Antitrust Law Daily Wrap Up, RICO—W.D.N.C.: Taxpayers’ claims against IRS agent over audit fail, (Nov 24, 2014)

By Linda O’Brien, J.D., LL.M.

Married taxpayers failed to plausibly allege claims under the Racketeer Influenced and Corrupt Organizations (RICO) Act against an IRS agent in relation to an IRS audit of their reported like kind exchange for certain properties, the federal district court in Statesville, North Carolina has decided. Thus, the defendant’s motion to dismiss was granted and the couple’s motion for summary judgment was denied (Yates v. Garrison, November 19, 2014, Voorhees, R.).

The Internal Revenue Service instituted an audit of the tax returns of Jesse and Melissa Yates on which they reported a like kind exchange for certain properties they owned. The audit resulted in the determination of a tax deficiency and the Yates petitioned the Tax Court for relief. Subsequently, the Yates filed suit against Julie Garrison, the IRS agent who conducted the audit, alleging, in part, RICO violations. Garrison moved for dismissal of their complaint and the plaintiffs moved for summary judgment.

RICO claim. The court found that the plaintiffs failed to plausibly allege a claim under the civil remedy provision of RICO. Under RICO, a pattern of racketeering activity requires at least two acts of racketeering activity the last of which occurred within ten years after the commission of a prior act of racketeering activity. The plaintiffs alleged that Garrison engaged in extortion, obstruction of justice, and acts of terrorism.

According to the court, the plaintiffs failed to plausibly allege extortion since they did not state that Garrison communicated a threat to them with the intention of obtaining anything of value. Moreover, the plaintiffs’ claim that Garrison failed to interview witnesses and failed to appear at their Tax Court proceeding to testify did not amount to obstruction of justice. The plaintiffs had a full and fair opportunity to present their case in the underlying proceeding and could have ensured Garrison’s appearance by issuing a subpoena. Furthermore, the plaintiffs’ allegations regarding terrorism were merely argumentative and did not state a RICO violation predicated on the federal crime of terrorism.

Summary judgment. The plaintiffs moved for summary judgment on the basis of the timeliness of Garrison’s answer to their complaint since she did not file an answer within 40 days after the date of service. The court noted that under Federal Rule of Civil Procedure 4(i), in order to properly serve an employee of the United States, a party must serve the United States as well as the employee. Since Garrison was not required to file an answer until the U. S. Attorney was served, the plaintiffs were not entitled to summary judgment on that basis, the court concluded.

The case is No. 5:14-CV-68.

Attorneys: Jesse G. Yates, III, pro se. William Bradley Russell, Jr., U.S. Department of Justice, for Julie Garrison.

Cases: RICO NorthCarolinaNews