United States District Court, E.D. New York
May 13, 2005.
SAL CELAURO, JR., PAUL S. ASTRUP, ROSANNE B. ASTRUP, Plaintiffs,
UNITED STATES, INTERNAL REVENUE SERVICE, LAWRENCE ENGLE, Individually and in His Official Capacity, SMITH'S AEROSPACE, INC., TEACHER'S FEDERAL CREDIT UNION DCS TRANSPORT & LOGISTICS SOLUTIONS, Defendants.
The opinion of the court was delivered by: ARTHUR SPATT, District Judge
MEMORANDUM OF DECISION AND ORDER
This is an action challenging the constitutionality and
operation of the income tax system. The plaintiffs Sal Celauro
Jr. ("Celauro"), Paul S. Astrup, and Rosanne B. Astrup ("Paul and
Rosanne Astrup") (collectively, the "Plaintiffs") are associated
with a group known as "We the People Foundation for
Constitutional Education, Inc.," that seeks to redress the
Government's alleged violations of the Constitution's tax, war
powers, money, debt limiting, and privacy clauses.
In this case, the Plaintiffs seek the following: (1) the return
of $12,700.00 that the defendant Smith's Aerospace, Inc.
garnished from Paul Astrup's wages and turned over to the IRS
without a court order; (2) the return of $3,070.24 that the
defendant Teacher's Federal Credit Union garnished from Paul and
Rosanne Astrup's savings account and turned over to the IRS; and
(3) the return of $7,942.69 that the defendant DCS Transport & Logistics Solutions ("DCS") garnished from
Celauro's wages and turned over to the IRS.
The Plaintiffs also seek injunctive relief as follows: (1) an
order permanently enjoining the IRS and defendant IRS Revenue
Officer Lawrence Engel ("Engel") (improperly referred to in the
caption as "Engle") from abusing their authority by threatening
private organizations with IRS civil enforcement actions; (2) an
order permanently enjoining Smith's Aerospace, Inc.
("Aerospace"), Teacher's Federal Credit Union ("TFCU"), and DCS
(collectively the "private Defendants") from complying with any
notice of levy that is not backed by an order from "a court of
competent jurisdiction;" and (3) an order preliminarily enjoining
the private Defendants from garnishing any money from the
accounts or wages of the Plaintiffs and turning that money over
to the IRS. This request for preliminary relief is the subject of
A. Facts as to the Plaintiff Paul and Rosanne Astrup
On October 8, 2004, IRS Revenue Officer Engel sent a "Notice of
Levy on Wages, Salaries and other Income" for the years 1996 and
1997 in the amount of $1,669.15 to Paul Astrup's employer
Aerospace with regard to his earnings. The Notice of Levy was
signed by Astrup and returned to the IRS. During the next four
pay periods Aerospace took $1,669.15 of earnings from Astrup's
pay. On October 14, 2004, Astrup sent a "Petition for Redress" to the IRS that
informed the IRS of his intention to take the dispute over his
tax liability to the United States District Court.
On November 29, 2004, Engel sent a "Notice of Levy on Wages,
Salaries and other Income" for the years 1998-2001 to Aerospace
in the amount of $51,730.34. On November 30, 2004, Engel sent a
"Notice of Levy" for the years 1998-2001 in the amount of
$51,730.34 to the TFCU where Astrup had a bank account. The TFCU
took $3,070.24 from Astrup's savings account ant turned it over
to the IRS.
On December 9, 2004, Engel served Astrup with an Administrative
Summons requiring him to appear on January 6, 2005, and to
produce his private and personal books and records for the years
1998-2001. On January 6, 2005, Astrup met with Engel for about 15
minutes. In the meeting, Astrup "asked more questions regarding
liability" and Engel "refused to answer the questions."
B. Facts as to the Plaintiff Celauro On November 13, 2003, Celauro was visited by Engel at DCS his
place of business . Engel claimed that Celauro owed taxes.
Celauro denied the claims and refused to answer questions.
Celauro was served with a summons to appear at the IRS office in
Garden City on December 1, 2003. On November 21, 2003, Celauro
received a memo from his employer DCS regarding a letter that was
sent to it by the IRS. The letter informed DCS that Celauro's
Form W-4, Employee's Withholding Allowance Certification, did not
conform with the requirements of the IRS Code. The letter
directed DCS to withhold tax as if Celauro was a single taxpayer.
