falls within this principle because of "the need of the government promptly to secure its revenues" (Phillips v. Commissioner, 283 U.S. at 596), and therefore due process is satisfied by a tax collection system that provides an "adequate" opportunity for a post-assessment judicial determination. See G.M. Leasing Corp. v. United States, 429 U.S. 338, 352 n.18 (1977); Commissioner v. Shapiro, 424 U.S. 614, 630-632 (1976); Bob Jones University v. Simon, 416 U.S. 725, 746-748 (1974); Fuentes v. Shevin, 407 U.S. 67, 91-92 & n.24 (1972); Bull v. United States, 295 U.S. 247, 260 (1935). Petitioner does not explain why the post-assessment remedy of a refund suit is not "adequate." /4/ Here, petitioner was afforded the opprotunity to contest his tax liability in a refund action in district court, and there is no allegation that he would not have been made whole in that action if a tax liability had been wrongfully assessed against him. /5/ Accordingly, the courts of appeals have unanimously rejected due process challenges to the assessment of Section 6672 liability without a prior hearing, thereby requiring the responsible person to pay the tax and seek a refund in order to obtain judicial review. See Boynton v. United States, 566 F.2d 50, 53 n.2 (9th Cir. 1977); Kalb v. United States, 505 F.2d 506, 510 (2d Cir. 1974), cert. denied, 421 U.S. 979 (1975); Kelly v. Lethert, 362 F.2d 629, 635 (8th Cir. 1966). The courts have reached the same conclusion in the analogous situation of the assessment of a "frivolous income tax return" penalty under Section 6702 of the Code, where judicial review of the validity of the peanlty is available only post-assessment. See Jolly v. United States, 764 F.2d 642, 645-647 (9th Cir. 1985); Kahn V. United States, 753 F.2d 1208, 1217-1222 (3d Cir. 1985); Anderson v. United States, 754 F.2d 1270, 1272 (5th Cir. 1985); Heitman v. United States, 753 F.2d 33, 35 (6th Cir. 1984); Baskin v. United States, 738 F.2d 975, 977 (8th Cir. 1984); Martinez v. Internal Revenue Service, 744 F.2d 71, 72-73 (10th Cir. 1984). See also Professional Engineers, Inc. v. United States, 527 F.2d 597, 600 (4th Cir. 1975) (penalty for late filing); Morse v. Internal Revnue Service, 635 F.2d 701, 703 (8th Cir. 1980) (failure to receive deficiency notice, thus precluding suit in Tax Court, does not violate due process where refund suit is available); Lewin v. Commissioner, 569 F.2d 444, 445 (7th Cir.) (same), cert. denied, 437 U.S. 904 (1978); Johnston v. Commissioner, 429 F.2d 804, 806 (6th Cir. 1970) (same). Thus, the decision below is fully in accord with established law. Petitioner's only proffered argument for unconstitutionality is the bare assertion that "(t)here is no reason * * * why the assessment of (a Section 6672) peanlty like any other tax or penalty * * * should not be subject to issuance of a notice of deficiency and a right to review by the Tax Court, prior to payment" (Pet. 5). There is a reason, of course -- namely, that the procedures for assessing and collecting taxes are prescribed by statute, and the Code clearly draws the distinction to which petitioner objects. Petitioner does not dispute that, while Congress has made the notice of deficiency procedure available for some taxes, it has not done so for a responsible person's Section 6672 liability. See Pet. App. A13-A14; I.R.C. Sections 6212, 6303, 6671. Accordingly, petitioner's suggestion that the procedure be extended to the latter situation is one that should be addressed to Congress; it casts no doubt upon the constitutionality of the existing system. /6/ CONCLUSION The petition for a writ of certiorari should be denied. Respectfully submitted. KENNETH W. STARR Solicitor General SHIRLEY D. PETERSON Assistant Attorney General WILLIAM S. ESTABROOK JOEL A. RABINOVITZ Attorneys FEBRUARY 1990 /1/ Unless otherwise noted, all statutory references are to the Internal Revenue Code of 1954 (26 U.S.C.), as amended (the Code or I.R.C.). /2/ On March 12, 1984, notwithstanding the fact that the assessment already had been made, the IRS sent petitioner a standard letter that referred to the March 1983 proposed assessment. This letter, which is normally sent under IRS procedures before the assessment is made (subject to statute of limitations considerations), asked petitioner to sign the enclosed form if he agreed with the proposed assessment and stated that, alternatively, petitioner could appeal the proposed assessment and stated that, alternatively, petitioner could appeal the proposed assessment aadministratively. On March 20, 1984, petitioner sent a letter requesting an administrative hearing. On June 27, 1984, the IRS denied petitioner's request, stating that the assessment had already been made. Pet. App. A3. /3/ Petitioner paid this amount voluntarily in order to obtain a release of the federal tax lien, notice of which had been filed against him. See Pet. App. A8. Contrary to petitioner's suggestion (Pet. 4), petitioner was not forced to make the payment to release the government's levy upon his bank account. The IRS had released that levy five days earlier, based upon petitioner's assertion that he was unable to pay the assessed tax liability. Pet. App. A3. /4/ If the later judicial proceeding is not adequate to remedy the harm to the responsible person, he may invoke the exception to the Anti-Injunction Act, 26 U.S.C. 7421(a) (see Enochs v. Williams Packing Co., 370 U.S. 1, 7 (1962)), and attempt to demonstrate that the collection of the Section 6672 liability should be enjoined. This Court stated in Commissioner v. Shapiro, 424 U.S. at 633, that the availability of the limited prepayment remedy embodied in the Williams Packing exception establishes a standard "at least as favorable to the taxpayer as that required by the Constitution." /5/ Indeed, since it has now been finally determined in a judicial proceeding that petitioner's Section 6672 liability was correctly assessed, it does not appear that he would be entitled to any relief here even if his constitutional objection to the assessment procedure were upheld. His procedural claim has thus been rendered merely academic. /6/ We note that Congress has taken steps to minimize the extent to which a responsible person will be temporarily deprived of property pending judicial review of the correctness of an assessment of Section 6672 liability. Section 6672(b) of the Code provides that, if a taxpayer pays the "minimum amount required" to commence a refund action and posts an appropriate bond, the IRS is prohibited from attempting to collect the remaining amount of taxes owed. The "minimum amount" in these circumstances is generally considered to be the withholding taxes due for one individual for each quarter. See, e.g., Boynton v. United States, 566 F.2d at 53 & n.3; Steele v. United States, 280 F.2d 89 (8th Cir. 1960); M. Saltzman, IRS Practice and Procedure Paragraph 17.10(3), at 17-48 (1981). Thus, while petitioner chose not to avail himself of this opportunity, Section 6672 effectively provides a taxpayer with an opportunity for judicial review prior to paying most of his assessed tax liability, so long as he posts an appropriate bond.