United States of America v. Pate et al

Filing 18

IT IS ORDERED the United States Petition to Enforce IRS Summonses (Doc. #1) is GRANTED IN PART and DENIED IN PART. The petition is GRANTED with respect to the April 2015 summonses, but DENIED AS MOOT with respect to the June 2015 summonses. It is fur ther ORDERED Magistrate Judge Whitworths findings of fact and conclusions of law are ADOPTED with respect to the April 2015 summonses. To the extent the Report and Recommendation recommends enforcement of the June 2015 summonses, the United States co ncedes that the June 2015 summonses are denied as moot. It is further ORDERED Magistrate Judge Whitworths Report and Recommendation (Doc. #10) shall be attached to and made part of this Order, but is adopted only with respect to the April 2015 summon ses. To the extent the Report and Recommendation relates to the June 2015 summonses, the petition for enforcement is DENIED AS MOOT, and that portion of the Report and Recommendation does not require adoption by the district court. Signed on 9/30/16 by District Judge Brian C. Wimes. (Attachments: # 1 Report and Recommendation - Doc. # 10) (Baldwin, Joella)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
CENTRAL DIVISION
UNITED STATES OF AMERICA,
Petitioner,
v.

No. 2:15-mc-9003-SRB

George Pate, and
Cookie Pate,
Respondents.
REPORT AND RECOMMENDATION
On August 26, 2015, the United States filed a petition to enforce four administrative
summonses issued to George Pate and Cookie G. Pate in April 2015 and June of 2015 by the
Internal Revenue Service (“IRS”), pursuant to 26 U.S.C. ' 7602 and 26 C.F.R. § 301.7602-1.
(Petition to Enforce Internal Revenue Service Summons and supporting exhibits including copies
of summonses, doc. 1).
The April 2015 petition was personally served on April 16, 2015, by Revenue Officer
Mark Boston (“Officer Boston”) by leaving the summonses at George and Cookie G. Pate’s last
and usual place of abode with their adult son, Mit Patel.

On June 4, 2015, George Pate and

Cookie G. Pate appeared before the IRS in response to the April 2015 summons.

At the

meeting George Pate and Cookie G. Pate declined to answer any questions posed by Revenue
Officer Boston asserting Fifth Amendment privilege.
The June 2015 summonses were personally served on June 4, 2015, by Officer Boston by
personally handing them to both George Pate and Cookie G. Pate at the IRS office in St. Louis,
Missouri. Neither George nor Cookie G. Pate (the Pates) appeared to testify as required by the
June 4, 2015 summonses.

Instead the Pates produced a portion of the documents sought by the

summonses, specifically, W-2’s and K-1’s for the tax years 2012 and 2013.

The Pates failed to

produce any other records sought by the June 4, 2015 summonses, including (1) “Forms 1099 for
interest and dividend income”; (b) “employee earnings statements”; (c) “records of deposit with
banks or other financial institutions”; (d) “documents and records about any income you
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assigned to any other Person or entity”; and (e) “other books, records, documents and receipts for
income from, but not limited to the following sources: wages, salaries, tips, fees, commissions,
interest, rents, royalties, alimony, state or local tax refunds, annuities, life insurance policies,
endowment contracts, pensions, estates, trusts, discharge of indebtedness, distributive shares of
partnership income, business incomes, gains from dealing in property, and any other
compensation for services (including receipt of property other than money).”
On August 26, 2015, the United States moved for an order to show cause why George
Pate and Cookie G. Pate should not be compelled to obey the April 2015 and June 2015
summonses (doc. 1).

On August 28, 2015, the Court issued an Order to Show Cause ordering

the Pates to appear before the undersigned on November 5, 2015, to show cause why they should
not be compelled to obey the IRS summonses issued to them in April 2015 and June of 2015.
(Doc. 3). The Court further ordered the Pates to file with the Court and serve on the
Government a written response to the petition with supporting affidavits. On September 28,
2015, the Pates’ legal counsel, Mark Milton, filed an Acceptance of Service on the Pates’ behalf
dated September 16, 2015.
Show Cause.

