Stebco, Inc. v. US, 90-0149R(IEG).

• Decision Date: 12 March 1990
• Docket Number: No. 90-0149R(IEG).,90-0149R(IEG).
• Citation: 733 F. Supp. 1387
• Parties: STEBCO, INC., a California Corporation, Rafael Carrillo-Barron, an individual, Norma Fregoso Carrillo, an individual, Construcciones Industriales Otay, S.A. de C.V., a Mexican Corporation, Edificaciones Industriales Omar, S.A. de C.V., a Mexican Corporation, Concretos Ati, S.A. de C.V., a Mexican Corporation, Agregados Tijuana, S.A. de C.V., a Mexican Corporation, Ferreteria El Clavo, S.A. de C.V., a Mexican Corporation, Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Southern District of California

733 F. Supp. 1387

STEBCO, INC., a California Corporation, Rafael Carrillo-Barron, an individual, Norma Fregoso Carrillo, an individual, Construcciones Industriales Otay, S.A. de C.V., a Mexican Corporation, Edificaciones Industriales Omar, S.A. de C.V., a Mexican Corporation, Concretos Ati, S.A. de C.V., a Mexican Corporation, Agregados Tijuana, S.A. de C.V., a Mexican Corporation, Ferreteria El Clavo, S.A. de C.V., a Mexican Corporation, Plaintiffs, v. UNITED STATES of America, Defendant.

No. 90-0149R(IEG).

United States District Court, S.D. California.

March 12, 1990.

Richard A. Shaw and Charles W. Becker, Shenas, Shaw & Spievak, San Diego, Cal., for plaintiffs.

Greg Addington, U.S. Dept. of Justice, Tax Div., Washington, D.C., for defendant.

ORDER DENYING DEFENDANT'S MOTION TO DISMISS; GRANTING PLAINTIFFS' MOTION FOR ABATEMENT OF JEOPARDY ASSESSMENT

RHOADES, District Judge.

BACKGROUND

On February 2, 1990, plaintiffs filed a complaint to determine the reasonableness and appropriateness of two jeopardy assessments levied against them by the Internal Revenue Service ("IRS"). The jeopardy assessment made by the IRS against Stebco, Inc. ("Stebco") and the individual taxpayers resulted from an IRS investigation.¹ The IRS gathered the following information, which was presented to the court by way of declaration of a Revenue Agent, Beatriz Cruz:²

1. Stebco failed to cooperate with Cruz, provided misleading and inconsistent information, and represented that it was exempt from United States internal revenue laws. Stebco's 1988 income tax return was overdue.

2. Stebco appeared to have no business address other than a telephone answering service and freight forwarding service. The assets of Stebco were believed to be easily liquidated and transferred out of the reach of the IRS.

3. Stebco's sole shareholder was Rafael Carrillo-Barron. Carrillo-Barron and his wife, Norma Fregoso Carrillo, are the individual taxpayers who were also investigated (husband and wife hereinafter referred to as "the individual taxpayers").

4. The individual taxpayers filed W-8 forms with various banks and brokerage houses despite the fact that they were not nonresident aliens during 1986 and 1987.

5. The individual taxpayers declined to produce income tax returns requested by the IRS agents.

6. The individual taxpayers failed to file appropriate federal income tax returns for 1986 and 1987 despite being residents of the United States.

7. The individual taxpayers used false taxpayer identification numbers in connection with bank accounts, which concealed the accounts from the IRS.

8. The individual taxpayers' claim that they were nonresident aliens during 1986 and 1987 was false as they owned a home in Bonita, California at that time.

9. Mr. Carrillo-Barron had a "green card" identifying him as a permanent resident alien and has applied for amnesty through the Immigration and Naturalization Service. He claimed to be a Mexican national but stated on his marriage license application (in 1974) that he was born in California and that his mother was American.

10. Mrs. Fregoso Carrillo claimed to have recently renounced her American citizenship and claimed on her marriage license application that she was a Mexican citizen. She and her husband moved to Tijuana, Mexico, in 1988 with the apparent intention of remaining residents of Mexico. Their home in Bonita was vacated and placed on the market for sale.

11. According to Stebco's authorized representative, Carrillo-Barron was not co-operating with the IRS because he believed the corporation and himself to be exempt from taxation.

12. According to the individual taxpayers' accountant, Stebco and the individual taxpayers avoided the payment of appropriate custom duties to the Mexican government by misrepresenting the nature and value of the merchandise being exported.

13. The assets of the individual taxpayers consisted of cash accounts, which could be easily transferred out of the reach of the IRS, and the home in Bonita. The IRS was informed by neighbors that the home was sold.

Based on the above information, the IRS believed that Stebco and the individual taxpayers were or appeared to be designing quickly to place themselves and/or their assets beyond the reach of the IRS. Accordingly, on September 25, 1989, the IRS made a jeopardy assessment against Stebco in the amount of $304,115.82, and against the individual taxpayers in the amount of $234,437.00 each. The amounts of jeopardy assessments were computed based upon constructive dividends being paid by Stebco to the individual taxpayers and the use of an individual federal income tax return for the individual taxpayers.

