UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
January 23, 1985
KAHN, EMILY, APPELLANT
UNITED STATES OF AMERICA
ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA
Before: ADAMS, HIGGINBOTHAM and VAN DUSEN, Circuit Judges.
Opinion OF THE COURT
A. LEON HIGGINBOTHAM, JR., Circuit Judge.
Taxpayer Emily Kahn appeals from summary judgment in favor of the United States in this tax penalty refund suit under 26 U.S.C. § 7422 (1982). She contests the assessment of a $500.00 civil penalty for filing a "frivolous income tax return," under 26 U.S.C. § 6702 (1982), summarily imposed as a result of her claiming a "war tax refusal" credit on her federal income tax return for 1982.
This controversy presents several important statutory and constitutional questions for this court's consideration, including whether Emily Kahn was properly subjected to the imposition of a civil penalty under the terms of 26 U.S.C. § 6702, and whether the imposition of the penalty violated Emily Kahn's first amendment right to freedom of speech. We believe, however, that the primary issue in this case is whether the due process clause of the fifth amendment requires that prior to the immediate imposition of a civil penalty, a taxpayer be afforded an opportunity for an administrative hearing in addition to the post-deprivation judicial review provided by the statute. 26 U.S.C. § 6703 (1982).
For the reasons that follow, we will affirm the decision of the district court.
As an appellate court reviewing the grant of a motion for summary judgment, we exercise plenary review. Our task is to determine whether there is no genuine issue as to any material fact in dispute and whether there is no genuine issue as to any material fact in dispute and whether the moving party, the United States, is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); In Re Japanese Electronic Products Antitrust Litigation, 723 F.2d 238, 257 (3d Cir. 1983). The parties here agree that the material facts are uncontroverted.
Emily Kahn filed an individual federal income tax return (Form 1040A) for 1982. She reported her adjusted gross income as $15,338.03 (lines 6-12), claimed a $25 charitable contribution deduction, a personal exemption of $1,000.00 and derived her taxable income of $14,313.03 (lines 13-16). She then calculated her tax of $2,175 from the table provided (line 19a). Line 19b, as set forth in the section of the form entitled "Tax, Credits and Payments", called for information as to the "Advance EIC payment (from W-2 (forms))." On line 19b, Emily Kahn crossed out the printed words and wrote "46% WAR TAX REFUSED ." She then subtracted this figure, $1,000.50 (i.e., 46% of $2,175.00), from the tax. Due to a $1.00 arithmetic error, the total tax liability on line 20 was reduced by the amount of $999.50 instead of $1,000.50, and the figure $1,175.50 rather than $1,174.50 was entered as the difference between $2,175.00 and $1,000.50. Since the return reported withholding in the amount of $2,296.94 (line 17b), Emily Kahn sought a refund, on line 21, in the amount of $1,121.44. Had she not sought the "war tax" refund, a $121.44 refund would have been due, the difference between $2,296.94 and $2,175.00. Appendix ("App.") at A.8.
Attached to the return was "An Open Letter to the IRS" stating the Emily Kahn was claiming a "War Tax Refusal Refund" equivalent to the estimate compiled by SANE (Citizen's Organization for a Sane World) of the proportion of her taxes to be applied by the United States government in 1983 to military expenditures. She suggested that the refund she was "demanding" by her return be sent directly to the "Conscience and Military Tax Campaign Escrow Account for a World Peace Tax Fund." She envisioned that the money would be held to collect interest and upon enactment of the World Peace Tax Fund Act, H.R. 4897, 97th Cong., 1st Sess., Cong. Rec. (daily ed. July 24, 1981), it would be returned to the Treasury to be included in a segregated portion of the taxes of conscientious objectors for non-military uses. App. at A.9.
The Internal Revenue Service ("the IRS") immediately assessed a $500.00 penalty against Emily Kahn pursuant to section 6702 for filing a "frivolous income tax return". She paid 15% of the penalty as required by section 6703(c) and as specified by the penalty notice. She then filed a claim for refund of the $75.00 portion of the assessed penalty of $500.00 (Form 843), stating:
I filed an accurate income tax return for the year 1982. It was complete and according to protocol except for one thing -- I requested a refund of $1000. in "war taxes" because I do not wish to pay to support the military policies of this administration. This was a symbolic gesture, as I did not expect the IRS to refund the $1000. In actuality, I am owed a small sum, however (I believe approximately $27.00 - I do not have a copy of my return.)
