Bremson v. United States

• Decision Date: 31 August 1978
• Docket Number: No. 78-0496-CV-W-2.,78-0496-CV-W-2.
• Citation: 459 F. Supp. 121
• Parties: Charles D. BREMSON, Jr., Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Western District of Missouri

459 F. Supp. 121

Charles D. BREMSON, Jr., Plaintiff, v. UNITED STATES of America, Defendant.

No. 78-0496-CV-W-2.

United States District Court, W. D. Missouri, W. D.

August 31, 1978.

Robert W. Boland, Jr., Robert R. McQuain, of Boland & McQuain, Kansas City, Mo., for plaintiff.

Angelo I. Castelli, Tax Division, Dept. of Justice, Washington, D. C., Frederick O. Griffin, Jr., Asst. U. S. Dist. Atty., Kansas City, Mo., for defendant.

MEMORANDUM OPINION AND ORDER DENYING PLAINTIFF ALL RELIEF REQUESTED UNDER COUNT II OF THE COMPLAINT

COLLINSON, District Judge.

I. STATEMENT OF THE CASE

This is an action for judicial review of a termination assessment of income tax against plaintiff Charles D. Bremson, Jr.¹ Plaintiff is under indictment in the District of Kansas, along with fourteen other defendants, for conspiracy to distribute controlled substances. Those charges are currently pending. The criminal case stems from an eighteen-month investigation by agents of the Drug Enforcement Administration (DEA) which included the use of informants, pen registers, ordinary surveillance techniques, and exchanges of information with other governmental agencies. On April 24, 1978, DEA agents sought and obtained authorization for a wiretap of plaintiff's residence.²

On May 13, 1978, DEA agents Barclay and Spaulding participated in the arrest of plaintiff and several of the other criminal defendants and a search and seizure of the contents of a storage locker leased by plaintiff in the name of "Oriental Express."³ (Barclay Supp. Affidavit, ¶ 4(h)). This raid resulted in the recovery of approximately 160 pounds of hashish, 90 pounds of marijuana and two liters of hash oil. A search of plaintiff's automobile resulted in the seizure of a passport with plaintiff's picture and the name "Robert Turner Howard III." (Akins Affidavit, ¶ 8). Over $8,000.00 was seized pursuant to a search of plaintiff's residence. (Barclay Supp. Affidavit, ¶ 4(i)). The Intelligence Division of the IRS notified the Audit Division that these arrests had been made and directed the Audit Division to prepare for the possibility of a termination assessment. (Carter Affidavit, ¶ 2).

On May 16, 1978, IRS special agent Joseph McKenzie reviewed the evidence file in the criminal case at the United States Attorney's office in Kansas City, Kansas. McKenzie contacted IRS special agent Gerald C. Carter who also reviewed the file. The two agents then interviewed plaintiff who was waiting arraignment in the Wyandotte County Jail.⁴ (Carter Affidavit, ¶ 3). The two IRS agents obtained an affidavit from DEA agent Spaulding.

On May 17, 1978, the criminal evidence was reviewed by Larry Akins, an attorney in the office of the Chief Counsel for the IRS in Kansas City, Missouri. Following this review, Akins telephoned Carter and directed the preparation of a recommendation for a termination assessment, Form 2644, and a computation of the tax assessment. (Carter Affidavit, ¶ 6). By this time, plaintiff had been released from custody on a $100,000.00 bond which had been secured from a Kansas City, Kansas bonding company. (Tr. 16, 55); (Akins Affidavit, ¶ 5). Akins reviewed Carter's preparation of the termination recommendation and it was forwarded to St. Louis, Missouri for review by Richard C. Voskuil, District Director of the IRS for this area of the country.

Voskuil reviewed the information forwarded by Carter and approved the termination assessment against plaintiff for the period of January 1, 1978 to and including May 13, 1978. He signed the Notice of Termination Assessment of Income Tax and transmitted it back to Carter who received it on May 18, 1978.⁵ (Voskuil Affidavit, ¶ 4). Upon receipt, Carter notified the IRS Collection Division that plaintiff was to appear for an omnibus hearing in connection with the criminal case at 1:30 p. m. that afternoon at the United States Courthouse in Kansas City, Kansas. (Carter Affidavit, ¶ 7).

Carter, along with Revenue Officer Sam Wilkerson and IRS special agent Greg Pierce, went to the United States Courthouse at that time and served plaintiff with the Notice of Termination Assessment at 2:15 p. m.⁶ (Carter Affidavit, ¶ 8); (Tr. 53). They also made a demand for immediate payment. Following the service, Wilkerson telephoned his group manager, Pat Masteller, and informed him that plaintiff had been given the notice. Apparently, IRS agents were stationed at various points around the Kansas City Metropolitan area and were contacted immediately after Wilkerson notified Masteller that service had been accomplished. (Tr. 53). These agents served notices of levies at the following locations at the noted times:

(1) Commerce Bank of Kansas City, 2:20 p. m.,

(2) Mid-Continent National Bank of Kansas City, 2:21 p. m (3) Recorder of Deeds of Jackson County, Missouri, 2:21 p. m.,

(4) Southgate State Bank in Shawnee Mission, Kansas, 2:28 p. m.,

(5) Commerce Bank of Blue Hills, 2:30 p. m.,

(6) Leawood National Bank, 2:35 p. m.,

(7) Register of Deeds of Johnson County, Kansas, 2:37 p. m. (Tr. 27-28).

