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MARRANCA v. UNITED STATES

February 29, 1984

Joseph S. MARRANCA, Plaintiff,
v.
UNITED STATES, Defendant; Charles MARRANCA, Plaintiff, v. UNITED STATES, Defendant



The opinion of the court was delivered by: CONABOY

 CONABOY, District Judge.

 These are consolidated actions brought pursuant to the Internal Revenue Code of 1954, Section 7429 (26 U.S.C.), in which the Plaintiffs seek judicial review of termination assessments made against them by the Internal Revenue Service for Federal Income Tax liabilities from January 1, 1983 to and including February 23, 1983.

 Jurisdiction for this proceeding is found in the Internal Revenue Code of 1954, Section 7429 (26 U.S.C.) which was added to the Code by Section 1204(a) of the Tax Reform Act of 1976, Pub.L. No. 94-455, 90 Stat. 1520. Section 7429 provides for a judicial review of the Commissioner's action, in the case of a jeopardy or termination assessment, and the issues before the court under such a review are two-fold: (1) the reasonableness of making the assessment; and (2) the appropriateness of the amounts assessed.

 Because we find the taxpayers have shown that the amounts assessed were not appropriate under the circumstances, we will remand this matter to the Commissioner for reassessment of the amounts due from each of the taxpayers.

 I

 The Internal Revenue Code contains provisions for the special assessment of taxes when circumstances exist which would make doubtful the collection of certain tax liabilities. There are two separate types of these special assessments: one, a "jeopardy assessment" under Sections 6861 and 6862 of the Code, and the other, a special "termination assessment" under Section 6851 of the Code. The distinction between the two types is that a "jeopardy assessment" under Section 6861, or 6862 is made for a tax year that has ended and for which the due date of filing a return has passed, while a "termination assessment" under Section 6851 is made for a tax year that either has not ended or for which the due date for filing a tax return has not yet passed. In the instant case, we are dealing with a "termination assessment" under Section 6851 since the assessment against Plaintiffs, whose tax year ended on December 31, 1983, was made on March 7, 1983, for the period January 1, 1983 through February 23, 1983.

 The authority for, and procedures necessary to the making of termination assessments of income tax, as set out in 26 U.S.C.A. § 6851 are as follows:

 
(a) Authority for making.
 
(1) In general. If the Secretary 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 partially ineffectual proceedings to collect the income tax for the current or the immediately preceding taxable year unless such proceeding be brought without delay, the Secretary shall immediately make a determination of tax for the current taxable year or for the preceding taxable year . . . and notwithstanding any other provision of law, such tax shall become immediately due and payable. The Secretary shall immediately assess the amount of the tax so determined . . . and shall cause notice of such determination and assessment to be given the taxpayer, together with a demand for immediate payment of such tax.

 Under normal tax assessment procedures, there is generally a considerable lapse of time between the first notice of tax deficiency, and the actual enforced collection of the tax. The taxpayer who wishes to contest a proposed assessment has various administrative remedies and, if no agreement is reached, he may petition the Tax Court, all of this, without the actual collection of the tax claimed. However, when the IRS determines that the collection of tax may be in jeopardy, it may forego usual procedures and immediately assess and collect the tax claimed.

 Prior to the enactment of the Tax Reform Act of 1976, P.L. 94-455, no immediate avenue for judicial review of jeopardy assessments was available to taxpayers: (4 U.S.Cong. & Adm.News 1976, 2897, 3789, at p. 3790).

 
The taxpayer who has been subjected to a jeopardy assessment . . . does not have all the protection afforded the ordinary taxpayer during the judicial review. In the normal deficiency case, the Service is prohibited from making an assessment and taking collection action against a taxpayer's property prior to the time allowed for filing a petition for redetermination and during the time litigation is pending in the Tax Court. Although the Service is generally precluded from selling any property seized prior to or during Tax Court litigation, the jeopardy taxpayer -- unlike the ordinary taxpayer -- loses the use of whatever property has been seized by the Service while relief is sought in the Tax Court.

 Section 7429 of 26 U.S.C.A., enacted as a part of the Tax Reform Act of 1976, being Title XII, § 1204(a) of Public Law 94-455, 90 Stat. 1695, provides for both administrative and judicial review of jeopardy tax assessments, including termination assessments under Section 6851 of the Code. The procedures available are as follows:

 
1. Within five (5) days after a jeopardy assessment is made, under § 6851, the Secretary must provide the taxpayer with a written statement of the information upon which he relied in making the assessment;
 
2. Within thirty (30) days after the statement is furnished, the taxpayer may request the Secretary to review the action taken;
 
3. Upon such request, the Secretary must determine "whether or not" making the assessment was "reasonable under the circumstances," and whether the amount of the assessment was appropriate under the circumstances.

 After this administrative review, the taxpayer is entitled to bring an action under § 7429 for the purpose of obtaining a limited judicial review of the administrative taxing procedures. Under § 7429(b)(2) the district court is limited to a determination of whether or not

 
(A) the making of the assessment under section 6851, 6861 or 6862, as the case may be, is reasonable under the circumstances, and
 
(B) the amount so assessed or demanded as a result of the action taken under section 6851, 6861, or 6862, is appropriate under the circumstances.

 If it is determined that the assessment or its amount was unreasonable, the court may order the assessment abated, remand the matter for redetermination of the amount assessed, or take such other action as may be appropriate. § 7429(b)(3). Any determination by a district court under § 7429 is final ...


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