Petition — Pacific Development, Inc. v. United States

Office-Supreme Court, U.S

Bi LB &

80-1685

MAR 16 1981

IN THE P eeaene

SUPREME COURT OF THE UNITED STATES ©

OCTOBER TERM 1980 a ————

eS aa -

No. A-585

Pacific Development, Inc.

and

Valley Finance, Inc.

and

Lawrence D. Huntsman

and

Marina V. McLaren

and

Frank C. Frantz

Petitioners,

V.

United States of America

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Walter T. Charlton

Charlton and Tupling

2011 Eye Street, N.W., Suite 303

Washington, D.C. 20006

(202) 296-2975

Richard T. Sampson

Semmes, Bowen & Semmes

10 Light Street

Baltimore, Maryland 21202

Attorneys for Petitioners

i

QUESTIONS PRESENTED FOR REVIEW

I. Whether the United States Government's

seizure action was unconstitutional because it

lacked any jurisdiction to tax foreign income

of a nonresident alien.

II. Whether the United States Government can

lawfully seize all the assets of a domestic corp-

oration to satisfy an alleged tax liability of its

sole shareholder, without paying the corporate

debts and without following the strict statutory,

procedural and other constitutional due process

safeguards to which the corporation is entitled

under Commissioner v. Shapiro, 424 U.S. 614

(1976) and Laing v. United States, 423 U.S. 161

(1976).

III. Whether the Circuit Court and Trial Court

plainly erred when they chose to disregard the

proper standards required as prerequisites to

"pyiercing the corporate veil'' enunciated in a

multitude of cases and rather followed an err-

ii

oneous interpretation of the dicta in G. M.

Leasing Corp. v. United States, 514 F.2d 935

(10th Cir. 1975); 429 U.S. 338 (1977), in its

determination that PDI was the "alter ego" of

the stockholder.

Representation pursuant to Rule 28.1

Petitioners Pacific Development, Inc. and

Valley Finance, Inc. are affiliated domestic

corporations which have one other affiliate,

Suter's Tavern, Inc., and several wholly

owned subsidiaries.

iii

TABLE OF CONTENTS

Page

QUESIONS PRESENTED FOR REVIEW. . i

REPRESENTATION PURSUANT TO

oo) Oe ere oe ere oe ee ee ii

TABLE OF CONTENTS. .......e-+ iff

TABLE OF AUTHORITIES ......... iv

PETITION FOR WRIT OF CERTIORARI . . 1

ORS DORI lk 0 6 ete 8 ee 3

PII AO -& op 8 ew 8 ee 8 4

CONSTITU TIONAL AND

STATUTORY PROVISIONS INVOLVED

Constitution- Amendment V..... bs)

Constitution- Amendment XVI.... 6

Statutes: 26U.S.C., et seq. .... 6-17

STATEMENT OF THE CASE ....... 17

JURISDICTION BELOW..... ‘+e o 26

REASONS FOR GRANTING THE WRIT. . 27

General Statement Illustrating the

Importance of This Case..... ee ee

I, The government's seizure action

was unconstitutional because it

lacked any jurisdiction to tax

foreign income of a nonresident

ot ee ee a ae eee ee 29

iv

Il. The United States Government

cannot lawfully seize all the assets

of a domestic corporation, without

paying the corporate debts, to

satisfy an alleged tax liability

of its sole stockholder without fol-

lowing the strict statutory pro-

cedural and other constitutional

due process safeguards to which

the corporation is entitled. .... 31

Ill. The Circuit Court and Trial Court

plainly erred when they chose to

disregard the proper standards re-

quired as prerequisites for ''pierc-

ing the corporate veil'' enunciated in

a multitude of cases and rather

followed an erroneous interpretation

of the dicta in G. M. Leasing Corp.

v. United States, 514 F. 2d 935

(10th Cir. 1975); 429 U.S. 338 (1977),

in its determination that PDI was the

"alter ego" of the stockholder. ... 35

CONCLUSION « 6 oe 6 a 0 Pe ae, Ree 38

APPENDIZA . «2s sie w 0's See ee 1 < GOO

Order of Supreme Court Expanding

Time for Filing to March 16, 1981... la

Judgments and Order of Lower Courts

Opinion of U.S. Court of Apeals

for the District of Columbia

el a ee en oe P|

Opinions of U.S. District Court

(As to Valley Finance, et al.) 19a

(As to Pacific Development,

WhO. 3s ee eas + 4 6a 3 oe SOR ~ GSe

'

