Documents 1000

Nominee Liens And Alter Ego Liens

By Robert E. McKenzie

Depriving Taxpayers of Administrative Due Process of Law

Many practitioners have observed the aggressive approach that the IRS has recently taken to collect taxes from alleged nominees and alter egos of delinquent taxpayers. This summary collection approach deprives the alleged nominees of
administrative due process of law. In most cases the alleged nominee must initiate litigation to contest erroneous collection actions against the alleged nominees. In some cases the IRS moves beyond the mere filing of liens and
initiates enforced collection measures against the alleged nominee or alter ego.

Internal Revenue Manual Procedures

With respect to transactions where property is transferred to a third party merely to hold for the benefit of the transferor, the IRS position, as stated in the Internal Revenue Manual [IRM 5.12.1.18] is:

“Transferee and Nominee Cases

  1. A transferee Notice of Federal Tax Lien (NFTL) may be used to subject property to the government’s Federal Tax Lien (FTL) when property has been transferred or acquired in the name of a third party with the taxpayer’s funds. Some state laws may not recognize transferee NFTL without the judicial process or it may not be possible to show that the taxpayer acquired the property.
  2. If the transferee NFTL is not possible, but facts show that the taxpayer treats the property as his or her own, a nominee NFTL may be filed. District Counsel will advise which type of NFTL to file. Consider the following circumstances in developing your case:
    1. the taxpayer is paying maintenance expenses,
    2. using the property as collateral for loans,
    3. paying state and local taxes on the property.
  3. You may not file a nominee or transferee NFTL without the written approval of District Counsel.
    1. Cases should be developed to withstand court challenge.
    2. Focus on the conveyance of the title.
    3. Requests should be for advice as to the need for a supplemental assess­ment, a new notice and demand and the language to be incorporated in the NFTL or levy.
    4. Prepare a report containing all of the facts of the case to accompany the request.
  4. Subsequent enforcement action is at the district’s discretion once District Counsel has approved application of the nominee or transferee theory in a case.
  5. In determining what additional enforcement action should be taken, consideration much given to the confusion in the chain of title and redemption rights by the taxpayer. These circumstances may depress the sale of the property.
  6. judicial lien foreclosure or seizure followed by suit to foreclose the NFTL will generally bring a greater sale price particularly for real property.
  7. The administrative seizure and sale process may be used if prompt action is needed to protect the government’s interest. If there is any doubt, request an opinion from District Counsel.” [IRM 5.12.1.18]

Process for Filing Nominee Liens

The IRS Manual provides procedures for the filing of nominee liens without the require­ment of a court order. The Collection Division must secure the prior approval of Area Counsel. Subsequent to the approval of Area Counsel, the IRS files a lien against the putative nominee. The IRS may also proceed to seize assets held by an alleged nominee.

 28 USC § 2410

The alleged nominee is then forced to bring a quiet title action for his or her property if the IRS re­fuses to administratively release the lien. [28 U.S.C.A. § 2410] If you believe that the owner of the property is not a nominee, force the IRS to carry its burden of proving that property is not held as a nominee by bringing a quiet title action. The IRS has abused the nominee lien on many occasions and prior to the enactment of the Taxpayer Bill of Rights, effective November 10, 1988, could do so without fear of judicial sanctions. In one case the IRS er­roneously seized assets from the taxpayer’s girlfriend, and the Appellate Court found that she was not entitled to attorneys’ fees or damages even though the IRS had erred in its nominee determination.”[a]

Alter Ego

The Internal Revenue Service might also file a lien alleging that one entity was the alter ego of the other. This can occur in cases when the taxpayer fails to follow corporate formalities with her corporation. For example, if the taxpayer pays personal expenses with corporation assets, she might be found to be the alter ego of the corporation, or visa versa.[b] 

Wrongful Levy

If the Internal Revenue Service has wrongfully levied on the property of a third person (not the taxpayer), the Code allows for an injunction to prohibit the enforcement of such levy or to prohibit the sale of the property if the levy or sale would cause irreparable injury to that person’s rights and property. [IRC § 7426] Such a suit must be brought within nine months from the date of the levy, except in the case where the owner makes a timely written request for the return of the property pursuant to IRC § 6532(c). If a request is made, the period is extended for a period of 12 months from the filing of the request or six months from the date the IRS rejects the request, whichever is earlier. Entitled to relief under Section 7426 is any person (other than the taxpayer against whom the taxes are assessed) who claims an interest in or lien on such property superior to that of the Government.

Time to file

An action to contest a levy or to recover any proceeds from the sale of property must be filed within nine months after the date of levy, or in the case of an action to recover substitute sale proceeds the date of agreement giving rise to the action. The short period of limitations is strictly enforced. The Service is under no duty to notify any persons of a levy other than a person in possession of the property subject to levy and the taxpayer. As a consequence, a third party may not know of seizure or sale of the property in which it has an interest will be foreclosed from recovering any amount from the IRS regardless of the merits or equities of the third party’s position The nine-month period of limitations is extended when a person claiming that the Service has wrongfully levied upon property timely files a written request for the Service to return the property. [IRC § 6343(b)] The filing of such an administrative request extends the nine-month period of limitations for an additional period that is the shorter of twelve months from the date of filing the request, or six months from the date of mailing by registered or certified mail of a Notice of Disallowance of the request for which the action relates. [IRC § 6532(c)(2)] For the administrative request to extend the period of limitations for bringing suit, it must have been made within the nine-month period.

