| No. 04-____ In the Supreme Court of the United States. ____________________ George Dalton Brooks, Corwin Henry Meyer, Petitioners, -v United States of America; John Snow, Secretary of the Treasury, and Mark W. Everson, Commissioner of the Internal Revenue Service, Respondents. _____________________ On Petition for Writ of Certiorari to the United States Court of Appeals for the Fifth Circuit. _____________________ PETITION FOR WRIT OF CERTIORARI _____________________
-i- Questions Presented. 1. Did the Secretary of the Treasury violate separation of powers principles when in contravention of The1998 Tax Reform Act and a specific directive by Congress, he refused to promulgate regulations authorizing the IRS to accept offers-in-compromise for high interest amounts accumulated as the result of long delays by the IRS in determining taxpayer liability? 2. Should taxpayers who have paid the IRS in interest five times their taxes after the IRS delayed 17 years to determine their tax liability be forced to pursue a futile administrative remedy with the IRS for abatement or refund where the Secretary of the Treasury has already refused to promulgate regulations reflecting Congress' intent that the IRS accept offers-in-compromise for interest accumulated because of its long delay in determining tax liability, where the IRS has already assessed or collected interest from these taxpayers in full in violation of Congress' directive to accept offers in compromise for a lesser amount and where in a “form” letter it has already denied the taxpayers any conceivable relief to which they would be entitled in an administrative proceeding? 3. Does the federal district court have jurisdiction to hear the due process claims of innocent limited partners of an agricultural-based partnership who seek abatement or refund of interest payments wrongfully assessed or collected by the IRS after it delayed 17 years to determine their taxes, refused to implement Congress' directive in The Tax Reform Act that it compromise interest for a lesser amount than due and then peremptorily denied in “form” letters the right of these innocent limited partners to seek an abatement or refund? - ii
Questions Presented For Review ..................................................................................................... i Table of Contents ........................................................................................................................... ii Table of Authorities ........................................................................................................................ iii Basis for Jurisdiction in this Court .................................................................................................... 1 Constitutional and Statutory Provisions Involved .............................................................................. 1 Statement of the Case ..................................................................................................................... 5 Argument Supporting Allowance of the Writ .................................................................................. 10
Conclusion ................................................................................................................................... 16 Appendix................................................................................................................................... post - iii Table of Authorities Citations of Opinions and Orders. The unpublished per curiam opinion of the Court of Appeals for the Fifth Circuit in George Dalton Brooks et al. v. United States et al. , C.A. No. 04-20346, filed March 21, 2005, affirming the District Court's judgment of dismissal, is set forth in the Appendix hereto(App. 1-2). The published Memorandum and Order of the United States District Court for the Southern District of Texas, Houston Division, in George Dalton Brooks et al. v. John Snow, Secretary of the Treasury et al., 313 F. Supp.2d 654 (Civil Action No. H-03-0259), dated February 12, 2004, and entered February 13, 2004, dismissing the Petitioners' complaint, is set forth in the Appendix hereto(App. 3-17). Sample Notice of Increased Tax by the IRS sent to one of the Petitioners, dated August 12, 2002, is set forth in the Appendix hereto(App. 18-19). Sample “Form” letter from IRS Field Director, Lynne Walsh, Holtsville, NY, to one of the Petitioners, dated September 5, 2002, denying any claim for abatement or refund of interest charged by the IRS as a result of its 17-year delay in establishing tax liability(“the Selesky Letter”)(App. 2021). Basis for Jurisdiction in this Court. The judgment of the United States Court of Appeals for the Fifth Circuit affirming the District Court judgment of dismissal was entered on March 21, 2005(App. 1). This petition for writ of certiorari by the Petitioners is filed within ninety (90) days of that date. 28 U.S.C. Section 2101(c). The jurisdiction of this Court is invoked pursuant to the provisions of 28 U.S.C. Section 1254(1). Constitutional, Statutory and Rule Provisions Implicated by This Petition.