Lay)

Cc

fo

Vv

Notices of Appeal. .........56a-6la

Order Consolidating the Cases

ee Se 2c cs 8 4 oo wc 7 so C2R ~ CRE

Order Denying Rehearing...... 64a - 65a

Financial Statement of

Pacific Development, Inc.

as of December 31, 1976.... .66a - 69a

vi

TABLE OF CASES AND OTHER AU THORITIES

Page

Cases:

Avco Delta Corp. Canada Ltd. v.

United States, 540 F.2d 258 (7th Cir.

1976), cert. denied, 429 U.S. 1040

es oh ons cca Care eae na 64 ssa 36

*Commissioner v. Shapiro, 424 U. S.,

fe) |) 1, 26, 28, 29, 32, 34, 35

*G. M. Leasing Corp. v. United States

914 F.2d. 935 (10th Cir. 1975; 429 U.S.

gn he Bly 26, 95,597

Knowles v. Hirsch, 65 F. Supp. 690

UD. isn ct wccccccccccce 32

*Laing v. United States, 423 U.S. 161

a i, 26, 28, 32, 33, 36

Matthews v. Eldridge, , 424 U.S, 319,

DO MTD ng ccc ccc woccccer 30

Mitchell v. W. T. Grant Co. » 416 U.S.

re 35

North Georgia Finishing, Inc. v. Di-Chem.,

Inc., 419 U.S. 601 (1975)............ 35

Quinn v. Butz, 510 F. 2d 743 (D.C. Cir.

TER Ea sb 5 chs ssh ecesdcccece 36

United States v. Plastic-Electro Finishing

Corp., 313 F. Supp. 330, 333-334 (E.D.

N.Y. 1970) aff'd mem. 71-1 U.S. T.C.

para. 9421 (2nd Cir. 1971)........... 36

vii

Constitution:

a Amendment (V )

. Amendment (XIV )

Statutes:

26 U.S.C.

: 6 861 (b)

r 7426 (a)

7426(c)

28U.S.C. § 1254(i)

Page

21, 32,33

27

29, 30

*/ Cases and other authorities principally

relied upon are marked with an

asterisk.

1

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM 1980

No. A-585

Pacific Development, Inc.

and

- Valley Finance, Inc.

and

Lawrence D. Huntsman

and

Marina V. McLaren

anu

Frank C, Frantz

Petitioners,

Ve

United States of America

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Pacific Development, Inc., Valley Finance,

Inc., Marina V. McLaren, Lawrence D.

Huntsman, and Frank C. Frantz respectfully

petition this Court for a writ of certiorari to

review the final judgment(s) of the Court of

Appeals, docketed July 14, 1980, which affirmed

2

the judgments of the United States District Court

for the District of Columbia.

3

OPINIONS BELOW

The memorandum opinion and order(s) of

United States District Judge Charles R. Richey,

dismissing the complaint of petitioners Valley

Finance, et al. ,» was filed April 26, 1978 and

is included in the Appendix at pages 19a-3la.

The memorandum opinion of United States

District Judge Charles R. Richey was filed on

January 3, 1979. Orders (1) denying plaintiff's

motion to strike defendant's proposed findings of

fact and conclusions of law; (2) denying PDI's

motion for partial summary judgment; and (3)

entering judgment for the defendant are included

in the Appendix at pages 32a-5la.

The order of the United States District Judge

Charles R. Richey vacating the court's order of

December 8, 1978 was filed on January 12, 1979

and is included in the Appendix 52a.

United States District Judge Charles R.

Richey's order denying plaintiff's motion to stay

execution of judgment and for a protective order

4

and granting the government's motion to amend

the court's findings of fact was filed on February

1, 1979. That order is included in the Appendix

at pages 53a-55a.

The notice of appea? filed by Valley Finance,

Inc., et al. on May 16, 1978, appears in the

Appendix at 56a-57a. The notices of appeal of

the judgments of the U.S. District Court, entered

on January 3rd and January 3lst, 1979, were

appealed on January 8th, 1979 and February 8th

1979 respectively and appear at pages 58a-59a;

60-6la of the Appendix. The order denying re-

hearing was entered on October 17, 1980 and

appears at Appendix page

JURISDIC TION

(i) The United States Court of Appeals filed

its judgments and opinions in the cases con-

tained in this petition on July 14, 1980.

