Free MEMORANDUM in Support - District Court of Delaware - Delaware

Case 1:06-mc-00003-KAJ

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE
UNITED STATES OF AMERICA,

Plaintif,
v.

Case No.

BEN-CEN, INC.
3301 Lancaster Pike

Wilmington, Delaware

Defendant.

UNITED STATES' MEMORANDUM IN SUPPORT OF COMPLAINT TO ENFORCE INTERNAL REVENUE SUMMONS
This is a miscellaneous civil action in which the United States seeks to judicially
enforce an internal revenue summons issued to and served upon Ben-Cen, Inc., a

Delaware corporation.
QUESTIONS PRESENTED

The Court shall enforce an Internal Revenue Service administrative summons
where it is shown: 1) that the summons was issued for a proper purpose; 2) that the

information sought may be relevant to that purpose; 3) that the inormation sought is
not already in the Service's possession; and 4) that the required administrative steps

have been followed. The United States has established these four elements by the

Declaration of Thomas Anastasia. Should the Court enforce the summons issued to
Ben-Cen, Inc., a Delaware corporation?

ST ATUTES INVOLVED
26 U.S.c. §§ 7602, 7603 (2000).

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ST A TEMENT

1. Introduction. This proceeding is brought pursuant to 26 U.sC §§ 7402(b) and

7604(a) (2000) to judicially enforce an administrative summons of the Internal Revenue

Service. The United States has filed a complaint seeking to enforce the summons issued

to and served upon Ben-Cen, Inc., a Delaware corporation. The summons seeks

testimony and bank records pertaining to Russell D. Applegate. The complaint, which
seeks the issuance of an order to show cause why Ben-Cen, Inc. should not obey the
summons issued to and served upon it, is supported by a declaration of the special

agent engaged in conducting an investigation of the taxpayer, Russell D. Applegate.
2. The specific requirements of the proposed order to show cause. The proposed

order to show cause submitted to the Court would require that a representative of BenCen, Inc. appear before the Court, at the specified time and place, "to show cause why it
should not be compelled to obey the internal revenue summons served upon it ***, in

the investigation of Russell D. Applegate." Prop. Order to Show Cause at 1. The

proposed order goes on to require the summoned party to fie and serve any written
responses to the complaint, supported bý appropriate affidavit(s), as well as any
motions it desires to make, within eleven days of service of the original process upon it.

Id. at 2. The order wil specifically require that:

all motions and issues raised by defendants wil be considered upon the return date of this order, that only those issues raised by motion or brought into controversy by the responsive pleadings and supported by affidavit(s) wil be considered at the return of this order, and tfiat any allegations in the complaint not contested by affidavit(s) wil be considered as admittea for the purpose of this enforcement proceeding. Affidavits in opposition to the complaint or in support of any motion shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testiy to the matters stated therein. Any affidavit failng to comply with this standard shall not be considered by the Court.
Ibid.

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3. The background facts.
a. Parties and other principal actors. As is apparent from the style of the

case, plaintif in this action is the United States. (Compl. ir 4.) Thomas Anastasia is a

special agent, employed by Internal Revenue Service in the Crimal Investigations
Division. (Anastasia Decl. ir 1.) He is assigned to a post of duty at Wilmigton,
Delaware. (Id.)
Defendant, Ben-Cen, Inc., is a Delaware corporation with a business address at
3301 Lancaster Pike, Wilmington, Delaware. (Anastasia DecL. Ex. 1.)
b. Th investigation of

Russell D. Applegate. In his capacity as a special

agent, Special Agent Anastasia is conductig an investigation concerning the Federal
income tax liabilties of Russell D. Applegate. (Anastasia Decl. ir 2.) The purpose of the investigation is to determine the Federal income tax liabilties of Russell D. Applegate
for the years 1999, 2000, 2001, 2002, 2003, and 2004. (Id.) Based on information
developed during Special Agent Anastasia's investigation, Russell D. Applegate is an
officer and majority shareholder of Ben-Cen, Inc. (Anastasia Decl. ir 5.)

c. Th summonses issued to and served upon Ben-Cen, Inc. In furtherance of

the investigation of Russell D. Applegate, and in accordance with 26 U.se. § 7602, on
JulY 28, 2005, Special Agent Anastasia issued an administrative summons, Internal

Revenue Service Form 2039, to Ben-Cen, Inc. (Anastasia Decl. ir 3.) The summons
directed Ben-Cen, Inc. to give testimony and to produce for examnation on August 8,

2005, corporate records as described in the attachment to the summons. (Id.) The
summons requested information of Russell D. Applegate in connection with the tax
years 1999, 2000, 2001, 2002, 2003, and 2004, as more fully described in the attachment to

the summons. (Id.)11

11 A true and correct copy of the summons is appended to the Declaration of Thomas Anastasia. (Daher DecL. Ex. 1.)

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Special Agent Anastasia served the summons on Ben-Cen, Inc. on JulY 28, 2005,

by personally handing a copy of the summons to Russell D. Applegate at Ben-Cen, Inc.
(Anastasia Decl. ir 5.)21

d. Th summoned party's response to the summons. Ben-Cen, Inc. did not

appear on August 8, 2005 to give testiony or to produce for examination the ban
records as described on the summons. (Anastasia Decl. ir 7.) As of December 19, 2005,
Ben-Cen, Inc. had not appeared to give testiony and has not produced any records for

examination.
e. Th continuing need for the summoned testimony and records.