Erroneous seizure

The Internal Revenue Service has occasionally erroneously seized property belonging to others because its employees have failed to accurately check public records to determine legal ownership of the property or have erroneously asserted nominee liens. Taxpayers have been forced to initiate litigation to prevent sale of their assets to pay liabilities of another taxpayer. The mere threat of such a suit is sufficient, in some instances, to convince the Internal Revenue Service to release an erroneous seizure without the necessity of actually initiating suit. This action is also appropriate if the complaining party holds a partial interest with the taxpayer, i.e. a joint tenant or security interest holder. 

Third-party recovery for wrongful seizures

Under prior law, a party other than the taxpayer could only bring a wrongful levy action pursuant to IRC § 7426(b) which did not provide the same statutory damages and relief as Section 7433. Therefore, the third-party who had his property wrongfully seized by the Internal Revenue Service had fewer remedies available than the taxpayer who was subject to reckless or intentional disregard of the Internal Revenue Code by an IRS employee. Under the RRA 1998, if in any third-party action against the IRS for wrongful levy there is a finding that any officer or employee of the IRS recklessly or intentionally or by reason of negligence disregarded any provision of the Internal Revenue Code, the IRS can be held liable for an amount equal to the lesser of one million dollars ($100,000 in the case of negligence) or the sum of money due under IRC § 7426(h). A third party may receive actual, direct economic damages sustained as a proximate result of reckless, or intentional or negligent disregard of any provision of the IRC by an IRS officer, reduced by any amount of damages which would be awarded by IRC § 7426(b), IRC § 7426(h)(1)(A) and the cost of the action. The new action must be brought within two years of the occurrence as opposed to the nine months required by the IRC § 7426. Therefore, a third-party who has failed to bring a third-party action pursuant to IRC § 7426 may still have a cause of action pursuant to IRC § 7433. The third-party must also have exhausted administrative remedies to qualify for damages. [Act § 3102(b); IRC § 7426(h); IRC § 7433(d)]

Wrongful collection action

The TBR1, effective November 10, 1988, created an entirely new cause of action against collection officers who abuse their authority. [IRC § 7433] The Act provides that a taxpayer may sue the United States if a collection employee “recklessly or intentionally” violates the Internal Revenue Code. [IRC § 7433(a)] Mere negligent conduct under that Act, however, was not sufficient to justify a cause of action.

EXAMPLE 1 – A Revenue Officer seizes the assets of the taxpayer’s girlfriend to pay his taxes. The seizure is made without justification based upon the belief of the Revenue Officer that the girlfriend holds the property as a nominee of the taxpayer. The Revenue Officer is guilty of reckless conduct in seizing the girlfriend’s assets.

EXAMPLE 2 – A Revenue Officer seizes the personal residence of the taxpayer without prior approval of the Area Director as required by the Code; [IRC § 6334(e)] The Revenue Officer may be guilty of reckless conduct in failing to obtain the Area Director’s approval for seizure of the personal residence.

EXAMPLE 3 – A Revenue Officer seizes a business premises without the prior consent of the owner or a writ of entry issued by a Federal court. The Revenue Officer may be guilty of reckless conduct for failing to follow proper procedures in seizing taxpayer’s business premises.

Negligence

The 1998 Act revised IRC § 7433 to allow suits for negligent violation of the Internal Revenue Code in the collection of tax. Prior to this amendment, it had been very difficult for taxpayers to prove that an IRS employee had intentionally or recklessly disregarded the Code.

 

FRAUDULENT CONVEYANCES

In general

Some taxpayers may attempt to avoid IRS collection measures by conveying their property to a third party or “encumbering” it with purported liens or mortgages. To forestall such actions, the IRS has both statutory and judicial remedies. Fraudulent conveyances are defined by the Internal Revenue Manual as follows:

A conveyance is deemed fraudulent when real or personal property is transferred with the object, intent, or result of such transfer being to place it beyond the reach of the transferor’s creditors and which operates to prejudice the rights of such creditors. [IRM 57(16)0.8211

STATUTORY TRANSFEREE LIABILITY

In general

IRC § 6901 provides that the Service may assess and collect income, estate and gift taxes from the recipient of a transfer for less than adequate consideration. IRC § 6901 may not be used to assert liability for collected taxes or excise taxes unless the transfer was incident to a liquidation. Litigation is not required to obtain assessments under the provisions of IRC § 6901. Such liabilities may be assessed and collected in the same manner as the taxes that generated the transferee assessment. Thus, the liability of a transferee may be made the subject of a jeopardy assessment. The running of the statu­tory assessment period is suspended in the same manner as the original tax, and such li­abilities, including accrued interest thereon, are subject to collection under administrative collection procedures.

Proposal of liability

In transferee cases, the IRS proposes an assessment equal to the lesser of the value of the property received or the amount of taxes due against a transferee by merely sending the party a notice similar to an audit deficiency notice. The putative transferee has the same appeal rights concerning the proposed liability as a taxpayer confronted with an audit deficiency. In order to assert the liability, the IRS must meet the tests for fraud in fact or fraud in law. [See §§ 5:95 to 5:97 of this work]

Issue of state law

IRC § 6901 provides a method of collecting the unpaid tax liability “at law or in equity” of a transferee of property. As a general rule, the liability of the transferee “at law and in equity” is a question of state, not federal, law.” State law normally governs whether there is a transferee liability and the extent of liability, but this general principle is subject to certain qualifications. First, state law may not answer all questions relating to a transferee’s liability, and second, where a question is not definitively answered by state law, federal law is consulted. Third, certain transferee liability issues are not controlled by state law because the supremacy of the federal government prevents the application of state law. For example, IRC § 6901(c) establishes a Statute of Limitations for the asser­tion of transferee liability. The Statute of Limitation applies to a claim by the Service, instead of the shorter state Statute of Limitations required of other creditors to proceed under the state’s law. Finally, the government need not proceed under state law to assert statutory transferee liability in all situations.