(ii) Petitioners sought a rehearing which was

finally denied on October 17, 1980.

(iii) By order of the United States Supreme

5

Court the time for filing a Petition for

Certiorari was extended to March 16, 1981.

(iv) Petitioners invoke the certiorari

jurisdiction of this Court under 28 U.S.C.

§ 1254(i) to review the important federal and

constitutional questions presented.

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

Constitution

Amendment [V]

No person shall be held to answer for a cap-

ital, or otherwise infamous crime, unless ona

presentment or indictment of a Grand Jury, ex-

cept in cases arising in the land or naval forces,

or in the Militia, when in actual service in time

of War or public danger; nor shall any person be

subject for the same offence to be twice put in

jeopardy of life or limb; nor shall be compelled

in any criminal case to be a witness against him-

self, nor be deprived of life, liberty, or property,

without due process of law; nor shall private

property be taken for public use, without just

compensation,

6

Amendment [XVI]

The Congress shall havethe power to lay and

collect taxes on incomes, from whatever source

derived, without apportionment among the several

states, and without regard to any census or enum-

eration.

Statutes

26 U.S.C. § 861 (a)(3)

(3) Personal services.--Compensation for

labor or personal services performed in the United

States except that compensationfor labor or ser-

vices performed in the United States shall not

be deemed to be income from sources within the

United States if--

(A) the labor or services are performed

by a nonresident alien individual terporarily

present in the United States for a period or

periods not exceeding a total of 90 days during

the taxable year,

(B) such compensation does not exceed

$3, 000 in the aggregate, and

7

(C) the compensation is for labor or ser-

vices performedasan employee ofor under a

contract with--

(i) a nonresident alien, foreign partner-

ship, or foreign corporation, not engaged

in trade or business within the United

States, or

(ii) an individual who is a citizen or res-

ident of the United States, a domestic

partnership, or a domestic corporation,

if such labor or services are performed

for an office or place of business main-

tained in a foreign country or in a pos-

session of the United States by such in-

dividual, partnership, or corporation.

26 U.S.C. § 861

(b) Taxable Income From Sources Within

United States. --From the items of gross income

specified in subsection (a) as being income from

sources within the United States there shall be

deducted the expenses losses, and other de-

8

ductions properly apportioned or allocated thereto

and ratable part of any expenses, losses, or other

deductions which cannot definitely be allocated

to some item or class of gress income. The re-

mainder, if any, shall be included in full as tax-

able income from sources within the United States.

in the case of an individual who does not itemize

deductions, an amount equal to the zero bracket

amount shall be considered a deduction which can-

not definitely be allocated to some item or class

of gross income. |

26 U.S.C. § 862. INCOME FROM SOURCES

WITHOUT THE UNITED STATES.

(a) Gross Income From Sources Without the

United States--The following items of gross in-

come shall be treated as income from sources

without the United States.

(1) interest other than that derived from

‘sources within the United States as provided

in section 861 (a)(1);

(2) dividends other than those derived

9

from sources within the United States as

provided in section 861 (a)(2);

(3) compensation for labor or personal

services performed without the United States;

(4) rentals or royalties from property

located without the United States or from

any interest in such property, including

rentals or royalties for the use of or for the

privilege of using without the United States

patents, copyrights, secret processes and

formulas, good will, trade-marks, trade

brands, franchises, and other like properties;

(5) gains, profits, and income from the

sale or exchange of real property located

without the United States; and

(6) gains, profits, and income derived

from the purchase of personal property within

the United States and its sale or exchange with-

out the United States.

(7) Underwriting income other than that

derived from sources within the United States

as provided in section 861(a)(7).

10

(b) Taxable Income From Sources Without

United States. --From the items of gross income

specified in subsection (a) there shall be deducted

the expenses, losses, andother deductions prop-

erly apportioned or allocated thereto, and a ratable

part of any expenses, losses, or other deductions

which cannot definitely be allocated to some item

or class of gross income. The remainder, if any,

shali be treated in full as taxable income from

deductions, an amount equal to the zero bracket

amount shall be considered a deduction which can-

not definitely be allocated to some item or class

of gross income.

