UNITED STATES OF AMERICA v. LONNEN et al

Filing 11

ORDER, MEMORANDUM OPINION AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE signed by MAG/JUDGE JOE L. WEBSTER on 12/18/2015; that the Government's Petition to Enforce IRS Summonses (Docket Entry 1 ) be GRANTED and that an Order be en tered compelling Respondents Wayne C. Lannen and Karen A. Lannen to obey the Internal Service Summons served on both parties, by producing all books, records, papers, and other data that are demanded by the summons and that are in his possession, cus tody, or control, within 45 days of the date of this Order. FURTHER that Respondents obey and fully comply with the IRS summonses at issue in this proceeding by contacting IRS Revenue Officer Karl D. Weeman, or any other person designated by t he IRS, to schedule both interviews at a mutually agreeable time, as set out herein. ORDERED that the United States Marshal for this District serve a copy of this Order personally upon Wayne C. Lonnen and Karen A. Lonnen, within fourteen (14) days of the date of this Order and Recommendation. (Sheets, Jamie)

IN THF UNITED STATBS DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORÏ'H CAROLINA
UNITE,D STATE,S OF' AME,RICA,
Petitioner,
V

WÂYNE C. LONNEN, et al.,
Respondents.

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1,:1,5MC44

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ORDER, MEMORÄNDUM OPINION AND RECOMMENDATION
OF UNITED STATES MAGISTRATE JUDGE
This matter is before the Coutt upon the Government's petition to enforce Intetnal
Revenue Service ("IRS") summonses. (Docket E.rt y 1.) On Octobet 21,201.5, a show cause

heating was held for tespondents Wayne C. Lonnen and l(aten A. Lonnen, both appearing

pro se. (À.{inute Entty dated 10/21/15.) The undersigned allowed both patties

to submit

additional btiefs to the Coutt and continued the show cause hearing until Novembet 18,201,5.1

(Docket Entries 8-10; minute entty dated 1,1,/1,8/1,5.) For the reasons set

foth

below, the

Coutt recommends that the Govetnment's petition be gtanted.

I. BACKGROUND
OnJuly 29,201,5, the Govetnment filed a petition to enfotce IRS summonses issued
to respondents. (Docket Entry 1.) In the Show Cause Order, the Cout informed respondents

to file in wdting any opposition to the petition. (Docket Entty 3.) Respondents filed a

1 Mts. Lonnen was represented by counsel at the November 1,8,201,5 headng. Mr. Lonnen
appeatedpro se.

response, asserting

that (1) IRS Agent I(atl D. I7eeman failed to provide Mr. Lonnen with

requested documents, (2) that Mr. Lonnen never refused to testiSr ot ptoduce documents at

the summons intervieu/, (3) that Mrs. Lonnen intended to exercise her spousal privileges, and
(4) that the Lonnens were being tatgeted to "initiate a cdminal investigation." (Docket Entry

5.) Respondents seek, inter
and desist from any further

aha, a

coutt

ding

requiring Agent Weeman to "immediately cease

action." (Id.) Durinq the show cause headngs

and

in supplemental

bdefs submitted to the Court, both paties addressed these atguments as well as Mt. Lonnen's
assertion of his Fifth Amendment ptivilege against self-inctimination. (Docket Entties 8-10;

minute entries dated

10 / 21

/ 15 e.

1,1,

/

1,8

/ 15.)

II. DISCUSSION
To obtain enforcement of an IRS summons, the Government may establish its prima
facie case showing that the

fotr Powellfactots: "1) the investigation is being conducted for

a

legitimate purpose; 2) the inquiry is relevant to that purpose; 3) the infotmation sought is not
alteady in the possession

of the IRS; and 4) the administrative steps tequired by the Code have

been followed;' Aþltìn u. Unind Stutes,809 F.2d 236,238 (4th Cir. 1987) (citìng United State¡
u. Powe/1,379

U.S. 48, 57-58 (1964). "The IRS may establish its prima facte case by an affidavit

of the investigating agent averring the four elements frcm Powell." United State¡ u. Il/a/t0n,989
F.2d 497 (4th Cir. 1993). The burden then shifts to the paffy contesting the summons to shor,v
that "the IRS is attempting to abuse the coutt's process. Such an abuse would take place . . .

if the sunìlnons had been issued for

an impropet pulpose, such as to harass the taxpayer . .

or fot any other purpose teflecting on the goocl faith of the patticular i.nr.estigation."
u. United States, 434

tr.3d

67

.