2.
3.
4.
5. Statement of the Case. From the early 1980's through 1986, American Agricorp (“AMCOR”) was in the business of promoting agricultural-based limited partnerships, an enterprise which included investments in Texas farmland as well as crops to be grown in Texas or California. In the mid-1980's, AMCOR's business activities drew the attention of the Criminal Investigation Division of the IRS (the “CID”). Beginning in 1987 and continuing through 1988, the IRS through the CID conducted criminal investigations of certain farmers and AMCOR officers. At the same time, the IRS pursued civil examinations of the AMCOR limited partnerships. In May of 1988, the CID began criminal proceedings against these AMCOR officers and general partners for certain fraudulent transactions they had allegedly engineered. During the course of its simultaneous criminal and civil investigations of AMCOR, the IRS improperly solicited one George Schreiber, the only general partner in each of AMCOR's limited partnerships and a target of the CID criminal investigation, to become a so-called “Tax Matters Partner” of each limited partnership; and he possessed the authority to grant civil extensions of the statute of limitations as to each partnership. The IRS knew that Schreiber, a general partner of AMCOR and a target of the CID's criminal investigation, had a conflict of interest representing AMCOR's limited partners and granting any extensions of the limitations period on their behalf. In March of 1989 and continuing until April of 1993, the IRS seized and held the books of AMCOR's limited partnerships upon a search warrant which did not authorize such a global seizure. This action caused disruption among the limited partners' recordkeeping and impeded their efforts to mount a defense to the IRS' partnership-level civil proceedings which were eventually initiated in 1990. In fact, the conduct of the IRS during its civil investigation of the partnerships generated claims by the limited partners in Tax Court that the IRS inter alia had used the civil investigation to obtain evidence in the CID's simultaneous criminal investigation against AMCOR's officers and general partners; had deprived the limited partners of vital partnership records which interfered with their response to this investigation; and had inordinately frustrated discovery which resulted in unwarranted delay of the proceedings. The IRS' civil investigation lasted well into the 1990's and in the aftermath of the CID's criminal prosecution AMCOR's officers and general partners, the IRS eventually determined that AMCOR was an abusive tax shelter, disallowing certain deductions taken by the AMCOR partnerships, deficiencies which passed through to the limited partners. On July 17, 2000, the Tax Court ultimately denied the limited partners' request for misconduct-based relief in the form of an abatement of interest due on their tax liability, holding that it had no jurisdiction to provide such relief. Crop Associates-1986, Frederick H. Behrens, Tax Matters Partner v. Commissioner , Tax Court Docket No. 12532-90. 6. There is no dispute on this record that none of the limited partners bears any responsibility for the unwarranted delay taken either by the CID in completing its criminal investigation of AMCOR's officers and general partners or by the IRS in the simultaneous civil investigation of the limited partnerships which resulted in their tax liability. While this civil investigation by the IRS of the limited partnerships was proceeding to its conclusion in the Tax Court in 2000, Congress enacted The Internal Revenue Service Restructuring and Reform Act of 1998, P.L. 105-206 (“the Reform Act”). Before the Reform Act's passage in 1998, Treasury regulations promulgated by the Secretary of the Treasury authorized the Commissioner of the IRS to compromise tax liability as well as accumulating interest thereon for only two reasons, i.e., (a) doubt as to liability; or (b) doubt as to collectability. 26 C.F.R.301.7122-1. The Reform Act expanded the Commissioner's ability to compromise tax liability and any accumulating interest; it directed the Commissioner of the IRS to amend 26 C.F.R. 301.7122-1 in order to implement new standards for accepting offers in compromise and prescribed guidelines for determining whether to accept such offers from taxpayers, especially with accrued interest and penalties as the result of long delay by the IRS in establishing tax liability. 26 U.S.C. Section 7122(c). Specifically, Congress unmistakably expressed its will in House Conference Reporter 599, 105 th Congress, 2d Session 289 (1998):