26 U.S.C. § 6212. NOTICE OF DEFICIENCY.

(a) In General. --If the Secretary determines

that there is a deficiency in respect of any tax

imposed by subtitle A or Bor chapter 41, 42, 43,

or 44, he is authorized to send notice of such

deficiency to the taxpayer by certified mail or

registered mail.

1l

6 U.S.C. § 6213. RESTRICTIONS APPLICABLE

TO DEFICIENCIES; PETITION TO TAX COURT,

(a) Time for Filing Petition and Restriction

on Assessment. --Within 90 days, or 150 days if

the notice is addressed to a person outside the

United States, after the notice of deficiency auth-

orized in section 6212 is mailed (not counting

Saturday, Sunday, or a legal holiday in the

District of Columbia as the last day), the taxpayer

may file a petition with the Tax Court for a re-

determination of the deficiency. Except as other-

wise provided in Section 6851 or Section 6861

no «assessment of a deficiency in respect of any

12

tax imposed by subtitle A or B, chapter 41, 42,

43, or 44 and no levy or proceeding in court for

its collection shall be made, begun, or prosecuted

until such notice has been mailed to the taxpayer,

nor until the expiration of such 90-day or 150-

day period, asthe case maybe, nor, ifa petition

has been filed with the Tax Court, until the de-

cision of the Tax Court has become final. Not-

withstanding the provisions of section 7421(a), the

making of such assessment or the beginning of

such proceeding or levy during the time such pro-

hibitionis inforce maybe enjoined by a proceed-

ing in the proper court.

26 U.S.C. § 6321. LIEN FOR TAXES.

If any person liable to pay any tax neglects

or refuses to pay the same after demand, the

ainount (including any interest, additional

amount, addition to tax, or assessable penalty,

together with any costs that may accrue in add-

13

ition thereto) shall be a lien in favor of the United

States upon all property and rights to property,

whether real or personal, belonging to such

person.

26 U.S.C. § 6331. LEVY AND DISTRAINT.

(a) Authority of Secretary. --If any person

liable to pay any tax neglects or refuses to pay

the same within 10 days after notice and demand,

it shall be lawful for the Secretary to collect

such tax (and such further sum as shall be suf-

ficient to cover the expenses of the levy) by levy

upon all property and rights to property {except

such property as is exempt under section 6334)

belonging to such person or on which there is a

lien provided in this chapter for the payment

of such tax. Levy may be made upon the ac-

crued salary or wages of any officer, employee,

or elected official, or the United States, the

District of Columbia, or any agency or instru-

mentality of the United States or the District

of Columbia, by serving a notice of levy on the

14

employer (as defined in section 3401 (d)) of such

officer, employee, or elected official. If the

Secretary makes a finding that the collection of

such tax is in jeopardy, notice and demand for

immediate payment of such tax may be made by

the Secretary and, upon failure or refusal to pay

such tax, collection thereof by levy shall be law-

ful without regard to the 10-day period provided

in this section.

(b) Seizure and Sale of Property. --The

term "levy" as used in this title includes the

power of distraint and seizure by any means.

Except as otherwise provided in subsection (d)(3),

a levy shall extend only to property possessed and

obligations existing at the time thereof. In any

case in which the Secretary may levy upon prop-

erty or rights to property, he may seize and sell

such property or rights to property (whether real

or personal, tangible or intangible).

15

26 U.S.C. § 6861. JEOPARDY ASSESSMENTS

OPMYNCOME, ESTATE, GIFT, AND CERTAIN

EXCISE TAXES,

(a) Authority for Making. --If the Secretary

believes that the assessment or collection of a

deficiency, as defined in section 6211, will be

jeopardized by delay, he shall, notwithstanding

the provisions of section 6213(a), immediately

assess such deficiency (together with all interest,

additional amounts, and additions to the tax pro-

vided for by law), and notice and demand shall

be made by the Secretary for the payment thereof,

(b) Deficiency Letters. --If the jeopardy as-

sessment is made before any notice in respect

of the tax to which the jeopardy assessment re-

lates hasbeen mailedunder section 6212(a), then

the Secretary shall maila notice under such sub-

section within 60 days after the making of the

assessment.

