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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. I like the concept. Seems like a good idea and really inexpensive to manage.

  2. I don't agree that this is an extreme case. There are more of these people than you realize - people that are vindictive and/or with psychological issues have clogged the system with baseless suits that are costly to the defendant and to taxpayers. Restricting repeat offenders from further abusing the system is not akin to restricting their freedon, but to protecting their victims, and the court system, from allowing them unfettered access. From the Supreme Court opinion "he has burdened the opposing party and the courts of this state at every level with massive, confusing, disorganized, defective, repetitive, and often meritless filings."

  3. So, if you cry wolf one too many times courts may "restrict" your ability to pursue legal action? Also, why is document production equated with wealth? Anyone can "produce probably tens of thousands of pages of filings" if they have a public library card. I understand this is an extreme case, but our Supreme Court really got this one wrong.

  4. He called our nation a nation of cowards because we didn't want to talk about race. That was a cheap shot coming from the top cop. The man who decides who gets the federal government indicts. Wow. Not a gentleman if that is the measure. More importantly, this insult delivered as we all understand, to white people-- without him or anybody needing to explain that is precisely what he meant-- but this is an insult to timid white persons who fear the government and don't want to say anything about race for fear of being accused a racist. With all the legal heat that can come down on somebody if they say something which can be construed by a prosecutor like Mr Holder as racist, is it any wonder white people-- that's who he meant obviously-- is there any surprise that white people don't want to talk about race? And as lawyers we have even less freedom lest our remarks be considered violations of the rules. Mr Holder also demonstrated his bias by publically visiting with the family of the young man who was killed by a police offering in the line of duty, which was a very strong indicator of bias agains the offer who is under investigation, and was a failure to lead properly by letting his investigators do their job without him predetermining the proper outcome. He also has potentially biased the jury pool. All in all this worsens race relations by feeding into the perception shared by whites as well as blacks that justice will not be impartial. I will say this much, I do not blame Obama for all of HOlder's missteps. Obama has done a lot of things to stay above the fray and try and be a leader for all Americans. Maybe he should have reigned Holder in some but Obama's got his hands full with other problelms. Oh did I mention HOlder is a bank crony who will probably get a job in a silkstocking law firm working for millions of bucks a year defending bankers whom he didn't have the integrity or courage to hold to account for their acts of fraud on the United States, other financial institutions, and the people. His tenure will be regarded by history as a failure of leadership at one of the most important jobs in our nation. Finally and most importantly besides him insulting the public and letting off the big financial cheats, he has been at the forefront of over-prosecuting the secrecy laws to punish whistleblowers and chill free speech. What has Holder done to vindicate the rights of privacy of the American public against the illegal snooping of the NSA? He could have charged NSA personnel with violations of law for their warrantless wiretapping which has been done millions of times and instead he did not persecute a single soul. That is a defalcation of historical proportions and it signals to the public that the government DOJ under him was not willing to do a damn thing to protect the public against the rapid growth of the illegal surveillance state. Who else could have done this? Nobody. And for that omission Obama deserves the blame too. Here were are sliding into a police state and Eric Holder made it go all the faster.

  5. JOE CLAYPOOL candidate for Superior Court in Harrison County - Indiana This candidate is misleading voters to think he is a Judge by putting Elect Judge Joe Claypool on his campaign literature. paragraphs 2 and 9 below clearly indicate this injustice to voting public to gain employment. What can we do? Indiana Code - Section 35-43-5-3: Deception (a) A person who: (1) being an officer, manager, or other person participating in the direction of a credit institution, knowingly or intentionally receives or permits the receipt of a deposit or other investment, knowing that the institution is insolvent; (2) knowingly or intentionally makes a false or misleading written statement with intent to obtain property, employment, or an educational opportunity; (3) misapplies entrusted property, property of a governmental entity, or property of a credit institution in a manner that the person knows is unlawful or that the person knows involves substantial risk of loss or detriment to either the owner of the property or to a person for whose benefit the property was entrusted; (4) knowingly or intentionally, in the regular course of business, either: (A) uses or possesses for use a false weight or measure or other device for falsely determining or recording the quality or quantity of any commodity; or (B) sells, offers, or displays for sale or delivers less than the represented quality or quantity of any commodity; (5) with intent to defraud another person furnishing electricity, gas, water, telecommunication, or any other utility service, avoids a lawful charge for that service by scheme or device or by tampering with facilities or equipment of the person furnishing the service; (6) with intent to defraud, misrepresents the identity of the person or another person or the identity or quality of property; (7) with intent to defraud an owner of a coin machine, deposits a slug in that machine; (8) with intent to enable the person or another person to deposit a slug in a coin machine, makes, possesses, or disposes of a slug; (9) disseminates to the public an advertisement that the person knows is false, misleading, or deceptive, with intent to promote the purchase or sale of property or the acceptance of employment;

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