Id . (emphasis supplied). The United States Congress therefore unequivocally directed the Secretary of the Treasury to promulgate regulations authorizing the settlement of cases involving long delays in establishing tax liability and to accept compromises in such long-standing cases by foregoing the payment of penalties and interest “which have accumulated as a result of [such long] delay [by the IRS] in determining a taxpayer's liability.” Id. 7. In the wake of the Reform Act, the Secretary of the Treasury promulgated 26 C.F.R. 301.7122-1T, a temporary regulation which contained three grounds for compromising tax liabilities: (a) doubt as to liability; (b) doubt as to collectability; and (c) “the promotion of effective tax administration.” None of this new language in the temporary regulation reflected Congress' expressed will that the Commissioner of the IRS have authority to compromise penalties and interest accumulated as the result of the IRS' delay in establishing tax liability in “long-standing cases.” This failure by the Secretary of the Treasury to reflect the will of Congress in its temporary regulation caused Members of the House Ways and Means Committee, the principal authors of the Reform Act , to write then Treasury Secretary Lawrence Summers on October 15, 1999. Adverting to the Reform Act's legislative history, the authors of the Reform Act made the point that “we anticipated that the offer-in-compromise authority could be used to settle cases where the Service's consideration has taken many years to complete and assessment of an additional tax liability wasn't made until years after the year in which deductions were originally claimed (at which point interest on the liability often greatly exceeded the underlying liability).”
8. Despite this clear directive from Congress, indeed from the authors of the Reform Act itself , to promulgate regulations which authorize the IRS to make offers in compromise for accumulated interest and penalties whenever long delays in establishing tax liability have occurred, the Treasury Secretary in July of 2002 instead adopted 26 C.F.R. 301.7122-1 as a final regulation. It retained subsection (c)'s “effective tax administration” portion of the temporary regulation without any mention of the IRS's authority to compromise long-standing cases by foregoing penalties and interest which have accumulated as a result of delays in determining a taxpayer's liability, ignoring entirely Congress' expressed intent in enacting 26 U.S.C. Section 7122. The Secretary's commentary accompanying his adoption of the permanent version of 26 C.F.R. 301.7122-1 acknowledged Congress' intent in this regard but chose to disregard it:
(Emphasis supplied). By implementing guidelines to make offers-in-compromise on interest and penalties only to those taxpayers who can show doubt as to collectability and/or hardship under the permanent version of 26 C.F.R. 301.7122-1, the Secretary overrode Congress' intent to have the IRS make offers-in-compromise on interest and penalties to all taxpayers who are subject to long delays in establishing their tax liability, regardless of doubt as to collectability or hardship . In this way, the Secretary denied taxpayers the full relief which Congress intended when it passed the Reform Act. Pursuant to this regulation, one at odds with Congressional intent, the IRS in the summer of 2002, after a delay of between 15 and 17 years in establishing their tax liability, notified the AMCOR limited partners for the first time of increased tax assessments and interest for the tax years 1984, 1985 and 1986. In almost all instances, the interest charges exceeded the principal taxes due by about 500%. For example, limited partner Thomas D. Adams was assessed $22,085.00 in increased tax for the year 1986 and $91,035.47 in interest on this tax liability, for a total arrearage of $113,120.47 (App.18-19). 