26 U.S.C. § 7426. CIVIL ACTIONS BY PERSONS

OTHER THAN TAXPAYERS

(a) Actions Permitted. --

16

(a) Wrongful levy. --If a levy has been

made on property or property has been sold

pursuant to a levy, any person (other than

the person against whom is assessed the tax

out of which such levy arose) who claims an

interest in or lien on such property and tnat

such property was wrongfully levied upon

may bring a civil action against the United

States in a district court of the United States.

Such action may be brought without regard to

whether such property has been surrendered

to or sold by the Secretary. ...

.--(c) Validity of Assessment. --For pur-

poses of an adjudication under this section,

the assessment of tax upon which the inter-

est or lien of the United States is based shall

be conclusively presumed to be valid.

26 U.S.C. § 7701. DEFINITIONS,

(a) When used in this title, where not other-

wise distinctly expressed or manifestly incapat-

ible with the intent thereof--

17

(1) Person, --The term "person" shall

be construed to mean and include an individ-

ual, a trust, estate, partnership, associa-

tion, Company or corporation,

STATEMENT OF THE CASE

The petitioners are a domestic closely-held

corporation, Pacific Development, Inc. (PDI),

and certain creditors of that corporation: Valley

Finance, Inc., Lawrence D. Huntsman, Marina

V. McLaren and Frank C. Frantz (Valley),

All the corporate stock of PDI was owned

by a foreign national (the Stockholder). The

corporate financial structure and details of assets

owned at the relevant date (December 31, 1976)

are shown in proper accounting statement form in

Exhibit A and supporting schedules A-1 (Appendix

pages 66a through 69a.

At the relevant date, January 17, 1978, PDI

had assets of $3,500,000, owed debts for trade

accounts and notes of $650,000, leaving a net

worth of $2,850,000. The net worth of PDI was

18

represented by capital stock of $2,265,000 and

earnings and profits (increased to the market

value of appreciated assets) of $585, 000.

PDI had filed all requisite Federal corporate

tax returns, quarterly employee reports for its

eight tothirteen employees, and all other Federal

and State papers evidencing its corporate exist-

ance. No tax was ever alleged to be due by PDI

to the government.

The corporation PDI had been formed in 1968

but hadremained dormant for some years. Dur-

ing those dormant years the corporate formalities

were not strictly observed and effectively no

business was conducted. Beginning in mid-1973

however, PDI began to conduct business, hire

employees, maintain a regular corporate structure

including officers, directors, books of account,

so that at the end of 1976 PDI had a staff of eight

employees and thirteen consultants. PDI had re-

tained an independent CPA firm which monitored

its financial activities and a general counsel who

advised on legal and business matters.

19

PDI's main business was as a middleman in

international trade projects. Specific business

projects engaged in prior to January 17, 1977 by

PDI included the supplying of 17 asphalt plants

to Korea, the export of food to Korea through

a subsidiary, the sale of hogs on the New York

City market, the importing of antique guns manu-

factured in Korea and on January 17, 1977 there

was Ongoing a project to export all of the elec-

tronic cash registers required (by Korean law)

to be installed in each and every Korean business,

the latter potentially a very lucrative project with

income projected tobe inthe millions of dollars.

It also had invested in real estate which had ap-

preciated and in another corporation which invest-

ment had appreciated from $500, 000 to $1, 500, 000

as of the date of trial.

The stockholder was required by other com-

mitments to be out of the country over half of

the time. Consequently, PDI also served as a

clearing house for the stockholder's personal bills

20

and some personal functions were performed by

personnel on the PDI staff. A meticulous account-

ing separation was maintained to insure that each

and every bill paid by corporate funds was proper-

ly charged, either as a proper corporate expense,

or alternatively, charged into the shareholder's

personal account. The full time corporate

comptroller maintained the books and records

and it was his sole responsibility, utilizing a com-

puterized accounting system established by the

CPA firm, to maintain a proper set of accounting

records. The adequacy of the books of account

was never questioned by the Internal Revenue

Service and all corporate income tax returns were

accepted as filed.

Nevertheless, on January 17, 1977, and

several days thereafter, the Federal Government,

in the guise of collecting income taxes alleged to

be due by the sole shareholder, filed Federal Tax

liens in numerous jurisdictions in various parts

of the country against the assets of PDI.

