Telecom Exec Must Face the IRS Music, 1st Circ. Rules
Summonses must be respected despite seeming changes in the relevant law, the First Circuit said in Frank Gangi v. United States. Gangi, the exec of a telecom company trying to go belly-up, had been trying to squeeze out of complying with IRS summonses that had been sent to his lawyers, his accountants, and his banks. When the IRS smells rotten fish, they usually are on to something.
When it comes to paying taxes, you can run, but you really can't hide -- at least not for long.
No Authority to File Chapter 11
Frank Gangi, the once owner of Global NAPs, tried to file for Chapter 11 bankruptcy in 2014 after the company and its parent company, Ferrous Miners Holdings, had already been placed into receivership. "This was a case that was simply dead from the outset, and properly will be dismissed," Delaware bankruptcy judge Brendan Shannon said.
Big money was at stake for both Gangi, his companies, and for Verizon. The chapter 11 filing must have been hastily put together because judge Shannon said that it "could have been written on the back of a cocktail napkin," since it was so lacking in substance and specificity.
Here Comes the IRS
Actually, the IRS was onto Gangi's scent almost a decade before. In 2004, the IRS started to question whether or not Gangi was a bona fide resident of the Virgin Island as was claimed, and whether he had properly reported all of his income.
You have to hand it to Gangi; he is a fighter. Gangi petitioned to quash the summonses of his banks, lawyers, and accountants and claimed that the summonses failed to comply with the propriety elements of United States v. Powell and Sugarloaf Funding v. US DOT. The Magistrate judge denied Gangi's move and granted the United States an enforcement order. Gangi's assertions of bad faith and exceeding the statute of limitations were dismissed.
United States v. Clarke
Meanwhile, SCOTUS decided another case that seemed on point, United States v. Clarke. In Clarke, SCOTUS ruled that a taxpayer has the right to examine IRS agents about the reasons for issuing a summons only when "he points to specific facts or circumstances plausibly raising an [implication] of bad faith." This requires the alleging of "credible evidence supporting the [challenger's] charge." Gangi, true to form, jumped on this development and petitioned for a FRCP 60(b)(5) relief from final judgment.
Gangi was pushing the idea that SCOTUS' decision actually reversed and changed the First Circuit standard found in Sugarloaf mentioned above. In that case, the relevant language was "[plaintiff] must allege specific facts and evidence to support" an allegation of bad faith.
If you're straining to find a difference, it's because there isn't any. In the words of the First Circuit: "Sugarloaf's specific evidence tending to rebut good faith is the practical equivalent of Clarke's specific facts and circumstances plausibly suggesting bad faith."
Since the two rules were effectively the same, the circuit found that the district had not abused its discretion, though it's not crystal clear why this was the case. Although "abuse" is a high standard with much deference to the lower court, we're left to believe that "abuse" also allows for two arguably equivalent standards to be interchangeable with each other.
- Examples of General Tax Fraud Investigations - Fiscal Year 2015 (IRS. gov)
- 1st Cir. Affirms Guilty Plea of Figueroa Cartel Member (FindLaw's U.S. First Circuit Blog)
- Vicious Opinion Criticizes Defendant for 'Burying Head in the Sand' (FindLaw's U.S. First Circuit Blog)
- Sentence Enhancement Does Not Mean Double Counting, Double Jeopardy (FindLaw's U.S. First Circuit Blog)
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