9. Immediately after these assessments and even before the AMCOR limited partners had sought rebates or refunds of interest, the IRS through Field Director Lynne Walsh in the Holtsville, New York Office sent them a form letter preemptively denying any abatement or refund of the interest assessed or collected on their tax liability for these years(“the Selesky letter”)(App.20-21). Some AMCOR limited partners paid the entire amount due, some paid the principal taxes due, and some paid nothing. In all instances, these assessments were made by the IRS after the limitations period had elapsed, apparently based upon extensions granted by the Tax Matters Partners of AMCOR who possessed no authority to impair the rights of the individual limited partners. Alleging most of these facts, the AMCOR limited partners (“the taxpayers”) brought this civil action in the United States District Court for the Southern District of Texas on January 23, 2003, against the Secretary of the Treasury (“the Secretary”) and the Commissioner of the IRS (“the Commissioner”) seeking a judgment declaring that 26 C.F.R. 301.7122-1 unconstitutionally contravenes separation of powers principles because it fails to implement Congress' intent in enacting the Reform Act; ordering the Commissioner to make offers-in-compromise, as Congress intended, to those taxpayers who have not yet paid the accumulated interest on their tax liabilities; and imposing interest no greater than the standard rate of interest under 26 U.S.C. Section 6221(App. 4-5). Those taxpayers who had already paid interest on their tax liability for 1984, 1985 and 1986, sought a refund of interest payments consistent with the Secretary's duty to make offers in compromise on such interest ab initio (App.5). By amendment, the taxpayers sought damages under the Taxpayers Bill of Rights, 26 U.S.C. Section 7433, for the IRS' intentional, reckless or negligent disregard of a statute or regulation when it sent the taxpayers the Selesky letter, preemptively denying them an abatement or refund of their interest payments without notice, without a hearing and in contravention of congressional mandate that offers-in-compromise be made in these circumstances(App.6). The United States, as the real party in interest, moved to dismiss the taxpayers' amended complaint for lack of subject matter jurisdiction based upon sovereign immunity, the Anti-Injunction Act, the Declaratory Judgment Act and the taxpayers' failure to exhaust administrative remedies (App.6). In a decision filed on February 13, 2005, the District Court, Werlein, J., granted the government's motion and dismissed the taxpayers' amended complaint(App.3-17). The District Judge determined that the taxpayers lacked standing under Article III or the Administrative Procedure Act to challenge on separation of power principles the Secretary's failure to promulgate regulations which expressly empower the IRS to make offers-of-compromise for interest/penalties resulting from long delays by the IRS in establishing tax liability(App.9-10). Specifically, the motion judge thought that the “effective tax administration” language of the regulation which the Secretary did promulgate gave the taxpayers the right to seek offers-in-compromise from the IRS for interest and they did not do so(App.10). The United States' limited waiver of sovereign immunity had therefore not been invoked(App.9-11). 10. The District Judge also ruled that the Anti-Injunction Act and the Declaratory Judgment Act barred this suit brought by those taxpayers who have not already paid the assessed interest to the IRS since this action interferes with the assessment or collection of taxes, regardless of the fact that only interest is at issue(App.11-12). For those taxpayers who have paid the IRS the interest/penalties assessed and who now seek a refund, the lower court ruled that they were still bound first to file an administrative claim with the IRS for the refund, in the absence of which there was no subject matter jurisdiction in the District Court because of sovereign immunity(App.12-13). Finally, the District Court determined that the Selesky letter denying the taxpayers any abatement or refund of interest, sent before the taxpayers had requested such relief, even if reckless or negligent conduct by the IRS, did not establish an inadequacy of administrative remedies for the taxpayers(App.13-14). They must first exhaust their administrative remedies with the IRS concerning its use of this anticipatory form letter before resorting to the federal district court for damages upon the basis that the IRS violated due process or the Taxpayers' Bill of Rights(App.14-15). Accordingly, there was no subject matter jurisdiction to hear this controversy(App.15). On March 21, 2005, the Court of Appeals for the Fifth Circuit affirmed the dismissal in an unpublished per curiam opinion, essentially for the reasons stated in the District Court's decision (App. 1-2). The taxpayers have now brought to this Court their petition seeking a writ of certiorari to the United States Court of Appeals for the Fifth Circuit. Argument