21

Those liens effectively terminated the bus-

iness of petitioner PDI, and have prevented the

payment of just debts of the corporation, among

them, those of the petitioners, Valley Finance,

etal. Thereafter, the assets of PDI were sub-

ject to levies by the Internal Revenue Service.

No "notice of deficiency'’ was ever sent to

PDI, as required by Internal Revenue Code

§ 6861(b), nor was any "probable cause" hearing

ever held to determine whether or not the assess-

ment bythe government had any reasonable basis,

either as to whether any tax was due and owing,

or as to whether the government's assertion that

PDI was the "alter ego and nominee" of the sole

stockholder and hence liable for the tax alleged

to be due by the stockholder.

The only evidentiary hearing that was ever

held was the trial of the case in the United States

District Court. At that trial unrebuted evidence

proved that the government's theory of taxation

was that the taxpayer/stockholder had received

approximately 10 million dollars in commission

hn, 5

—

22

income as ''United States source income". (Tes-

timony and reports of Special Agent Siddall. )

However, PDI (alleged to be the "alter ego and

nominee" of the stockholder), proved at trial that

the factual basis for that contention was totally

erroneous in that the income ican to be taxed

was not ''U.S. source income" but rather foreign

commissions earned elsewhere and never re-

ceived or earned by the stockholder in the United

States. (Testimony of Grover Connell and Ex-

hibits related thereto.) No countervailing evi-

dence was ever received or even alleged to exist

by the government on this point.

Further, substantial evidence was presented

by the petitioner, also unrebutted, that the alien

stockholder/taxpayer spent over 50% of his time

out of the country and was not therefore, a resi-

dent of the United States. No countervailing

evidence was ever presented to the court by the

government on the question of residency vs. non-

residency.

23

The trial court in its memorandum opinion

filed January 3, 1979 under "Findings of Fact"

(Appendix page 42a) stated ''... as a nonresident

alien, [only] Park's United States source of income

' Earlier in

was subject to federal income tax. '

its memorandum opinion under "II. Circumstances

Necessary for Voiding the Insulation of Incorpora-

tion" the stockholder was termed ''the wealthy

nonresident alien shareholder". (Appendix page

36a.

When the petitioner moved for a stay of ex-

ecution on the basis that since the taxpayer was

a nonresident alien, and there was no U.S. source

income, there was no tax due, the court, in com-

pliance with the government's request, without

hearing, and over petitioners' objection, changed

its findings of fact, despite the lack of a scintilla

of evidence to support the alteration. The court's

modification of its facts removed the finality of

the court's previous findings of fact as to where

the stockholder resided and substituted language

24

carefully designed to leave the government some

rational basis for assertion of a tax liability.

Basically, what the government belatedly request-

ed and what the court compliantly granted was to

change the findings of fact from a determination

that the stockholder is a nonresident alienfor tax

purposes to a conclusion that the taxpayer "'be-

lieving himself to .be a nonresident, ... wanted

to avoid United States source income whichwould

be nevertheless subject to federal [income] tax."

Significantly, there was no finding, nor any alle-

gation, that the corporation, PDI, was used for

any such purpose.

The District Court ignored the failure of the

government to follow the mandatory provisions of

the Internal Revenue Code, the Constitutional

arguments of the petitioner, the fact that no valid

theory of taxation had ever been asserted nor

proven by the government at trial, the fact that

the petitioner had proven at trial that all the

theories of tax relied upon by the government

25

were erroneous, and that as a consequence, there

was no income subject to the taxing jurisdiction

of the United States.

The lawsuit of the aggrieved third party cred-

itors was dismissed for lack of priority despite

the government's failure to respond to requests

for admissions which (again) proved no valid basis

for the tax assessed.

The petitioners claimed in the District Court

and in argument before the Circuit Court that the

government hadno jurisdiction whatever to seize

PDI's assets, since the petitioner had proved by

unrebutted evidence that there was no income

subject to tax in the United States.