EXAMPLE 1 – If the Service wished to collect an estate and gift tax liability, it can proceed under Section 6324, which creates its own transferee liability, rather than state law. Similarly, where a fraudulent conveyance by a bankrupt taxpayer is at issue, the Bankruptcy Code would be applicable.

 

JUDICIAL TRANSFEREE LIABILITY

In general

With respect to tax liabilities for other than income, estate and gift taxes, the IRS must initiate a lawsuit against the alleged recipient. The IRS may also elect to litigate income, estate and gift taxes. The IRS may choose one of two types of suit.

  1. A suit to set aside a fraudulent conveyance; or
  2. A suit to establish transferee liability.

In the former suit, the government merely asks the court to set aside the conveyance and allow the IRS to proceed against the asset. In the latter suit, the IRS seeks a judg­ment against the recipient for the value of the property at the time of the alleged fraudu­lent transfer.

Basis of suit

There is no specific federal statute providing for either type of fraudulent conveyance suit. Each suit is based on the law of the state in which the action is brought. Governing law is generally that of actual situs of the property. [C.J.S. page 852] The IRS will litigate its rights in the local United States District Court. Many states have adopted the Uniform Fraudulent Conveyance Act and, in such states, the IRS uses it extensively to establish the elements of its case.”

Types of fraud

In most jurisdictions, before a transaction may be attacked as fraudulent, prejudice to the rights of creditors must result therefrom. Two types of fraud in conveyance are recognized:

  1. Fraud in Fact [see §§ 5:100 to 5:102 of this work]—where actual fraudulent intent to hinder and delay creditors exists.
  2. Fraud in Law or in Equity [see §§ 5:98 to 5:99 of this work]—where the terms of any agreement or the nature of the transaction itself evidence a conclusive presumption in law that the conveyance is fraudulent.

If there is insufficient consideration for the debtor’s transfer of property, even though there is no proof of intent to defraud, it is presumed “fraud in law,” which is fraud that is presumed from the circumstances. Even if there is apparent sufficient consideration for the transfer, “fraud in fact” may be established if there was a specific intent to defraud creditors.

 

FRAUD IN LAW OR IN EQUITY

In general

Where the terms of any agreement or the nature of the transaction itself evidence a conclusive presumption in law then the conveyance is fraudulent. If there is insufficient consideration for the Debtor’s transfer of property (which exists in any transfer to a ben­eficiary from an estate), even though there is no proof of intent to defraud, it is presumed “fraud in law or in equity,” which is fraud that is presumed from the circumstances. Even if there is apparent sufficient consideration for the transfer, “fraud in fact” may be established if there is a specific intent to defraud creditors.

Generally, the elements of fraud in law which constitute a fraudulent conveyance are: (a) a gift or sale for less than fair market value, (b) a then-existing or contemplated indebtedness against the transferor (i.e., accrual of a liability not assessment), and (c) a retention of insufficient property by the transferor to pay his indebtedness (insolvency). There is no need for the Service to establish an evil motive to assert fraud in law. The Service is not required to prove intent but merely the three elements. The transferee may in fact have been an innocent recipient, but if the elements exist, the IRS will prevail.

EXAMPLE 1 – An example would be a father who transfers most of his assets to a trust for his children and is later audited and assessed with a large deficiency for taxes which had accrued prior to transfer. In such an instance the IRS could attack the trust because the transfer meets the three tests, even though the father had no intent to defraud the IRS.

 

Evil motive

There is no need for the Service to establish an evil motive to assert fraud in law. The Service is not required to prove intent but merely the three elements. The transferee may, in fact, have been an innocent recipient via a bequest in a will, but if the three elements exist, the IRS will prevail. An example would be a father who transfers most of his assets to a trust for his children and is later audited and assessed’ with a large deficiency for taxes which had accrued prior to transfer in such an instance, the IRS could attack the trust because the transfer meets the three tests, even though the father has no intent to defraud the IRS. Obviously, this could occur in many estate situations where the decedent had used aggressive estate planning techniques to avoid estate taxes.

In a case where husband and wife, after tax assessments had been made against them, gratuitously conveyed certain real estate to a trust company as trustee and named the wife the beneficial owner, after which the wife transferred her beneficial interest to their son, the transfer was held void and was set aside as against the United States!’

FRAUD IN FACT

In general

The IRS must prove an actual intent to defraud when relying upon fraud in fact to set aside a conveyance. Courts will look for “badges of fraud” in making a determination with respect to fraud in fact. Although the badges may amount to little more than suspicious circumstances, they may be used by a court to infer a fraudulent conveyance.

Badges of fraud

The following is a list of “badges of fraud” which have been used by various courts to infer a fraudulent conveyance. FIRM 56(16)0.831 et seq.

Inadequacy of Consideration

This is one of the most important “badges” of fraud. It is generally accepted that a person cannot give property away if it is to the detriment of creditors. If some consideration has changed hands, it may be necessary to determine whether the alleged inadequacy was due to an honest difference or dispute as to value, or if the consideration was a “cover” for a fraudulent conveyance. Although the possibility exists of proving that a conveyance was fraudulent even if consideration did change hands, the presence of adequate consideration is a strong defense.