Supporting Allowance of the Writ. 1. The Decision Below Conflicts With Decisions Of This Court Establishing In Article I, Section 1 of the Constitution, the Framers explicitly and unambiguously vested all lawmaking powers in the Senate and House of Representatives. INS v. Chadha , 462 U.S. 919, 945-946(1983). In Article II, Section 3, the President as the Chief Executive Officer is obligated to “take Care that the Laws be faithfully Executed....” His role in the lawmaking process is limited to the recommending of laws he thinks wise and the vetoing of laws he thinks bad. Youngstown Sheet & Tube Co. v. Sawyer , 343 U.S. 579, 587(1952). Under Article III, Section 1, this Court together with the inferior federal courts are vested with the judicial power of the United States “to say what the law is,” including the Constitution itself, and whether any law conforms with that fundamental document. Marbury v. Madison , 5 U.S. (1 Cranch) 137, 177(1803)(Marshall, C.J.). 11. While not hermetically sealed off from one another, these three branches of government are separate and distinct enough to provide checks and balances as a self-executing safeguard against the encroachment or aggrandizement of one branch at the expense of another. Buckley v. Valeo , 424 U.S. 1, 121(1976). The Framers wisely perceived based upon their experience under British rule that “[t]he accumulation of all powers legislative, executive and judiciary in the same hands, whether of one, few or many, and whether hereditary, self appointed, or elective, may justly be pronounced the very definition of tyranny.” INS v. Chadha , 462 U.S. at 960-961 (Powell, J., concurring) quoting The Federalist No. 47, p. 324(J. Madison). See Myers v. United States , 272 U.S. 52, 293(1926)(Brandeis, J., dissenting). Though mindful that these co-ordinate branches of government need to be interdependent to some degree in order to form a workable governance, this Court has not hesitated to enforce the separation of powers doctrine where one branch has impaired or sought to assume a power central to another branch. See, e.g., Buckley v. Valeo, 424 U.S. at 123(legislative act impinges on Executive powers under Article II); Youngstown Sheet & Tube Co. v. Sawyer , 343 U.S. at 587-589 (President may not execute and exercise legislative authority belonging only to Congress); United States v. Ferreira , 54 U.S. (13 How.) 40, 50-51(1852)(executive or administrative duties may not be imposed upon Article III judges). A violation of separation of powers occurs in one of two forms: one branch may interfere impermissibly with the other's performance of its constitutionally assigned function. See e.g., Nixon v. Administrator of General Services , 433 U.S. 425, 433;443(1977)(Congress' legislative function does not interfere with Executive function by enactment which assumed control of non-private Presidential materials after resignation); United States v. Nixon , 418 U.S. 683, 706-707 (1974) (Executive claim of unqualified privilege unrelated to Executive function rejected as interfering with judicial process of subpoena duces tecum on separation of powers principles). Alternatively, the doctrine will be violated when one branch assumes a function that more properly is entrusted to another branch. See, e.g., Youngstown Sheet & Tube Co. v. Sawyer , supra (Executive Order to seize steel mills usurps a legislative function and is impermissible on separation of powers principles); Springer v. Philippine Islands , 277 U.S. 189, 203 (1928)(legislature cannot endow a legislative office with Executive responsibilities consistent with separation of powers principles). In this controversy, the taxpayers allege that Congress enacted the Reform Act in 1998 to make the Tax Code more “taxpayer-friendly,” clearly indicating in its legislative history that, among other things, the IRS was authorized to make offers-in-compromise on interest and penalties whenever there has been a long dely in determining tax liability. To this end, 26 U.S.C. Section 7122(c)(1), provides that the Treasury Secretary “ shall prescribe guidelines for officers and employees of the Internal Revenue Service to determine whether an offer-in-compromise is adequate and should be accepted to resolve a dispute.”