The Circuit Court affirmed the District Court

on July 14, 1980, and ignored the petitioner's

proof that the government lacked jurisdiction to

tax (which was based upon the proof at trial

that the government's entire theory of tax was

erroneous), and the statutory and Constitutional

violations of the Internal Revenue Service in

26

unlawfully seizing the assets of PDI. The Circuit

Court instead relied upon an "alter ego" theory

(contrary to this court's standards set forth in

G.M. Leasing, supra) and the right of the stock-

holder to seek Constitutional relief in the United

States Tax Court. (Not available to PDI. )

From this result, which is contrary to this

Court's mandate in Shapiro and Laing and G.M.

Leasing, supra, the petitioners respectfully request

this review.

JURISDICTION BELOW

The United States District Court had jurisdic-

tion under 26 U.S.C. § 7426(a), which confers

standing to sue ina Federal Court upon PDI, a

third party whose assets have been seized in-

cident to atax collection action. Valley Finance,

Inc., likewise has standing to sue under 26 U.S.C.

§ 7426(a) because it claimed a lien on real pro-

perty taken by the government lien and seizure.

The three general creditors of PDI, McLaren,

Huntsman and Frantz, claim jurisdiction under

27

§ 7426 because they likewise were deprived of

property by the government's (illegal) seizure

action.

REASONS FOR GRANTING THE WRIT

General Statement Illustrating the Importance

of this Case:

The government's awesome power to destroy

any domestic business is illustrated by this case.

The Internal Revenue Service, unilaterally and

without following the mandatory procedures of the

Internal Revenue Code, erroneously and arbitrar-

ily determined that it had the jurisdiction to act

in the seizure of all the assets of a domestic corp-

oration to satisfy the alleged tax liability of the

corporation's stockholder.

No pre-seizure nor prompt post-seizure

hearing was ever held to determine whether

(1) any income was subject to tax by the alleged

"taxpayer, nor (2) if a sufficient nexus existed

between the corporate third party whose assets

were seized and the "'taxpayer'’ alleged to owe

28

the tax (3) nor was any fraud or public wrong

even alleged which would form the foundation for

a conventional "piercing of the corporate veil".

The government's arbitrary and capricious

actions in this case violate the mandate of

Congress and the decisions of this Court in

Shapiro and Laing, supra. If the government's

actions against petitioner are allowed to become

a policy of general application, each and every

close corporation 1/ may be similarly destroyed,

at whim, by the Internal Revenue Service erron-

eously asserting that some undefined tax is due,

utilizing its power of jeopardy without limitation

of any kind. In order to formulate legal barriers

to prevent further abuse, to redress the griev-

ances of petitioners and to require adherence to

the principles outlined by the Supreme Court in

Shapiro and Laing, supra, the writ should be

granted.

i/ Current estimates are that there are approx-

imately two million close corporations in the

United States with between $100, 000 and

$3,000,000 in capitalization. (Source: National

Small Business Association. )

29

I. The government's seizure action was

unconstitutional because it lacked any

jurisdiction to tax foreign income ofa

nonresident alien.

No hearing was ever held by the govern-

ment to determine whether there was any reason-

able factual basis for seizing PDI's assets to sat-

isfy the taxpayer's alleged tax eee Thus,

the trial of the case was the first and final fact

finding hearing held in this case. As explained

below, however, the trial court made no probable

cause determination, and erroneously perceived

the nexus issue.

At trial the government failed to come for-

ward with any evidence to support the validity

of the taxes asserted, relying entirely upon 26

U.S.C. 7426(c) which states:

2/ These two elements are required to be

proven to the level of probable cause by

Commissioner v. Shapiro, 424 U.S. 614 (1976)

ata hearing held before or immediately after

seizures of assets of a third party to satisfy

an income tax liability.

30

"(c) Validity of assessment. --For

purposes of an adjudication under

this section, the assessment of tax

upon which the interest or lien of the

United States is based shall be con-

clusively presumed to be valid. ''

The petitioner, PDI, proved at trial by un-

rebutted evidence that the income alleged to be

"United States source income" in the govern-

ment's assessments was in fact foreign com-

mission income earned by the nonresident alien

stockholder on export sales of grain to Korea.

Thus, none of the income was subject to the tax-

ing jurisdiction of the United States created under

the authority of the Sixteenth Amendment to the

3 /

Constitution of the United States.

3/ Although never asserted in the assessment

or record of this case, the issue of whether the

stockholder was a resident alien or nonresident

alien might have presented the government with

Some possibility of a viable theory of taxation.