Conner

6, 680 (4th Cir. 2006) (quoting United States u. Staart,489 U.S. 353,

2

360 (1e8e).

Here, the Government has presented the affìdavit and testjmony

of IRS Á.gent

Weeman. The Court found that the IIìS satisfìed a ptima facie showing articulated in
(Docket E.rttf 3 at

2)

Powell.

Respondents were given the oppottunity to disptove the pdma facie

showing or sho'nv an abuse of process. As to Mt. Lonnen, the undersigned finds that he has
presented no evidence to oppose the Government's pdma facie showing. To the extent Mr.

Lonnen's objections contest the fourth factot tn Powe//, Mt. Lonnen has made no showing that

the applicable administative steps to the IRS code wete not followed. Mt. Lonnen ârgues
that he made several requests fot a "Notice of Defìciency" and "Demand fot payment," rvhich

neither appe t to l¡e relevaît to the enforcement of the summonses at issue.2 Moreovet, Mr.
Lonnen argues that he did not teceive

a

tax assessment, but any challenge to ân assessment ìs

not suffìcient to "defeat the IRS's pdma facie showing." United

States u.

Harþer,662F.2d335,

336(SthCir. 1981); ¡eealso Unitedstate.çu.BaÍtle,213F. App'* 307,310 (5thCir.2007)("4
summofl.s-enforcement action is not the apptoptiate forum for challenging the validity of an
assessment."); United State¡ u. I [et'k, 25 F.3d 1059 (1Oth Cn. 1994)

("Â taxpayer cannot use a

summons enforcement proceeding as

a forum in which to contest the validity of

underlying assessmen ts."); United States

Muelhr,930 F.2d

u.

1,0, 1,2

the

(8th Cir. 1,991) ("['axpayet]

could not use the proceedings to enforce the I1ìS summons as a forum ín which to contest

z Othet courts

have addressed "notice" requirements undet the Foutth Powe// factot as it relates to a
summons issued to a thirty-patty tecordkeeper. Cook u. United Støtes,104 F.3d 886, 890 (6th Cil. 1'997);
Traais u. Mi,þì, 394 F. Supp. 2d 1277 , 1,252 P. Haw. 2005); Adamowiclu. United States,531 F'.3d 151,
162 (2d Cir. 2003); Berkowitqy. Unind Stutes, No. CIV.A. 8:09-651-HMH, 2011 WL 4502374, at*8

P.S.C. Sept. 9, 201,1) report and recommendation adopred, No. CA 8:09-651-HMH-KF'M, 201'7 WL
4502246 p.S.C. Sept, 29, 201,1). This does not appear to be televant to Mt. Lonnen's case.
J

the validity of the undetþing assessments.")

Mr. Lonnen also asserts

a

Fifth -,\mendment ptivilege against seif-incrimination, which

the Court finds that Mr. Lonnen has failed to substantiate. IRS summonses ate subject to the

Fifth ,\mendment privilege, however, the t^xpayer "'must provide more than
speculative, generahzed allegations

mere

of possible tax-related ptosecution . Flh. t^xp^yer

must be faced with substanial and rcal hazards

of self-incdmination."'

Unind Stutet

u.

Argomaai7,925 tr.2d 1349,1,353 (L1th Cir. 1,991) (quoting United States u. Reis,765 F.2d 1'094,
1,096 (1,1th

Cir.19S5)).

"[]he

pdvilege may not . . . be invoked on no more than the mere

assertion by one claiming the privilege that infotmation sought by the government may be

incriminating. \X/hether there is a sufficienthazard of inctimination is of coutse a question for
the courts asked to enforce the pdvileg

e."