DCS complied and started withholding taxes in accordance with the
On December 1, 2003, Celauro appeared at the IRS office and a
hearing was conducted. At the hearing the IRS was represented by
Engel and Revenue Officer Sara Ann Gagliardi. During the hearing,
Celauro questioned whether he was required to turn over the
information to the IRS. Engel responded that it was mandatory. At
the end of the hearing, Celauro presented Engel with numerous
documents such as "Statement of Facts and Beliefs about the
Regarding the Individual Income Tax," "Produce the Law That
Imposes a Tax on Me, My Property, of My Activities, or Leave Me
Alone!," and "Questions Needing Answers" all pertaining to issues
about the tax code. Celauro never received a response. Between December 1, 2003 and February 4, 2004, Celauro sent
numerous documents, requests for answers, and letters to Engel,
all with no response. DCS continued withholding federal taxes
from Celauro's wages.
On December 23, 2003, Engel filed a Form 668(Y)(c) Notice of
Federal Tax Lien in the amount of $22,285.96 against Celauro with
the Clerk of Nassau County, New York. On January 26, 2004, Engel
sent DCS a Notice of Levy on Wages, Salary, and Other Income" in
the amount of $23,143.31 with regard to Celauro's earnings. On
February 6, 2004, Celauro received his paycheck with a
garnishment amount in the sum of $1,596.84 deducted. On February
23, 2004, Celauro resigned from DCS.
On May 7, 2004, Engel handed Celauro a summons to appear at the
IRS on May 25, 2004. The meeting was postponed to June 8, 2004.
On June 8, 2004 a hearing was held at the IRS office. Engel was
present for the IRS along with a Revenue Agent and an IRS
attorney. During the hearing Celauro was served with IRS Letter
3221(DO), which informed Celauro that he owed the IRS the sum of
$20,727.33 in unpaid taxes.
On November 13, 2004, Celauro received a Letter 950 (DO) from
the IRS Director for the North Atlantic Examination which
proposed changes to his federal tax years 1998-2001. The letter
offered Celauro with two options: (1) agree with the proposed
changes and pay the amount; or (2) disagree with the amount and
request a conference with the Appeals Office. On the same day,
Celauro sent a letter to the IRS stating the he would not answer or respond to "fraudulent
documents and that they were being returned."
This case was filed on May 9, 2005.
A. Preliminary Injunction Standard
To obtain a preliminary injunction, a plaintiff must show: (1)
irreparable harm; and (2) either (a) likelihood of success on the
merits, or (b) sufficiently serious questions going to the
merits, and a balance of hardships tipping decidedly in the
plaintiff's favor. See International Dairy Foods Ass'n,
92 F.3d at 70; Jackson Dairy, Inc. v. H.P. Hood & Sons, Inc.,
596 F.2d 70, 72 (2d Cir. 1979).
However, where, as in this case, a plaintiff seeks an
injunction to "prevent government action taken pursuant to
statutory authority, which is presumed to be in the public
interest," the second "serious questions" prong is inapplicable
and the plaintiff is required to demonstrate a likelihood of
success on the merits. See Molloy v. Metropolitan Trans.
Auth., 94 F.3d 808, 811 (2d Cir. 1996) (citing Able v. United
States, 44 F.3d 128, 130 (2d Cir. 1995)).
In addition, the courts are barred from entertaining suits that
seek to restrain the assessment or collection of any tax.
26 U.S.C. § 7421. The Anit-Injunction Act withdraws jurisdiction
from the state and federal courts in any suit seeking an
injunction prohibiting the collection of federal taxes and
requires that the legal right to a disputed sum be determined in a suit for refund. Id.; see
Mullings v. Commissioner, 78 A.F.T.R.2d (RIA) 6109, 96-2 U.S.