I was fined $500. for filing a "frivolous tax return." I contest, as I believe that this return was not, indeed, frivolous, but a peaceful and respectable political gesture, one I believe I have a right to make as a citizen of a country which permits freedom of speech. I do not intend to pay a $500.00 penalty, and am filing this claim for refund of my 15% payment enclosed. I would also like the money I was actually owed by the IRS.
App. at A.5.
The claim was disallowed by the Director of the Fresno, California, IRS Service Center for the reason that: "The claim is based on your view that certain laws are unconstitutional; only the courts have the authority to pass on such matters." App. at A.21.
On September 9, 1983, Emily Kahn brought this suit for refund in the United States District Court for the Eastern District of Pennsylvania, alleging that the assessment of $500.00 and the collection of $75.00 was "improper, illegal and erroneous." She asserted that her tax return did not violate section 6702 and that even if application of the provision was warranted, it "violates the United States Constitution." She sought a judgment, inter alia, abating the $500.00 penalty and refunding her $75.00 prepayment. App. at A.3 - A.4.
The United States filed a motion to dismiss, or in the alternative, for summary judgment, averring that Emily Kahn "asserted a frivolous position in her 1982 income tax return." App. at A.6. The government argued that the return came within section 6702(a)(1)(B) in that it contained "information that on its face indicates that the self-assessment is substantially incorrect." Moreover, the return implicated section 6702(a)(2)(A) because the "claiming of a war tax credit is frivolous." According to the government, section 6702 is constitutional and the penalty did not violate the first amendment because "the incidental suppression of speech . . . was justified . . . in order to maintain the integrity of the income tax system." App. at A.14.
Emily Kahn answered the government's motion and filed a cross-motion for summary judgment. She maintained that her tax return did not violate section 6702 and alternatively, even if section 6702 is deemed to apply, it is unconstitutional because it has the purpose and effect of limiting political speech. Plaintiff's Answer to Defendant's Motion to Dismiss Or, Alternatively, For Summary Judgment and Cross-Motion For Summary Judgment (E.D. Pa. No. 83-4406) at 3, 7. Judgment was entered in favor of the government from which the taxpayer now appeals.
During the pendency of these proceedings, collection of the balance of the penalty has been stayed pursuant to section 6703(c).
We must first decide whether section 6702 applies to the 1982 return filed because: (a) Emily Kahn's self-assessment was substantially incorrect and (b) her conduct was due to a position which is frivolous. Second, we must consider whether, even if the statute has been properly applied to her, it nonetheless violates her first amendment right to freedom of speech. Finally, we feel it necessary to discuss the procedural due process implications of the summary assessment and collection of this civil penalty without a prior administrative hearing.
By section 326(a) of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), Pub. L. No. 97-248, 96 Stat. 324, Congress provided for the immediate assessment of a civil penalty of $500.00 on "any individual [who] files what purports to be a return of [income tax]" after September 3, 1981 where (1) the document "does not contain information on which the substantial correctness of the self-assessment may be judged; " or it "contains information that on its face indicates that the self-assessment is substantially incorrect," 26 U.S.C. § 6702(a)(1)(B), and (2) such conduct arises either from "a position which is frivolous" or from "a desire (which appears on the purported return) to delay or impede the administration of Federal income tax laws." 26 U.S.C. § 6702(a)(2)(A).*fn1
Initially, Ms. Kahn asserts that the penalty assessed in this case was incorrect because her actions fall outside the scope of the statute. This court believes that the plain language of the statute and the legislative history supports a contrary conclusion.
Emily Kahn takes the position that the term "self-assessment" as used in section 6702 is undefined and meaningless in tax law. Moreover, to the extent that any specific meaning can be assigned, she claims that it refers to the amount entered on line 19a of the 1982 Form 1040A (or line 40 of the 1982 "long form" 1040) without regard to the credits, payments or refund calculations which are entered subsequently. She thus argues that the "self-assessment" on her 1982 income tax return was not in any way incorrect.
