G. M. Leasing Corp. v. United States
429 U.S. 338 (1977)

Annotate this Case

U.S. Supreme Court

G. M. Leasing Corp. v. United States, 429 U.S. 338 (1977)

G. M. Leasing Corp. v. United States

No. 75-235

Argued October 4, 1976

Decided January 12, 1977

429 U.S. 338

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

Syllabus

The Internal Revenue Service (IRS), having investigated the income tax liability of a taxpayer who was a fugitive from justice, determined deficiencies for two taxable years, and because of the taxpayer's failure to file proper returns and his fugitive status, made jeopardy assessments pursuant to § 6861(a) of the Internal Revenue Code of 1954. Petitioner corporation was determined to be the alter ego of the taxpayer. Thereafter, pursuant to a decision to levy upon and seize automobiles registered in petitioner's name in partial satisfaction of the assessments against the taxpayer, agents made warrantless seizures of several such automobiles from property in which petitioner had no interest. For the purpose of levying on other property subject to seizure, they also went to petitioner's office, a cottage-type building, and made a warrantless forced entry. Pending further information as to whether the cottage was an office or a residence, the agents made no initial seizures, but two days later they again entered the cottage without a warrant and seized books, records, and other property. Thereafter petitioner, claiming that it was not the taxpayer's alter ego, that the assessment was invalid, and that the seizures of the automobiles and the contents of the office violated the Fourth Amendment, instituted this suit, seeking return of the automobiles, suppression of evidence obtained from the seized documents, and damages from the IRS agents. The District Court entered judgment for petitioner, finding that the IRS agents had committed illegal searches and seizures in violation of the Fourth Amendment. The Court of Appeals for the most part reversed, ruling that the assessments were valid, that the evidence conclusively established that petitioner was the taxpayer's alter ego, and that the warrantless searches and seizures were not unconstitutional. Section 6331(a) of the 1954 Code authorizes the IRS to collect taxes "by levy upon all property and rights to property" belonging to a person who "neglects or refuses to pay" any tax, and § 6331(b) defines "levy" as including "the power of distraint and seizure by any means."

Held:

1. This Court granted certiorari limited to the Fourth Amendment issue, and thus accepts the Court of Appeals' determinations that the assessments and levies were valid and that petitioner was the taxpayer's

Page 429 U. S. 339

alter ego. Petitioner does not challenge any other aspect of probable cause to believe that the items seized were properly subject to seizure, and therefore the only question before the Court is whether warrants were required. P. 429 U. S. 351.

2. The warrantless automobile seizures, which occurred in public streets, parking lots, or other open areas, involved no invasion of privacy and were not unconstitutional. Murray's Lessee v. Hoboken Land & Improv. Co., 18 How. 272. Pp. 429 U. S. 351-352.

3. The warrantless entry into the privacy of petitioner's office violated the Fourth Amendment, since,

"except in certain carefully defined classes of cases, a search of private property without proper consent is 'unreasonable' unless it has been authorized by a valid search warrant."

Camara v. Municipal Court,387 U. S. 523, 387 U. S. 528-529. Pp. 429 U. S. 352-359.

(a) Business premises are protected by the Fourth Amendment, and corporations have Fourth Amendment rights. The intrusion here was based not on the nature of petitioner's business, its license, or regulation of its activities, but on the ground that its assets were seizable to satisfy tax assessments, which does not justify depriving petitioner of its Fourth Amendment rights simply because it is a corporation. Pp. 429 U. S. 353-354.

(b) Neither the history of the common law and the laws in several States prior to the adoption of the Bill of Rights nor the case law since that time justifies creation of a broad exception to the warrant requirement for intrusions in furtherance of tax enforcement. Pp. 429 U. S. 354-356.

(c) Section 6331(b) must be read as authorizing only warrantless seizures, as opposed to warrantless searches. Pp. 429 U. S. 356-358.