(Doc. 5).

On September 28, 2015, the Pates filed a response to the order to
The Government filed reply suggestions in support of the motion.

(Doc. 6).
Both George and Cookie G. Pate appeared at the November 5, 2015 show cause hearing
represented by their legal counsel Mark Milton. Russell Edelstein, a Trial Attorney with the
Tax Division of the IRS, appeared on behalf of the IRS/Government.
I.

Findings of Fact
1. Revenue Officer Mark Boston is employed by the IRS as a Revenue Officer
assigned by the IRS to conduct an investigation with respect to the collection
of tax debts owed by George Pate and Cookie G. Pate for the tax years 2008
and 2009, as well as liabilities owed (pursuant to 26 U.S.C. § 6672) by George
Pate arising from his failure to pay social security taxes for the quarters
ending September 2010, December 2010, March 2011, June 2011, September
2011 and December 2011.1

1 “Mark Boston” is an IRS approved alias utilized by Officer Boston as a result of personal threats

he received in a prior unrelated case.
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2. On April 2015 in furtherance of his investigation, Officer Boston, issued a
summons directed to respondents George Pate and Cookie G. Pate. Officer
Boston served an attested copy of the summons on the Pates by leaving the
summons at George and Cookie G. Pate’s last and usual place of abode with
their adult son, Mit Patel. The summons required the Pates to appear before
Officer Boston on May 4, 2015, at 9:15 a.m. and to “give testimony and to
bring with [them] and to produce for examination the following books,
records, papers and other data relating to the tax liability or the collection of
the tax liability or for the purpose of inquiring into any offense connected with
the administration or enforcement of the internal revenue laws concerning the
person identified above for the periods shown.”

The summons also directed

the Pates to “[p]rovide clarification and testimony to the method and sources
of all funding/paying of all personal living expenses from 01/01/2015 to
current.” The Government concedes that the call for the production of
documents request in the text of these April summonses failed to list any
specific documents, therefore, these April summonses required only that the
Pates provide oral testimony to the IRS. (Doc. 6, Reply Memorandum, pg. 2).
3. The administrative steps required by the Internal Revenue Code were
followed in the issuance of the April 2015 summonses.
4. Upon agreement of Officer Boston with the Pates’ request to extend the May
4, 2015, scheduled date to give testimony, as date identified in April
summonses, the date to give testimony was extended to June 4, 2015.
5. The information sought in the April 2015 summonses is not in the possession
of the IRS and is relevant and necessary to Revenue Officer Boston’s
assignment to determine George Pate’s and Cookie G. Pate’s tax debts owed
for the tax years 2008 and 2009, as well as liabilities owed (pursuant to 26
U.S.C. § 6672) by Gorge Pate arising from his failure to pay social security
taxes for the quarters ending September 2010, December 2010, March 2011,
June 2011, September 2011 and December 2011.

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6. George Pate and Cookie G. Pate appeared before Officer Boston on June 4,
2015, in response to the April 2015 summonses.

Both George Pate and

Cookie G. Pate declined to answer questions posed by Revenue Officer
Boston (asserting 5th Amendment privilege), and did not produce any
documents responsive to the April Summons.
7. Revenue Officer Boston is also assigned by the IRS to investigate the unfiled
2012 and 2013 federal income tax returns of George Pate and Cookie G. Pate.
Officer Boston was directed to obtain the tax returns for those years, or in
alternative, obtain information in order for the IRS to determine the Pates’ tax
liabilities for 2012 and 2013.
8. In furtherance of the investigation into the Pates’ failure to file 2012 and 2013
tax returns, Officer Boston, on June 4, 2015, issued and hand-delivered IRS
summonses to George Pate and Cookie G. Pate while they were in the IRS
office in St. Louis, Missouri.

The June 2015 summonses directed both

George Pate and Cookie Pate to appear on July 7, 2015, at 9:00 a.m. and
10:00 a.m., respectively.

