IN THE
United States Court of Appeals
FOR THE FOURTH CIRCUIT
_________
COA No. 00-0000
USDC No. 0:00-xx-00000-XXX
_________
Coy E. Patriot et al,
Petitioners -- Appellants
V.
United States of America and Carolina First Bank Dovenmuehle Mortgage Inc., Massachusetts Investors Trust-A, Palmetto Government Benefit Administrators, LLC.
Respondents -- Appellees
__________
__________
Appeal from the United States District Court
For the District of South Carolina
Greenville Division
Coy E. Patriot
1500 West Freedom Street
Freetown, SC 00100
(555) 555- 5555
Petitioner Pro Se
_______________________________________________________________
STATEMENT OF ISSUES PRESENTED FOR REVIEW
1. Should the AUSA obey the orders of the District Court?
2. Should a Government agency be allowed to mislead the court?
3. Was the Summons issued in good faith?
4. Did the District Court err in ignoring Patriot’s Request for Discovery?
I. STATEMENT OF CASE
On July 18, 2005, the IRS served third-party record-keeper administrative summons under IRC 7609 on financial institutions of Coy E. Patriot, Jr. & Coy E. Patriot, Jr. dba, Lakeside Chiropractic, Complete Wellness, Medical Clinic, C.E.P., Jr. Inc., The Patriot Clinic of Chiropractic, Anderson Wellness Center, Chiropractic of America, (hereinafter Patriot), who were listed as Petitioners in the petition below and are the Appellants herein.
The four financial institutions included Carolina First Bank, Dovenmuehle Mortgage Inc., Massachusetts Investors Trust-A, Palmetto Government Benefit Administrators, LLC., who were Defendants below and Appellees herein. The third-party financial record-keepers have no interest in this case and did not file anything. The real party of interest is the Internal Revenue Service listed as Defendant The United States.
Patriot filed his Petition to Quash (Appendix 8) on July 20, 2005, in US District Court for the District of South Carolina and assigned to the Honorable G. Ross Anderson, Jr., USDJ-SC. The hearing was held before Judge Anderson, in Anderson, SC on Oct 18 2005.
Patriot filed his Request for Production of Documents on September 22, 2005 (Appendix 2). The Government filed its Motion to Dismiss (App 3) on Sept 20, 2005. Patriot filed his Objection to said Motion on Oct 3, 2005 (App 4).
The transcript of the hearing is Appendix 1, pages 1-33.
Judge Anderson signed his first order (App 5) on October 24, 2005, and then recalled that order and issued his final order (App 6) on December 5, 2005, from which this appeal arises.
Patriot filed his Motion for Reconsideration (App 7) on November 15, 2005 against the first order. Patriot filed his Notice of Appeal pertaining to the denial of the Motion for New Trial on December 27 2005.
Patriot filed his initial informal brief on March 6, 2006. The government filed its response to this on March 23, 2006.
In said Appellee’s brief, the DOJ made reference to Judge Anderson’s second order, which had never been sent to Patriot. Upon request, the court sent Patriot a copy of said second order. Then Patriot filed with the appeals court his Motion to File a Substitute Brief on May 1, 2006. His Motion to File a Supplemental Informal Brief was granted on June 7, 2006. This second informal brief is timely.
II. STATEMENT OF RELEVANT FACTS
1. Patriot operated a chiropractic business in Anderson, SC for many years and filed all tax returns sought by the IRS plus paying all taxes listed on his tax returns. In 1989, Patriot made a major change in business operations, which included a very large investment. This business venture proved to be highly unsuccessful. Patriot was financially destitute and became delinquent in his taxes plus all other bills and obligations.
Patriot had no political connections or interests as well as no political opposition to the income tax and IRS. However, the IRS labeled them the equivalent of “tax protesters”. Since Patriot did not pay his taxes and was unable to file any more tax statements, he was investigated by the Criminal Investigation Division of the IRS and was accused by the IRS of being a tax criminal.
2. The IRS on July 18, 2003 used the civil summons power under 26 USC 7609 to gather information on Patriot from the financial institutions even though the documents were sought for a criminal prosecution of Patriot.
3. Using his statutory rights under IRC 7609, Patriot filed his petition in the District Court to halt the production of his private financial records to the IRS, based upon US vs LaSalle, 98 S.Ct. 2357 (1978). The Government filed their Motion to Dismiss on Sept 20, 2005.
