Petitioner argues that the deficiency notice procedure set up in the Code (ยง 272 I.R.C. 1939, 26 U.S.C.A. ยง 272) cannot be used in enforcing the additions to the tax under ยง 294 where there is no deficiency in the tax apart from the additions. The following cases are opposed to petitioner's contention: Davis v. Dudley, D.C.W.D.Pa. 1954, 124 F. Supp. 426; Myers v. C.I.R., 1957, 28 T.C. 12; Newsom v. C.I.R., 1954, 22 T.C. 225, affirmed per curiam, 5 Cir., 1955, 219 F.2d 444. Before the creation of the Tax Court (originally the Board of Tax Appeals), the rule was "pay first and litigate later." The deficiency notice procedure now provides taxpayers with the alternative of petitioning the Tax Court within 90 days after the deficiency notice is issued and being able to contest the assessment before that court without having to pay the assessment first. ยง 272 I.R.C. 1939. This was intended to benefit taxpayers.
The majority refers to McAllister v. Dudley, 148 F. Supp. 548, an opinion by the United States District Court for the Eastern District of Pennsylvania, to buttress its position that a penalty imposed on an employer for failure to remit income taxes withheld is not a deficiency, and that the ninety-day notice is not required. On the other hand, in Davis v. Dudley, 124 F. Supp. 426, the District Court for the Western District of Pennsylvania held that the imposition of the penalty there involved depended exclusively upon the judgment of the Commissioner and, in the absence of unequivocal language to the contrary, that type of penalty should be construed as a deficiency in order that the judgment of the Commissioner might be tested by the Tax Court as a safeguard against erroneous assessment and compulsory payment without review. These two cases from the same state have a tendency to cancel each other out. Moreover, in such cases as the one before us, where criminal as well as civil penalties are prescribed in the Code, this consideration carries special significance.
Appellee's major concern, of course, is whether these assessments are subjected to the same restrictions as those imposed upon the collections of the deficiencies, and not whether these assessments may properly be called deficiencies. In the case of Davis v. Dudley, D.C.Pa. 1954, 124 F. Supp. 426, 428, Judge Marsh, who was a member of the court that decided the Erie Forge case, had a similar situation before him arising under ยง 294(d) of the Internal Revenue Code of 1939. Section 294(d) provides for the imposition of penalties for substantial underestimation of estimated taxes, for failure to file timely a Declaration of Estimated Tax, and for failure to pay within the time prescribed, any installment of Declared Estimated Tax. ยง 294(d) does not, however, contain the language quoted above which was contained in ยง 291 of the 1939 Code but which was omitted from ยง 6651 of the 1954 Code.
Section 294(d) of the Internal Revenue Code of 1939 is penal in nature and to be strictly construed. [Stephan v. Commissioner, 5 Cir., 1952, 197 F.2d 712; Barnwell v. United States, supra, 58-1 U.S.T.C. Par. 9374; Davis v. Dudley, D.C.W.D.Pa. 1954, 124 F. Supp. 426, 429; see F.C.C. v. American Broadcasting Co., 1954, 347 U.S. 284, 296, 74 S.Ct. 593, 98 L.Ed. 699.] "Penalties are never extended by implication" [Elliott v. Railroad Co., 1878, 99 U.S. 573, 576, 25 L.Ed. 292; United States v. J.H. Winchester Co., 2 Cir., 1930, 40 F.2d 472], and "all questions in doubt must be resolved in favor of those from whom the penalty is sought." [Hatfried, Inc., v. Commissioner, 3 Cir., 1947, 162 F.2d 628, 633.]
PER CURIAM. The decision is affirmed on the opinion of the Tax Court, 22 T.C. 225, followed in Davis v. Dudley, D.C.W.D.Pa., 124 F. Supp. 426, 429, by District Judge Marsh, one of the judges who had joined in deciding United States v. Erie Forge Co., 3 Cir., 191 F.2d 627, thought by the petitioner to be in conflict with the decision of the Tax Court. See also United States v. Koppers Co. (Premier Oil Refining Co. v. United States), 1955, 348 U.S. ___, 75 S.Ct. 268; Stephan v. Commissioner, 5 Cir., 197 F.2d 712; Middleton v. Commissioner, 5 Cir., 200 F.2d 94; Maxwell v. Campbell, 5 Cir., 205 F.2d 461; Eck v. Commissioner, 16 T.C. 511, affirmed per curiam, 2 Cir., 202 F.2d 750; Bouche v. Commissioner, 18 T.C. 144, on appeal now to 2 Cir.; Smith v. Commissioner, 20 T.C. 663.
Accord, McAllister v. Dudley, D.C.Pa. 1956, 148 F. Supp. 548. In support of his claim plaintiff argues that Davis v. Dudley, D.C.Pa. 1954, 124 F. Supp. 426, and Strawberry Hill Press, Inc. v. Scanlon, D.C.N.Y. 1959, 172 F. Supp. 335, affirmed 2 Cir., 273 F.2d 306, are controlling. Those cases however held that a penalty would be treated as a deficiency, and where a "ninety day letter" would be required for a deficiency it would also be required with respect to a penalty imposed in connection with the deficiency.
Mrizek v. Long, D.C.Ill. 1959, 187 F. Supp. 830. Distinguishing the cases of Davis v. Dudley, D.C.Pa. 1954, 124 F. Supp. 426, and Strawberry Hill Press, Inc. v. Scanlon, 2 Cir., 1959, 273 F.2d 306. There is a judicial exception to the bar of Section 7421 applied where (a) the tax assessment is an illegal exaction in the guise of a tax and (b) there are present "special and extraordinary circumstances sufficient to bring the case within some acknowledged head of equity jurisprudence."
Such statutory language is too clear for discussion. The contention of the defendant that the determinations of penalties or additions to tax for underestimation or underpayment of estimated tax are mere "mathematical errors" appearing upon the return, so that under the provisions of Section 6213(b) the defendant is relieved from the restrictions on assessment of tax contained in Section 6213(a), is wholly untenable. See the cases of Hackleman v. Granquist, D.C.Or. 1957, 147 F. Supp. 826; Newsom v. Commissioner, 22 T.C. 225, affirmed 5 Cir., 1955, 219 F.2d 444; and Davis v. Dudley, D.C.Pa. 1954, 124 F. Supp. 426, where the same point was involved, and in all of which cases the taxpayer prevailed. Therefore, the Court concludes that the assessment made by the defendant against plaintiffs on September 11, 1957, in the sum of $204.23 was null and void for failure to follow the proper statutory prerequisites to making an assessment of tax, and the temporary injunction heretofore granted by this Court in this cause should be made permanent.
While the language used in the 1939 code would strongly indicate that a penalty under section 291 would not be a "deficiency," when read in connection with the 1954 code, a doubt clearly arises as to the legislative intent. As pointed out in Davis v. Dudley, D.C., 124 F. Supp. 426, 428 (while holding a penalty under section 294(d) of the 1939 code to be a deficiency): "Hence, in the absence of unequivocal language to the contrary, such as is contained in ยง 291, we think that this type of penalty should be construed as a deficiency in order that the judgment of the Commissioner may be tested by the Tax Court as a safeguard against erroneous assessments and compulsory payment pending final decision."