(emphasis supplied) In response, the Secretary of the Treasury promulgated 26 C.F.R. 301.7122-1T, a temporary regulation which contained three grounds for compromising tax liabilities: (a) doubt as to liability; (b) doubt as to collectability; and (c) “the promotion of effective tax administration.” None of this 12. new language in the temporary regulation reflected Congress' expressed will that the IRS have authority to compromise penalties and interest accumulated as the result of the its delay in establishing tax liability in “long-standing cases.” The authors of the Reform Act then wrote the Secretary that this omission was “unacceptable.” They asked that these regulations be corrected to conform with the legislative history of section 7122 (c)(1) in order to provide taxpayers the full relief “ that Congress intended ”(emphasis supplied). Instead, the Secretary adopted 26 C.F.R. 301.7122-1 which retained subsection (c)'s “effective tax administration” portion of the temporary regulation but left out any reference to the IRS's authority to compromise penalties and interest in long-standing cases, ignoring entirely Congress' expressed intent in enacting Section 7122(c)(1). As the Secretary put it, “cases involving substantial interest and penalties often can be compromised under the standards of doubt as to collectability and hardship.” By employing guidelines to make offers-in-compromise on interest and penalties available only to those taxpayers who can show doubt as to collectability and/or hardship under the permanent version of 26 C.F.R. 301.7122-1, the Secretary overrode Congress' intent to have the IRS make offers-in-compromise on interest and penalties available to all taxpayers who are subject to long delays in establishing their tax liability, regardless of doubt as to collectability or hardship. For the taxpayers, the effects of the Secretary's refusal to adhere to Congress' will were immediate. After a delay of between 15 and 17 years in establishing their tax liability, the IRS notified them in 2002 for the first time of increased tax assessments and interest for the tax years 1984, 1985 and 1986. In almost all instances, the interest charges exceeded the principal taxes due by 500%. The taxpayers have therefore made a viable claim on this record that the Treasury Secretary violated the Constitution's separation of powers principles when he refused to implement the Reform Act as Congress had intended, even after Congress specifically instructed him to do so. As part of the Executive branch of government, the Secretary was bound to implement the law, not rewrite it. His decision to ignore Congress' intent and to write regulations which undercut the very purposes of the Reform Act in order to maximize levies upon citizens despite long delays by the IRS in determining their tax liability, has impermissibly interfered with Congress' performance of its constitutionally assigned functions. After all, not only is Congress constitutionally obligated under Section 1 of Article I to enact laws such as the Reform Act; it also has the preeminent and fundamental duty under Section 8 of Article I, reinforced by the sixteenth amendment to the Constitution, to “lay and collect Taxes.” In furtherance of these fundamental constitutional duties, Congress provided the authority in the legislative history of the Reform Act for accepting offers-in-compromise with taxes, interest and penalties in “long-standing cases;” and it directed the Secretary to provide guidelines for IRS employees to accomplish that result consonant with its “taxpayer-friendly” legislation. In doing so, it must be presumed that Congress was acting within its assigned sphere of enacting laws and collecting taxes. INS v. Chadha , 462 U.S. at 951-952. 13. The Secretary's role in the collection of taxes at its core is an administrative and ministerial one in furtherance of Congress' preeminent role in laying and collecting taxes. This Court has referred to such an agency's activity as being “quasi-legislative” in character. Humphrey's Executor v. United States , 295 U.S. 602, 628(1935). “Clearly, however, ‘[i]n the framework of our Constitution, the [Executive's] power to see that the laws are faithfully executed refutes the idea that [the Secretary] is to be a lawmaker.'” INS v. Chadha , 462 U.S. at 953, n.16 quoting Youngstown Sheet & Tube Co. v. Sawyer , 343 U.S. at 587. This flows from the principle enunciated by this Court that it is not within the Executive's power under Article II of the Constitution to construe Congress' legislation in a way that is most convenient for him; and it is not within his power to refrain from executing laws duly enacted by Congress in a manner at odds with its expressed intent, in effect nullifying Acts of Congress. Wilbur v. United States ex rel. Krushnic , 280 U.S. 306, 319(1930). Kendall v. United States , 37 U.S. (12 Pet.) 524, 609;612-613 (1838). See Roberts v. United States , 176 U.S. 219, 231 (1900). See also Clackamas County, Or. v. McKay , 219 F.2d 479, 495(D.C.Cir.)