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Sunday, May 20, 2012

Ind. Decisions - More on: Supreme Court lets Tax Court decison in Garwood v. State stand

Last Thursday, May 17th, the Supreme Court decided to let stand the Tax Court's decision in Indiana Department of State Revenue v. Virginia Garwood, et al.

The traditional press has not picked up on this ruling. Here is some background.

This Aug. 20, 2011 ILB entry reported Judge Wentworth's Tax Court decision from the previous day, and quoted from the Aug. 19th opinion at length. Here is a sample:

It cannot reasonably be inferred that the jeopardy assessment procedure was used in this case to protect the State's fiscal interests. For example, the day after the Garwoods' 240 dogs were seized, the Department sold them all to the Humane Society for a total of $300.00, yet logic dictates that the dogs had a value far greater than just over $1.00 each. * * * Moreover, a media circus roiled on the very day the Department and the OAG served the jeopardy assessments, jeopardy tax warrants, and seized the Garwoods' assets. Within hours of the raid, individuals from the OAG were interviewed on television and by newspapers about shutting down a “puppy mill.” The unusual occurrence of this media hype in conjunction with the Department's sale of the Garwoods' property for a nominal sum demonstrate that the Department wielded the power of jeopardy assessments as a sword to eliminate a socially undesirable activity and close down a suspected “puppy mill,” [15] not to fill the State's coffers with the tax liabilities the Garwoods purportedly owed. [ILB emphasis]

Jeopardy assessments are a powerful collection tool that, when properly used, further the important state interest of collecting state tax revenue needed to pay for critical governmental services and conducting the business of the state. The designated evidence shows that the Garwoods did not remit the proper amount of tax due to the state on their sales, a fact the Garwoods have repeatedly acknowledged. Nonetheless, the Department overstepped its authority in this case by issuing jeopardy assessments without having shown the exigent circumstances required by Indiana Code § 6-8.1-5-3 and 45 IAC 15-5-8. Consequently, the Court holds that the sixteen jeopardy assessments issued to the Garwoods for all or part of the 2007 though 2009 tax years are void as a matter of law. * * *

CONCLUSION. For all the foregoing reasons, the Court DENIES the Department's motion for summary judgment in its entirety and GRANTS summary judgment in favor of the Garwoods. The Court REMANDS the matter to the Department and ORDERS it to void all of the Garwoods' jeopardy assessments and take any other actions necessary to give full effect to this Order. The parties shall bear their own costs.
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[15] 15 (See Petrs' Des'g Evid. Vol. 2, Ex. J at 1, 4 (article written by Andrew W. Swain, Tax Ills Behind the Mills – the Advancement of Puppy Protection, stating “[s]o far, using its state tax laws, Indiana has successfully closed two puppy mills and prosecuted their operators for various tax crimes”) and (citing "Puppy Mill Busted: Dogs Taken from Harrison County Farm to New Albany Warehouse," Ind. Law Blog (June 3, 2009), available at http://indianalawblog.com/archives/2009/06/ind_law_puppy_m.html (discussing the Virginia Garwood case”).)

The thorough Aug. 20th ILB entry also contains much other information, including a 6News story on the so-called "Al Capone strategy."

A case in federal court Garwood v. State (SD Ind.) was remanded to Harrison County Circuit Court on Oct. 11, 2011. Judge Pratt wrote:

On June 17, 2011, a group of Defendants (also referred to as “Defendants” for purposes of this entry) removed this action to federal court in light of Plaintiffs’ federal claims. * * *

Although there are 46 Defendants in this case, only one matters for purposes of the present motion: Defendant Lisa Marie Pittman (“Pittman”), who has not consented in writing to removal of this action. * * *

Given Pittman’s failure to consent and Defendants’ failure to show that Pittman is a nominal party, this case must be remanded.

Lastly, Bryan Corbin of the AG's office was quoted as saying about the significance of the Supreme Court's decision not to grant transfer: "The State has other avenues it can pursue to collect unpaid taxes." But according to the Tax Court opinion, that is just the point, jeopardy assessments were not used properly in this case; the State has other, suitable tools.

Here, from the Tax Court opinion, is what happened on June 2, 2009, the date the Attorney General and the Department of Revenue served the jeopardy assessments:

[On June 2, 2009], a tumultuous series of events took place as an unspecified number of individuals from the OAG and the Department went to the Garwoods' residence just after 7:00 a.m. to serve the jeopardy assessment documents and demand immediate payment of the tax, interest, and penalties allegedly owed. An investigator from the Department's special investigation unit explained to each of the women individually that the amount she owed was $142,367.94 and that without immediate payment, the State would then and there “levy [her] personal property to satisfy the taxes due[.]” When first Virginia and then Kristin stated that she could not pay that amount immediately, the investigator served each with the Jeopardy Tax Warrants and the associated Investigation Summaries. The Department and the OAG, assisted by the Indiana State Police and sixty volunteers from the United States and Missouri Humane Societies, seized all 240 dogs on the premises, including the Garwoods' house pets and farm dogs. Other property seized from the Garwoods included $1,260 in cash, business records showing the Garwoods received $25,274.31 from their dog sales, un-cashed checks totaling $1,325 (two containing dog sale notations), and copies of Virginia's 2005, 2007, and 2008 federal and state income tax returns. Later the same day, the Department and the OAG filed with the Harrison Circuit Court all of the Jeopardy Tax Warrants and a Verified Petition for a Post-judgment Restraining Order and Injunction that sought to enjoin the Garwoods from doing business in Indiana until their tax liabilities were satisfied. That afternoon, the Attorney General held a television press conference and newspaper interview, publicizing the seizure of the Garwoods' dogs.

The next day, the OAG (on behalf of the Department) sold all of the 240 dogs seized to the Humane Society of the United States for a total of $300.

Posted by Marcia Oddi on May 20, 2012 11:59 AM
Posted to Ind. Sup.Ct. Decisions | Ind. Tax Ct. Decisions