UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT

UNITED STATES OF AMERICA and

Special Agent GLENN J KULAS,

Plaintiff

V.

JOHN W. KIS, Vice-President,

Pioneer Savings & Loan Assoc., et al

Defendants,

V.

GEORGE A. MEYERS,

Taxpayer-Petitioner

Appellant.

APPEAL FROM UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WISCONSIN

REPLY BRIEF FOR THE APPEALLANT

GEORGE A. MEYERS
1040 COLLEGE AVE.
RACINE, WI 53403
PETITIONER PRO SE

TABLE OF CONTENTS

ITEM

Table of Authorities Cited

Clarification of Facts

Argument in Reply

If Intervenor is to meet his burden of proof, he must be allowed discovery

The evidence presented at the hearing supports Intervenor’s position that the IRS summonses were not issued in good faith

The IRS employees as witnesses were not always truthful

The District Court has abused its discretion in disallowing the interrogatories propounded by intervenor

Internal Revenue Manual 9G-93 shows an institutional committement to prosecute criminally

Summary

Conclusion

TABLE OF AUTHORITIES CITED

References and Cases:

IR Code, Sec 7602

United States v Garden State National Bank, 78 LW 2330

United States v LaSalle National Bank, 473 US 298

United States v Powell, 379 US 48

Manual Supplement 9G-93

United States v Tweel, 550 F 2d 297

US v Sherwood & Green, L-80-40 &41, USDC N. Ind

US v Janis, 96 S Ct 3201

Kraut v CIR, 527 F 2d 1014

CLARIFICATION OF FACTS

In petitioner’s statement of the case (Br 5), it is stated that “Taxpayer also denied (R. 47) that he resides in the jurisdiction of the District Court.” In Intervenor’s defense, Intervenor specifically disagreed with the IRS claim of jurisdiction, (Appendix, p 1-5)

Petitioners also state that “Taxpayer denied… that he was in possession of information concerning the investigation (R. 47).” Intervenor disagreed that Respondent is in possession and control of testimony and documents concerning the above described investigation and left petitioners to their proof thereof.

Petitiones also state that “Taxpayer also denied… that the summonses were issued and served upon him.” Intervenor actually disagreed that summonses were issued upon respondents and left petitioners to their proof thereof. Intervenor also moved to have the IRS summonses dismissed for insufficiency of summons. (Appendix pp 6-14)

Petitioners also stated that taxpayer “denied that special agent Kulas was authorized to issue an Internal Revenue summons pursuant to Sc. 7602 of the Code and Section 302.7602-1 of the Treasury Regulations on Procedure and Administration (`954 Code) (26 DFR). Intervenor specifically disagreed with petitioners’ statement thereof as stated in their petition to enforce Internal Revenue Service suppons and as above, moved to have the summonses dismissed for insufficiency of summons.

ARGUMENT IN REPLY

If Intervenor is to meet his burden of proof, he must be allowed discovery.

Petitioners make numerous refernces to the taxpayer’s necessity of carrying the burden of proof desmonstrating that the summonses were issued or an improper purpose. (Br. 8, 10, 11, 12, 13, 14, 16)

Now it statdse to reason that if someone is given the burden to perform in such a manner of produce such evidence that the person should be allowed to do son. The courts have stated that the burden upon the taxpayer is very heavy, and that is is a very difficult burden to prove. United States v Garden State National Bank, 78 LW 2330 (1979). The problem with part of this difficulty is as a result of the Supreme Court’s decision that one must investigate the “institutional posture” of the IRS. This institutional posture is not determined by simply deposing or having interrogatories filled out by an IRS special agent. United States v LaSalle National Bank, 437 US 298.

One must get questions answered by the institution itself. The institution itself does issue policy and decisions according to George Kienzler, Chief, Criminal Investigation Division. (Appendix p 34). At the hearing, obviously, the institution was not present, but only five of the employees of the IRS.

The taxpayer was also at an extreme disadvantage in that the only witnesses he could summons to establish the improper purpose of the summonses were employees of the IRS itself, people who were adversaries of the Intervenor. Thus Intervenor is in the position of gleaning information from adverse witnesses.

Intervenor was thus faced with the proposition at the summons enforcement hearing (1) the only witnesses he cold summons were adverse, (2) the testimony of the witnesses would not be conclusive per LaSalle, supra, and (3) questions of an institutional nature cold not be answered by those present.