Insolvency of Transferor

  1. It is important to show that the transferor was either insolvent or heavily indebted. Any transfer made in contemplation of insolvency is invalid in the same manner as if there were actual insolvency. Some authorities feel that a transfer without consideration is presumptive proof of fraud subject to rebuttal by evidence of honest intent or by evidence of solvency.
  2. Insolvency need not always be proved to establish a fraudulent conveyance. It is usually sufficient to establish that the transfer did serve to hinder, delay, or defeat the payment of creditors. However, insolvency is a more important ele­ment of proof, if constructive rather than actual fraud is being proved.
  3. Insolvency, for purposes of this Chapter, means that the transferor’s liabilities exceed his or her assets.

Transfer of All or Nearly All of Debtor’s Property

In most cases this action would leave the transferor without any means of paying creditors and would be highly indicative of fraud. However, it must be determined whether this property was transferred in an attempt to pay the transferor’s debts. If so, there may be no basis to invalidate the transfer without a showing that the government had legal priority over the cred­itor paid.

Close Relationship Between Parties to the Transfer

The fact that the parties are related does not render the conveyance void per se. In jurisdic­tions where it would ordinarily be necessary to prove insolvency, if the transfer is between closely related parties the burden will be on the grantee to prove solvency. Moreover, the burden of dispelling the implication of fraud as against pre-existing creditors will be on the grantee if it can be proved that the grantor is insolvent after having made a voluntary convey­ance to his or her spouse or child. 

Transfer Made in Anticipation of a Tax or During Investigation of a Deficiency

Generally, the law assumes that the transferor should be aware of the existence of his or her debts. Accordingly, the fact that the tax liability has accrued at the time of transfer is evi­dence of the debt; furthermore, it is not necessary for an assessment to have been made.

Transaction Not in the Usual Course of Business

In attempting to void a transfer, it will be helpful to show that the transaction was not made in the usual course of business. Examples of this would be sales made outside of usual busi­ness hours; failure of creditor to surrender the evidence of indebtedness; transferor request­ing cash prior to an inventory of the goods; failure to record an instrument that would normally be recorded; the extension of credit for an unusually long period of time to a purchaser without security; and failure of the transferee to properly inventory goods transferred to him or her.

Reservation of Any Interest in the Property Transferred

This would be inconsistent with a bona tide transfer. The same is true if the debtor continues to enjoy the use of the property transferred. It should also be determined whether there were any promises made by the transferee that could be of future benefit to the transferor.

Retention of Possession

Relinquishment of possession is important to show a bona tide transfer. Retention of posses­sion may lead creditors to extend additional credit based on the retained assets. Retention of personal property is more indicative of fraud than retention of real property since the docu­ment transferring real property can be recorded.

Other “Badges” or “Earmarks” That Are Self Explanatory

  1. Transaction surrounded by secrecy.
  2. False or incorrect recital of consideration.
  3. Failure of transferee to produce evidence to rebut an accusation of fraud.
  4. False entries in books of transferor or transferee.
  5. Unusual disposition of the consideration received for the property.
  6. Assessment of the property for state tax purposes to transferor rather than transferee.

Other factors

In addition to the particular badges of fraud set out above, various other circumstances, singly or collectively, may constitute badges of fraud, such as the concealment of an alteration in the attestation laws of the conveyance; the transferee’s failure to keep a rec­ord of the dates and amounts of the loans or advances made by him to the transferor; failure to demand repayment; misdescription or insufficient description of the property transferred; sending the money received from the transfer out of the country; assignment of the property to the seller rather than the purchaser; and the fact that the purchaser, soon after the transfer, offered to resell the property at a much higher price.

 

TIME OF CONVEYANCE

In general

In order for the IRS to pursue either a judicial or administrative transferee based on fraud in law, the conveyance must have occurred subsequent to the accrual of a tax liability. If the taxpayer has conveyed property prior to the accrual of the tax, the IRS has no cause of action against the transferee unless it can prove fraud in fact.

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

LINDA K. STONE, ))
Plaintiff, )
)
vs. )  No.:
)
)  Plaintiff demands trial by jury.
UNITED STATES OF AMERICA )
) Filed Electronically
Defendant. )

 

COMPLAINT TO QUIET TITLE

 

Plaintiff, LINDA STONE, by and
through her attorneys, Robert E. McKenzie and Kathleen M. Lach, (Arnstein &
Lehr LLP, of counsel) and for her
action against UNITED STATES
OF AMERICA, to quiet title to certain
property, states as follows:

Introduction

  1. This is an action to quiet title to certain real
    property on which Defendant United States has claimed a “Nominee or Alter-Ego”
    lien.
  2. Linda K. Stone (“Plaintiff”) is a resident ofLake County,Illinois.
  3. The subject property is located inLake County,Illinois.
  4. Plaintiff is the owner of the property, and
    currently resides on the property.
  5. Defendant is theUnited States of America.

Jurisdiction and Venue

  1. This Court has jurisdiction over the subject
    matter of this action pursuant to 28 U.S.C. §1340.  The United States has consented to be
    sued in this action by virtue of 28 U.S.C. § 2410(a).
  2. Venue in this Court is proper pursuant to 28
    U.S.C. §1402(c) which provides that any civil action against the United States
    may be brought in the judicial district where the property is located or where
    the event which gave rise to the cause of action occurred.