Patriot’s position was stated very clearly in his Petition to Quash, dated July 20, 2005, which is attached as Appendix 8 and incorporated by reference herein. This is a standard brief that has been used for decades in the District Courts. However, the brief emphasized Patriot’s incorrect status as ‘tax protestor’ when the more factual position was that he was a common tax criminal.
4. At the hearing, however, Judge Anderson grilled Patriot on his alleged political opposition to the tax system. Patriot explained that this was not true, but that he was financially incapable of paying the taxes he stated he owed. Further, Patriot emphasized that he had a history of being prompt and dutiful in his filing and payment of taxes.
5. At the hearing Patriot objected to the IRS using these records in a criminal case (Appendix-transcript pg 16 line 13). Assistant US Attorney George Conits assured the court very clearly that it “is strictly a civil matter” (App-tr. pg 16, line 21). The judge agreed.
6. The court asked AUSA Conits to prepare an order for him to sign, (App pg 32,33). The judge also ordered Conits to submit a copy of the proposed order to Patriot, (App pg 33 line 5). The judge also granted Patriot ten (10) days to file an objection to the proposed order, (App pg 33 line 15).
Furthermore, the Judge specifically ordered that the time would begin when the US Government the order to Patriot (App pg 33 line 18).
7. Assistant U.S. Attorney Conits violated two out of three of the Judge’s specific and clear commandments. On 20 October 2005, Conits sent Patriot a copy of the proposed order with his cover letter, (App 9). On 25 October 2005, Patriot sent Conits and the Judge his objections to the proposed order (App 11). This was within the ten-day window the Court ordered. Copy of proposed order is attached as App 9 which is identical to what the Judge signed.
8. The judge ruled on 24 October 2005 because Conits sent his proposed order to the Judge one week early, without mention of Patriot’s objection.
9. On November 12, 2005 Patriot first filed his Motion for Reconsideration (App 7); Patriot then re-filed it on 18 November 2005 with Appendix pages______. This provided the Court again with Patriot’ objections to proposed order.
10. The Judge ruled against the Motion for Reconsideration on 05 December 2005 (App 10) and a Notice for Appeal was timely filed on 27 Dec 2005.
ISSUE ONE: SHOULD THE AUSA OBEY COURT ORDERS?
11. The Assistant US Attorney (hereinafter “AUSA”) did not allow Patriot the ten days to notify the court of any objections to the proposed order, even though the judge ordered the AUSA to allow 10 days.
12. The AUSA sent the proposed order to the judge 10 days early and did not allow adequate time for Patriot to file his objections, even though the judge had ordered that 10 days be allowed for Patriot to object.
13. The AUSA and the judge said that Patriot’ records would be used only in a civil case, not in a criminal case, which should be included in the judge’s order. However, this was admitted from the final order proposed by Contis for Judge Anderson.
14. Patriot has in the past and present tried to comply with the orders of the court, but as a pro se litigant it is sometimes confusing. However, it is disturbing in the least when an Assistant United States Attorney fails to obey the orders of the court.
15. In the past Patriot has requested that he be provided with legal assistance to better represent his case. However, the court has failed to provide such legal counsel. It appears that that the court does not take seriously the need for discovery or interrogatories requested by appellants or petitioners in the cases of pro se litigants.
16. It is also of concern to Patriot when the Government misrepresents itself with regard to the intended use of Patriot’ financial and personal records.
Top-level IRS authorities have announced several times on national television that they will prosecute all non-filers. In statements to the media, the IRS has stated their policy to bring criminal prosecution against those who exercise their constitutional rights on the 1040 forms. In their sixteen page IRS MANUAL SUPPLEMENT NO. 9G-93, dated January 10, 1979, entitled: EXAMINATION AND INVESTIGATION OF ILLEGAL TAX PROTEST-TYPE ACTIVITIES, the IRS states, unequivocally, that they consider all failure to file tax returns to be illegal and that they will prosecute those who file them:
4. In selecting cases for investigation, consideration should be given to the potential impact and/or deterrent effect a successful prosecution case will generate. “Experience in this area has indicated that cases involving leaders and/or flagrant non-compliance situations achieve the best results (see policy statement P-9-3).” Manual Supplement, No. 9G-93, supra page 6, Section 6, para. 4, (emphasis added).
In June, 1978, the U. S. Supreme Court in the case of U.S. v La Salle National Bank, 98 S. Ct. 2357 (1978), issued a definitive ruling to supplement U.S. v Donaldson, 400 U.S. b17 (1971), which, upon careful reading, is most favorable to Petitioner’s position.
