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MUSIC DELI & GROCERIES v. I.R.S.

December 27, 1991

MUSIC DELI & GROCERIES, INC. AND MAHMOUD SHAMS, PLAINTIFFS,
v.
INTERNAL REVENUE SERVICE, DISTRICT OF MANHATTAN, DEFENDANT.



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

  OPINION

Plaintiffs Music Deli & Groceries, Inc. ("Music Deli") and Mahmoud Shams ("Shams"; collectively the "Plaintiffs") have moved pursuant to Rule 60(b) of the Federal Rules of Civil Procedure for an order vacating the prior judgment in this action and pursuant to Rule 15 for leave to file an amended and supplemental complaint. For the reasons set forth below, the motions are granted and the Plaintiffs' First Amended and Supplemental Complaint ("Amended Complaint") deemed filed. The Amended Complaint, however, is dismissed in part pursuant to Rule 12(b)(6) for failure to state a claim upon which relief may be granted, with leave to replead.

The Parties

Music Deli is a corporation organized under the laws of New York State with its principal place of business on Eighth Avenue in Manhattan. The corporation was formed to run a delicatessen/grocery business (the "Deli") that is no longer in active operation.

Shams is a citizen and resident of New Jersey.

The Internal Revenue Service (the "Service") is an agency of the federal government. The Service allegedly seized and sold the contents of the Deli to satisfy a tax assessment.

Facts*fn1 and Prior Proceedings

Shams is a refugee from Afghanistan who fled to the United States in 1981 after the Soviet Union's invasion. He became a citizen of the United States in 1988.

In 1984, Shams and two others decided to invest in the Deli. They each paid $20,000 in cash, with the balance of the $131,000 purchase price secured through a three-year promissory note. Shams bought out his two partners in 1986 for $12,000 each. Thereafter, Shams operated the Deli by himself. He worked from six in the morning till eleven at night, seven days a week, eking out a living.

The present dispute has its roots in 1987. That year, the Service notified Shams that he had not filed and paid Employer Quarterly Tax Returns and Employer Annual Federal Unemployment Tax Returns for 1985, 1986, and 1987 in a timely manner. Shams apparently contacted the Service and explained that he had paid sales taxes and that, because the Deli had no other employees, he did not believe he was required to pay employer taxes.

The Service informed Shams that he was required to declare himself an employee, pay taxes, and file the two forms if he took wages from the Deli. In 1988, the Service seized the Deli and its contents, only to release it upon the condition that Shams appear at the Service, file the forms, and make the payments. Shams did as requested, filing forms for 1985 through 1988.

The filing was deemed incomplete by the Service and an assessment of $6,591.05 entered. Shams then filed amended returns in 1989 at the Service's behest. His liability was actually less than the original assessment, so the Service agreed to a number of downward adjustments. With penalties, the total tax liability allegedly is over $23,000. Shams claims to have paid more than $5,000 toward settling the account.

On May 25, 1990, the Service obtained an ex parte order permitting it to seize the contents of the Deli. The order was carried out on May 29, with Shams being barred from the premises and the locks changed. Shams contends that he never received notice of the Service's intention to seize and levy the Deli.

Shams brought an order to show cause, pro se, on June 20, 1990, seeking to enjoin the Service from seizing and selling the Deli and its contents. This Court dismissed the complaint on July 2, 1990, on two grounds. First, because Music Deli was a corporation, the complaint was dismissed for lack of corporate representation. Second, the Anti-Injunction Act, 26 U.S.C. ยง 7421, barred this Court from ...


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