Background

  1. Plaintiff is the legal and record owner of the
    property (the “Property”) described and located at:

LOT
9 IN DEERE PARK SUBDIVISION OF PART OF THE NORTH ½ OF THE SOUTHWEST ¼ OF
FRACTIONAL SECTION 31, TOWNSHIP 43 NORTH, RANGE 13, EAST OF THE THIRD PRINCIPAL
MERIDIAN, ACCORDING TO THE PLAT THEREOF, RECORDED OCTOBER 16, 1924, AS DOCUMENT
24732 IN BOOK “N” OF PLATS, PAGE 49 IN LAKE COUNTY, ILLINOIS.  COMMONLY KNOWN AS 366 SHERIDAN ROAD, HIGHLAND PARK,
ILLINOIS 60035

Plaintiff’s ownership is
evidenced by a Quit Claim Deed, dated April 20, 1993, recorded with the Lake
County, Illinois Recorder of Deeds, as Document No. 3317812, attached as
“Exhibit A”.

  1. Defendant has claimed an interest in the
    Property, adverse to Plaintiff.
  2. On June 22, 2011, Defendant filed a Notice of
    Federal Tax Lien (the “Lien”) on the Property described in Paragraph 8.  The Lien was filed against this specific
    asset of Linda Stone, as nominee of Jack Stone.
  3. The Lien was prepared and filed in Schiller Park, Illinois,
    by Revenue Officer Lawrence M. Kagan, an employee of the Internal Revenue
    Service.
  4. Plaintiff received a copy of the Notice of
    Federal Tax Lien Filing – Nominee or Alter Ego, in a letter dated June 22,
    2011.
  5. Copies of the Notice of Federal Tax Lien and
    Lien are attached as “Exhibit  B”.
  6. Defendant’s claim is a cloud on Plaintiff’s
    title to the Property; having no force and effect.
  7. The basis of Defendant’s improper Lien filed
    against Plaintiff is the unpaid federal income taxes of Jack Stone, Plaintiff’s
    husband, for tax years 2001, 2002, 2003, 2005, 2006, 2007 and 2008.
  8. Jack Stone transferred to Plaintiff by a quit
    claim deed all right, title and interest in the Property, recorded with the
    Lake County Recorder of Deeds on April 20, 1993. The Property had been held by
    Plaintiff and Jack Stone in joint tenancy since its purchase in 1977.
  9. Prior to
    the transfer, Plaintiff provided Jack Stone with funds to pay older debts,
    including tax debts.
  10. From 1994 forward, Jack and Linda Stone filed
    separate federal income tax returns.
  11. Jack and Linda Stone have been careful about
    keeping their financial affairs separate since Jack Stone has children from a
    previous marriage, and they did not want any legal issues arising in connection
    with estate inheritance matters.
  12. Plaintiff had an independent source of funds in
    the form of inherited monies.  A portion
    of Plaintiff’s inherited funds was used to make improvements on the home.
  13. Plaintiff also loaned funds to Jack Stone, which
    he repaid in part by quit claiming the home to Plaintiff, and also by making
    payments on the home mortgage.
  14. The nominee Lien claimed by the United States
    on the Property is without validity.
  15. Plaintiff, as legal owner of the Property, seeks
    a declaration the United
    States has no right, title, or interest in
    the property which legally belongs to Plaintiff.

 

WHEREFORE, Plaintiff requests that this Court:

1.         Declare
that the claims of the United
States against the Property are of no
validity.

2.         Declare
that Plaintiff is the owner in fee simple of the Property, and that Defendant
United States has no right, title, or interest in the property.

3.         Award
Plaintiff attorneys’ fees and costs of this action pursuant to Internal Revenue
Code §7430.

4.         Award
Plaintiff such other and further relief as the Court deems proper.

Respectfully
submitted,

 

LINDA STONE

 

 

 

    /s/ _______________

By one of her
attorneys

 

 

Robert E. McKenzie

Kathleen M. Lach

 

Of Counsel:

Arnstein & Lehr LLP

120 South Riverside
Plaza

Suite1200

Chicago,Illinois 60606

(312) 876-7100

Firm No.  25188

 

9832634.3

39668-0001

 

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

T & Z MEAT INC., ))
Plaintiff, )
)
vs. )  No.:
)
)  Plaintiff demands trial by jury.
UNITED STATES OF AMERICA )
)
Defendant. )

 

COMPLAINT

 

NOW COMES, the Plaintiff, T & Z
MEAT INC., by and through their attorneys, Robert E. McKenzie and Kathleen M.
Lach, (Arnstein & Lehr LLP, of counsel) complains against Defendant, the UNITED STATES OF AMERICA,
as follows:

INTRODUCTION

  1. The action arises under 28 U.S.C. §1346(e) and 26 U.S.C. §7426, as herein more
    fully described herein.
  2. Plaintiff
    is T & Z MEAT INC., which operates in Chicago,
    County of Cook,
    State of Illinois.
  3. Defendant isUNITED STATES OF AMERICA.

JURISDICTION AND VENUE

  1. This cause of action is a wrongful levy suit
    brought pursuant to Internal Revenue Code (“IRC”) §7426(a)(1) which provides
    that any person (other than the person against whom is assessed the tax out of
    which such levy arose) who claims an interest in property and that such
    property was wrongfully levied upon may bring a civil action against the United
    States in a district court of the United States.
  2. Jurisdiction is based upon 28 U.S.C. §1346(e),
    which provides that the District Court shall have original jurisdiction of any
    civil action arising under IRC §7426.
  3. Venue in this Court is proper pursuant to 28
    U.S.C. §1402(c) which provides that any civil action against the United States
    may be brought in the judicial district where the property is located or where
    the event which gave rise to the cause of action occurred.