We believe, however, that Emily Kahn's tax return satisfies the first element of the section 6702 test. As the Supreme Court made clear in Commissioner v. Lane-Wells Co., 321 U.S. 219, 223, 88 L. Ed. 684, 64 S. Ct. 511 (1944), the system of self-assessment is the basis of our American scheme of income taxation and the duty of the taxpayer to self-assess is not met unless the return is properly filled out in its entirety. "The purpose is not alone to get tax information in some form but also to get it with such uniformity, completeness, and arrangement that the physical task of handling and verifying returns may be readily accomplished." Id. Although the return is this instance contained sufficient information for the IRS to judge the correctness of the self-assessment and to recalculate and assess the tax properly owed after it disallowed the war tax credit, the return filled out by the taxpayer was also plainly incorrect in its statement of allowable credits, the total tax and amount to be refunded. Ms. Kahn reduced the amount of the total tax liability reported on her 1982 income tax return by altering line 19b of the 1040A form to read "46% WAR TAX REFUSED" and by claiming a credit in the amount of $1,000.00.*fn2
In view of the legislative history, we are persuaded by the government's argument that although the term "self-assessment" is not given a precise definition in section 6702, it refers to "the amount of tax shown on the return." S. Rep. No. 494, 97th Cong., 2nd Sess. 277, reprinted in 1982 U.S. Code Cong. & Ad. News 781, 1024." "Whatever other meaning may be attributed to the term "self-assessment, it clearly includes a taxpayer's representations on the return as to the tax due or the refund claimed." Franklet v. United States, 578 F. Supp. 1552, 1555 (N.D. Cal. 1984). It is a descriptive phrase, not a technical one in tax law, referring to our honor system of taxation whereby an individual taxpayer answers the applicable questions on his or her return, calculates the tax on the adjusted gross income, files the return and pays the amount owed, or, receives a refund of amounts previously paid through withholding or other means. Lane-Wells Co., supra, 321 U.S. at 223; A.J. Mertens, Law of Federal Income Taxation, § 49.81, at 176.
By taking the "war tax" credit, Emily Kahn represented that she owed only a little more than half of her actual tax liability and was entitled to a refund nearly nine times greater than the correct amount. Her tax return showed an incorrect tax due because of an unallowable deduction. Within the meaning of section 6702, we find that the self-assessment here is substantially incorrect on its face.
We recognize though that even if the self-assessment was substantially incorrect, Emily Kahn is not subject to a penalty under section 6702(a) unless "the conduct referred to . . . [was] due to . . . a position which is frivolous." 26 U.S.C. § 6702(a). Thus, the government argues that Emily Kahn's claim for a "war tax refusal" credit was wholly without legal foundation and therefore "frivolous" within the meaning of section 6702(a)(2)(A). According to Emily Kahn, she took no "position" on any point of tax law, much less one that was "frivolous."
Section 6702 does not define the terms "position" or "frivolous," but whatever else is meant by the term frivolous when there is no argument on either the law or the facts to support it. Both taxpayer's return and her accompanying letter reflect the claim that she was entitled to a credit against her federal income tax liability for 1982 because of her objections to the potential uses to which the fund were to be put. There is no provision in the Internal Revenue Code which provides for a credit, or a deduction for that matter, based on dissatisfaction as to the use to which the tax payment will be put. Therefore, Emily Kahn's claim and demand for a 46% war tax refund is without foundation as a matter of law.
Moreover, this claim represents the sort of "position on [a] point of tax law" that Congress intended to be subject to this penalty provision. The legislative history of section 6702 reveals that it was passed in an effort to deter tax protestors from filing frivolous returns.*fn3 We find that "war tax" claims were specifically identified by the Senate Finance Committee Report as examples of the type of frivolous objection to the tax laws that would warrant the imposition of this penalty:
S. Rep. No. 494, supra, at 278, 1982 U.S. Code Cong. & Ad. News at 1024. (emphasis added). By claiming a 46% reduction in her tax liability, Emily Kahn was reducing her taxable income or showing a reduced tax by her estimate of the amount of her taxes going to the Defense Department budget.
We must stress, however, that Emily Kahn's sincerity and honesty are not in question here. We recognize that her political opposition to the use of her taxes for military spending is not in itself frivolous. Yet, section 6702 is neutral, requiring only that the taxpayer assert a position that is frivolous, i.e., meritless, from the perspective of the tax laws. The civil penalty has been assessed against Emily Kahn because she claimed a war tax credit and her position that she is legally entitled to such a credit because of her views is a frivolous one. Neither the statute nor the legislative history suggest a basis for any exception based upon the taxpayer's subjective state of mind. The test for frivolous is purely an objective one, under which we must evaluate the taxpayer's position in terms of its legal underpinnings. We therefore find that Emily Kahn's conduct satisfies the second element of the section 6702 test. Having determined that section 6702 applies, we must now consider whether the statute is constitutionally infirm.