(Prettyman, J.), vacated as moot , 349 U.S. 909(1955)( “Executive officers cannot...create an area of doubt and dispute which will be outside the established power of the judiciary to compel obedience to a clear mandate of the Congress. They cannot by bootstraps manufactured by them lift themselves out of the jurisdiction of the courts.”). Yet this is precisely what the Secretary has done. In the face of Congress' unambiguous intent, twice expressed to the Secretary, that he promulgate regulations which encourage IRS employees to make offers-in-compromise with interest and penalties whenever long delays in determining taxpayer liabilities have taken place, the Secretary refused to do so. In the absence of such regulations, he then assessed and collected from the taxpayers the full amount of interest in 2002 for tax liability dating back to1984, refusing to consider abatement or refund of interest with anticipatory form letters sent to the taxpayers even before they could even make such requests. It was not within the Secretary's power to ignore Congress' intent that the IRS make offers-in-compromise for interest and penalties as the result of long delay in determining tax liability. He was dutybound to promulgate regulations to that effect and then implement them consonant with Congress' will. His refusal to do so justifiably invokes this Court's and the lower federal courts' fundamental subject matter jurisdiction under Article III and 28 U.S.C. Section 1331, to decide whether he has violated the Constitution's separation of powers principles by nullifying law which Congress has enacted. INS v. Chadha , 462 U.S. 953-954 n.16. Yakus v. United States , 321 U.S. 414, 425(1944)(“[T]he only concern of courts is to ascertain whether the will of Congress has been obeyed.”). United States v. Lee , 106 U.S. 196, 220-223(1882). Kendall v. United States , 37 U.S. (12 Pet.) at 622-623. Marbury v. Madison , 5 U.S. (1 Cranch) at 177-178. 14. “An unlimited power to tax involves, necessarily, a power to destroy.” McCulloch v. Maryland , 17 U.S. (4 Wheat.) 316, 327(1819)(Marshall, C.J.). By assigning to himself the power to assess and collect interest from the taxpayers five times their tax liability after the IRS delayed 17 years to determine that tax liability—in clear defiance of Congress' intent that he not do so—the Secretary has engaged in the kind of unchecked Executive power against which the Framers wisely guarded. The lower courts' failure to assume subject matter jurisdiction over the taxpayers' suit based upon the Secretary's violation of separation of powers principles contravenes this Court's decisions and warrants the granting of the taxpayers' petition. Cohens v. Virginia , 19 U.S. (6 Wheat.) 264, 404(1821). See United States v. Klein , 80 U.S. (13 Wall) 128, 143-147(1872). 2. The Decision Below Conflicts With This Court's Decisions Holding That Exhaustion Is Not Required When Administrative Action Will Leave The Taxpayers' Constitutional Claims “Still Standing” And W here Administrative Remedies Would Be Futile In The Face Of The IRS' Preemptive Denial Of An Abatement Or Refund Of Interest. Because the taxpayers did not allege that they had exhausted their administrative remedies with the IRS concerning either their claims for abatement/refund of interest in these long-standing cases or their claims regarding the Selesky letter, the District Court concluded that the government's limited waiver of sovereign immunity had not been invoked and that subject matter jurisdiction was lacking to consider their claims(App.10-15). This ruling ignores the allegations of the taxpayers' complaint that the Treasury Secretary violated the Constitution's separation of powers principles when he refused to implement the Reform Act as Congress intended, even after Congress specifically instructed him to do so; and that 26 C.F.R. 301.7122-1 is unconstitutional as written and should be stricken because it fails to authorize IRS personnel to make offers-in-compromise for interest and penalties whenever the IRS has engaged in long delays in determining tax liability. The ruling also ignores the taxpayers' allegations that in the particular circumstances of this case, i.e., where the Secretary of the Treasury has already refused to promulgate regulations reflecting