The summonses further directed that George Pate

and Cookie G. Pate “appear before Mark J. Boston an Internal Revenue
Service (IRS) officer, to give testimony and to bring for examination the
following information related to the tax liability of the person identified above
for the periods shown.

All documents and records you possess or control

about income you received for the years 2012 and 2013. These records and
documents include, but are not limited to: Forms W-2 (Wage and Tax
Statement), Forms 1099 for interest and dividend income, employee earnings
statements, and records of deposit with banks or financial institutions. Also
include all other books, records, documents and receipts for income from, but
not limited to the following sources: wages, salaries, tips, fees, commissions,
interest, rents, royalties, alimony, state or local tax refunds, annuities, life
insurance policies, endowment contracts, pensions, estates, trusts, discharge of
indebtedness, distributive shares of partnership income, business income,
gains from dealings in property and any other compensation for services
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(including receipt of property other than money).

Include all documents and

records about any income you assigned to any other Person or entity. IRS
will use this Information to prepare a federal income tax return for the
following years when you didn’t file a return: 2012 and 2013.

We have

attached a blank return to guide you in producing the necessary documents
and records.”
9. The administrative steps required by the Internal Revenue Code were
followed in the issuance of the June 2015 summonses.
10. The information sought by the June 2015 summonses, with exception of the
IRS Forms 10-99, is not in the possession of the IRS and is relevant and
necessary to Revenue Officer Boston’s assignment to procure the filing of
George Pate’s and Cookie G. Pate’s unfiled 2012 and 2013 tax returns.
11. Neither George Pate nor Cookie G. Pate appeared to testify as required by the
June 4, 2015 summonses.
2012 and 2013.

The Pates also failed to provide tax returns for

Instead the Pate’s produced a portion of the documents

sought by the summonses: W-2’s and K-1’s for the tax years 2012 and 2013.
The Pates failed to produce any other records sought by the June 4, 2015
summonses.
12. There was not a criminal referral at any time during this case.

While Pates’

counsel states that Officer Boston stated “no not yet,” in response to Pates’
counsel’s question “is there a criminal investigation in this case,” the evidence
clearly establishes there was never a criminal referral made in this case.
Officer Boston testified that he does not recall making the “no not yet”
statement, but does recall that at some point in the Pates’ case, he did discuss
a possible criminal referral of the case, but that this was declined because the
Pates’ case did not meet the criteria for a criminal referral. Officer Boston’s
Supervisory Revenue Officer, Christopher Rothweiler, confirmed that no
criminal referral had every been requested or made in this case, citing that any
such referral would have to be approved through himself as the Supervisory
Revenue Officer.

Supervisory Officer Rothweiler stated that he never
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received a request for a criminal referral in this case.

Rothweiler stated that

he believes that Officer Boston probably had a conversation with the IRS
fraud technical advisor, back in 2013, but that is as far as it went regarding
any possibility of a criminal referral. Supervisory Officer Rothweiler further
testified, consistent with Officer’s Boston’s testimony, that while the law does
allow for a tax collection case to be referred for criminal prosecution, he has
never seen a case that he has handled referred for criminal prosecution despite
his 14 years of employment with the IRS.

Supervisory Officer Rothweiler

testified that the IRS generally does not pursue enforcement of an IRS
summons if a criminal investigation is going to be pursued.
13. While asserting that the Pates cannot be compelled to testify based on their
Fifth Amendment privilege, Pates’ counsel concedes that the documents
identified in the June 2015 summonses are not protected by the 5th
Amendment and must be produced.
14. Officer Boston testified that he does not personal animosity against the Pates,
citing rather frustration with a case he has had for 2 ½ years with no progress
citing inability to get the information he needs.
15. Previous IRS collection actions have been made against the Pates.

At the

Show Cause hearing IRS Officer/General Program Director Michelle Ellis
testified that an IRS action regarding the Pates’ 2010-2011 tax liability was
settled at the appeals level.

No criminal referral was ever made in that case.