Emily Kahn's argument that her conduct, viewed in the context of symbolic speech, was protected by the first amendment, and therefore, not subject to civil penalties, must fail in light of this court's decision in United States v. Malinowski, 472 F.2d 850 (3d Cir.), cert. denied, 411 U.S. 970, 36 L. Ed. 2d 693, 93 S. Ct. 2164 (1973).
In Malinowski, the defendant was convicted of tax fraud for willfully supplying false information on a withholding exemption certificate for the purpose of protesting military spending associated with the Vietnam war. The taxpayer was prosecuted for filing a form W-4 claiming 15 exemptions, having attached a letter explaining that he did so "to exercise greater control over the use of our taxes, especially that large portion that is used in war-making." Id. at 852. In rejecting the taxpayer's first amendment claim, we stated:
Appellant's First Amendment argument is but a suggestion that a member of society can be absolved of the responsibility for obeying a given law of the community, state or nation if he can prove a sincere, abiding, and good faith objection to the direct or indirect object of that law. Such a position represents a feeble effort to emasculate basic principles of civil disobedience, and, simply stated, is invalid.
Id. at 857.
We are not the first court to recognize that many respected Americans have engaged in civil disobedience as a form of protest against taxation for military spending. See, e.g., United States v. Moylan, 417 F.2d 1002, 1008-1009 (4th Cir. 1969), cert. denied, 397 U.S. 910, 25 L. Ed. 2d 91, 90 S. Ct. 908 (1970); Drefchinski v. Regan, 589 F. Supp. 1516, 1528 (W.D. La. 1984). Henry David Thoreau, for instance, was imprisoned in 1845 for refusing to pay his poll taxes in protest of subsidizing the Mexican-American War. In this case, Emily Kahn has been penalized for including incorrect information on her 1040A form, also in protest of military spending. Like Thoreau, Ms. Kahn has chosen not to lend herself, through the payment of taxes to a wrong which she condemns. So too does that choice carry with it a penalty imposed by law. No one has articulated this more clearly than Henry David Thoreau:
I do not have to trace the course of my dollar, if I could, till it buys a man, or a musket to shoot one with -- the dollar is innocent -- but I am concerned to trace the effects of my allegiance. In fact, I quietly declare war with the State, after my fashion . . .
If I deny the authority of the State when it presents its tax-bill, it will soon take and waste all my property, and so harass me and my children without end. This is hard. . . .
[And yet i]t costs me less in every sense to incur the penalty of disobedience to the State than it would to obey. I should feel as if I were worth less in that case. . .
I have paid no poll-tax for six years. I was put into jail once on this account . . . and, as I stood considering the walls of solid stone . . . I felt as if I alone of all my townsmen had paid my tax.
Henry David Thoreau, "Resistance to Civil Government" in Reform Papers; The Writings of Henry D. Thoreau 78-84 (W. Glick ed. 1973).
We therefore must disagree with the argument that because objections to the government's tax policies are lawful, Ms. Kahn cannot be punished for her violation of the internal revenue statute. This court's admonition in Malinowski rings true in the instant case:
To urge that violating a federal law which has a direct or indirect bearing on the object of the protest is conduct protected by the 1st Amendment is to endorse a concept having no precedent in any form of organized society where standards of societal conduct are promulgated by some authority.
472 F.2d at 857. In substance, Ms. Kahn wants to rely on the privilege or the moral honor of civil disobedience without paying the price or penalty such disobedience necessarily incurs. But she can not seek immunization from the penalty -- as Thoreau recognized -- regardless as to what she may perceive as the morality of her position. In exercising her right of civil disobedience, she may indeed be joining a legion of persons from Thoreay to Mohandas (Mahatma) Ghandi to Martin Luther King, Jr., who were committed to nonviolent civil disobedience. Nevertheless, she, like them, can be subjected to the rule of law for its infraction even though she may perceive the laws to be "unjust."