The corporate records sought by the JulY 28, 2005 summons directed to Ben-Cen,

Inc. are not in the possession of the Internal Revenue Service. (Anastasia Decl. ir 12.) It

is necessary to obtain the testimony and to examine the books, records, papers, and
other data sought by the summons directed to Ben-Cen, Inc. in order to determine the

correct amount of individual income tax for Russell D. Applegate for the years 1999,
2000,2001,2002,2003, and 2004. (Anastasia Decl. ir 14.)

SUMMARY OF THE ARGUMENT

In order to obtain enforcement of an Internal Revenue Service summons, the

United States must show four elements~ These are: 1) that the summons was issued for

a proper purpose; 2) that the information sought may be relevant to that purpose; 3)
that the information being sought is not already in the possession of the Internal
Revenue Service; and 4) that the administrative steps required by law with respect to

the issuance and service of a summons have been followed. In the case at hand, all four
of these elements have been demonstrated by the Declaration of Thomas Anastasia.
Therefore, a prima facie case for enforcement of the summons has been established.

21 A tre and correct copy of the certiicate of service of summons is appended to
the Declaration of Thomas Anastasia. (Anastasia DecL. Ex. 2.)

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As a final matter, no "Justice Department referral" is in effect with respect to the

taxpayer, Russell D. Applegate. Therefore, the summons is enforceable and should be
enforced by this Court.
ARGUMENT
THE UNITED STATES HAS ESTABLISHED A PRIMA FACIE CASE FOR ENFORCEMENT OF THE SUMMONS ISSUED TO BEN-CEN, INe.

The standards for enforcement of an Internal Revenue Service administrative
summons are well established. To demonstrate a prima facie case for enforcement, the

United States only need show: 1) that the summons was issued for a proper purpose; 2)

that the information sought may be relevant to that purpose; 3) that the inormation
being sought is not already in the possession of the Internal Revenue Service; and 4)

that the administrative steps required by law with respect to the issuance and service of
the summons have been followed. See United States v. Powell, 379 U.s. 48, 57-58 (1964);

United States v. Cortese, 614 F.2d 914, 919 (3d Cir. 1980); Moutevelis v. United States, 561 F.

Supp. 1211,1213 (M.D. Pa. 1983), affd 727 F.2d 313 (3d Cir. 1984). Upon establishment

of the four elements of the prima facie case, the United States is entitled to enforcement
of the summons. See United States v. Stuart, 489 U.s. 353,353-354 (1989).

Special Agent Anastasia's declaration establishes all of the requisite elements for

enforcement of the summons. First, the Anastasia declaration establishes that the

summons was issued for a proper purpose, i.e., an investigation concernig the Federal
income tax liabilties of Russell D. Applegate for the years 1999, 2000, 2001, 2002, 2003

and 2004. (Anastasia Decl. ir 3.)

Second, the information sought by the summons may be relevant to Special
Agent Anastasia's examination. (Anastasia Decl. ir 14.) More specifically, it is

necessary to obtain the testimony and to examine the corporate records sought by the
summons in order to determine the correct amount of individual income tax for Russell

D. Applegate for the years 1999, 2000, 2001, 2002, 2003, and 2004. (Id.)

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As for the third requirement, that the Internal Revenue Service not already be in

possession of the summoned data, Special Agent Anastasia states that the corporate

records and documents that were sought by the summons are not already in the
possession of the Internal Revenue Service. (Anastasia Decl. ir 12.)

Fourth, all of the admistrative steps for the issuance and service of the
summons were followed. (Anastasia Decl. ir 13.)

Last, no "Justice Department referral" is in effect with respect to Russell D.

Applegate. (Anastasia Decl. ir 14.) Under the Internal Revenue Code, no summons
may be enforced if a "Justice Department referral" is in effect with respect to the subject
of the summons. 26 U.S.c. § 7602(d)(1); see Moutevelis, 561 F. Supp. at 1213. A "Justice

Department referral" is in effect with respect to any person if the Secretary of the

Treasury has recommended to the Attorney General a grand jury investigation of, or

the crimnal prosecution of, such person for any offense connected with the

admistration or enforcement of the internal revenue laws or any request is made
under section 6103(h)(3)(B) for the disclosure of any return or return inormation
relating to such taxpayer. 26 U.se. § 7602(d)(2)(A). In the case at hand, Special Agent

Anastasia has stated under oath that the Internal Revenue Service has not made a
recommendation to the Department of Justice for a grand jury investigation or criminal
prosecution of Russell D. Applegate for the tax years under investigation. (Anastasia
Decl. ir 14.) The Internal Revenue Service also is not delaying a recommendation to the

Department of Justice in order to collect additional inormation. Moreover, the
Department of Justice has not made any request under 26 U.S.c. § 6103(h)(3)(B) for the

disclosure of any return or return information (as those terms are defined in 26 U.se. §
6103(b)) relating to Russell D. Applegate. With this certiication, the summons is

enforceable.

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Thus, the United States has established a prima facie case for enforcement of the

summons issued to and served upon Ben-Cen, Inc.. This Court should issue an order to
show cause requiring Ben-Cen, Inc. to show cause, if any it has, why the summons

issued to and served upon it should not be enforced in all respects.
CONCLUSION

It is the position of the United States that the Court should issue to defendant the
proposed order to show cause, requiring it to show cause, if any it has, why the internal

revenue summons issued to and served upon it should not be enforced. Further, upon
the failure of defendant to show any legally signicant reasons for the failure to obey
the summons issued to and served upon it, the United States submits that the Court
should enforce the summons in all respects.
DATE: January 3, 2006.
Respectfully submitted,

COLM F. CONNOLLY

United States Attorney

E E. ES
P.O. Box 227

i

rial Attorn , Tax Division

U.s. Department of Justice

Ben Frankin Station
Washington, DC 20044

Telephone (202) 307-0714

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