Zion Coptic Church, Inc., Plaintiff v. United States of America, Defendant.

No. 78-1984-CIV-WMH

United States District Court for the Southern District of Florida

79-1 U.S. Tax Cas. (CCH) P9325; 44 A.F.T.R.2d (RIA) 5022

March 19, 1979

COUNSEL: Murray Sams, Jr., Sams, Anderson, Gerstein & Ward, 66 West Flagler Street, Miami, Florida 33130, for plaintiff.  Steven M. Pave, Assistant United States Attorney, Miami, Florida 33132, and Martin B. Whitaker, Department of Justice, Washington, D.C. 20530, for defendant.

OPINION BY: HOEVELER

OPINION: ORDER

HOEVELER, District Judge: The Plaintiff, Zion Coptic Church, Inc., instituted this action for review of jeopardy and termination assessments by the Commissioner of Internal Revenue.  This Court has jurisdiction under 26 U.S.C. § 7429.

On February 28, 1978, the Commissioner imposed jeopardy assessments against the Church under 26 U.S.C. § 6851(a) for the years 1974 through 1976.  The total tax imposed, including penalties and interest, was almost $600,000.00.

That same day the Commissioner imposed termination assessments against the Church under 26 U.S.C. § 6851(a) for the years 1977 and 1978.  The tax imposed under this section was more than one and one-half million dollars.

The scope of judicial review of these assessments is limited by 26 U.S.C. § 7429(b).  The district court is empowered by the statute to determine only the questions of whether the making of the assessment is reasonable under the circumstances.  The statute expressly places the burden of proof on the Secretary as to the first issue, the reasonableness of making the assessment.  The taxpayer has the burden of proof on the second issue, the reasonableness of the amount.

The Court finds that the government has met its burden of proof on the issue of the reasonableness of making the assessment.

The government adduced evidence that the Church through various of its members, has been engaged in illegal activities and that it has failed to file any federal tax returns reporting the income it has earned from 1974 to the present date.  There was evidence that the Church utilized shell corporations, individual members, aliases, and false identities to disguise its activities and to hide its assets, and that the Coptic organization was involved with foreign individuals and corporations similarly engaged in illegal activities, all of which indicate an adversity on the part of the organization towards voluntary compliance with the federal income tax laws and regulations, and which tend to prejudice or render wholly or partially ineffectual proceedings to collect the outstanding income taxes due.

The Coptic “Church” had filed no federal income tax returns, despite its accumulation of substantial assets and despite an instruction from IRS to file returns for the years 1975 through 1977 contained within the Final Adverse Determination with respect to the tax exempt status of the taxpayer on February 27, 1978.

The Court further finds that the taxpayer has failed to meet its burden of proof on the second issue, the reasonableness of the amount of the assessment.  The government’s reconstruction of the taxpayer’s cash accumulations and expenditures for one six-month period alone amounted to more than two million dollars.  In addition, some thirty-three tons of marijuana was seized in November of 1977 and February of 1978.  Various members of the Coptic organization were directly involved in this transaction.  Conservatively estimating the value of this marijuana at $50.00 per pound adds another $3,300,000.00 in further expenditures during the same six-month period.  In view of these large transactions, the Court cannot say that the amount of the assessments here imposed was unreasonable under the circumstances.

The plaintiff filed a motion to strike the government’s answer on the grounds that the defendant had not complied with 26 U.S.C. § 7429(a)(1), which provides:

Within five days after the day on which an assessment is made under section 6851(a), 6861(a), or 6862, the Secretary shall provide the taxpayer with a written statement of the information upon which the Secretary relies in making such assessment.

The government apparently concedes that it did not provide a separate written statement five days after the assessment.  It argues, however, that the plaintiff had adequate notice through other means of the facts upon which the Secretary relies.  First, the letter of February 27, 1978 revoking the Church’s tax-exempt status recited in twelve numbered paragraphs various facts which were considered by the Service in revoking the plaintiff’s tax-exempt status.  Second, two letters dated February 28, 1978, notifying the plaintiff of the jeopardy and termination assessments, recite that the Director has determined that the Church was attempting to place assets beyond the reach of the government.  Attached to these letters was a detailed schedule of expenditures made by the Church, which was the basis for computing indirectly the income tax liability of the plaintiff.  Third, within five days of the making of the assessments, representatives of the plaintiff met with IRS representatives concerning the assessments at which time the basis for the assessments was discussed in detail.

The underlying purpose of 26 U.S.C. § 7429(a)(1) is to give the taxpayer notice of the information on which the government relies so that the taxpayer may raise any available defenses.  The Court finds that the taxpayer here did receive sufficient notice, both in the letter of revocation of tax-exempt status and in the letters notifying the plaintiff of the assessments.  While it would have been preferable for IRS to have sent a separate written statement of the information upon which it relied, denominated as such, the taxpayer was not so clearly prejudiced by the lack of a separate statement as to mandate striking of the government’s answer.

The Court notes that the taxpayer had actual notice in great detail of the facts upon which the government might rely by virtue of a similar jeopardy assessment case by a transferree of this plaintiff, King Shipping Consum, Inc. v. United States, Case No. 78-1835-CIV-WMH.  Since the information available to the plaintiff as a result of the King Shipping case was far more detailed and specific than that required by § 7429(a)(1), striking the government’s answer would be grossly disproportionate to the technical statutory violation alleged to have been committed.

The plaintiff later modified its motion to strike to include only those portions of the government’s answer which reflect information known to the government at the time of making the assessments but not furnished to the plaintiff within five days thereafter.  The Court must reject this proposal because it would necessitate inquiry by the Court into the questions of when and how the government acquired various bits and pieces of information about the taxpayer.  Even if such a reconstruction of the government’s investigation were possible, it would require testimony of indeterminate length by various IRS agens involved in this investigation.  Such a procedure is unwarranted, the Court feels, in the type of summary proceeding contemplated by 26 U.S.C. § 7429(b) where the only issues before the Court are the reasonableness of the making of the assessments and the reasonableness of the amount.  It is therefore,

ORDERED AND ADJUDGED that the plaintiff’s motion to strike the answer is denied.  The making of the assessments and the amounts thereof having been found to be reasonable under the circumstances.  It is further,

ORDERED AND ADJUDGED that this cause be and it is hereby dismissed with prejudice.

DONE AND ORDERED in Chambers at Miami, Dade County, Florida this 19 day of March, 1979.