Thus at this summons enforcement hearning, Intervenor would not in any way possible be able to establish to the satisfaction of the court, conclusively, that the summonses were issued for an improper purpose. It was only realistic to approach the problem from the aspect tht enough evidence would be given to indicate that there was a possibility that the IRS was acting improperly so as to allow discovery whereby Intervenor could investigate the institutional posture of the IRS to prove conclusively that the summonses were issued for an improper purpose.

Petitoners clamin that it is not the existence of a criminal purpose but rather the abandonment of a civil purpose which would, under LaSalle, supra, invalidate a summons (Br. 17). This is a clear misinterpretation of LaSalle:

We shall not countenance delaying submitting a recommendation to the Justice Department when there is an institutional commitment to make the referral and the Service merely would like to gather additional evidence for the prosecution.

US v LaSalle, supra, at p 316

It has been the petitioners’ position that since the government has not made the recommendation for criminal prosecution that the government has fulfilled its obligation for showing under US v Powell, 379 US 48 that the summonses were properly issued.

This is not correct. The question of whether at this point the government has determined enough to make a recommendation or, in an institutional sense, has, at this point in the investigation, a commitment to make the recommendation to prosecute criminally, is the real question in this case.

The evidence presented at the hearing supports Intervenor’s position that the IRS summonses were not issued in good faith.

The government contends that “all the evidence presented at the hearing by either party… only served to buttress the government’s case.” But tat is not correct.

The elements which the IRS has to prove in order to make out a violation are (1) the duty to file, (2) establish that the returns were not filed and (3) that there was a deliberate and intentional violation of a known legal duty. (Appendix p 31)

As of the hearing the IRS was satisfied that the Intervenor had a duty to file (App 31). They were also satisfied that returns had not been filed (App 24, 33). The only remaining question was willfulness. In reality, considering Manual Supplement 9G-93, “Examination and Investigation of Illegal Tax Protest-Type Activities,” one can be certain that the IRS considers that the final element is established.

Thus we see that the IRS has established the case they wish to prove. The only question is why have they not recommended criminal prosecution?

Intervenor’s position is: be ause they want to gather more information to hopefully “nail down the lid of the coffin.”

Would the IRS do such a thing? According to the testimony, they would. The Chief, CID, George Kienzler testified that the IRS would continue their investigation until sufficient facts had been gathered to their satisfaction (App. 32). He even stated that should their investigation go to recommendation and it was determined that they wanted more facts that they would make a supplemental investigation (App 36). And that they would continue their investigation until they had met the complete burden of proof beyond a reasonable doubt.

The point is that the testimony has shown conclusively that after the IRS has decided to recommend criminal prosecution, or has the intent to do such, they will continue an investigation without recommending criminal prosecution until they gather all the information needed to satisfy the Justice Department requirements (App 36).

Although Kienzler hedged at this point of the examination stated that after its return from the Department of Justice, that “usually” the IRS is done with it, conversely this indicates that there are times when they will continue with the investigation.

The IRS employees as witnesses were not always truthful.

In Intervenor’s appeal brief, he accuses the IRS of using trickery and deceit as they had in United States v Tweel, 550 F 2d 297 (1977). The records certainly indicate further trickery and deceit, especially when considering the Special Agent’s and Kienzler’s testimony.

Upon questioning by the magistrate, the agent replied that if he added up the gross receipts that he had thus far collected on income received by the Intervenor, would he be able to make a determination on whether or not there was a requirement to file a tax return. The agent replied that he could not (App 27). Upon cross examination by Intervenor, it was discovered that the other element necessary to determine a requirement to file was citizenship! (App 29) Then upon further examination by Intervenor, it was determined that the agent had determined citizenship, and so there was only one requirement left and that was the gross amount! (App 29). Thus we have a conflict of statements.

When questioned by Intervenor as to how the entry records to the safe deposit box would aid the IRS in determining a tax liability, the Special Agent relied that he did not know (App 37). However, when his friend from the Justice Department asked the same question (App 30) he then produced the reasons he needed such records.

Although, in this case, the IRS has enough information to satisfy them that a crime has been perpetrated by the Intervenor, and thus sufficient reason to recommend criminal investigation, which is in reality gathering information from the Justice Department, through its use of bank summonses, which is an improper use of this 7602 “authority”. LaSalle National Bank, supra.