(d) This case does not fall under the "exigent circumstances" exception to the warrant requirement, as is clear from the agents' own delay in making the entry in which the records were seized. Pp. 429 U. S. 358-359.

4. Of the various remedy issues raised by petitioner, only the issue of damages against the individual agents need be addressed under the limited grant of certiorari and in the present posture of the case. Petitioner has shown violation of its constitutional rights. Whether, as the Government contends, petitioner is not entitled to money damages if the agents acted in good faith should be considered by the courts below in the light of all the facts, including IRS procedures based upon Murray's Lessee, supra, the existence of proof of any injury to petitioner resulting from the entry and temporary seizure of books and records, and the immunity issue reserved in Bivens v. Six Unknown Fed. Narcotic Agents,403 U. S. 388. Pp. 359-360.

514 F.2d 935, affirmed in part, reversed in part, and remanded.

Page 429 U. S. 340

BLACKMUN, J., delivered the opinion for a unanimous Court. BURGER, C.J., filed a concurring opinion, post, p. 429 U. S. 361.

MR. JUSTICE BLACKMUN delivered the opinion of the Court.

We granted certiorari in this case, 423 U.S. 1031 (1975), limited to the Fourth Amendment issue arising in the context of seizures of property in partial satisfaction of income tax assessments. [Footnote 1]

I

Petitioner G. M. Leasing Corp. is a Utah corporation organized in April 1972; among its stated business purposes is the leasing of automobiles. George I. Norman, Jr., although apparently not an incorporator, officer, or director of petitioner, was its general manager.

In 1971, Norman was tried and convicted in the United States District Court for the District of Colorado on two counts of aiding and abetting a misapplication of funds from a federally insured bank, in violation of 18 U.S.C. § § 2 and 656. He was sentenced to two concurrent two-year terms of imprisonment. On appeal, his conviction was affirmed. United States v. Cooper, 464 F.2d 648, 651-652 (CA10 1972). This Court denied certiorari. 409 U.S. 1107 (1973).

Page 429 U. S. 341

Norman and his wife, on November 15, 1971, [Footnote 2] filed a joint income tax Form 1040 for the calendar year 1970 on which, apart from their names, address, social security numbers, occupations, and dependents, they indicated only that their tax for that year, "[e]stimated," was $280,000. The sum of $289,800 was transmitted when the form was filed, and was placed by the Internal Revenue Service in a suspense account for future credit. Apart from the naked figure of estimated tax, the return contained no information as to income or deductions. App 94.

The Normans also sought and were granted an extension of time within which to file their return for the calendar year 1971. A check for $405,125 was given to the Service on April 15, 1972, for application on their 1971 tax. This check evidently was dishonored. Although further extensions of time were granted, neither of the Normans ever filed a 1971 return.

In October, 1972, after Norman's conviction was affirmed by the Tenth Circuit, the Service assigned the Norman account for 1970 and 1971 to Agent P. J. Clayton for investigation. Mr. Clayton, however, took no immediate action. Id. at 66; Tr. of Oral Arg. 24-25.

In March, 1973, after Norman's petition for a writ of certiorari had been denied, and after his petition for rehearing had also been denied, 410 U. S. 959 (1973), he surrendered to the United States Marshal for the serving of his sentence. By a ruse, however, he immediately disappeared. Tr. of Oral Arg. 6. Norman thereupon became a fugitive from justice; he was still one at the time of the oral argument. App. 15; Brief for Petitioners 5; Tr. of Oral Arg. 5-6.

Upon Norman's becoming a fugitive, the Service activated its investigation. On March 19, it determined deficiencies in Norman's income tax liability for 1970 and 1971 in the

Page 429 U. S. 342

amounts of $406,99.34 and $545,310.59, respectively. [Footnote 3] App. 95. These were based solely on information from third parties concerning the amount of stock sales Norman made through various brokerage houses. Id. at 30, 67. [Footnote 4] Because of Norman's failure to file appropriate returns and because of his fugitive status, collection of the taxes as so determined was regarded by the Service as in jeopardy; the deficiencies, therefore, were assessed forthwith pursuant to the authority granted by § 6861(a) of the Internal Revenue Code of 1954, 26 U.S.C. § 6861(a). [Footnote 5]

The following day, revenue agents called at the Norman residence in Salt Lake City to endeavor to collect the taxes.