16. Officer Michelle Ellis further testified that the Pates’ had a local Jefferson
City, Missouri accountant, who did their day to day accounting at least
through 2013, and that the Pates’ tax returns she didn’t believe were that
complicated.
17. The Pates have continued to assert they need additional time to complete
their tax returns for 2012 and 2013.

A July 2015 letter from the Pates’ new

accounting firm in Jefferson City (doc. 5-3) indicated the firm was engaged in
assisting with accounting services and tax compliance work related to the
Pates’ business entities and personal returns.
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18. Following the November 9, 2015 show cause hearing, the parties agreed if the
Pates filed their 2012 and 2013 tax returns, this would moot the necessity for
enforcement of the June 2015 summonses. The Pates’ legal counsel
indicated that the Pates needed an additional two to four weeks to complete
the returns. The Court requested the Pates’ legal counsel provide an email
update regarding the Pates’ stated intent to prepare and file 2012 and 2013 tax
returns.
19. On December 22, 2015, the Pates’ legal counsel indicated that the Pates’ CPA
“is hoping to complete the 2012 tax return tomorrow, but did not provide a
date for completion of the outstanding 2013 tax return.”
20. On January 11, 2016, the Government filed a status report with the Court
including attached exhibits in support (doc. 9). As of January 11, 2016,
Pates’ legal counsel represented to the Government that the 2012 tax return is
complete, however is unavailable because it is awaiting review by the client,
and that it will take some time to complete the 2013 tax return.
II.

IRS Summons

The IRS may issue a summons in order to inquire into any offense connected with the
administration of enforcement of the internal revenue laws. 26 U.S. § 7602(b).

Section

7602(c) limits the otherwise open-ended summons authority of the IRS under § 7602(b),
providing that an administrative summons may not be issued when a “Justice Department
Referral” is in effect.

A Justice Department Referral occurs if the IRS has recommend to the

Attorney General that a grand jury investigation of, or the criminal prosecution of, the person be
commenced for any offense connected with the administration of enforcement of the internal
revenue law, or when a request is made under 26 U.S. C. § 6103(h)(3)(B) for disclosure of return
information.
In order to establish a prima facie case for enforcement of a summons, the government
must make a “minimal showing” that (1) the summons is for legitimate purpose, (2) the material
being sought is relevant to the investigation, (3) the information is not already in the IRS’s
possession, and (4) the administrative steps required by the Internal Revenue Code have been
followed. United States v. Powell, 379 U.S. 48, 57-58 (1964).

Assertions by affidavit of the

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investigation agent that the requirements are satisfied are sufficient to make the prima facie case.
United States v. Norwood, 420 F.3d 888, 893 (8th Cir. 2005) (declaration of IRS agent
established a prima facie case under the Powell standard). Once the government establishes a
prima facie case for enforcement of a summons, the burden shifts to the respondent to show that
the Powell requirements have not been satisfied or by showing the enforcement of the summons
would represent an abuse of the Court’s enforcement powers. United States v. Norwood, 420
F.3d at 893.

In contrast to the government’s “minimal burden” to make out a prima facie case,

the party resisting the summons bears a “heavy” burden of disproving the IRS assertions. Id.
In this case, upon review of the declaration and supplemental declaration of IRS Officer
Boston (doc. 1, exh. 2, doc. 6, exh. 1) and declaration of IRS Officer Michelle Ellis (Doc. 6, exh.
5), and testimony of IRS Officers Boston, Christopher Rothweiler, and Michelle Ellis at the
November 5, 2015 show cause hearing, the Court finds that the IRS has made out a prima facie
case for enforcement of the April 2015 and June 2015 summonses issued to George Pate and
Cookie G. Pate.

By means of the declarations, and testimony, the IRS has clearly made the

minimal showing necessary to satisfy its threshold burden that the Powell requirements were
met.