Stebco and the individual taxpayers have petitioned this court for review of that assessment.

DISCUSSION

1. Government's Motion to Dismiss the Individual Taxpayers

Under 26 U.S.C. § 7429, an action for abatement of a jeopardy assessment must be brought in the judicial district described in § 1402(a)(1) or (2) of Title 28, U.S. Code. Section 1402(a)(1) provides that the proper district in the case of an individual plaintiff is "the judicial district where the plaintiff resides." As the individual taxpayers are nonresident aliens, the government argues that they may not maintain an action in this court. The government contends that these plaintiffs must pursue their remedy in Tax Court.

Two cases support the government's position: Bigio v. United States, 710 F.Supp. 790 (S.D.Fla.1988); and Bautista v. United States, (CCH) 88-2 U.S.T.C. ¶ 9599 (N.D. Cal.1988). However, this court declines to follow the reasoning of those cases, and instead finds support in Williams v. United States, 704 F.2d 1222 (11th Cir.1983) and Garzon v. United States, 605 F.Supp. 738 (S.D.Fla.1985).

First, Bigio and Bautista were decided after Williams, the only appellate court case that discusses the right of a nonresident alien to sue in a district court in a jeopardy assessment proceeding. However, neither district court addressed the Williams decision.

Second, Bigio and Bautista relied upon cases in which the plaintiffs were nonresident alien taxpayers attempting to file suits for the refund of taxes.³ In such cases, the constitutional rights of the plaintiffs were not implicated because they had the same remedy available to them, but had to pursue the remedy in the Tax Court or the Court of Claims. Consequently, the cases simply involved a choice of forum issue and raised no serious due process concerns. See, e.g., Malajalian v. United States, 504 F.2d 842, 844 n. 1 ("While an alien who must sue in the Court of Claims lacks the choice between forums available to a resident and may incur additional time and travel costs, this slight unequal treatment does not amount to a convincing Equal Protection claim in view of Congress' apparent desire to have all alien suits brought in one court, the Court of Claims").

In contrast, denying the plaintiffs the right to a prompt post-seizure hearing in a jeopardy assessment proceeding necessarily gives rise to questions concerning a plaintiff's due process rights under the Fifth Amendment of the United States Constitution. Williams, 704 F.2d at 1227 n. 5; see also Commissioner v. Shapiro et. ux., 424 U.S. 614, 629, 96 S.Ct. 1062, 1071, 47 L.Ed.2d 278 (1976). "The provisions for swift review in section 7429 ... suggest that Congress was ... aware that such assessments are made by the IRS without time to fully investigate all the factors required for a proper determination as to whether the making of the assessment was reasonable and/or the amount assessed was appropriate." Garzon, 605 F.Supp. at 743. Like the plaintiff in Garzon, the present plaintiffs had no opportunity to present their case or be heard in court before the seizure of their assets—in effect, the plaintiffs have been "saddled with all of the burdens and obligations of taxation yet the Government contends that they are not entitled to the expedited remedies allowed to all other taxpayers." Id.

Further, allowing resident aliens to seek review in a federal district court while forcing nonresident aliens to pursue a remedy —one that is not likely to be prompt—in the Tax Court or Court of Claims raises equal protection problems. There can be no rational basis for this rule. See id. citing Plyler v. Doe, 457 U.S. 202, 102 S.Ct. 2382, 72 L.Ed.2d 786 (1982).

This court scrutinizes the constitutionality of § 1402(a)(1) only as applied to the present case. See Broadrick v. Oklahoma, 413 U.S. 601, 610-612, 93 S.Ct. 2908, 2914-16, 37 L.Ed.2d 830 (1973); United States v. Raines, 362 U.S. 17, 80 S.Ct. 519, 4 L.Ed.2d 524 (1960). As the Supreme Court has consistently extended due process and equal protection to aliens without regard to resident or nonresident status, this court holds that a nonresident alien taxpayer may establish venue under 28 U.S.C. § 1402(a)(1) for purposes of contesting a jeopardy assessment. See Plyler v. Doe, 457 U.S. 202, 102 S.Ct. 2382.

2. Plaintiffs' Motion for Abatement of Jeopardy Assessment

Generally, the United States may not assess and collect taxes until a statutory notice of deficiency has been issued to the taxpayer, enabling the taxpayer to seek pre-collection review by the Tax Court. A jeopardy assessment, however, allows the IRS to protect revenues believed due from a taxpayer who appears to be designing "to do an act which would tend to prejudice proceedings to collect the income tax." Treas.Reg. § 1.6851-1(a)(1). Consequently, the IRS may freeze the assets of the taxpayer until the question of liability is determined.

Under § 7429(b)(2), the district court shall determine whether the making of the jeopardy assessment is reasonable under the circumstances, and whether the amount assessed is appropriate under the circumstances. If the court determines that the assessment is unreasonable, or the amount inappropriate, the court may order abatement, redetermination of the assessment, or other such...