The opinion of the court was delivered by: SMITH
These are four related civil actions in each of which the plaintiff seeks to enjoin the collection of penalty assessments made by the Director of Internal Revenue pursuant to Sections 6671 and 6672 of Title 26 U.S.C.A., the Internal Revenue Code of 1954. The assessments were predicated on the alleged withholding tax liability of Sacks-Barlow Foundries, Inc., for the third and fourth calendar quarters of 1955, and the first calendar quarter of 1956. These assessments are in the amounts of $ 42,956.97, $ 48,484.63 and $ 4,452.48, respectively. The plaintiffs seek, specifically, an injunction against the enforcement of certain penalty assessments and a discharge of liens, filed as a consequence, on grounds hereinafter discussed.
The actions are before the Court at this time on the motions of the defendant United States of America to dismiss the complaints on the ground that the Court lacks jurisdiction, and on the motions of the defendant Director of Internal Revenue on the ground that injunctive relief is prohibited by the express provisions of Section 7421 of Title 26 U.S.C.A., the Internal Revenue Code of 1954. A further ground urged in support of the motions is that the action is essentially one for declaratory judgment under Section 2201 of Title 28 U.S.C.A., and within the exception therein defined.
The plaintiffs had been officers and stockholders of Sacks-Barlow Foundries, Inc., a corporation, which was adjudicated a bankrupt on August 9, 1956, after an unsuccessful effort to effect a reorganization under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq. When the funds realized upon the marshaling of the corporate assets were insufficient to fully discharge the withholding tax liability of the said corporation, the Director of Internal Revenue assessed against the plaintiffs the penalties allegedly due and owing under Section 6672 of the Internal Revenue Code, supra. The assessments were made against the plaintiffs jointly, severally and in the alternative, and it would appear that a demand for payment was made upon each of them. The present action followed when the Director allegedly threatened to levy upon the assets of the plaintiffs.
Section 3402 of the Internal Revenue Code, supra, Title 26 U.S.C.A. § 3402, provides for the collection of income taxes at the source by requiring every employer to deduct and withhold a percentage of wages paid to each employee. Similarly, Section 3102(a), Title 26 U.S.C.A. § 3102(a), requires the employer to deduct and withhold from the wages of each employee the amount of the tax imposed by Section 3101, the proportionate contribution of the employee to the social security and unemployment insurance funds. The amounts deducted and withheld from the wages of the employee are reportable and payable by the employer and may be assessed against him in the same manner as other taxes.
Where there has been a willful failure to comply with the provisions of the applicable provisions of the Code, supra, a derivative liability is imposed on the responsible person under Section 6672, supra, which reads as follows:
'Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. * * *.' (Emphasis by this Court.)
The penalty is payable upon notice and demand, and may be 'assessed and collected in the same manner as taxes.' Section 6671, supra.
It is argued by the Director of Internal Revenue that these actions are barred by the prohibition contained in Section 7421(a) of the Internal Revenue Code, supra, 26 U.S.C.A. § 7421(a), which reads as follows: 'Except as provided in section 6212(a) and (c), and 6213(a), no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court.'
It has been uniformly held that the provision prohibits a suit to restrain the collection of a tax solely upon the ground of its illegality. However, since the decision of the Supreme Court of the United States in the case of Miller v. Standard Nut Margarine Co., 284 U.S. 498, 509, 52 S. Ct. 260, 263, 76 L. Ed. 422, it has been settled that the statutory prohibition is subject to exception, where, in addition to the alleged illegality of the tax, 'there exist special and extraordinary circumstances sufficient to bring the case within some acknowledged head of equity jurisprudence.' Many of the cases in which the exception has been adopted are summarized in the opinion of Judge Levet in the case of Communist Party, U.S.A. v. Moysey, D.C., 141 F.Supp. 332, 338. A further citation of these cases seems unnecessary. See also the annotation in 65 A.L.R.2d 550, and particularly pages 556 and 557, and Mertens, Law of Federal Income Taxation, Vol. 9, §§ 49.212 and 49.213.
The plaintiffs allege generally that they are financially unable to pay the full amount of the assessments and, if compelled to pay them, will suffer insolvency and irreparable injury for which there is no adequate remedy at law. The allegation is made by each of the plaintiffs in a separate complaint. This allegation, without more, is clearly insufficient to support a claim for injunctive relief. However, the narrow question here presented is whether or not there exists in each of these cases, in addition to hardship, such special and extraordinary circumstances as to warrant the intervention of a court of equity.