United

S

tate¡ u.

S

barp, 920 F .2d 1167 ,

1,1,7

0 (4th Cu.

1990) (citing Hofman u. Unind îtute.¡341 U.S. 479, 486 (1951). Thus, the Coutt asks two

questions regarding the information sought from the person asserting the privilege: (1)
whether it's facially evident, "in light of the question asked and the citcumstances of its asking"

or Q) whether "the person assetting the privilege þas] demonsttated its incdminating potential
by futhet contextual

ptoof." (Id. at 1171,.)

Here, Mt. Lonnen interposed the Fifth Amendment to the following questions dedved

from IRS Form 433-43 dudng his hearing:

o

Are you marded? (Section 1, Question 2a: Personal Infotmation);

o

Your wife's social secutity numbet is xxx-xx-xxxx? (Section L, Question 3a: Petsonal
Information);

IRS, Collection Information Statement for \ü/age Eatnets and Self-Employed Individuals Fotm,
htçs / /www.irs.gov/pub / tts-p df / f433a.p df (last accessed Dec. 1 4, 201' 5).
3

Jøa

:

4

o

\Mhere do you wotk? (Section 2,
Question 4a:Employment Infotmation);

a

Where does your wife work? (Section 2, Question 5a: Employment Infotmation);

o

Are you

o

^

p^rty to a lawsuit? (Section 3, Question (r: Other Financial Infotmation);

Flave you ever filed bankruptcy? (Section 3, Question 7: Other Financial

Infotmation);
O

In the past 10 years, have you lived outside the United
Other Financial Infotmation);

o

Are you a beneficiary of a úust, estate, or life insurance policy? (Section 3, Question
9a: Other Financial Infotmation);

o

Are I'ou a conttibutor to a trust, estate, or life insurance policy? (Section 3, Question
9b: Other Financial Information);

States? (Section 3, Question 8

Do you own a safety deposit box? (Sectìon 3, Question L0: Other Financial
Infotmation);
o

Have you transfetted any assets fot less than full value in the last 10 years? (Section 3,
Question L1: Other Financial Infotmation);

o

How much cash do you have on hand? (Section 4, Question 12: Personal.,{sset
Infotmation);

o

Do you have any stocks, bond, mutual funds or 401(k)s? (Section 4, Quesion 14a:
Petsonal As set Infotmation);

o

Do you have any ctedit cards or available ctedit? (Section 4, Question 15a: Petsonal
Asset Information);

O

Do you have a life insutance policy? (Section 4, Question
Information);

1.6a:

Petsonal Asset

o

Do you own any propetty? (Section 4, Question 17a: Personal Asset Information);

o

Do ysu own any vehicles? (Section 4, Question 18a: Personal Asset Infotmation);

o

Do you own any personal
Information);

assets? (Section 4,

5

Question 19a Personal Asset

o

Do you own any business or sole ptoptietotship? (Section 6, Question 51: Business
Information);

o

How much do you bdng in a month? (Section 7, Sole Propdetotship Infotmation);

o

Do you have any income coming in? (Section 5, Monthly Income and Expenses);

o

How much do you spend on food and clothing? (Section 5, Monthly Income and
Expenses);

o

How much do you spend on housing? (Section 5, Monthly Income and Expenses);

o

FIow much do you pay for your vehicles? (Section 5, Monthly Income and tsxpenses);

o

How much do you pay fot

o

Do )'ou take public transportation? (Section 5, Monthly Income and trxpenses);

o

Do you have health insurance? (Section 5, Monthly Income and Expenses)a

gas? (Section 5,

Monthly Income and Expenses);

Hete, the questions asked by the IRS agent telate to Mr. Lonnen's current asset holdings, and
"thus, are not inherendy incriminating in nature." United Slates

u. Redhead, 194

tr. App'x

234,

236 (5thCir.2006) (unpublished). This action was btought fot collecting infotmation to assess

the ability to p^y a tax liability, not to establish the undedining tax liability itself. Furthermote,
thete is no contextual ptoof to show that the information sought is incriminating. Mr. Lonnen
assetts that the IRS is gathedng the

infotmation sought to create a link of evidence to initiate

criminal ptoceedings against him, but the "data fsought] says little that ptovides a link to

ttansgression." Unind
(À4.D. Fla.