Many times Mr. Justice Blackmun, for the Court, stated that the IRS civil summons cannot be used for the “improper purpose of obtaining evidence for use in a criminal prosecution” and further, that “nothing in Section 7602 or its legislative histories suggest that Congress intended the summons authority to broaden the Justice Department’s right of criminal litigation, discovery or to infringe on the role of the Grand Jury as a principal tool of criminal accusation… Congress intended the summons authority to be used to aid in the determination of collection of taxes. These purposes do not include the goal of filing criminal charges against citizens… Congress did not intend to permit exclusively criminal use of the summons”, i.e., impermissible criminal purposes. “Similarly, the good faith standard would not permit the IRS to become an information gathering agency for other departments, including the Department of Justice, regardless of the status of criminal cases.”
The Government has, as their files indicate, classified Petitioner as the equivalent of a “tax protestor” who failed to file a return.
In United States v. Gardiner, 531 F. 2d 953, the true plans of the Government were forever exposed. Gardiner was classified by the Government as a “tax protestor”, tried and convicted. Prior to the trial he raised the issue of selective prosecution. The Government dealt with that firmly, promptly, and conclusively. Gardiner was not selected for prosecution because all “tax protestors” are prosecuted. The U.S. Attorney took the position that the protest tax return was a violation of the law so that the authorities had no choice but to prosecute.
In numerous press releases and statements to the media, the IRS has promised criminal prosecution against all of those classified, labeled, and identified as “non-filer” Petitioner is viewed by the Government as a “non-filer” and the U.S. Attorney’s office has only one plan: criminal prosecution. Now is the IRS, which in an institutional sense long ago abandoned civil action against those classified as “non-filer”, and is being used by the Justice Department to circumnavigate the traditional function of the Grand Jury?
ISSUE THREE: WAS THE IRS SUMMONS ISSUED IN GOOD FAITH?
Petitioner asserts that the summons was issued solely in aid of a criminal prosecution and it also lacks good faith. In his petition presented to the Court, Petitioner pointed out that the summons to the banks were overly broad, requesting everything, much more than just checks and statements, which would be all the IRS would need to compile a civil tax liability. For a civil investigation, the agents generally request and need only checks and figures to prove money coming and going. However, for a criminal investigation, Special Agents need signature cards, loan applications, etc. By the IRS’s actions, letters, and deeds, by their fakery, it is very apparent that this is an impermissible ruse to gather evidence in a criminal investigation. If the summons in this case were only for civil purposes, the records requested would have been limited to only those third party records which pertain to Petitioner’s civil tax liability.
A criminal case can be inferred from other acts of the IRS and by written records. If it is apparent that the focus and determination of a criminal prosecution is made prior to the actual request, the written request of IRS to the Justice Department for criminal action is immaterial. When the focus and determination is criminal, the fact that a formal recommendation for criminal prosecution has not been issued is irrelevant. “Internal Revenue summons issued under such circumstances is not issued in good faith.” U.S. v LaSalle, 554 F2d. 302. Likewise, in Petitioner’s case, the issue is the use, focus, determination, intent and purpose of the Government’s summons. This Court should take judicial notice that at the time of the issuance of the summons, the motive, the ultimate fact, the principal purpose for seeking the information was to prosecute the Petitioner criminally for not filing a tax return.
In his Petition to Quash, Petitioner listed a number of reasons which clearly point out this is definitely a criminal investigation. Petitioner pointed out that the broad sweep of the Government’s summons, the agent’s reading of the Miranda rights to Petitioner and other acts which show at least utter bad faith by the IRS.
The Government has a file on Petitioner which is available to this Court. In that file, the lower Court could have examined in camera the IRS Forms 4135 (criminal Investigation Control Notice) and other documents. Patriot in his petition had set forth prima facie evidence that this is a case of criminal prosecution in bad faith. The lower court should have turned over to Petitioner this file for him to prove to the Court the bad faith, or the Court could have examined the file itself and ruled accordingly, and it failed to do either.
In the instant case the district court limited its inquiry to the existence of a general civil purpose for the investigation. In so doing the abuses delineated by the LaSalle majority have gone undetected and unremedied. Under the lower court’s reading of LaSalle, as long as the IRS had not yet determined the full scope of civil liability the fear of delay by the IRS in making referral to the Justice Department expressed by Justice Blackmun would be perfectly permissible. Similarly, the Government presumably would allow the Justice Department to use the IRS as an “information gathering agency” as long as the IRS had not closed its civil investigation. LaSalle, of course, prohibits such subterfuge.
