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Tax judge shoots down 'Al Capone' approach

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In a blow to the Indiana attorney general’s office, the state’s tax judge has shot down a legal theory that used jeopardy tax assessments to go after a purported puppy mill in Harrison County.

The ruling came late Friday in the case of Virginia and Kristin Garwood v. Indiana Department of Revenue, No.82T10-0906-TA-29. Tax Judge Martha Wentworth ruled against what the AG has dubbed the “Al Capone” approach to take down what it described as illegal puppy mill operations.

This case goes back to June 2009, when a mother and daughter from Harrison County were charged following a raid on their dairy farm. The state went to the Garwoods’ residence to serve the jeopardy tax assessments and demanded the family pay about $142,368 immediately or their personal property would be seized. When they couldn’t pay, police and animal rescue workers seized 244 dogs and puppies that were confined in squalid enclosures. The seized animals, some of testing positive for disease, were sold by the state to the Humane Society for a total $300.

The Garwoods eventually pleaded guilty to a felony charge of failing to pay 2007 to 2009 sales tax for the puppy-breeding and selling operation in Mauckport, Ind.

Indiana law didn’t offer the state a way to go after the Garwoods or similar tax delinquents, and the AG used the criminal tax evasion tool that had taken down 1930s crime boss Al Capone for not paying taxes on his operations. That method meant utilizing the Department of Revenue and its ability to issue jeopardy tax assessments, if at least one of four statutory circumstances were present.

The state has used this method multiple times in recent years, and the 16 warrants against the Garwoods was the second time that approach had been used. The Garwoods challenged the jeopardy tax assessments and filed an original tax appeal in the summer of 2009, arguing that they were deprived of their constitutional due process rights, thereby voiding the jeopardy assessments. The state disputed those claims, saying they were justified to use the assessments.

Judge Wentworth ruled against the state, finding that it hadn’t proved it had enough justification to issue the jeopardy assessments in this situation.

The state alleged the Garwoods were concealing property (the puppies) to avoid being taxed. The state argued that Virginia Garwood’s refusal to allow the Harrison County Animal Control onto her property at one point following a consumer complaint showed she was hiding the operation.

But Judge Wentworth disagreed, finding it was not reasonable to infer that Garwood’s intent was to conceal property to avoid paying taxes because one would not normally expect an animal control officer to be involved with tax collection matters. She also dismissed the state’s arguments that the Garwoods’ purchase of breeding animals in bulk was speculative as far as a way for them to conceal the individual sales of the dog operation.

While the Garwoods may not have been properly reporting and paying taxes, the evidence doesn’t prove they were intending not to pay or trying to thwart collection in any way, the judge determined.

“The Court holds that the Department did not show the presence of the statutorily prescribed exigent circumstances that the Garwoods intended to quickly leave the state, remove their property from the state, conceal their property in the state, or do another act that would jeopardize the collection of taxes,” she wrote.

Citing an Indiana Supreme Court ruling from 2002 about jeopardy assessments, Judge Wentworth noted that those tax tools should be issued as part of the state’s “power of the purse” and not its “power of the sword” in punishing crimes.

“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 government services and conducting the business of the state,” Judge Wentworth wrote. “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 exigent circumstances required by Indiana Code 6-8.1-5-3 and 45 IAC 15-5-8.”

The case is remanded to the state revenue department with instructions to void the Garwoods’ jeopardy assessments. The state now has the option of asking the Indiana Supreme Court to consider the case.
 

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  • Correction
    Also, you refer to squalid conditions. The conditions at the farm were NOT squalid. The dogs had safe outdoor kennels, shade, igloo style shelters, water, food, bedding, there were pallets of food for the dogs and a refrigerator with immunizations to use on puppies. Please consider the actual facts of the case, not the media hype.
  • Correction
    You say in your article that the State did not have "a way to go after the Garwoods or other tax delinquents." That is not true. The State could have pursued this case like any other tax assessment case, sending an assessment, allowing for a hearing if there was an objection, etc. The jeopardy assessment procedure is certainly not the only way to pursue someone who has not paid their taxes.

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  1. Excellent initiative on the part of the AG. Thankfully someone takes action against predators taking advantage of people who have already been through the wringer. Well done!

  2. Conour will never turn these funds over to his defrauded clients. He tearfully told the court, and his daughters dutifully pledged in interviews, that his first priority is to repay every dime of the money he stole from his clients. Judge Young bought it, much to the chagrin of Conour’s victims. Why would Conour need the $2,262 anyway? Taxpayers are now supporting him, paying for his housing, utilities, food, healthcare, and clothing. If Conour puts the money anywhere but in the restitution fund, he’s proved, once again, what a con artist he continues to be and that he has never had any intention of repaying his clients. Judge Young will be proven wrong... again; Conour has no remorse and the Judge is one of the many conned.

  3. Pass Legislation to require guilty defendants to pay for the costs of lab work, etc as part of court costs...

  4. The fee increase would be livable except for the 11% increase in spending at the Disciplinary Commission. The Commission should be focused on true public harm rather than going on witch hunts against lawyers who dare to criticize judges.

  5. Marijuana is safer than alcohol. AT the time the 1937 Marijuana Tax Act was enacted all major pharmaceutical companies in the US sold marijuana products. 11 Presidents of the US have smoked marijuana. Smoking it does not increase the likelihood that you will get lung cancer. There are numerous reports of canabis oil killing many kinds of incurable cancer. (See Rick Simpson's Oil on the internet or facebook).

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