The declaration and testimony show that the information sought is (1) necessary in order

to collect the federal tax liability of George and Cookie Pate as to unpaid joint income tax
liabilities for the 2008 and 2009 taxable years; and the tax liability of George Pate for trust fund
recovery penalty liability arising from social security taxes he failed to pay for the quarterly
periods ending September 30, 2010, December 31, 2010, March 31, 2011, June 30, 2011,
September 30, 2011 and December 31, 2011; and to obtain information in order for the IRS to
determine the Pates’ income tax liabilities for 2012 and 2013 when the Pates failed to file income
tax returns; (2) the information sought is material and necessary to determining the tax liability
of the Pates and the collectability of tax debts; (3) the information, with exception of the few
specific documents identified in this order, are not in the possession of the IRS; and (4) the
administrative steps required by the Internal Revenue Code have been followed. The
declaration, and the testimony of IRS Officers Boston, Rothweiler, and Ellis also clearly show
that there is no Department of Justice referral in effect, as defined by 26 U.S.C. § 7602(c).
While there appears to have been a discussion by Officer Boston with two individual at the IRS
as to the possibility of a criminal referral, and alleged comments made by Officer Boston to
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Pates’ legal counsel that either stated or inferred that the Pates’ case might be referred for
criminal prosecution, the facts before this Court clearly indicate there is no criminal referral in
this case, nor has there ever been a criminal referral in this case.

The Fifth Amendment

privilege applies only when the taxpayer has a real and appreciable danger of self-incrimination.
See United States v. Teeple, 286 F.3d 1047, 1050 (8th Cir. 2002). Here, the testimony heard by
the Court from the involved IRS officers, including the Supervising IRS officer, affirms that this
case is not referred or recommended for criminal prosecution, and never has been recommended
or referred for criminal prosecution.

The Court finds that an inquiry by Officer Boston with

persons within the IRS as to a possible criminal referral, to which he was directed that this case
does not meet the requirements, and contested statement(s) that Pates’ legal counsel asserts that
Officer Boston made regarding a possible criminal referral of this case, do not establish a real
and appreciable danger of self-incrimination in this case. The Pates also fail to provide how the
potential for an IRS Revenue Officer to seek approval for the filing of nominee tax liens against
an individual’s business entities implicates a reasonable danger of self-incrimination. The Pates’
purported fear of self-incrimination appears largely based upon a mistaken belief regarding a
criminal referral in this case and in a previous IRS case, neither of which occurred, and a
disagreeable IRS officer.2

Here, at the petition to enforce the IRS Summonses stage of these

proceedings, the Pates can show no real and appreciable fear of self-incrimination.

See United

States v. Norwood, 343 F. Supp. 860, 866 (D.N.D. 2004), aff’d 420 F.3d 888 (8th Cir. 2005)
(Asserting the mere possibility of a criminal prosecution is not the test for determining whether
someone has properly invoked the Fifth Amendment privilege).

See also United States v.

Lindberg, 2006 WL 1371670, *1 (D. Minn. May 17, 2006) (Fifth Amendment privilege does not
2 The manner in which Officer Boston conducted himself and answered questions at the
November 5, 2015 show cause hearing indicated to the Court, despite Officer Boston’s assertions
to the contrary, that Officer Boston does have a certain level of animosity toward the Pates and
their legal counsel. The testimony revealed that Officer Boston was “frustrated” with the case
and did approach his supervisor recommending that a criminal referral be made. He also
consulted with an IRS technical advisor about the possibility of making a criminal referral. Both
of these requests were rejected. The Court understands why the Pates believed Officer Boston
may have been attempting to have them criminally prosecuted. Nonetheless, the Court does not
believe Officer Boston’s involvement in this case substantially prejudiced the Pates in this action
or in any way affects the merits of the IRS summonses at issue in the Petition to Enforce IRS
summonses filed the Government.

