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GREENHOUSE v. U.S.

May 15, 1990

MARTIN GREENHOUSE AND SHERRY GREENHOUSE, PLAINTIFFS,
v.
UNITED STATES OF AMERICA, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Stewart, District Judge:

MEMORANDUM DECISION

Plaintiffs Martin Greenhouse and Sherry Greenhouse brought this action seeking relief from defendant's efforts to collect sums of money allegedly due on plaintiffs' tax returns for years 1982, 1986, and 1988. By Order to Show Cause, plaintiffs seek a temporary restraining order and a preliminary injunction pursuant to Rule 65 of the Federal Rules of Civil Procedure ("Fed.R. Civ.P."). Defendants are the Manhattan District Director of the United States Internal Revenue Service ("IRS"), as well as the Chief of the Collection Division of the IRS, and an agent of the Collection Department of the IRS, Anselmo Estwick (hereinafter "the government.")

In the first cause of action the plaintiffs seek to enjoin the defendants from collecting any additional taxes, penalties and interest on the plaintiffs' 1982, 1986 and 1988 taxes.*fn1 They also seek an order directing the Internal Revenue Service to issue a release of the tax liens filed on November 21, 1989. For the reasons stated below, we vacate the temporary restraining order and deny plaintiffs' motion for a preliminary injunction. We also deny plaintiffs' request for an order for release of the tax liens.

BACKGROUND

This case deals with plaintiffs' problems in paying taxes owed for several tax years, namely 1982, 1986, and 1988. Defendant IRS has assessed plaintiffs for underpaid taxes, penalties and interest. Although plaintiffs made several payments over a period of time, the IRS claimed that the plaintiff still owed $31,750.74 and therefore filed a federal tax lien on November 21, 1989 in that amount. The IRS is also proceeding to collect this sum by levy against the plaintiff's business. Pltfs' Reply Brief at 2.

Plaintiffs claim that they have paid everything owed to the IRS, according to their computation of allowable interest. Plaintiffs' Memorandum of Law ("Pltfs' Brief") at 1; see also Complaint ¶¶ 4-7. Plaintiffs dispute the rates of interest used by the IRS as well as the assessment of penalties on plaintiffs' taxes, claiming that they do not conform to the statutory provisions for interest. Pltfs' Brief at 3. Therefore, they assert that they have paid everything they owe and are entitled to a certificate of release of the liens. The IRS has refused to issue a release from the liens and has proceeded to levy against the plaintiffs' business for collection. The plaintiffs in their first cause of action ask this court to issue an injunction prohibiting the IRS from taking any further steps to recover the amounts allegedly owed by plaintiff.

Following is a summary of the amounts in dispute according to the plaintiff:

Tax         Amt. IRS
Year   Underpd.    Assessed                      Paid by Plaintiff
1982   N/A*fn2    See n. 2 below                $3,000.00  pd. 5/84-9/84
1986   $5,738.00  $6,020.69*fn3  as of 8/87     5,000.00  pd. 6/89
1988    23,495.00   24,072.24*fn4  as of 5/89   $25,000.00  pd. 12/89
                   ----------                    ----------
                   $33,092.93                    $33,000.00

Although it appears from the above that plaintiffs have paid nearly the entire amount of the original assessments, it is also apparent that plaintiffs did not pay the assessments promptly. Under 26 U.S.C. § 6601 (hereinafter "Section 6601"), the IRS may impose interest on amounts not paid within the specified time period for payment, up to the date of payment.*fn5

The IRS claims that plaintiffs' payments do not satisfy the penalties and interest which accrued between the time of assessment and the time of payment. Plaintiffs and the government differ in how much plaintiffs owe because of their difference in calculation of the interest charged on the underpaid tax. Plaintiff asserts that pursuant to 26 U.S.C. § 6651 (hereinafter "Section 6651") the IRS may collect only .5 percent per month, or part of a month, from the due date to the date of payment.*fn6 Complaint ¶ 6. Plaintiffs allege that the IRS assessments include "illegal penalties and interest." Complaint ¶ 9. Plaintiffs also contend that IRS has used the wrong interest rate by charging 1% a month. Complaint ¶ 18.

The government argues that it is permitted to charge interest as well as a penalty for a failure to pay tax. Deft's Brief 6. Defendant says that Section 6651 provides for the imposition of a "penalty" for failure to pay tax. Id. In addition to a penalty, the government contends that IRS may impose interest on outstanding taxes, pursuant to Section 6601.

THE PRELIMINARY INJUNCTION

The government argues that the Anti-Injunction Act prohibits a suit for the purpose of restraining the assessment or collection of any tax. 26 U.S.C. § 7421(a) (hereinafter "Section 7421" or "the Anti-Injunction Act. ")*fn7 Under Section 6601(e)(1) the government contends that the term "tax" refers not only to the tax itself but also to any additional amounts added to the tax, such as penalty and interest charges: "any reference in this title . . . to any tax imposed by this title shall be deemed also to refer to interest imposed by this section on such tax." In ...


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