Page 429 U. S. 343

Mrs. Norman answered the door. The agents informed her of the jeopardy assessments and demanded payment. No payment was forthcoming, and Mrs. Norman suggested that the agents get in touch with her attorney. App. 56. Thereafter, pursuant to their authority under § 6331 of the Code, the agents filed notice of tax liens with the Salt Lake County Recorder's Office and levied on a bank account of Norman. App. 95, 58.

While the agents were at the Norman residence, they observed automobiles parked in the driveway. Later, upon checking with the Utah Motor Vehicle Division, they learned that these vehicles were registered in the name of petitioner or in the name of another corporation owned by Norman, and that no automobile was registered in Norman's name or in that of his wife. Id. at 774. They also learned that petitioner had no license to conduct business within Salt Lake County and had no telephone listing. Id. at 74. It was further ascertained that, pursuant to the request of the Utah Department of Employment Security, petitioner had filed a Status Report. That report described the corporation's principal business activity as "Leasing Luxury Automobiles, Boats, etc." It recited that the corporation's "average number of employees" was zero and that it had paid no wages while it was in existence during the last three quarters of 1972 or thus far in 1973. Id. at 91-92. On its Utah Sales and Use Tax Return for the second quarter of 1972, the corporation reported no sales. Id. at 93. The agents regarded the automobiles seen at the Norman residence as "show" or "collector" cars, and not the type "that would normally be used in a leasing business." Id. at 74.

All these facts suggested to the agents that petitioner corporation was not engaged in any business activity but, instead, was Norman's alter ego and a repository of at least some of his personal assets. The agents consulted with the Service's Regional Counsel. With his concurrence,

Page 429 U. S. 344

the conclusion was drawn that the assets of the corporation actually belonged to Norman. Accordingly, the decision was made to levy upon and seize automobiles titled in petitioner's name in partial satisfaction of the assessments against Norman. Id. at 75-76.

On or about March 21, two days after the jeopardy assessments, revenue officers, without a warrant, seized several automobiles. Among them were a 1972 Stutz, a Rolls Royce Phantom V, a 1930 Rolls Royce Phantom I, two 1971 Stutzes, and a Jaguar. Three were taken at two different locations in Salt Lake City; two at the Century Plaza parking lot in Los Angeles, Cal.; and one near Norman's residence in Salt Lake City. Id. at 121, 129; Tr. of Oral Arg. 13-14. None of the cars was on property in which petitioner had an interest. All were registered in petitioner's name. App. 75 76. The officers left a Chevrolet and a station wagon for the personal use of Mrs. Norman and her family. [Footnote 6] Id. at 58.

Also on March 21, revenue officers went to petitioner's office in Salt Lake County to levy on property subject to seizure, including the building itself. Id. at 19. They had information that one, and possibly two, luxury automobiles might be there. Upon learning that a car was in the garage on the premises, they telephoned their superior, Bert Applegate, and asked him to come out to assist. Id. at 77-79. The premises consisted of a cottage-type building and the garage. When Applegate arrived, a locksmith was there. He already had removed the lock from the garage door

Page 429 U. S. 345

at the direction of the officers. A Stutz automobile was inside. The locksmith also had removed the lock on the cottage's rear door. Id. at 80-81.

Applegate entered the cottage. He observed that its outward appearance was such that it could be a residence. He noticed a kitchen. He instructed the officers not to proceed with the seizure of any property there until the status of the cottage could be confirmed. [Footnote 7] Id. at 81, 23-24. The officers then left the cottage without taking anything, and its lock was replaced. Id. at 82.