The issue of civil disobedience requires more than a simplistic analysis. Almost two decades ago, one of the task forces for the National Commission on the Causes and Prevention of Violence wrote:
THE AMERICAN IDEAL
In a democratic society, dissent is the catalyst of progress. The ultimate viability of the system depends upon its ability to accommodate dissent; to provide an orderly process by which disagreements can be adjudicated, wrongs righted, and the structure of the system modified in the face of changing conditions. No society meets all these needs perfectly. Moreover, political and social organizations are, by their nature, resistant to change. This is as it should be, because stability -- order -- is a fundamental aim of social organization. Yet stability must not become atrophy, and the problem is to strike the proper balance between amenability to change and social stability.
National Commission on the Causes and Prevention of Violence, Law and Order Reconsidered, Report of the Task Force on Law and Law Enforcement 14 (1968). In this case Congress has attempted to strike the "proper balance between amenability to change and [economic] stability." Emily Kahn is assured her right to protest, but she cannot protest in the fashion she attempted on her income tax form. See Welch, et. al. v. United States, 750 F.2d 1101, 1111 (1st Cir. No. 84-1131, Jan. 4, 1985).
So long as Emily Kahn provided the correct figures on her 1040A form, section 6702 would not have prohibited her protest, whether frivolous or legitimate, in a letter or other attachment. The civil penalty statute does not prohibit her letter of protest or her notation on the 1040A form except insofar as it reflects incorrect calculations. Thus, as in Malinowski, the taxpayer here submitted a form to the IRS which she knew contained incorrect information. In both cases if ethically justified, cannot excuse the taxpayer from the legal consequences of his or her actions. See Moylan, supra, 417 F.2d at 1008-09.
We are also convinced that Emily Kahn's attempts to distinguish Malinowski miss the mark. She first argues that unlike Malinowski, she made no false statements to the IRS because she disclosed the facts surrounding her protest in the letter accompanying her return. Whatever distinction there might be between the "fraudulent" statements made by Malinowski, and the "incorrect" statements of the taxpayer here is relevant only to the fact that Malinowski was prosecuted criminally, while here a civil fine was assessed. This distinction has no bearing on this court's reasoning in Malinowski: informing the IRS that the incorrect information has been furnished cannot negate the violation of the law.
It is also irrelevant that unlike Malinowski, the taxpayer has not unlawfully withheld any tax owed to the government, but has only requested that her refund be increased. The sole factual issue presented in this case is whether or not the taxpayer provided the IRS with substantially correct information on her 1040A form. We have stated previously that she did not.
The section 6702 penalty was imposed because the taxpayer's conduct failed to comply with the requirement of the tax laws that she properly report her tax liability, not because she expressed unpopular political views and not because the IRS was otherwise dissatisfied with the written statements made in connection with her plainly unallowable credit. Insofar as speech is concerned, an individual is free to announce and publish his or her views as to the morality or wisdom of imposing income taxes to the same extent that he or she is free to announce and publish views as to the morality or wisdom of national defense spending. What is subject to sanctions, however is not the expression of such views, but the conduct of furnishing inaccurate information.
The idea that speech may be nonverbal "expressive" acts has long been recognized by the Supreme Court. See Stromberg v. California, 283 U.S. 359, 75 L. Ed. 1117, 51 S. Ct. 532 (1931). Equally well-recognized is the notion that not all activity with an expressive component will be afforded first amendment protection. "[W]hen "speech" and "nonspeech" elements are combined in the same course of conduct, a sufficiently important governmental interest in regulating the nonspeech element can justify incidental limitations on First Amendment freedoms." United States v. O'Brien, 391 U.S. 367, 376, 20 L. Ed. 2d 672, 88 S. Ct. 1673 (1968).
