Guillaume v. C.I.R., 02-60105CIVMARTINEZ.

• Decision Date: 28 August 2003
• Docket Number: No. 02-60105CIVMARTINEZ.,02-60105CIVMARTINEZ.
• Parties: Claude GUILLAUME, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. District Court — Southern District of Florida

290 F.Supp.2d 1349

Claude GUILLAUME, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 02-60105CIVMARTINEZ.

United States District Court, S.D. Florida, Miami Division.

August 28, 2003.

COPYRIGHT MATERIAL OMITTED

Mitchell S. Fuerst, Rodriguez, O'Donnell, Ross, Fuerst, et al, Miami, FL, Rodriguez, O'Donnell, Fuerst, Gonzalez & Williams, Washington, DC, for Plaintiff.

Jose Francisco De Leon, Deborah M. Morris, United States Department of Justice, Washington, DC, for Defendant.

MEMORANDUM OPINION

MARTINEZ, District Judge.

THIS CAUSE came before the Court upon Claude Guillaume's Petition for Determination and Review of Notice of Termination Assessment and Jeopardy Levy (D.E. No. 1). For the reasons set forth below, the Court finds the termination assessment is reasonable and the amount assessed is appropriate under the circumstances of this case.

I. Background

On March 2, 2001, Petitioner Claude Guillaume was arrested on charges of trafficking in cocaine (Joint Pretrial Stipulation ["JPTS"], Docket Entry Number ["D.E. No."] 42 at ¶ V(1)).¹ Law enforcement officials seized four (4) kilograms of cocaine from the car he was driving and approximately $2.7 million from his residence. Id. at ¶ V(2). Petitioner ultimately pled guilty to charges of trafficking in cocaine. Id. at ¶ V(13). On or about March 6, 2001, The Homestead Police Department notified the Internal Revenue Service ["IRS"], through its agent Arthur Brake, regarding the details of this arrest and seizure. Id. at ¶ V(3). The City of Homestead filed a Complaint for forfeiture of the money seized from the residence [hereinafter "the forfeiture case"], and Petitioner filed a third-party complaint alleging a violation of his constitutional rights. Id. at ¶ V(4); see also Case No. 01-7145-CIV-Ferguson/Snow. After a settlement agreement was reached in the forfeiture case, the Court entered a Final Judgment and Order of Forfeiture on September 24, 2001. Id. at ¶¶ V(4), V(5).

On October 3, 2001, the IRS made a termination assessment against Petitioner for the period ending March 31, 2001 (JPTS at ¶ V(7)). In addition to the information provided by the Homestead Police, in considering this assessment, the IRS examined Petitioner's reported taxable income. Specifically, Petitioner's tax returns for the years 1996 through 1999 reflect the following:

                Tax Year  Gross Receipts  Net Profit  AGI
                1996      N/A             $14,326     $13,314
                1997      $17,373         $12,848     $13,064
                1998      $11,200         $ 9,225     $ 8,574
                1999      $26,350         $24,025     $22,328
                

Id. at ¶ V(10).

In computing the amount of the termination assessment, the IRS based Petitioner's income on the amount of currency seized plus the value of the seized cocaine, which totaled $2,654,137.00. Id. at ¶ V(8). From that total, the IRS adjusted the amount for a self-employment tax deduction in the amount of $40,526.00 and a standard deduction of $4,550.00. Id. The IRS applied the tax rate for a single individual, resulting in a tax liability of $998,604.00. Respondent added self-employment tax in the amount of $81,052.00, for a total balance due of $1,079,656.00. Id.

The IRS served a levy on the City of Homestead on October 3, 2001 for $1,079,656.00 (JPTS at ¶ V(9)). The City of Homestead paid the requested amount to the IRS. Id. Subsequent to this transfer Petitioner furnished income tax reports for 2000 and 2001 that reflect the following:

                Tax Year  Gross Receipts  Net Profit  AGI
                2000       $328,847       $44,441     $41,301
                2001       $465,417       $67,102     $62,361
                

Id. at ¶ V(11). On January 24, 2002, Petitioner, after exhausting his administrative remedies, filed a petition with this Court contesting the termination assessment. Id. at ¶ V(12).

II. Termination Assessment

A "termination assessment" is a special tax assessment where more routine methods of collection might be ineffective or substantially jeopardized if collection efforts are delayed and is authorized under Title 26 of the United States Code. 26 U.S.C. § 6851. A termination assessment is made for a tax year that has not yet ended or for a tax year that has ended but for which the due date for filing the required return has not passed. Id.; see also Nolan v. United States, 539 F.Supp. 788, 789 (D.Ariz.1982).² Section 6851(a)(1), Title 26 of the United States Code provides:

If the Secretary finds that a taxpayer designs quickly to depart from the United States or to remove his property therefrom, or to conceal himself or his property therein, or to do any other act ... tending to prejudice or to render wholly or partially ineffectual proceedings to collect the income tax for the current or the immediately preceding taxable year unless such proceeding be brought without delay, the Secretary shall immediately make a determination of tax for the current taxable year or for the preceding taxable year, or both, as the case may be, and notwithstanding any other provision of law, such tax shall become immediately due and payable. The Secretary shall immediately assess the amount of the tax so determined ... and shall cause notice of such determination and assessment to be given the taxpayer, together with a demand for immediate payment of such tax.