While the officers were in the cottage, Norman's son, George I. Norman III, age 19, and listed as a dependent on the 1970 Form 1040, appeared. He told the officers that the Stutz belonged to the petitioner corporation, and not to Norman. Id. at 80, 34. He testified that he was living at the cottage "as security." Id. at 34. He was asked to provide evidence as to the car's ownership. A decision was made not to seize the automobile at that time.

Information then came to Applegate, primarily from a Mr. Redd, who was a contractor for Norman, that the cottage was a place of business, and not a residence. Id. at 79. In addition, there was activity at the cottage that night; the lights were on and boxes were being moved. The next morning, the Stutz was not in the garage. [Footnote 8] Id. at 83. Sometime during the next two days, a decision was made to seize the cottage, its furnishings and any other assets there. [Footnote 9] On

Page 429 U. S. 346

March 23, [Footnote 10] agents, acting without a warrant, and with the assistance of locksmiths and the equipment of a private van and storage firm, entered the cottage and removed its remaining contents, including furnishings and books and records. An inventory was made of the property so seized. The agents hoped to examine the books and records to see if they contained stock certificates or information concerning the location of other assets. The Regional Counsel, however, instructed them to pack the books and records, seal the boxes, and remove them to a safe storage place. Id. at 83-88.

In May, petitioner corporation instituted this suit. By its amended complaint, it asserted a claim for wrongful levy, with a request for the return of the automobiles; a claim for suppression of all evidence obtained from the seized documents; and a claim against the agents for damages. Id. at 105-112. It alleged that the assessments were arbitrary and capricious, that petitioner was not an alter ego of Norman, and that the levy upon its premises and the contents violated the Fourth Amendment. Ibid. Shortly thereafter, the Service returned to the cottage the originals of the records and documents that had been seized. In the meantime, however, they had been photocopied. [Footnote 11] By a second amendment to petitioner's complaint, id. at 124, punitive damages, among other relief, were requested.

Norman's son filed a complaint in intervention, id. at 112-117, alleging essentially the same facts and requesting

Page 429 U. S. 347

similar relief. The District Court allowed his intervention. The Government then filed a counterclaim seeking foreclosure of the tax liens against the property held in petitioner's name. Id. at 127-134.

At the ensuing trial before the court without a jury, there was testimony that Norman himself originally held title to some of the automobiles registered in petitioner's name, id. at 37; that petitioner had no employees, and did not lease any cars, id. at 37, 39; that petitioner's only assets were luxury or vintage model automobiles; that the cars had not been transferred to it until at or near the end of 1972; and that petitioner never issued any stock, held any director's meetings, or engaged in any business. [Footnote 12] Id. at 43-45.

The District Court entered judgment for petitioner and for the intervenor. It found that the premises in question were the offices of petitioner and the residence of the intervenor; that the revenue officer defendants had no search warrant; that they forcibly entered the premises on March 23 and again on March 25; [Footnote 13] that they made the entry, search, and seizure "knowing full well that they were violating the rights" of petitioner, the intervenor, "and others"; that Agent Clayton committed the entry "maliciously"; that the defendants returned the books and records that had been seized but photocopied them and retained the photocopies; that the defendants levied upon and seized all the assets of petitioner, including seven automobiles and a bank account; that they disposed of two of the automobiles and stored the others in Salt Lake City; that the assessments of taxes, penalties, and interest against Norman and his wife for 1970 and 1971 were erroneous; that Norman and his wife had no liability for federal income tax, penalties,

Page 429 U. S. 348

or interest for those years; that petitioner had "engaged in substantial business activity in preparation for its business purpose of leasing automobiles"; that it was not controlled solely by Norman or his wife; that it was not an alter ego of Norman or his wife; and that it was not their nominee. The court concluded that the revenue officer defendants committed an illegal search and seizure of petitioner's offices and the intervenor's residence, in violation of the Fourth Amendment; that the photocopies of the seized books and records in the possession of the Service should be destroyed, because any use of them would be illegal; that petitioner and the intervenor were entitled to general and punitive damages in amounts to be determined; that the Government's counterclaim should be dismissed with prejudice; that the Service should return all the seized assets of petitioner and of the intervenor; and that judgment should be awarded against the United States in favor of petitioner for the value of the two automobiles that had been sold. Id. at 136-142. Judgment, including injunctive relief for the return of the automobiles and the books and records, and for the destruction of the photocopies, was entered accordingly. Id. at 142-144.