In the lower court Patriot maintained most strenuously that the IRS had issued the summons in question for a purpose not authorized by 26 U.S.C. § 7602.
The burden of proof is on the Petitioner to prove the summons was not issued in good faith. Patriot was entitled to an adversary hearing with discovery to meet the burden. Patriot filed his Request for Production of Documents, which the DOJ and Court ignored.
The Court of Appeals for the Fifth Circuit, in U.S. v. Tweel, supra 550 F. 2d 297 (1977) laid down the law as to what their circuit thought about deceit by governmental officials. In this case the defendant was charged with tax evasion and false statements on his tax return. The main evidence against him were documents he gave to the IRS agents voluntarily. The conviction was thrown out because the agent had used deceit, trickery, and misrepresentation to gain access to defendant’s records.
In Tweel, supra, the revenue agent knew that a criminal prosecution had actually begun, had been informed by his superiors that a search had been planned for some time, yet the agent led the defendant to believe that only civil proceedings existed at that time. The Court held “that from the facts that we find, the agent’s failing to apprise the defendant of the obvious criminal nature of his investigation was a sneaky deliberate deception by the agent… and a flagrant disregard for his rights.” Further, the Court found that high level IRS officials succeeded “in making clear the undeniable criminal nature of the investigation… We cannot condone the shocking conduct by the IRS. Our revenue system is based upon the good faith of the taxpayers and the taxpayer should be able to expect the same from the government in its enforcement and collection activities…. During oral argument, counsel for the government stated that these procedures were ‘routine’. If this is the case, we hope our message is clear. This sort of deception will not be tolerated and if this is ‘routine’ it shall be corrected immediately.”
The District Court quashed Petitioner’s Motion for Discovery and to produce Documents, which were essential for Petitioner’s responsibility to bear the weight of having to prove the LaSalle burden.
The Supreme Court has already decided that the LaSalle burden for Petitioner was for Petitioner to prove, not the government. It stands to reason if Petitioner has a certain burden of proof; he is entitled to discovery to meet that burden.
In Herbert v Lando, 99S. Ct. 1635 (1979), the Supreme Court stated that in those cases where previous court decisions had formed a certain burden the party seeking to satisfy that burden was entitled to extensive pre-trial discovery. Given the required proof, Mr. Justice White, speaking for the Court, mentioned many times that the plaintiff could obtain the necessary evidence to prove the critical elements in his cause of action, even if the plaintiff had to focus on defendant’s conduct and state of mind. It would only seem fair and in the interest of justice that when a respondent, or in the instant case, Petitioner, is actually the person or party that has the burden of proof, that he actually is in the position of the plaintiff and not the reverse. Therefore, discovery should have been granted prior to the hearing.
In New York Times v. Sullivan, 376 U.S. 254, the Supreme Court held that a burden to prove a certain idea or personal commitment fell upon the plaintiff. In the instant cause of action, Petitioner, like the plaintiff in Herbert, supra, and in New York Times, supra, has the burden to prove “institutional commitment” for criminal prosecution. This “required proof” necessitates extensive discovery.
In LaSalle, supra, the court stated that the Petitioner in an IRS Summons Enforcement Hearing has the burden to prove the “improper purpose” of the “institutional commitment.” It stands to reason, especially after the Tax Reform Act of 1976, that the Courts and Congress intended the Petitioner to have a meaningful hearing and to have ample opportunity, prior to the actual hearing, to examine the minds and thought processes of those responsible for the proceedings. The preceding case to LaSalle, United States v. Donaldson, supra, stated that the burden of showing abuse of the Court’s process is on the taxpayer. This burden was increased in LaSalle, supra, making discovery even more important.
Petitioner asserts that the summons in this case were issued following an institutional commitment to prosecute all persons classified as “tax protestors” and the IRS had no intention whatsoever of pursuing civil liability. In a number of other cases, many taxpayers-petitioners were allowed pre-hearing discovery even before the heavy burden set forth in LaSalle.
For example, in United States v. Roundtree, 420 F. 2d 845, a taxpayer who claimed harassment was entitled to depose the Internal Revenue Agent to investigate the IRS purpose of issuing a summons.