Even if we were to view the underlying conduct as speech-related, we believe it is sufficiently outweighed by the broad public interest in maintaining a sound and administratively workable tax system. See Fuentes v. Shevin, 407 U.S. 67, 92, 32 L. Ed. 2d 556, 92 S. Ct. 1983 (1972) (government's interest in collecting revenues is an important one). Congress enacted section 6702 in order to improve taxpayer compliance in light of the "rapid growth" in protest returns. The public interest served by section 6702 is of such a "high order" that an assertion of first amendment rights do not outweigh the necessity of maintaining a functional revenue system. See United States v. Lee, 455 U.S. 252, 260, 71 L. Ed. 2d 127, 102 S. Ct. 1051 (1982). This interest has been found sufficiently compelling to outweigh challenges to the administration of the tax laws based on the free exercise of religion. See, e.g., United States v. Lee, supra; United States v. Grayson County State Bank, 656 F.2d 1070 (5th Cir. 1981), cert. denied, 455 U.S. 920, 71 L. Ed. 2d 460, 102 S. Ct. 1276 (1982); Lull v. Commissioner, 602 F.2d 1166 (4th Cir. 1979), cert. denied, 444 U.S. 1014, 100 S. Ct. 664, 62 L. Ed. 2d 643 (1980); Drefchinski, supra. We hold that the operation of section 6702 does not deprive Emily Kahn of protected rights of free speech. Accord Harper v. United States, 587 F. Supp. 1056, 1058 (E.D. Pa. 1984); Drefchinski, supra, 589 F. Supp. at 1524-26; Franklet, supra; Bearden v. Commissioner, 575 F. Supp. 1459, 1461 (D. Utah 1983); Hummon v. United States, 84-1 U.S.T.C. P9493 (S.D. Ohio 1984).
"Procedural due process imposes constraints on governmental decisions which deprive individuals of "liberty" or "property" interests within the meaning of the Due Process Clause of the Fifth or Fourteenth Amendment," Mathews v. Eldridge, 424 U.S. 319, 332, 47 L. Ed. 2d 18, 96 S. Ct. 893 (1976); Goss v. Lopez, 419 U.S. 565, 572-73, 42 L. Ed. 2d 725, 95 S. Ct. 729 (1975); Board of Regents v. Roth, 408 U.S. 564, 569, 33 L. Ed. 2d 548, 92 S. Ct. 2701 (1972). Emily Kahn alleges a deprivation of a "liberty" interest inasmuch as section 6702 impinged upon her freedom of expression and a deprivation of a "property" interest by virtue of the pre-payment of a portion of the fine. Therefore, we now consider her argument that sections 6702 and 6703 are unconstitutional because they permit the immediate assessment and collection of 15% of the penalty without a prior administrative hearing.*fn4 We must determine whether the due process clause of the fifth amendment requires that prior to the imposition of a section 6702 civil penalty, a taxpayer be afforded an opportunity for an administrative hearing or whether the existing administrative procedures provide all the process that is constitutionally due.
It was Congress' intent to assess and impose the penalty for filing a frivolous income tax return immediately and then to permit the taxpayer to seek judicial review. The immediate assessment was considered necessary to maintain the integrity of the internal revenue system and to help deter the filing of non-responsive returns. S. Rep. No. 494, supra, at 277, U.S. Code & Cong. Ad. News at 1024. See also Rowe v. United States, 583 F. Supp. 1516, 1519 (D. Del. 1984). Ms. Kahn asserts, however, that the administrative process denied her the basic right to be heard "at a meaningful time and in a meaningful manner."
Of course the fundamental requirement of due process is the opportunity to be heard at a meaningful time and in a meaningful manner but the concept is flexible, calling for procedural protection as dictated by the particular circumstance. Morrissey v. Brewer, 408 U.S. 471, 481, 33 L. Ed. 2d 484, 92 S. Ct. 2593 (1972). In the tax context, the constitutionality of a scheme providing for only post-assessment judicial review is well-settled. Congress has long been empowered to enact legislation authorizing the Executive Branch to assess and collect taxes without prior administrative or judicial review so long as an adequate opportunity is afforded for a later judicial determination of liability. See, e.g., Bob Jones University v. Simon, 416 U.S. 725, 746-47, 40 L. Ed. 2d 496, 94 S. Ct. 2038 (1974); Mitchell v. W.T. Grant Co., 416 U.S. 600, 611, 40 L. Ed. 2d 406, 94 S. Ct. 1895 (1974); Bull v. United States, 295 U.S. 247, 259-260, 79 L. Ed. 1421, 55 S. Ct. 695 (1935); Phillips v. Commissioner, 283 U.S. 589, 595, 75 L. Ed. 1289, 51 S. Ct. 608 (1931). And, in considering prior due process objections to tax collection, the Supreme Court has shown special deference to the manner in which the IRS has collected the revenues of the government.
