Bean v. United States, Civil No. C-85-2869

• Decision Date: 08 August 1985
• Docket Number: Civil No. C-85-2869,C-85-2872.
• Citation: 618 F. Supp. 652
• Parties: Richard W. BEAN v. UNITED STATES of America.
• Court: U.S. District Court — Northern District of Georgia

618 F. Supp. 652

Richard W. BEAN v. UNITED STATES of America.

Civil Nos. C-85-2869, C-85-2872.

United States District Court, N.D. Georgia, Atlanta Division.

August 8, 1985.

Stephen C. Whicker, Esq. W. Blake McCarty, Esq. Somers & Altenbach, Atlanta, Ga., for plaintiff.

Larry D. Thompson, U.S. Atty., Barbara V. Tinsley, Asst. U.S. Atty., Atlanta, Ga., Philip R. West, Trial Atty., Tax Div., Dept. of Justice, Washington, D.C., for U.S.

ORDER

ORINDA D. EVANS, District Judge.

On May 6, 1985, Plaintiff Richard W. Bean filed a complaint to determine the reasonableness and appropriateness of two jeopardy assessments levied against him by the Internal Revenue Service. Jurisdiction of the court was invoked pursuant to 26 U.S.C. § 7429(b).¹ This action is now before the court on the Government's motion for summary determination. For the reasons hereafter stated, the court concludes that both the making of the jeopardy assessments and the amount so assessed were "reasonable under the circumstances." 26 U.S.C. § 7429(b)(2).

As a threshold matter, the court notes that summary disposition, without an evidentiary hearing, is permissible in cases challenging jeopardy assessments, as long as there is no genuine factual dispute for resolution at trial. Canon v. United States, 40 A.F.T.R.2d 5529, 5531 (D.Nev. 1977); McAvoy v. Internal Revenue Service, 475 F.Supp. 297 (W.D.Mich.1979). The Supreme Court, in Commissioner v. Shapiro, 424 U.S. 614, 633, 96 S.Ct. 1062, 1073, 47 L.Ed.2d 278 (1976), held that the United States may rely solely on affidavits to establish the reasonableness of a jeopardy assessment. Although Shapiro was decided prior to the enactment of 26 U.S.C. § 7429, nothing in the language of that section or its legislative history is inconsistent with the procedures endorsed in Shapiro. To the contrary, Congress intended § 7429 to provide for "expedited" judicial review of jeopardy assessments. U.S.Code Cong. & Admin.News (1976) 4118, 4189. Accordingly, the district court need not consider the taxpayer's ultimate liability for the underlying tax or penalties. S.Rep. No. 938, 94th Cong., 2d Sess. at 365, U.S. Code Cong. & Admin.News 1976, pp. 2897, 3439. McAvoy, supra at 298; Bremson v. United States, 459 F.Supp. 121 (W.D.Mo. 1978); Haskin v. United States, 444 F.Supp. 299, 304 (C.D.Cal.1977); Loretto v. United States, 440 F.Supp. 1168, 1175 (E.D.Pa.1977). And, the court may consider any information which the government relied upon in making the jeopardy assessment against the plaintiff, without regard to whether such evidence would be admissible in a trial on the merits. Bremson, supra; Billig v. United States, 49 A.F.T. R.2d 479, 480-81 (N.D.Ga.1981); McAvoy, supra at 299; Marranca v. United States, 587 F.Supp. 663 (E.D.Pa.1984). In short, this court may grant summary determination based solely on the government's affidavits if there is no dispute as to any fact material to the reasonableness of the assessment at issue. See Randall v. United States, 49 A.F.T.R.2d 1042 (D.Minn.1982); Ericksen v. United States, 45 A.F.T.R.2d 1053 (E.D.Mich.1980).

In support of its motion, the Government has submitted affidavits of Susan Knoff and Sheretta Jones, the IRS agents who investigated Bean and recommended making the jeopardy assessments at issue. Bean, by way of response and opposition, has submitted portions of the deposition of Mr. Thom Coulter, a securities investigator for the State of Georgia. Bean's version of the facts is not supported by affidavit, however. According to Bean's counsel, Bean is currently incommunicado "somewhere in Central America" and, because of the "unstable political climate" in that region, could not be contacted to file an affidavit in this matter.

Fed.R.Civ.P. 56(e), to which this proceeding is analogous, requires a party opposing summary judgment to "set forth specific facts showing that there is a genuine issue for trial." Normally, these facts must be supported by affidavit, and the court would be reluctant to rule against a party who had failed to submit a supporting affidavit due solely to physical incapability. However, in this case, the court finds that even if the facts which Bean contends are in dispute were supported by affidavit, those facts would still not be material to a resolution of this case.