Tax Cas. (CCH) P50531 (E.D.N.Y. 1996), aff'd, 112 F.3d 504 (2d
The only exception to the general prohibition against
injunctions of this type is if a taxpayer establishes that: "(1)
under the most liberal view of the law and facts in favor of the
government, the government cannot succeed on the merits of the
tax claim, and (2) equitable jurisdiction exists because the
taxpayer may suffer irreparable harm and does not have an
adequate remedy at law." Id. (citing Enochs v. Williams
Packing & Navigation Co., 370 U.S. 1, 82 S. Ct. 1125,
8 L. Ed. 2d 292 (1962)).
B. Collection of Tax by Levy and Distraint
The Internal Revenue Code provides two principal tools for the
collection of delinquent taxes. The first is the lien-foreclosure
suit. Under 26 U.S.C. § 7403(a), the IRS is authorized to
institute a civil action in federal district court to enforce a
lien "to subject any property, of whatever nature, of the
delinquent, or in which he has any right, title, or interest, to
the payment of such tax." United States v. Nat'l Bank of
Commerce, 472 U.S. 713, 721, 105 S. Ct. 2919, 86 L. Ed.2d 565
(1985). The second is the collection of the unpaid tax by
administrative levy. The levy is a provisional remedy and
generally "does not require any judicial intervention." United
States v. Rodgers, 461 U.S. 677, 682, 103 S. Ct. 2132, 2137
(1983); 26 U.S.C. § 6331(a). The IRS may collect delinquent taxes from a taxpayer by issuing
a levy on the taxpayer's "property and rights to property."
26 U.S.C. § 6331(a). The levy protects the Government against loss
or diversion of the subject property while such claims are being
resolved. Rodgers, 461 U.S. at 682, 103 S. Ct. at 2137. Section
6331 provides a comprehensive scheme for the administrative
enforcement of levy and distraint, or in other words, the
administrative seizure and sale of a taxpayers's property and
rights to property. 26 U.S.C. § 6331(a).
The administrative scheme under § 6330 is as follows. The IRS
District Director first gives notice of a delinquent tax
assessment and a demand for payment to the taxpayer. Id. The
taxpayer thereafter has ten days in which to pay the tax before
distraint proceedings commence. Id. The taxpayer must also
receive a notice of intent to levy with a right to appeal within
30 days prior to any levy or notice of levy. 26 U.S.C. § 6330. A
hearing is then held before "an officer or employee [of the IRS]
who has had no prior involvement . . ." in the case. Id. The
taxpayer is afforded the right to appeal the decision after the
hearing to the Tax Court or the United States District Court.
"If any person liable to pay any tax neglects or refuses to pay
the same after demand, the amount (including any interest,
additional amount, addition to tax, or assessable penalty,
together with any costs that may accrue in addition thereto)
shall be a lien in favor of the United States upon all property
and rights to property, whether real or personal, belonging to such person." United States v.
Rodgers, 461 U.S. 677, 681-82, 103 S. Ct. 2132, 2136 (1983).
After notice and an opportunity to be heard under § 6330, a
District Director of the IRS is empowered to collect the assessed
tax by levy and sale of all property, or rights to property, of
the delinquent person or any property on which there is a lien
for payment of the tax. Id. 26 U.S.C. § 6331(a)
In the situation where a taxpayer's property is held by
another, a notice of levy upon the custodian is customarily
served pursuant to § 6332(a). This notice gives the IRS the right
to all property levied upon, and creates a custodial relationship
between the person holding the property and the IRS so that the
property comes into the constructive possession of the
Government. Phelps v. United States, 421 U.S. 330, 334,
95 S. Ct. 1728, 1731, 44 L. Ed.2d 201 (1975). If the custodian honors
the levy, he is "discharged from any obligation or liability to
the delinquent taxpayer with respect to such property or rights
to property arising from such surrender or payment."
26 U.S.C. § 6332(d). If, on the other hand, the custodian refuses to honor a
levy, he incurs liability to the Government for his refusal.
26 U.S.C. § 6332(c)(1); see, e.g., Weissman v. U.S. Postal
Service, 19 F. Supp. 2d 254, 260 (D.N.J. 1998).
"The constitutionality of the levy procedure . . . `has long
been settled.'" Nat'l Bank of Commerce, 472 U.S. at 721,
105 S. Ct. at 2925 (quoting Phillips v. Commissioner, 283 U.S. 589,
595, 51 S. Ct. 608, 611 (1931) ("Where, 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.")); see also Hughes v. IRS, 62 F. Supp. 2d 796,
799 (E.D.N.Y. 1999).