If the IRS reasonably determines that taxes are threatened, a termination assessment is immediately authorized to accurately determine the amount of tax due, to demand payment of that amount, and to levy upon the taxpayer's property. 26 U.S.C. § 6851.

There is a limited and expedited³ judicial review⁴ of this procedure under 26 U.S.C. § 7429. The relevant portion of 26 U.S.C. § 7429(b)(3) provides:

Within 20 days after a proceeding is commenced under paragraph (1), the court shall determine—

(A) whether or not—

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

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

The court reviews the assessment de novo. See Miller v. United States, 615 F.Supp. 781, 783 (N.D.Ohio 1985); United States v. Doyle, 482 F.Supp. 1227, 1229 (E.D.Wis. 1980) (comparing a section 7429 proceeding to a preliminary probable cause examination in a criminal proceeding, providing relief only where the assessment is unreasonable). In determining whether the assessment is reasonable and the amount assessed is appropriate, the Court "is to take into account not only information available to the Internal Revenue Service on the assessment date, but also any other information which bears on the issues before it." Haskin v. United States, 444 F.Supp. 299, 304 (C.D.Cal.1977) (citing S.Rep. No. 94-938 at 365); see also Magluta v. United States, 952 F.Supp. 798, 801 (S.D.Fla.1996). The Court shall address the reasonableness and the amount of the assessment in turn.

A. Reasonableness of the Assessment

Although section 7429 does not set forth specific guidelines as to what constitutes "reasonable under the circumstances," courts in reviewing termination assessments have been guided by the above-quoted principles of section 6851 for making such an assessment. The general test courts have used to determine whether the making of an assessment is reasonable includes an inquiry into whether: (1) the taxpayer is or appears to be planning to quickly depart from the United States to conceal himself; (2) the taxpayer is or appears to be designing to place his property beyond the reach of the government either by removing it from the United States or by concealing it, by transferring it to other persons, or by dissipating it; or (3) the taxpayer's financial solvency appears to be imperiled. See Cantillo v. Coleman, 559 F.Supp. 205, 206-07 (D.N.J. 1983). The government bears the burden of proving the assessment was reasonable. 26 U.S.C. § 7429(g)(1).

Courts have found the general requirements of reasonableness for termination assessments satisfied under specific circumstances. Particularly, courts have found involvement in illegal activity to be sufficient — as it is suggestive of any one of the above-listed requirements — to satisfy the limited review under section 7429. See Mueller v. C.I.R., 882 F.Supp. 1060, 1062 (S.D.Fla.1995); Harvey v. United States, 730 F.Supp. 1097, 1106 (S.D.Fla.1990) ("A taxpayer's involvement in illegal activity alone is sufficient to warrant the use of a termination or jeopardy assessment") (citing Young v. United States, 671 F.Supp. 1340, 1343 (S.D.Fla.1987)). Courts have also found the general criteria are satisfied by a broad range of erratic fiscal behavior, which suggests tax dollars are in jeopardy. See Magluta, 952 F.Supp. at 802 (listing factors the Court may consider including: involvement in illegal activity, possession of large amounts of cash, dissipation of assets, lack of assets from which tax liability may be collected; and prior tax returns reporting little or no income despite possession of large amounts of cash); see also Young, 671 F.Supp. at 1343-44 (S.D.Fla. 1987) (assessment reasonable where taxpayer participated in criminal activity and dealt in large amounts of undisclosed cash while reporting small amounts of income on federal tax returns).

The Court's ultimate obligation is to ensure Respondent has acted reasonably in its assessment. Therefore, "[i]n order to establish that the making of a jeopardy assessment is reasonable under the circumstances, the Service `need only establish that the taxpayer's circumstances appear to be jeopardizing collection of a tax—not whether they definitely do so.'" Miller, 615 F.Supp. at 786 (quoting Cantillo, 559 F.Supp. at 207); see also Bean, 618 F.Supp. at 658 ("Whether Bean in fact intended to depart the country, liquidate his assets and thereby avoid payment of his taxes is irrelevant."). The question ultimately is not whether the taxing authority was correct but whether the assessment was reasonable under the circumstances.

In the case at hand, the pertinent facts are undisputed. Petitioner...