FACTS

  1. Vasiliki
    Tountas, d/b/a Chicago Meats, ran a retail market in Chicago through 2009, which failed to meet
    its obligations with MidWest Bank and Trust .
  2. Vasiliki
    Tountas, d/b/a Chicago Meats, also failed to pay its federal employment tax
    obligations for tax periods 9/30.2008 through 3/31/2010.
  3. MidWest
    Bank and Trust filed a foreclosure suit against Vasiliki Tountas d/b/a/ Chicago
    Meats on __.  See Complaint attached
    hereto and made a part hereof as Exhibit A.
  4. A
    receiver, High Ridge Partners, was appointed to step in and run the business
    during the foreclosure proceeding.
  5. During
    the period of time in which the foreclosure proceeding was pending, Anastasios
    Ziabaras contacted MidWest Bank, interested in purchasing the assets of the
    business.
  6. Anastasios
    Ziabaras worked out an arrangement with High Ridge Partners to manage the
    business during the foreclosure process.
    See the Management Agreement attached as Exhibit __.  The management agreement took effect on May
    18, 2009.
  7. In
    December, 2009, Anastasios Ziabaras reached an agreement with MidWest Bank to
    purchase the foreclosed assets of Vasiliki Tountas d/b/a/ Chicago Meats from
    MidWest Bank.  The closing binder from
    this transaction is attached hereto and made a part hereof as Exhibit _
  8. Anastasios
    Ziabaras purchased the assest of Vasiliki Tountas d/b/a/ Chicago Meats from
    MidWest Bank.
  9. On April 14, 2011, Defendant United States of
    America by its agency, the Internal Revenue Service (hereinafter, the
    “Service”) issued a levy to Integrity Payment Systems, alleging T & Z Meats
    was an alter-ego of Vasiliki Tountas d/b/a Chicago Meats, for its unpaid federal
    employment tax liabilities, a copy of which is attached hereto as Exhibit A.
  10. The levy
    was issued for unpaid federal employment taxes of Vasiliki Tountas, d/b/a
    Chicago Meat Market.
  11. The levy and/or other potential unknown levies
    continue in effect.
  12. There may be other levies that have been issued,
    but Defendant has refused to provide counsel with copies of those documents.
  13. Further, on April 14, 2011, Defendant issued to
    Plaintiff a Notice of Federal Tax Lien Filing-Nominee Lien or Alter –Ego.  A copy of the Notice is attached hereto and
    made part hereof as Exhibit __.
  14. Plaintiff
    is entitled to and is the rightful owner of the funds in its accounts.
  15. Payments
    are utilized and relied upon to pay, among other things, its employees, payroll
    tax obligations, and vendors.
  16. The
    levy has caused irreparable harm not only to Plaintiff but also to its
    employees, and the continued levy puts its employees at risk of losing their
    earnings.
  17. Defendant has failed and refused to release the
    levied funds.
  18. Defendant has refused to even explain the basis
    of its attempt to claim Plaintiff is an alter-ego of Defendant.
  19. The revenue officer assigned to this case is Mr.
    Rogers, from the 230 S. Dearborn, Chicago, IRS
    collection division.
  20. The acting manager approving the Revenue
    Officer’s decision is Ms. Hallas of the same office.
  21. Both Mr. Rogers and Ms. Hallas, after having
    been presented the closing binder for the sale of the property from MidWest
    Bank to Plaintiff, stated that the material was irrelevant, and the transaction
    was not an “arms length” transaction.
  22. Defendant has appealed to the assigned Internal
    Revenue Service revenue collection officer, his manager, the Territory manager,
    and the Internal Revenue Service Taxpayer Advocate, and its requests for
    release of the levy have been repeatedly denied.
  23. The Plaintiff has no adequate remedy at law to
    prevent the purported seizure and the Plaintiff will continue to suffer
    irreparable harm if the funds are not immediately returned, and no further levy
    action is taken.
  24. Each day that the funds in Plaintiff’s account
    are frozen represents a day wherein it is prevented from paying its ongoing
    obligations including payroll, taxes, utilities, landlord, and vendors.

 

WHEREFORE,
the Plaintiff prays that this Honorable Court grant the following relief:

 

  1. Enter a preliminary injunction enjoining the
    Internal Revenue Service from issuing any further levies during the pendency of
    this suit.
  2. Enter a judgment ordering a release of the levy
    on the above-described property and ordering Defendant to return the any levied
    property/funds to Plaintiff.
  3. Award the Plaintiff’s attorney’s fees and costs
    pursuant to IRC §7430.
  4. Such other and further relief as this Court
    deems just.