In Phillips, supra, 283 U.S. at 596-97, the Court held that generally, summary proceedings to secure prompt performance of tax obligations to the government are not constitutionally infirm where there is an opportunity for a later judicial determination of legal rights. "Where only property rights are involved, mere postponement of the judicial enquiry is not a denial of due process, if the opportunity given for the ultimate judicial determination of the liability is adequate." Id. This principle was recently reaffirmed in Bob Jones University v. Simon, supra, 416 U.S. at 746 (1974), where the Supreme Court held that a tax may be assessed without a prior hearing as long as the taxpayer can subsequently sue for a tax refund. The Bob Jones University v. Simon Court considered three factors: first, whether the taxpayer would be irreparably harmed by the predetermination levy, id. at 746; second, whether a "powerful government interest" existed in the protection of the administration of the tax system from premature judicial interference, id. at 747; and finally, whether post-assessment opportunities for review were available. Id. at 748.
However, as the Court itself has noted, in more recent years it has considered the extent to which due process requires an evidentiary hearing prior to the deprivation of some type of property interest even if such a hearing is provided thereafter. Mathews, supra, 424 U.S. at 333. In Mathews, the Supreme Court set forth a more clearly delineated tri-partite test for determining whether the fifth amendment has been satisfied when the government is alleged to have denied due process. The inquiry considers three distinct factors: (1) the private interest that will be affected by the official action; (2) the risk of erroneous deprivation of such interest through additional procedural safeguards, and (3) the government's interest in additional adjudicative process. Id. at 335.
Our reading of Mathews and other recent Supreme Court decisions in which additional process has been found to be necessary indicates that a showing of a likelihood of irreparable harm resulting from the lack of a pre-deprivation hearing is a private interest which countervails any public interest in streamlined administration. This showing has proven sufficient to compel further process when the government or private parties act to deprive and when the harm has threatened individuals or legal entities. See North Georgia Finishing, Inc. v. Di-Chem, Inc., 419 U.S. 601, 608, 42 L. Ed. 2d 751, 95 S. Ct. 719 (1975) ("probability of irreparable injury" sufficient to warrant pre-seizure hearing); Goldberg v. Kelly, 397 U.S. 254, 264, 25 L. Ed. 2d 287, 90 S. Ct. 1011 (1970) (temporary deprivation of welfare payments may deprive recipient of "very means by which to live"); Sniadach v. Family Finance Corporation, 395 U.S. 337, 341-42, 23 L. Ed. 2d 349, 89 S. Ct. 1820 (1969) (temporary deprivation of wages may "drive a wage-earning family to the wall"). Nor is this inquiry confined to the context of the disability-benefit-entitlement genre of decisions. Shortly after Mathews, the Court, in Commissioner v. Shapiro, 424 U.S. 614, 629, 47 L. Ed. 2d 278, 96 S. Ct. 1062 (1976), by way of dictum, suggested that summary seizure of assets in tax proceedings when such seizure will result in irreparable injury, is a denial of due process. The Court's precise phraseology is as follows:
This Court has recently and repeatedly held that, at least where irreparable injury may result from a deprivation of property pending final adjudication of the rights of the parties, the Due Process Clause requires that the party whose property is taken be given an opportunity for some kind of predeprivation or prompt post-deprivation hearing at which some showing of the probable validity of the deprivation must be made.
In light of these decisions, we hold that absent a showing of a likelihood of irreparable injury, a court must, in accordance with Mathews, balance the governmental interest in the existing process against the private interest that will be affected and the probability of erroneous deprivation associated with that process.*fn5
The government is quick to draw our attention to cases which have not followed this reasoning but which have upheld the summary assessment and collection, followed by later judicial review, in situations involving civil tax penalties against the claim that the procedure violates the taxpayer's rights under the due process clause. Nonetheless, we are convinced that the proper inquiry in this case is whether sections 6702(a)(1)(B) and 6703(c) are likely to impose irreparable injury upon taxpayers and, if not, whether governmental interests outweight private interests and whether the likelihood of erroneous deprivation is minimal.*fn6
In this case, unlike Shapiro, Emily Kahn makes no factual allegation that the imposition of the tax penalty creates the risk of substantial irreparable injury. She has not alleged poverty nor has she asserted that economic distress will result from her immediate payment of the fine. It cannot be seriously contended that the tax-related penalty imposed by sections 6702 and 6703 threatens the kind of irreparable harm that a statute or regulation providing for summary deprivation of welfare or disability benefits does, especially when one recognizes that taxpayers as a class tend to be wealthier than the subclasses of welfare and disability recipients. Cf. Goldberg v. Kelly, supra. Thus, in this case, as in Mathews, the probability of irreparable harm associated with immediate deprivation is not a factor which indicates that private interests in more process outweigh governmental interests in providing no more process.