Stutes u. St, John,

Mat. 18,201.3)

No. 8:11-MC-99-T-27MÂP, 2013

reþorl and renmmendation adoþted,

W

a

1,610833,

past

at*4

No. 8:11-MC-00099-JDìø, 2013WL

Audio Recotding: Interview by IRS Agent I(ad D. \ü/eeman with Mr. \X/ayne C. Lonnen (\4at. 11,
2015 (on file with the Court).

a

6

1624216 (À,{.D. Fla. Âpr. 1.5, 201.3); United .|mn¡ u. I.ilmes, No. 09-61726-MC, 2009 \)n48851,46, at x4 (S.D. F-la.

Dec. 17,2009) ("fl]nformaton regarding the respondentrs cuttent

financial stâtus does not provide

a rcal and substa¡lal hazard of ctiminal ptosecution.").s

Therefore, Mr. Lonnen does not have valid Fifth Amendment claim as to these questions.6

Mrs. l,onnen, who was also semed a summons to appeat for an interview and to

produce documents, has claimed the madtal communications privilege. The marital
communication privilege "prevents a spouse from testifying agaínst [respondent] tegatding
confidential communications between the spouses." United

State.r u.

Acker, 52F.3d 509,51.4

(4th Cir. 1,995). At the November 18,201,5 hearing, Respondent's counsel indicated that Mrs.

Lonnen intends to comply with the summons while "honoring het maÅtal telationship."
(À4inute entry dated 11/1,8/1.5.) Both the Government and Respondent's counsel agreed to

entry of an enfotcemeflt otdet requiting Mts. Lonnen to appear fot an interview and assett
her madtal communications ptivilege when applicable.

III.

CONCLUSION

Fot the teasons stated hetein, IT IS HEREBY RECOMMENDED that

the

Govetnment's Petition to Enforce IRS Summonses (Docket Errtty 1) be GRANTED and
that an Order be enteted compelling Respondents Wayne C. Lonnen and l{aren A. Lonnen

to obey the Intetnal Setvice Summons served on both patties, by ptoducing to IRS Revenue

Moteover, it appears the statute of limitations for willful failure to file may present legal bardets to
prosecution as the summons covers tax liabiJity foryeats 2003-2006. St. J0hn,201,3WL1,61,0833,at
*4; see al:o 26 U.S.C. 6531
S
þeriods of limitation on criminal ptosecutions).
c The Court also notes that Mr. Lonnen did not invoke his Fifth Amendment privilege (at the IRS
interview or the Court hearing) as to the ptoduction of documents requested in the summons. Thus,
Mr. Lonnen should be ordeted to ptoduce such documents.
s

7

Offìcet I(ad D. Weeman, ot any other person designated by the IllS, all books, tecotds,
papers, and other data that are demanded by the summons and that arc

in his possession,

custody, ot conttol, within 45 days of the date of this Otdet.

IT IS FURTHER RECOMMENDED

that Respondents obey and fully comply

with the IRS summonses at issue in this ptoceeding by contacting IRS Revenue Offìcer l(atl

D. Weeman, or any othet person designated by the IRS, to schedule both interviews at a
mutually agteeable time, which interviews shall take place after the ptoduction of tecords
described above, within 45 days of the date of this Order, and by attending and fully ânswering

all questìons asl<ed of both patties at such interviews. In answering fully all questions asked,

Mts. Lonnen should be allowed to invoke het marital communications privilege rvhen
applicable.

IT IS FURTHER ORDERED
a

that the United States Matshal fot this Disuict serve

copy of this Otder personally upon'Vflayne C. Lonnen and l(aren,{. Lonnen, within foutteen

(14) days of the date of this Order and Recommendation.

This the 18th day of December,2015.

oe L. We stef

U

8

States Magistrate Judge