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encompass a complete refusal to disclose information about income and is improperly asserted
where respondent is merely speculating that he might be forced to incriminate himself); See also
United States v. Snow, 2015 WL 914691, *3 (E.D. Tenn. March 3, 2015 (holding a respondent
in contempt for failing to comply with a court order compelling compliance with an IRS
summons and noting the absence of a Justice Department referral as a factor in determining that
the respondent had no “substantial prospect of criminal prosecution” under the Fifth Amendment
to justify non-compliance); Ryerson v. United States, 371 F. Supp.2d 1130, 1134 (D. Ariz. 2005)
(rejecting a Fifth Amendment claim and enforcing an IRS summons given the lack of any
referral to the Justice Department and the fact that the respondent “offered no evidence to the
contrary” that the summons was issued as part of a criminal prosecution); United States v.
Vanderzand, 1997 WL 572692, *6 (W.D. Mich. June 3, 1997) (rejecting a Fifth Amendment
challenge to an IRS summons, as well as noting the lack of a Justice Department referral and
respondent’s failure to “establish any substantial prospect of criminal prosecution”).
Accordingly, the Pates cannot make a blanket assertion of Fifth Amendment privilege as to their
failure to comply with the April 2015 and June 2015 summonses.

United States v. Argomiz,

925 F.2d 1349, 1356 (11th Cir. 1991) (as a general rule a blanket refusal to produce records or to
testify will not support a Fifth Amendment claim).

See also United States v. G&G Advertising,

762 F.2d 632, 634 (8th Cir. 1985) (blanket assertion of Fifth Amendment privilege is improper in
response to IRS summons where there is no criminal referral); United States v. Burkholder, 2006
WL 2850555 *4 (W.D. Mo. Sept. 14, 2006).

However, the law does allow for the Pates to

make specific objections to specific questions or requests, but any such objections based on Fifth
Amendment privilege cannot be based on speculation.

See United States v. Norwood, 343 F.

Supp. at 866; United States v. Dick, 694 F.2d 1117, 1119 (8th Cir. 1982). Moreover, the Fifth
Amendment is not applicable to any non-testimonial data requested in the IRS summonses issued
to George Pate or Cookie G. Pate.

See Fisher v. United States, 425 U.S. 391 (1976); United

States v. Olmer, 2004 WL 2536869 *4 (D. Nb. Sept. 22, 2004).

The Fifth Amendment

“protects a person only against being incriminated by his own compelled testimonial
communications.”

Fisher v. United States, 425 U.S. at 409.

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III.

Conclusion

Upon consideration of the motion to enforce the IRS summonses and related filings of the
parties and evidence presented to the Court, the Court finds that IRS has established a prima
facie case for enforcement of the summonses and respondent has failed to show the summonses
were issued for an improper purpose or were otherwise deficient. Here, the evidence is clear
that the summonses for both April 2015 and June 2015 were for the proper purpose of
determining tax liability and related collection of any tax debts that may be owed as well as tax
return filings for the years 2012 and 2013.

There is not a Department of Justice formal referral

in effect, nor has there ever been such a formal referral.

The Pates have not shown the

enforcement of the summonses would constitute an abuse of the Court’s process.

Finally, the

Court notes that ample opportunity has been given to George Pate and Cookie G. Pate to comply
with both or either of the summonses, even after the November 5, 2015 Show Cause hearing.
Both George Pate and Cookie G. Pate continue in their failure to comply with the IRS
administrative summonses.

(See January 11, 2016 Status Report, doc. 9).

In light of the foregoing findings,
IT IS HEREBY RECOMMENDED that George Pate and Cookie G. Pate be ordered to
comply with the April 2015 and June 2015 summonses at a date and time agreed upon by the
IRS and respondents George Pate and Cookie G. Pate, but not later than sixty days after the
service of any such order directing compliance with the summonses upon George Pate and
Cookie Pate.
All parties and counsel are reminded they have fourteen days from the date of receipt of a
copy of this report and recommendation within which to file and serve objections to the report
and recommendation. A failure to file and serve exceptions by this date shall bar an attack on
appeal of the factual findings in the report and recommendation which are accepted or adopted
by the district judge, except on grounds of plain error or manifest injustice.
Dated this 28th day of January, 2016, at Jefferson City, Missouri.

Matt J. Whitworth

/s/

MATT J. WHITWORTH
United States Magistrate Judge
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