Petitioner has stated that he seeks to prove that in this case the IRS summons is an “impermissible” ruse to gather evidence in a criminal investigation and the entire proceedings, under the circumstances, is an infringement on the traditional functions of the Grand Jury.
In another case, United States v. Nunnally, 278 F. Supp. 843 (D.C., Tenn. 1968), upheld by the Circuit Court at 498 F 2d. 144, the taxpayer was held to have the right of discovery and even to take depositions.
The leading case in this area is United States v. Wright Motor Company, 536 F. 2d 109 (1976), whereby the lower court dismissed the proceeding and almost held the IRS agent in contempt, because the agent, during deposition, refused to answer specific questions about the criminal investigation of the taxpayer. Disregarding the Government’s request for a Protective Order, the District Court determined that a taxpayer would be permitted to take the deposition to investigate the purpose of the request for documents.
In United States v. Genser, 595 F. 2d 146 (3rd Cir., 1979), that Court explained, expanded, and applied the LaSalle case to a particular case. The Genser, supra, Court agreed with LaSalle that the taxpayer was to bear the burden of proving both the pre-existing institutional commitment to prosecute and failure of the summons to advance a civil purpose, however, the Genser, supra, Court ruled that a taxpayer should be entitled to discover the nature of any contacts relating to and during the investigation between the investigating agents and the officials of the Department of Justice.
In Petitioner’s case, he filed a Motion to Produce Documents to establish for the record the Genser questions. In the Motion to Produce Documents, Petitioner sought numerous documents pointing out frequent and constant contact by the investigating agents with the Department of Justice and the lower court should have allowed Petitioner to investigate further, prior to the hearing.
Documents in the IRS files show the “institutional posture” is that Petitioner was a “tax protestor”, “illegal tax protestor”, and non-filer. In attempting to establish firmly and set guidelines for discovery under LaSalle, the Genser, supra, Court stated:
“[O]ur reading of LaSalle suggests several guidelines for discovery. At a minimum, the taxpayer should be entitled to discover the identities of the investigating agents, the date the investigation began, the dates the agent or agents filed reports recommending prosecution, the date the district chief of Intelligence Division or Criminal Investigation Division reviewed the recommendation, the date the Office of Regional Counsel referred the matter for prosecution, and the dates all summons issued under 26 U.S.C. § 7602. Furthermore, the taxpayer should be entitled to discover the nature of any contacts, relating to and during the investigation, between the investigating agents and officials of the Department of Justice.” U.S. v Genser, supra, 595 F.2d at 152.
The Genser, supra, guidelines are exactly on point with the questions stated in the instant Petitioner’s case. Further, the Genser Court stated:
“[W]here this information or other evidence introduced by the taxpayer reveals (1) that the IRS issued summons after the investigating agents recommended prosecution, (2) that inordinate and unexplained delays in the investigation transpired, or (3) that the investigating agents were in contact with the Department of Justice, the district court must allow the taxpayer to investigate further.”
Genser, supra, at 152.
IV. COURT CASE REFERENCE
Under the LaSalle case, US v. LaSalle National Bank, 437 US 248, SCt 2357 (1978), a civil summons cannot be used in a criminal case.
V. CONCLUSION
First, it is a shame that the AUSA did not obey the order of the court, but this was because the judge did not include his verbal ruling in his written order that the documents received pursuant to the civil summons cannot be used in a criminal case. The judge clearly ruled at the hearing that records could not be used in the criminal case, but the written order did not reflect the verbal ruling of the judge.
Second, IRS documents have classified, identified, and labeled Petitioner a “tax protestor”, an “illegal tax protestor” and a non-filer. The overwhelming evidence in this case points to a criminal prosecution solely and is, hence, illegal pursuant to LaSalle.
Third, Petitioner’s discovery motion, which was valid and necessary for him to prove his “heavy burden”, should not have been ignored.
For these reasons, this Honorable Court should order this case be remanded so the AUSA can comply with the clear and distinct order of the Court.
VI. REQUEST FOR ORAL ARGUMENT
Due to the Constitutional and personal privilege issues involved, this case should be scheduled for oral argument. Further, the AUSA’s flagrant disregard for court orders should not go unnoticed.
CERTIFICATE OF SERVICE : I do hereby certify that on this date I properly sent a copy of this brief to opposing counsel.
_____________________________ Dated this ____ of ____________, 2006
Coy E. Patriot Petitioner, Pro Se
1500 West Freedom Street
Freetown, SC 00100
(864) 224-9775