 

Respectfully Submitted,

 

T
& Z MEAT INC.,

____________________________

By
One of its Attorneys

 

 

Robert E. McKenzie

Kathleen M. Lach

 

Of Counsel:

Arnstein & Lehr LLP

120 South Riverside
Plaza

Suite1200

Chicago,Illinois 60606

(312) 876-7100

Firm No.  25188

 

 

 

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

T & Z MEAT INC., ))
Plaintiff, Plaintiff, )
)
vs. )  No.:
11-cv-02699
)
) Honorable Ronald A. Guzman
UNITED
STATES OF AMERICA
)
) Magistrate Young B. Kim
Defendant. )

 

NOTICE OF
MOTION

 

TO:      See attached Service List

 

            PLEASE TAKE NOTICE that on Tuesday,
May 3, 2011 at 9:30 a.m. or as soon thereafter as counsel may be heard, we will
appear before the Honorable Ronald A. Guzman, or any judge sitting in his
stead, in Courtroom 1219 of the Dirksen Federal Building, 219 S. Dearborn St.,
Chicago, Illinois, and then and there present the attached Emergency Motion for
Temporary Restraining Order and Permanent Injunction.

Respectfully Submitted,

 

T & Z Meats INC.

    /s/ ______________

By:   One of its Attorneys

Robert E. McKenzie

Kathleen M. Lach

Of Counsel:

Arnstein & Lehr LLP

120 South Riverside
Plaza

Suite1200

Chicago,Illinois 60606

 

CERTIFICATE OF
SERVICE

The undersigned, ____________, an attorney, certify that I served a copy of the
attached Notice of Motion and Plaintiff’s Emergency Motion for Temporary
Restraining Order and Permanent Injunction upon the attached Service List by
serving a copy of the aforementioned upon the persons listed by using the
CM/ECF system or by placing same in the U.S. Mail via Certified Mail as
specified on the attached Service List before the hour of 5:00 p.m. on this the
28th, April, 2011.

 

Mr. Patrick Fitzgerald

United StatesAttorney for the Northern
District of Illinois

219 South Dearborn Street

Suite500

Chicago,Illinois 60604

 

Via Certified Mail:

Mr. Eric H. Holder

U.S. Attorney General

U.S.Department of Justice

950 Pennsylvania Avenue, NW

Washington,D.C. 20530-0001

Mr. Eric H. Holder

U.S.Department of Justice

P.O. Box 55

Ben Franklin Station

Washington,D.C.20044

Internal
Revenue Service

Chief
Counsel

Washington,D.C.  20224

Ms. Miriam Howe

Office of Area Counsel

Internal Revenue Service

200 West Adams Street

Chicago,Illinois 60606

Also by email and facsimile to:

Nathan
L. Strup

Trial
Attorney

U.S.Department of Justice,
Tax Division

P.O. Box55

Washington, D.C.
20044

(202)
514-6058/Fax: (202) 514-5238

Nathan.L.Strup@usdoj.gov

 

 

 

SERVICE LIST

 

 

Mr. Eric H. Holder

U.S. Attorney General

U.S.Department of Justice

950 Pennsylvania Avenue, NW

Washington,D.C. 20530-0001

 

Mr. Eric H. Holder

U.S.Department of Justice

P.O. Box55

Ben Franklin Station

Washington, D.C. 20044

 

Internal Revenue Service

Chief Counsel

Washington,D.C.  20224

 

Ms. Miriam Howe

Office of Area Counsel

Internal Revenue Service

200 West Adams Street

Chicago,Illinois 60606

 

Mr. Patrick Fitzgerald

United StatesAttorney for the Northern
District of Illinois

219 South Dearborn Street

Suite500

Chicago,Illinois 60604

 

Nathan L. Strup

Trial Attorney

U.S.Department of Justice, Tax Division

P.O. Box55

Washington, D.C.
20044

(202) 514-6058/Fax: (202)
514-5238

Nathan.L.Strup@usdoj.gov

 

 

IN THE
UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

T & Z MEAT INC.,

)

)Plaintiff,Plaintiff,)  )vs. )  No.:
11-cv-02699  )  ) Honorable Ronald A. GuzmanUNITED
STATES OF AMERICA)  ) Magistrate Young B. Kim Defendant.)

 

 

PLAINTIFF’S
EMERGENCY

MOTION FOR
TEMPORARY RESTRAINING ORDER

AND
PERMANENT INJUNCTION

 

NOW COMES, the Plaintiff, T & Z
Meat Inc., by and through its attorneys, Robert E. McKenzie and Kathleen M.
Lach, (Arnstein & Lehr LLP, of counsel) and for this Motion for Temporary
Restraining Order and Permanent Injunction, states as follows:

INTRODUCTION

  1. The action arises under 28 U.S.C. §1346(e) and 26
    U.S.C. §7426 for wrongful levy by the Internal Revenue Service (the “Service”)
    of Plaintiff’s funds.
  2. The Complaint was filed on April 22, 2011.
  3. Funds (credit card payments) due to Plaintiff have
    already been taken by Defendant, and Plaintiff’s bank accounts are frozen.
  4. The continued levy threatens the ongoing viability
    of this small business.

 

 

 

BACKGROUND

  1. Plaintiff purchased the assets of Vasiliki Tountas,
    d/b/a Chicago Meats (hereinafter “Tountas”) following the initiation of a
    foreclosure action by Midwest Bank and Trust Company (“Midwest”).
  2. Plaintiff purchased the assets fromMidwest.
  3. Tountas ran into financial difficulties while
    running the business, causing the foreclosure action by Midwest,
    and also incurring significant federal tax liabilities.
  4. During the period of time in which the foreclosure
    proceeding was pending, Anastasios Ziabaras, contacted Midwest,
    and expressed an interest in purchasing the assets of the business.
  5. Anastasios Ziabaras worked out an arrangement with
    the receiver appointed by the Court, High Ridge Partners, to manage the
    business during the foreclosure process.
  6. In December, 2009, Anastasios Ziabaras reached an
    agreement with Midwest to purchase the foreclosed assets of Tountas fromMidwest, and later formed T & Z Meats Inc.
  7. Defendant has improperly issued the
    nominee/alter-ego lien and levy, causing significant harm to Plaintiff and its
    ability to continue in business.

