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COHN v. UNITED STATES

July 28, 1975

Arnold M. COHN et al., Plaintiffs,
v.
UNITED STATES of America, Defendant



The opinion of the court was delivered by: BRAMWELL

MEMORANDUM AND ORDER

 BRAMWELL, District Judge.

 This is a motion by the defendant, UNITED STATES OF AMERICA, for partial summary judgment pursuant to Rule 56(b) of the Federal Rules of Civil Procedure.

 In March, 1970, the District Director of Internal Revenue for the Eastern District of New York made two penalty assessments against plaintiffs, in the amount of $33,805.49. The assessments were made pursuant to 26 U.S.C. § 6672 *fn1" of the Internal Revenue Code, on the ground that plaintiffs were "responsible persons" who failed to pay withholding and social security taxes for employees of the Hemisphere Building Services Corp. during four tax quarters in 1966 and 1967.

 Each of the three plaintiffs made two partial payments of $100, and filed claims with the District Director of Internal Revenue for refund and abatement of the remainder of the penalty taxes. In October, 1970, the plaintiffs' claims were denied; this action was then commenced in the United States District Court.

 Plaintiffs seek, first, a recovery of the $600.00 payments which, they allege, were collected erroneously, and, second, a declaration that the penalty assessments are invalid. By a third claim, plaintiffs contend that the procedure for contesting the assessment and payment under 26 U.S.C. § 6672 violates the Constitutional guarantees of due process and equal protection.

 The defendant, United States of America, counterclaimed for $28,251.34, (the balance of the sum owing after partial payments were collected) and commenced a third-party action against other officers of the Hemisphere Corp. and now moves for partial summary judgment in its favor with respect to plaintiffs' third claim for relief. There are no facts in dispute; the issue is the constitutionality of the Internal Revenue procedure for contesting liabilities imposed under Section 6672 of the Internal Revenue Code for failure to pay over withholding taxes.

 Plaintiffs' challenge is predicated on the ground that there is no opportunity for a judicial hearing to contest the liabilities imposed under Section 6672 prior to making partial payment. In order to challenge the assessment in a judicial proceeding, they must pay the withholding tax due for one employee for each quarter. Despite the jurisdictional requirement of only a partial payment, however, they remain liable for the entire assessment during the pendency of a suit for refund, even though there has been no judicial determination of the validity of the assessment. In the case at bar, plaintiffs contend that, although there was a dispute as to whether they were "responsible persons", liable under Section 6672, they were forced to post a security bond for the full amount of the assessment, and, therefore, suffered a deprivation of property without due process of law.

 As the Government has indicated, the Supreme Court has spoken to plaintiffs' argument. In Phillips v. Commissioner of Internal Revenue, 283 U.S. 589, 599-600, 51 S. Ct. 608, 612, 75 L. Ed. 1289 (1931), the validity of summary procedures for collection of taxes was upheld.

 
[It] has already been shown that the right of the United States to exact immediate payment and to relegate the taxpayer to a suit for recovery is paramount. The privilege of delaying payment pending immediate judicial review, by filing a bond, was granted by the sovereign as a matter of grace solely for the convenience of the taxpayer.

 In 1972, the Court reaffirmed its position in Fuentes v. Shevin, 407 U.S. 67, 92, n. 24, 92 S. Ct. 1983, 32 L. Ed. 2d 556, noting that the collection of taxes is an exception to the due process requirement of a prior hearing.

 In a recent case, the Court of Appeals for the Second Circuit relied on the Phillips and Fuentes cases to uphold the constitutionality of the summary collection procedure for assessments made under Section 6672, the same section which is challenged herein. See Kalb v. United States, 505 F.2d 506 (2d Cir. 1974). This Second Circuit decision, of course, is binding on this court. The Seventh Circuit has reached the same determination, and has sustained Section 6672 against a due process challenge. See Bernardi v. United States, 74-1 U.S.T.C. par. 9170 (N.D.Ill.1974), aff'd per curiam, 75-1 U.S.T.C. par. 9133 (7th Cir. 1975).

 Under the authorities cited, there is obviously no question that assessments imposed under Section 6672 may be collected without a prior judicial hearing.

 However, plaintiffs ask this court to consider further argument with regard to the equality of the operation of the Internal Revenue assessment procedures. They concede that the Government need not provide any taxpayer an opportunity to seek judicial review prior to collecting taxes. *fn2" They assert, however, that they are denied equal protection of the law guaranteed by the Fifth Amendment, because taxpayers who are assessed deficiencies in income, estate, and gift taxes are permitted to petition the tax court to contest the liability prior to payment. *fn3" Plaintiffs claim that the Government may ...


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