The Court of Appeals, for the most part, reversed. 514 F.2d 935 (CA10 1975). It ruled that the evidence conclusively established that petitioner was Norman's alter ego, so that its assets could be seized to satisfy Norman's income tax liability; that the District Court's finding to the contrary was clearly erroneous; that petitioner had not sustained its burden of proving the assessments to be erroneous; and that the trial court erred in invalidating the assessments and in dismissing the Government's counterclaim. In regard to the claim of illegal search and seizures, the Court of Appeals held:

"The refusal to pay authorized appellants to collect the tax by levy, and this included the power of 'seizure by any means.' Thus, appellants were acting pursuant to

Page 429 U. S. 349

statute, and did not commit an illegal search. The trial court's order returning the assets and suppressing the documents is improper."

(Footnote omitted.) Id. at 941. The court also ruled that there was no evidence to support the trial court's finding that Clayton's participation "was of a malicious character." Ibid. In accord with a concession by the Government, the Court of Appeals affirmed the trial court's judgment insofar as it ordered the return of certain shares of stock to the intervenor. [Footnote 14]

II

A. Section 6331(a) of the 1954 Code authorizes the Secretary or his delegate to collect taxes "by levy upon all property and rights to property" belonging to a person who "neglects or refuses to pay" any tax "or on which there is a lien . . . for the payment of such tax." [Footnote 15] Section 6331(b),

Page 429 U. S. 350

and § 7701(a)(21) as well, define "levy" as including "the power of distraint and seizure by any means." Both real estate and personal property, tangible and intangible, are subject to levy. Levy upon tangible property normally is effected by service of forms of levy or notice of levy and physical seizure of the property. Where that is not feasible, the property is posted or tagged. Because intangible property is not susceptible of physical seizure, posting, or tagging, levy upon it is effected by serving the appropriate form upon the party holding the property or rights to property. See Treas.Reg. § 301.6331-1(a)(1), 26 CFR § 301.6331-1(a)(1) (1976). See also Phelps v. United States,421 U. S. 330, 421 U. S. 335-337 (1975). And the Court has recognized that compulsion on the part of the Service occasionally is required in the enforcement of the revenue laws. See United States v. Bisceglia,420 U. S. 141, 420 U. S. 145 (1975). Indeed, one may readily acknowledge that the existence of the levy power is an essential part of our self-assessment tax system, and that it enhances voluntary compliance in the collection of taxes that this Court has described as "the life-blood of government, and their prompt and certain availability an imperious need." Bull v. United States,295 U. S. 247, 295 U. S. 259 (1935).

Under § 6321 of the Code, [Footnote 16] the assessments against Norman were a lien in favor of the United States upon all property

Page 429 U. S. 351

belonging to Norman. If petitioner was Norman's alter ego, it had no countervailing effect for purposes of his federal income tax. Griffiths v. Commissioner,308 U. S. 355 (1939); Higgins v. Smith,308 U. S. 473, 308 U. S. 476 (1940). It would then follow that the Service could properly regard petitioner's assets as Norman's property subject to the lien under § 6321, and the Service would be empowered, under § 6331, to levy upon assets held in petitioner's name in satisfaction of Norman's income tax liability. See United States v. Plastic Electro-Finishing Corp., 313 F.Supp. 330, 33-334 (EDNY 1970), aff'd, 71-1 USTC

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