In the absence of the threat of irreparable harm, this court must next examine the private interest affected. As mentioned previously, Ms. Kahn asserts the deprivation of a "liberty" interest consisting of her first amendment right to freedom of expression. We have concluded, however, that her first amendment claim is not sound. Therefore, we look only to the alleged deprivation of property in this case, recognizing that the government is not immune simply because the amount of financial deprivation is only $75.00. The private interest affected is significant in terms of both time and money.*fn7 Betts v. United States, 84-1 U.S.T.C. P9432 at 84,077 (1984).
The next factor to be considered under the Mathews analysis is the "fairness and reliability of the existing . . . procedures, and the probable value, if any, of additional procedural safeguards." 424 U.S. at 343. Here, the probability of erroneous deprivation appears to be small. Sections 6702(a)(1)(B) and 6703(c) impose a penalty when a tax return on its face indicates that a taxpayer's self-assessment is substantially incorrect and indicates that it is due to a position which is frivolous. The decision is sharply focused and easily documented unlike the necessity for consideration of a wide variety of information in welfare entitlement cases. Furthermore, no consideration of the veracity of witnesses or assertions is necessary, as is also true in the case of consideration of termination of welfare benefits. See Goldberg v. Kelly, supra. The return speaks for itself.
As observed in Mathews, "procedural due process rules are shaped by the risk of error inherent in the truth finding process as applied to the generality of cases, not the rare exceptions." 424 U.S. at 344. (emphasis added). Those persons reviewing returns would not be aided in determining whether a return violated the sections by a person-to-person discussion because the investigation required by the sections is facial. The possibility of erroneous deprivation then is not a reason for requiring more process in this case.
Looking at the flip-side of the coin, the government has clearly unidentifiable interests in providing no more process than it presently provides. Congress provides for a two-step appeals procedure following assessment which begins with a claim for refund with the IRS and then progresses to judicial review. 26 U.S.C. § 6703. The civil penalty here at issue differs from the other taxes and penalties that Congress and the courts have long permitted to be assessed without prior judicial review only in that (1) it is subject to both administrative and judicial review upon payment of only 15 percent of the total amount of the penalty, section 6703(c), and (2) if the administrative claim for refund is denied, the burden is then on the government in the district court proceeding to prove that the penalty is applicable. 26 U.S.C. § 6703(a). As the government points out, those two aspects of the statute differ from other immediately assessable civil penalties where the full amount of the tax or penalty must be paid prior to seeking review, and that the burden of proving nonliability for the tax or penalty is on the taxpayer.
As in Mathews, in this case, "experience with constitutionalizing of government procedures suggests that the ultimate additional cost in terms of money" associated with additional process "would not be insubstantial." 424 U.S. at 347. The government, if required to provide more process, would in essence have to provide a modified version of the review process now provided after imposition of the penalty, before the fine is imposed. The additional costs would be particularly troublesome because they would be associated with one of the procedures by which the government collects its revenues. As the courts have held, "the government has a powerful interest in the prompt collection of revenue." Ueckert v. United States, 581 F. Supp. 1262, 1265 (D.N.D. 1984); See also Fuentes v. Shevin, supra; Drefchinski, supra; Harper, supra; Franklet, supra. Thus, additional costs in this context, would not impose solely an economic burden, they could have an impact on how and how quickly the government can collect revenues. "At some point, the benefit of an additional safeguard to the individual affected by the administrative action and to society . . . is outweighed by the [public] cost." Mathews, supra, 424 U.S. at 348.
The compelling interest in the collection of revenue coupled with the congressionally expressed concern for maintaining the integrity of the revenue system and discouraging frivolous claims create a strong mandate for the constitutional validity of section 6702U.N. this case, the public interest outweighs the private interest.
We find therefore that due process does not require a pre-deprivation hearing and that Emily Kahn's assertion that the initial IRS review of claims for refund under section 6703(c) is constitutionally inadequate is without merit. Section 6703(c) allows for eventual full judicial review and the review need not precede deprivation or follow it immediately. Sections 6702 and 6703, therefore, satisfy the requirements of the fifth amendment.
For the foregoing reasons, the decision of the district court will be affirmed.*fn8