These levies were to insure payment of the tax assessment which was computed at $339,945.00.

Plaintiff timely requested administrative review of this assessment under the provisions of 26 U.S.C. § 7429(a). The IRS declined to make any adjustment in the amount of the assessment. The complaint in this case was filed July 7, 1978. Count II of the complaint seeks judicial review of the termination assessment and the assessed amount of tax.⁷ Count I of the complaint is not before the Court at this time.⁸

The parties engaged in some discovery after the filing of the complaint. The deposition of Gerald Carter was taken by plaintiff and interrogatories were answered by the government which included attached documents. Plaintiff filed a request for production under Rule 34, Fed.R. Civ.P., but contends that the government failed to respond to the request after being ordered to do so by the Court. Plaintiff filed a motion for sanctions under the provisions of Rule 37, Fed.R.Civ.P., on July 26, 1978.

A hearing was held on July 27, 1978, on the substantive issues in this case. However, the question presented by the motion for sanctions was discussed on the record. (Tr. 6-13). At that time, the government filed the IRS files compiled by the revenue agents in camera for the Court's inspection. Following a recess, the Court ordered the production of a memorandum of an interview with plaintiff⁹ and disallowed any further discovery. (Tr. 15).

The Court holds that the government's failure to produce the documents prior to the July 27 hearing was "substantially justified," within the meaning of Rule 37(b)(2) and (d), Fed.R.Civ.P. The documents in question add nothing to the affidavits filed in this case. (Tr. 14). Moreover, these proceedings have been greatly expedited in view of the very brief time allowed by law for the review process. 26 U.S.C. § 7429(b)(2) and (c). In view of this factor, imposition of sanctions on the basis of delay in the order of production is not warranted. It is true that the test under Rule 37(d), Fed.R.Civ.P., is simply whether there has been a failure to allow discovery. 8 Wright & Miller, Civil Practice and Procedure § 2291, p. 809 (1970); 4A Moore's Federal Practice, ¶ 37.05, p. 37-103, 106 (2d ed. 1974). The reasons for the failure, though, are relevant considerations. Hunter v. International Systems and Controls Corp., 56 F.R.D. 617, 620 (W.D.Mo.1972); Bollard v. Volkswagen of America, Inc., 56 F.R.D. 569, 584 (W.D.Mo.1971). There has been no showing that the delay in obtaining the documents ultimately held discoverable (the interview memo) severely prejudiced plaintiff's case. Edgar v. Slaughter, 548 F.2d 770, 773 (8th Cir. 1977). Plaintiff's motion for sanctions will be denied.

The provisions of the Internal Revenue Code relevant to this case have been judicially noticed. (Tr. 60-61). The termination assessment provisions are set out in note 5, supra. As noted there, the Tax Reform Act of 1976, P.L. 94-455, 90 Stat. 1695, altered the provisions for review of the assessed tax in the Tax Court. The same act of Congress, though, created a procedure for expedited review of both termination and jeopardy assessments in the district courts. The issues presented in such a case are set out at 26 U.S.C. § 7429(b)(2):

— Within 20 days after an action is commenced under paragraph (1), the district court shall determine whether or not—

(A) the making of the assessment . . is reasonable under the circumstances, and

(B) the amount so assessed or demanded . . . is appropriate under the circumstances.

The government has the burden of proof on the first question and must furnish the taxpayer with information regarding how the amount of the assessment was computed. However, the burden of proof on the second question is on the plaintiff. 26 U.S.C. § 7429(g).

Proceedings under the new statute are entirely separate from any subsequent proceedings to determine the taxpayer's correct tax liability either in Tax Court proceedings or in refund actions in federal district court or in the Court of Claims. 1976 U.S. Code Cong. & Admin. News, p. 2897, 3795. Thus, the question of plaintiff's actual liability for income taxes for 1978 is irrelevant.¹⁰ The statute contemplates a de novo review of the IRS determinations and the Court must consider any information that has a bearing on the two questions. Review is not limited to the information available to the IRS at the time of the assessment.¹¹ 1976 U.S. Code Cong. & Admin. News, p. 2897, 3794. The Court's findings on the two questions are final and do not constitute appealable orders. 26 U.S.C. § 7429(f).

II. WAS THE ASSESSMENT REASONABLE UNDER THE CIRCUMSTANCES

Under the provisions of 26 U.S.C. § 6851,¹² a termination assessment may be made when the IRS finds that the taxpayer is designing to leave the country or to remove his property from the country, or to conceal himself or his property, or ...