DeRewal v. United States

• Decision Date: 30 September 1983
• Docket Number: Civ. A. No. 79-3895.
• Citation: 572 F. Supp. 1124
• Parties: Bruce DeREWAL, Manfred DeRewal, Jr., Deborah DeRewal, Jennifer Shaak, Pamela Loeffler and Denise DeRewal v. The UNITED STATES of America.
• Court: U.S. District Court — Eastern District of Pennsylvania

572 F. Supp. 1124

Bruce DeREWAL, Manfred DeRewal, Jr., Deborah DeRewal, Jennifer Shaak, Pamela Loeffler and Denise DeRewal v. The UNITED STATES of America.

Civ. A. No. 79-3895.

United States District Court, E.D. Pennsylvania.

September 30, 1983.

Jonathan D. Dunn, Pennsburg, Pa., L. Gerald Rigby, Steven T. Stern, Braemer & Kennedy, Philadelphia, Pa., for plaintiffs.

Mark G. Gellar, Tax Div., U.S. Dept. of Justice, Washington, D.C., for defendant.

MEMORANDUM OF DECISION

SHAPIRO, District Judge.

Plaintiffs, beneficiaries of a Trust that conveyed all its shares to a corporation in return for real estate entitled in the name of the corporation, brought this equity action in the Court of Common Pleas of Bucks County to restrain Internal Revenue Service Officer Crawford from obtaining possession of the property in his capacity as sole director of the corporation, R.E.D., Inc. Defendant Crawford removed the action to federal court by stipulation without waiving the objection of the Internal Revenue Service (IRS) to the jurisdiction of the removal court. Plaintiffs claim the IRS attempted to deny R.E.D., Inc. its rights guaranteed by the Internal Revenue Code and by the Due Process Clause. Plaintiffs further claim that the IRS, unless enjoined, will be permitted to subvert the Code by denying R.E.D., Inc. the right to litigate in the Tax Court. Plaintiffs also question whether the IRS had a right to make a jeopardy transferee assessment against the Trust, whether the IRS' actions are authorized by law, and if so, whether the IRS followed the required procedures. Following a non-jury trial on stipulated facts and documentary evidence, the Court makes the following Findings of Fact and Conclusions of Law.

FINDINGS OF FACT

1. In 1975 the Commissioner of the Internal Revenue Service issued to Manfred and Jennie DeRewal a notice of deficiency in income tax for the year 1969 of $91,273.90 and additions in tax of $30,208.89 in the total sum of $121,482.79.

2. On May 5, 1975, Manfred and Jennie DeRewal timely petitioned the Tax Court (Docket No. 3839-75) for a redetermination.

3. On December 17, 1975, Manfred and Jennie DeRewal executed a document, denominated "Declaration and Deed of Trust," naming themselves as Trustees for Deborah DeRewal, Jennifer Shaak, Pamela Loeffler, Denise DeRewal, Bruce DeRewal and Manfred DeRewal, Jr., who were all the natural children of Manfred DeRewal, Sr. and Jennie DeRewal.

4. On December 17, 1975, three of the children formed a Pennsylvania corporation, R.E.D., Inc.

5. Following the incorporation of R.E.D., Inc., the Board of Directors met and accepted offers of Manfred and Jennie DeRewal to transfer legal title to 34.672 acres of land located in Bedminster Township, Bucks County, Pennsylvania to R.E.D., Inc. in exchange for the issuance of all the authorized shares of the corporation to them in their capacity as Trustees of the Trust.

6. Mrs. DeRewal and some of the children live in a house located on the land transferred to R.E.D., Inc.

7. Following said Board of Directors meeting, the President and Secretary of the corporation caused all the authorized stock of R.E.D., Inc. to be issued to Manfred and Jennie DeRewal as Trustees for their children under Deed of Trust dated December 17, 1975.

8. By deed dated January 16, 1976, Manfred and Jennie DeRewal transferred the legal title to their property to R.E.D., Inc.

9. On January 29, 1976, the United States Tax Court, in Tax Court Docket No. 3839-75, entered a stipulated Decision against Manfred DeRewal and Jennie DeRewal for income tax for the year 1969 and additions to tax in the total amount of $121,482.79.

10. Following the above Decision, an assessment was made against Manfred and Jennie DeRewal on February 27, 1976 in the total amount of $121,482.79, plus statutory interest.

11. On February 27, 1976, a Notice and Demand for Payment was sent by the Internal Revenue Service to Manfred and Jennie DeRewal. To date, no payment has been received on said liability.

12. On December 10, 1976, the Internal Revenue Service made a Jeopardy Transferee Assessment against R.E.D., Inc., for the tax liability of Manfred and Jennie DeRewal for the 1969 tax year.

13. On January 13, 1977, the Internal Revenue Service issued a Notice of Liability to R.E.D., Inc. in the amount of the Jeopardy Transferee Assessment.

14. Within the ninety (90) day statutory period provided for in Internal Revenue Code § 6213(a), R.E.D., Inc. filed a Petition in the Tax Court of the United States, docketed as No. 3656-77.