 

WHEREFORE,
the Plaintiff prays that this Honorable Court grant the following relief:

 

  1. Enter a temporary restraining order enjoining the
    Internal Revenue Service from issuing any further levies or receiving any
    levied funds during the pendency of this suit.
  2. Enter an order of permanent injunction against
    Defendant for funds due to Plaintiff.
  3. Such other and further relief as this Court deems
    just.

 

 

Respectfully Submitted,

 

T & Z Meats INC.

    /s/ ___________

 

By:   One of its Attorneys

 

 

Robert E. McKenzie

Kathleen M. Lach

 

Of Counsel:

Arnstein & Lehr LLP

120 South Riverside
Plaza

Suite1200

Chicago,Illinois 60606

(312) 876-7100

Firm No.  25188

 

 

CERTIFICATE OF
SERVICE

The undersigned, Kathleen M. Lach, an
attorney, certifies that a true and correct copy of the foregoing was served by
with the clerk
of the United States District Court for the Northern District of Illinois using
the CM/ECF system which will send notification of such filing to the following:

 

Mr. Eric H. Holder

U.S. Attorney General

U.S.Department of Justice

950 Pennsylvania Avenue, NW

Washington,D.C. 20530-0001

 

Mr. Eric H. Holder

U.S.Department of Justice

P.O. Box 55

Ben Franklin Station

Washington,D.C.20044

 

Internal Revenue Service

Chief Counsel

Washington,D.C.  20224

 

Ms. Miriam Howe

Office of Area Counsel

Internal Revenue Service

200 West Adams Street

Chicago,Illinois 60606

 

Mr. Patrick Fitzgerald

United StatesAttorney for the Northern
District of Illinois

219 South Dearborn Street

Suite500

Chicago,Illinois 60604

 

By:

    /s/ _____________

 

 

 

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

T & Z MEAT INC.,

)

) Plaintiff,)  )vs. )  No.: 11-cv-02699  )  ) Honorable Ronald A. GuzmanUNITED STATES OF AMERICA)  ) Magistrate Young B. Kim Defendant.)

 

TEMPORARY RESTRAINING ORDER

 

This
matter coming before the Court on Plaintiff T & Z Meat Inc.’s Emergency
Motion for Temporary Restraining Order and Permanent Injunction, and Defendant
United States of America’s opposition thereto, counsel for Plaintiff and Defendant appearing in open court; the Court
having heard oral argument from both parties and the Court finding the
requirement for issuance of this Temporary Restraining Order have been met by
Plaintiff,

IT
IS HEREBY ORDERED:

  1. Plaintiff’s request  for Temporary Restraining Order is granted as
    provided herein;
  2. Defendant is enjoined for 14 days, beginning on
    the date this order is entered, from the issuance or filing of any further
    notices of federal tax liens or levies against of T & Z Meat Inc. as the
    alter-ego of Vasiliki Tountas d/b/a Chicago Meat Market;
  3. Defendant, through the Internal Revenue Service,
    shall issue releases of all outstanding levies and property subject to levy
    issued against the assets of T & Z Meat Inc. as alter-ego of Vasiliki
    Tountas d/b/a Chicago Meat Market, and contact, by telephone, the recipient of
    such levies and advise them of such releases; and,
  4. Plaintiff shall, by no later than close of
    business on Monday, May 9, 2011, and on an ongoing basis going forward during
    the pendency of this action, disclose and produce to Defendant’s counsel
    complete and accurate copies of its books and records, whether in paper or
    digital form, including, but not limited to, all financial statements, balance
    sheets, income statements, accounting ledgers, accounting journals, and any
    other accounting documents, payroll records, checks received by Plaintiff,
    checks issued by Plaintiff, bank account statements, merchant payment accounts,
    loan documents and account statements, online payment accounts, and state,
    local, and federal tax returns.
    Plaintiff shall not wait or withhold such disclosures and productions
    until all the aforementioned materials are gathered, but rather shall
    immediately begin complying with the requirements set forth in this
    paragraph.  Plaintiff on an ongoing basis
    going forward, during the pendency of this action, shall provide Defendant’s
    counsel with monthly updates of the above referenced books and records.

 

Entered:

 

 

____________                                 ________________

Date                                                    Judge
Ronald A. Guzman

 

 

 

 

 

Robert E. McKenzie

Kathleen M. Lach

Of Counsel:

Arnstein & Lehr LLP

120 South Riverside
Plaza

Suite1200

Chicago,Illinois 60606

(312) 876-7100

Firm No.  25188

 

 

 

 

 

 

 

Portions Reprinted from

 

 

REPRESENTATION BEFORE THE
COLLECTION DIVISION OF

THE IRS

 

by

 

Robert E. McKenzie

 

 

WITH PERMISSION FROM

 

THOMSON WEST

Rochester,
NY

 

All Rights Reserved

 

COPYRIGHT 2012

 

 


[a]
Lojeski v. Boandl, 788 F.2d 196 (3ed
Cir. 1986)

[b]
Horton Dairy, Inc. v. U.S.,
986 F.2d 286 (8th Cir. 1994); Miller v. Tony and Elizbeth Alamo
Foundation, 924 F.2d 143 (8th Cir. 1991)

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