C. The Merits of the Claim
Upon a liberal reading of the plaintiffs' pro se application
to this Court, it appears that they contend that a recent
decision of the Second Circuit, Schulz v. IRS, 395 F.3d 463 (2d
Cir. Jan. 25, 2005), renders the administrative levy and
distraint procedures of the IRS void. This argument is without
merit. The Plaintiffs single out a small excerpt of the Schulz
decision for the proposition that the IRS has no administrative
power to place a levy on their wages and property. That portion
states: "[A]bsent an effort to seek enforcement through a federal
court, IRS summonses apply no force to taxpayers, and no
consequence whatever can befall a taxpayer who refuses, ignores,
or otherwise does not comply with an IRS summons until that
summons is backed by a federal court order." Id. at 465. While
by itself and on its face, this phrase may appear to curtail the
enforcement authority of the IRS, further analysis reveals
The factual and legal scenarios in Schulz were related to
those in this case but they are critically different in certain
respects. In that case, the IRS served the taxpayer with several
summonses seeking testimony and documents in connection with an
IRS investigation of the taxpayer. Upon receiving the summons,
the taxpayer filed a motion to quash the summonses in the United States
District Court. The court dismissed the action for lack of
subject matter jurisdiction, finding that the IRS had never
commenced a proceeding to enforce the subpoena. The Second
Circuit affirmed, noting that the taxpayer was under no threat of
consequence for refusing to comply with the summonses until such
time the IRS chose to compel enforcement through a court order.
Id. As such, there was no viable "case or controversy." Id.
As the Second Circuit noted in Schulz, 26 U.S.C. § 7604
governs the enforcement of summonses by the IRS. That section
states, in relevant part:
(a) Jurisdiction of district court. If any person
is summoned under the internal revenue laws to
appear, to testify, or to produce books, papers,
records, or other data, the United States district
court for the district in which such person resides
or is found shall have jurisdiction by appropriate
process to compel such attendance, testimony, or
production of books, papers, records, or other data.
(b) Enforcement. Whenever any person summoned under
section 6420(e)(2), 6421(g)(2), 6427(j)(2), or 7602
neglects or refuses to obey such summons, or to
produce books, papers, records, or other data, or to
give testimony, as required, the Secretary may apply
to the judge of the district court or to a United
States commissioner for the district within which the
person so summoned resides or is found for an
attachment against him as for a contempt.
Section 7604 and the Schulz case are inapplicable to the
instant case for two critical reasons. First, the Plaintiffs are
not contesting a summons issued by the IRS. Rather, the
Plaintiffs contend that the Notice of Levy cannot be issued
without a court order. Section 7604 and Schulz only involve the enforcement of
IRS summonses and have no effect on the issuance of a Notice of
Levy after notice and an opportunity to be heard.
Second, both of the Plaintiffs admit in their papers that they
appeared for the summonses that the IRS issued to them. It also
appears from the volumes of documents that they submitted to the
IRS Revenue Agents at and after their hearings that they were
feverishly contesting their liability under the tax code and the
laws of the United States. However, their arguments were
dismissed by the IRS after notice and an opportunity to be heard.
After this dismissal it is unclear whether the Plaintiffs sought
an appeal through the mechanisms available to them in the IRS
code. What is clear is that Plaintiffs continued to believe they
did not owe taxes, and did not pay the amount the IRS demanded.
For these reasons, the IRS had no need to seek enforcement of
any summonses in federal court. Indeed, in this case the
Plaintiffs responded to each of the summonses that the IRS issued
to them. There was no need for the IRS to enforce the summons
through judicial intervention because the Plaintiffs complied
with the requirements in the summons by appearing for the
hearing. In addition, their subsequent refusal to pay the taxes
the IRS determined they owed after the hearing empowered the IRS
to validly file a levy upon their property and wages without the
need of judicial enforcement. See, e.g., Rodgers,
461 U.S. 677, 681-82, 103 S. Ct. 2132, 2136. For all these reasons, the Plaintiffs' claim that the Notice of
Levy was improperly issued without a court order has no
likelihood of success on the merits and does not appear to fit
into the exception of the Anti-Injunction Act. Therefore, the
request for the preliminary injunction is denied.
The request for a preliminary injunction is denied.
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