According to Kienzler, the IRS will continue its investigation until it has sufficient facts to make a judgment as to what to do with this situation (App 32). Their basic purpose is to establish proof beyond a reasonable doubt, not merely the fact that a crime has been committed, but to gather all the evidence necessary for the conviction thereof (App 35). If they do not do their investigation properly, after it has been forwarded to the Department of Justice, then it will be returned to them and they will sometimes do a supplemental investigation (App 36).

The District Court has abused its discretion in disallowing the interrogatories propounded by the Intervenor.

Although the IRS Summons enforcement proceeding may be summary in nature, nevertheless the courts have abused this proceeding in comoletely disallowing any questions as propounded by the Intervenor in the interrogatories to petitioners.

In US v Sherwood & Green, L-80-40 & 41, USDC, N. Ind, Judge Jesse Eschbach held on 4 September 1980 that “at this time the court is not prepared to say that Interrogatories 2, 13, 14 and 15 (Petitioners Interrogatories numbered 11, 12, 13 (App 16)) are improper. These interrogatories address whether the IRS has already decided to recommend criminal tax prosecution of the intervenors. In light of the decision LaSalle National Bank, supra, such questions may be relevant to a determination of whether the summons should be enforced in this cause… The petitioners shall make all reasonable efforts to supply answers to interrogatories 2, 13, 14 and 15 by September 15, 1980.” (emphasis added)

The mere fact that the IRS has not formally recommended criminal prosecution is not in itself sufficient to determine that the IRS has no institutional commitment to make the recommendation. LaSalle, supra.

Internal Revenue Manual 9G-93 shows an institutional commitment to prosecute criminally.

Petitioners attempt to show that IR Manual 9G-93 is not evidence that the IRS has an institutional commitment to recommend criminal prosecution in the brie at page 18, footnote 11. They wan to demonstrate this by claiming that the manual supplement demonstrates that the IRS has an institutional commitment to investigate but not recommend criminal prosecution. The manual supplement does show that the IRS will investigate and, if possible, recommend criminal prosecution. It is obvious from the reading of the manual, particularly section 5.03 2 “Processable Returns” describing the action taken by the Chief, CIB, that if the IRS cannot garner the necessary facts for the recommendation then it will simply refer the matter to various civil functions. (App 22)

However the procedures in the Manual Supplement clearly show that the IRS is first to attempt a criminal prosecution

The proper procedure for the IRS, if they want to truly conduct a legitimate summons enforcement action, would be first to cancel Manual Supplement 9G-93. This supplement merely separates out certain individuals in the society, labels them criminals, and establishes the procedures by which to proceed against them.

Step 2 would be to conduct any tax liability investigation first with a revenue agent, not a special agent. The revenue agent is authorized to conduct investigations and obtain bank records under sec 7602. However, they are not trained in collecting facts for a criminal prosecution. The revenue agent also operates on a different basis than the special agent. The revenue agent knows that the Tax Court will uphold the most minimal evidence to indicate a tax liability. The burden of proof is upon the taxpayer to disprove it. US v Janis, 96 S Ct 3021, on remand 540 F 2d 1022, rehearing denied 97 S Ct 196. Kraut v CIR, 527 F 2d 1014, cert denied 96 S Ct 2171, 425 US 973. Whereas the special agent in preparing a criminal prosecution must go considerably beyond what the revenue agent does and must obtain additional witnesses and testimony for his evidence.

The difference being in the Tax Court, the revenue agent is presumed correct regarding income leaving the burden of proof on the taxpayer to show the IRS is incorrect. Whereas in a criminal investigation the special agent must establish proof beyond a reasonable doubt that the income is correct. The comprehensive nature of the summons requests in the proceeding should leave no doubt that the evidence is being gathered for criminal prosecution.

The IRS could easily rectify this by establishing a more honest approach to summons enforcement proceedings.

SUMMARY

The District Court has virtually closed its judicial eyes to the improper activities of the Internal Revenue Service in this cause. The abuse of discretion ranges from the lack of challenging the hedging witnesses on the stand, to interpretation of LaSalle, the leading case in this action, to simply observing the intent of the IRS and taking judicial notice of the IRS record of good faith in dealing with the American public.

CONCLUSION

This case should be remanded to the District Court with orders for the IRS to comply with interrogatories so as to allow Intervenor to meet his burden of proving that the IRS summonses were issued for an improper purpose.

DATED 24 September 1980

RESPECTFULLY SUBMITTED,

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