Congress' intent that the IRS accept offers-in-compromise for interest accumulated because of its long delay in determining tax liability, where it has already assessed or collected interest from these taxpayers in full in violation of Congress' directive to accept offers in compromise for a lesser amount and where in a “form” letter, before claims were even made, it has already denied the taxpayers any conceivable relief to which they would be entitled in an administrative proceeding, any exhaustion of administrative remedies would be futile. These well founded allegations by the taxpayers come within this Court's decisions holding that exhaustion of administrative remedies is not required when administrative action will leave the taxpayers' constitutional claims “still standing” and where the administrative remedies would be 15. futile. In the first place, none of this Court's decisions “stand for the proposition that the exhaustion doctrine must be applied blindly in every case” to deny a claimant a judicial forum whenever administrative remedies purport to be available. McKart v. United States , 395 U.S. 185, 200-201 (1969). Administrative remedies that are inadequate need not be exhausted. Coit Independence Joint Venture v. Fed. Sav. & Loan Ins. Corp. , 489 U.S. 561, 587(1989). Greene v. United States , 376 U.S. 149, 163(1964). The taxpayers' claim that the Secretary's implementation of Congress' intent expressed in 26 U.S.C. Section 7122, violates separation of powers principles “is a constitutional one that the [IRS] can hardly be expected to entertain.” Public Utilities Commission v. United States , 355 U.S. 534, 539-540(1958). The question of whether the Secretary hewed to constitutional principles in promulgating 26 C.F.R. 301.7122-1 is beyond the jurisdiction of the IRS to resolve; nothing furthering its administrative needs is accomplished by demanding that the taxpayers first present their constitutional claim to its administrative decisionmaking. Weinberger v. Salfi , 422 U.S. 749, 765-766 (1975). The constitutional claim would be still standing in the wake of any such proceeding and “the administrative agency may be defied and judicial relief sought as the only effective way of protecting the asserted constitutional right.” Public Utilities Commission v. United States , 355 U.S. at 540 (emphasis supplied). See Staub v. City of Baxley , 355 U.S. 313, 319(1958). Second, the taxpayers' resort to the IRS' administrative remedies in order to obtain an abatement or a refund of interest would have been “utterly futile,” Montana Nat'l Bank v. Yellowstone County , 276 U.S. 499, 505(1928), because it was clear that their claims would be rejected. Where the Secretary, in defiance of Congress, has already refused to implement regulations authorizing offers-in-compromise for accumulated interest as the result of the IRS' long delay in determining tax liability, where he has already assessed and collected full interest despite Congress' intent that he not do so, and where he has already denied the taxpayers relief in writing even before they made claims for an abatement or refund, the IRS' position on the issues is already set and the taxpayers have no hope . “[T]he administrative procedure is at an end and the [taxpayers] can thereafter resort to a federal court to restrain further action...in violation of constitutional rights.” City Bank Farmers Trust Co. v. Schnader , 291 U.S. 24, 34(1934). 16. Conclusion. For all of the reasons identified herein, a writ of certiorari should issue to review the judgment of the United States Court of Appeals for the Fifth Circuit and, ultimately, to vacate the judgment below and declare that 26 C.F.R. 301.7122-1, as presently implemented by the Respondents, violates separation of powers principles; to remand the cause to the District Court for the Southern District of Texas, Houston Division, for further proceedings and a trial on the merits of the taxpayers' claims for an abatement or refund of the interest and penalties assessed and collected by the Respondents; for an assessment of damages under the Taxpayers' Bill of Rights, 26 U.S.C. Section 7433; or to provide the taxpayers such other relief as is fair and just in the circumstances.
Respectfully submitted,
|
||||||
| This web site may constitute "advertising" under Massachusetts Supreme Judicial Court Rule 3:07. The material contained on this web site has been prepared for educational purposes only and is not to be considered legal advice. Click here to see the site terms of use. |
||||||