15. On June 27, 1977, the Internal Revenue Service made a Jeopardy Transferee Assessment against Manfred and Jennie DeRewal in their capacity as Trustees under the Deed of Trust dated December 17, 1975 for the tax liability of Manfred and Jennie DeRewal for the 1969 tax year.

16. On June 27, 1977, Internal Revenue Service Officer William Crawford personally handed a notice of the Jeopardy Transferee Assessment made against Manfred and Jennie DeRewal in their capacities as Trustees under the Deed of Trust dated December 17, 1975 to Mrs. Jennie DeRewal at R.D. # 2, Perkasie, PA 18944.

17. At the time of the assessment, Manfred and Jennie DeRewal were separated. The DeRewals did not notify the IRS that they had separate residences, nor did the IRS have reason to know of the separation. Therefore, the service of the notice of the Jeopardy Transferee Assessment on Mrs. DeRewal at her home was valid as to Mr. DeRewal as well.

18. When delivering the Notice of Jeopardy Transferee Assessment, Mr. Crawford also personally delivered to Mrs. Jennie DeRewal a Notice of the Statement of Taxes Due.

19. Neither Manfred nor Jennie DeRewal, in their capacity as Trustees, exercised any of the rights of appeal accorded to them under Internal Revenue Code § 7429 (26 U.S.C. § 7429).

19A. On August 12, 1977, the Internal Revenue Service issued and mailed a Notice of Liability to Manfred and Jennie DeRewal as Trustees under Deed of Trust dated December 17, 1975.

20. Manfred and Jennie DeRewal in their capacity as Trustees under the Declaration and Deed of Trust dated December 17, 1975 did not file a Petition with the Tax Court contesting the liability of the Trust as transferee of Manfred and Jennie DeRewal.

21. Manfred and Jennie DeRewal in their capacity as Trustees did not pay the transferee tax liability within ten (10) days after notice and demand.

22. On or about May 24, 1978, a Notice of Levy and Notice of Seizure were served on Jonathan Dunn, Esquire, counsel for the Trustees.

23. Jonathan Dunn tendered to the Internal Revenue Service the Minute Book and Stock Transfer Book of R.E.D., Inc., together with Share Certificates evidencing the issuance of 2,000 shares of the common stock of the corporation to Manfred DeRewal and Jennie DeRewal as Trustees of the Declaration and Deed of Trust dated December 17, 1975.

24. The said 2,000 shares of common stock of R.E.D., Inc. represented all of the assets of the Trust.

25. The said 2,000 shares of common stock of R.E.D., Inc. represented the entire outstanding shares issued by R.E.D., Inc.

26. On July 12, 1978, William B. Crawford, Revenue Officer, executed a Notice of Sealed Bid Sale which described the terms and conditions of the proposed sale of the property.

27. On January 12, 1979, James D. Rideoutte, District Director, Internal Revenue Service, Philadelphia, Pennsylvania executed the Action of Shareholders of R.E.D., Inc. which removed Manfred and Jennie DeRewal from their positions as members of the Board of Directors and elected William Crawford as sole director of R.E.D., Inc.

28. On February 2, 1979, William Crawford executed the Action of Board of Directors of R.E.D., Inc. removing all corporate officers of R.E.D., Inc. and authorizing Crawford to take any action necessary to settle the corporation's controversy in the United States Tax Court, No. 3656-77.

29. On February 2, 1979, William Crawford sent letters advising Manfred and Jennie DeRewal, Deborah DeRewal, Bruce DeRewal, Jennifer Shaak, Manfred DeRewal, Jr., and Pamela Loeffler of their removal as officers of R.E.D., Inc.

30. On February 2, 1979, William Crawford forwarded a letter entitled "Notice to Quit" to Manfred and Jennie DeRewal and demanded that they remove themselves and their belongings from the premises.

31. On March 13, 1979, the United States through its duly authorized agent commenced an Action in Ejectment in state court seeking possession of the 34.672 acres together with improvements thereon.

32. On July 30, 1979, C. Moxley Featherston, Tax Court Judge, entered a Decision against R.E.D., Inc. in Tax Court Docket No. 3656-77 pursuant to a Stipulation, dated July 25, 1979, signed by William Crawford on behalf of R.E.D., Inc.

DISCUSSION

Removal jurisdiction is derivative; if the state court lacked jurisdiction, the federal court acquires none. Lambert Run Coal Co. v. Baltimore & Ohio R. Co., 258 U.S. 377, 42 S.Ct. 349, 66 L.Ed. 671 (1922); Gleason v. United States, 458 F.2d 171 (3d Cir.1972); Stapleton v. $2,438,110, 454 F.2d 1210 (3d Cir.1972); IA MOORE, FEDERAL PRACTICE ¶ 0.1573 (2d Ed.1983). This is so even though the federal court might have had jurisdiction over the action had it first been brought in the federal system. Id. The Government originally removed the action under 28 U.S.C. § 1442, which provides in pertinent part:

(a) A civil action or criminal prosecution commenced in a State court against any of the following persons may be removed by them to the district court of the United States for the district and division embracing the place wherein it is pending:

(1) Any officer of the United States or any person acting under him, for any act under color of such office or on account of any right, title or authority claimed under any Act of Congress for the apprehension or punishment of criminals or the collection of the revenue...

At the time plaintiffs filed their state court action they had...