Therefore, based on the deposition of Thom Coulter and the affidavits of agents Knoff and Jones, the following facts are before the court. In approximately March, 1985, Knoff began an examination of Bean's alleged promotion of abusive tax shelters, and of Bean's income tax liabilities for the years 1981, 1982 and 1983. Knoff found that Bean was indeed selling abusive tax shelters, and that Bean's individual tax returns contained overstated deductions and understated gross income. Knoff concluded that Bean's outstanding income taxes and penalties owing extended to over $350,000, including the penalties assessed under 26 U.S.C. § 6700 for abusive tax shelters.

During her examination, Knoff found Bean to be uncooperative in providing the IRS with the documentation necessary to conduct a thorough examination. Moreover, Bean withheld "information returns" (Form 1099s), which he had illegally failed to file with the IRS. The examination problems encountered as a result of Bean's non-cooperation and failure to file the required information returns were compounded by the fact that Bean uses the names of and operates through the several business entities which he controls.²

Knoff's investigation revealed that Bean began promoting the sale of gemstone mining tax shelters in 1981. These tax shelters were sold in the form of limited partnership interests. The partnership leases mine sites in Brazil from a Cayman Islands corporation, and contracts with a Brazilian corporation to do the mining. Payments to these companies are made largely by the use of non-recourse notes, on which no payments have been made to date. Although no payments are made on the notes, current tax deductions are taken for expenses they evidence. The Government claims that these deductions follow a classic abusive tax shelter pattern, and are in violation of the Internal Revenue Code.

Knoff has identified three separate partnerships which Bean formed in 1981, and which operate in the above-described manner. These partnerships are Tulagi Mine Ltd., Tulagi Mine II, Ltd., and Deep Pockets Mine. Knoff discovered a total of 38 partners in those entities, who have invested over $300,000. The Government claims that these mining tax shelters are presumptively abusive, for three reasons. First, IRS personnel spent three weeks looking for mines in the area of Brazil where the mines are supposedly located, and could not find Bean's Brazilian mining sites. Second, the use of non-recourse financing, as described above, violates the "at-risk" rules of the Internal Revenue Code. Third, Bean has not provided the IRS with the permit required by Brazilian law for the extraction of minerals from Brazilian soil.

Knoff further found that in 1982, Bean expanded his tax shelter activity. Knoff describes two examples of abusive tax shelters promoted by Bean. The first involved using the "Rule of 78's" to amortize interest payments on a condominium. According to promotional materials for this shelter, each condominium is purchased by at least six investors. Each investor makes an initial investment of approximately $5,000, followed by payments of $2,221 per annum for ten years. Investors are then promised $212,486 in total income tax deductions. The Government claims that, despite the IRS's publication of several rulings disallowing the "Rule of 78's" as a method of amortizing interest, promoters continue to sell this classic abusive tax shelter.

The second example of Bean's promotional activity, cited by Knoff, involved the donation of historic facades. Condominium investors received a pass-through of tax credits for historic rehabilitation expenditures, and charitable contribution deductions for donating their interests in the facades. Knoff claims that the partial documentation which she has obtained on this shelter reveals an invalid method of computing tax benefits, based on an inflated facade value instead of cost, and that investors in this type of shelter are normally entitled to a minimal deduction and credit, if any.

Based on the above information regarding Bean's sale of abusive tax shelters in 1981 and 1982, Knoff concluded that Bean was subject to penalties under 26 U.S.C. § 6700. Knoff set the amount of the penalty at $89,000. This figure represents the number of partnership interests sold by Bean to investors (89), multiplied by the statutory penalty of $1,000 per instance of penalty conduct.

In addition to Bean's promotions of abusive tax shelters, Knoff investigated Bean's income tax returns for the years 1981, 1982 and 1983. Knoff determined that Bean had claimed $9,291 in non-allowable charitable deductions for the years 1981 and 1982. Bean also claimed $220,778 in non-allowable deductions for solo proprietorship business activities in 1981, 1982 and 1983. During these same years, Bean also claimed non-allowable partnership losses totaling $170,861, which were deducted from his taxable income. Knoff further determined that, over this 3-year period, Bean underreported his gross income in the amount of $54,544; that $1,049 in non-allowable interest expense deductions were taken in 1982; that $118,121 in unsubstantiated corporate loss deductions were taken in 1983; that an unwarranted $5,100 deduction for contribution to a "Keogh Plan" was taken in 1981; and that other tax and penalty computation adjustments for the years 1981, 1982 and 1983 totaled $48,571. Knoff concluded that Bean owes the United States approximately $350,000. The IRS provided Bean with letters to this effect, containing itemized annual breakdowns of Knoff's calculations, on February 19, 1985 and April 15, 1985.

Knoff further claims that on ...