However, the government at trial never asserted

this basis for tax. The record shows clearly,

however, by uncontroverted evidence that the

stockholder was an alien who spent over 50% of

his time out of the country. Indeed in response

to the overwhelming evidence of nonresidency

the trial court, in its initial findings of fact

Ylater improperly modified), ruled that "... [A[s

a nonresident alien, Park's United States source

income was subject to federal income tax. "'

31

However, the trial court, when presented by

the petitioner 4/ with the proposition that the fore-

going fact precluded as a mater of tax law any

liability for tax, the court (at the request of the

government, changed its findings of fact to a find-

ing that the stockholder merely alleged he was

a nonresident alien.

Because the record of this case shows clearly

that the United States Internal Revenue Service

acted without jurisdiction to tax and erroneously

determined that foreign income was subject to

United States income tax, it follows that its entire

course of action was illegal and void.

For this reason, the writ should issue.

II, The United States Government cannot lawfully

seize all the assets of a domestic corporation,

without paying the corporate debts, to satisfy

an alleged tax liability of its sole stockholder

without following the strict statutory proced-

+/ The petitioner filed a motion for stay of ex-

ecution of judgment pointing out the glaring error

in the trial court's logic which precluded judgment

for the government,

32

ural and other constitutional due process

safeguards to which the corporation is en-

titled under Commissioner v. Shapiro, 424

U.S. 614 (1976); Laing v. United States, 423

U.S. 161 (1976).

In this case it is undisputed that the gov-

ernment failed to issue a "notice of daticlaney*™

to the petitioner corporation PDI. The trial court

and the circuit court erroneously determined that

notice tothe stockholder constituted actual notice

to the corporation, ignoring the effect of the denial

of the "ticket to the tax curt" which resulted in the

destruction of the corporate business.

The government by its assessment, the trial

6 /

court in its decision, and the circuit court in its

o/ A notice of deficiency, known popularly as the

“ticket to the tax court'' is required to be issued

by the Secretary within 60 days of the assessment.

IRC § 6861(b). None was ever issued to PDI in

this case.

6/ | The circuit court suggested that constitu-

tional challenges could be raised by the stockhold-

er before the tax court citing Knowles v. Hirsch,

65F. Supp. 690 (D.D.C. 1946). This reasoning

is faulty because the tax court as an adminis-

trative court has no authority to award damages

or other equitable relief requested by petitioners

herein.

33

affirmance determined that because the corpora-

tion was the "alter ego" of the stockholder, the

corporation was not entitled as a separate entity

to any recognition, notice, or separate statutory

and constitutional due process safeguards to which

it otherwise would have been entitled. The

Supreme Court has held that

"denying a tax court forum to a particular

class of taxpayers is sufficiently anomalous

that an intention to do so should not be in-

puted to Congress where the statute does not

expressly so provide. This is particularly

so in view of the government's concession

that the jeopardy assessment procedures of

Secs. 6861, et seq. are sufficient to pro-

tect its interests, and that providing tax-

payers with the limited protection of those

procedures would not impair the collection

of revenues.'' Laing v. United States, 423

U.S. 161, 176-77 (1976).

PDI was denied the opportunity to contest

—

34

the "alter ego'' determination prior to the total

destruction of the viable corporate business by

the withholding of its "ticket to the tax court"

"alter

on the grounds that the corporation was the

ego'' of the stockholder and therefor, entitled to

no hearing before (or imediately after) the

seizures. Thereafter, to urge before the United

States District Court that as a third party, the

corporation is bound by the (however faulty)

reasoning of the Commissioner in his tax deter-

mination, can be nothing but ingenuous. These

acts of the IRS represent an outrageous abuse

of power by the federal government which flys

in the face of previous Supreme Court mandates.

In this case the government has taken a posi-

tion equivalent to that taken in Shapiro, supra,

at 630, wherein it was stated:

"... it has absolutely no obligation to

prove that the seizure has any basis in

fact no matter how severe or irreparable

the injury to the taxpayer and no matter

how inadequate his eventual remedy in

the tax court",

35

The Supreme Court rejected that claim

stating:

",.. that the party whose property is to

be taken be given an opportunity for some

kind of post deprivation hearing at which

some showing of probable validity be

made", Shapiro, supra, at 629.

Accord: Mathews v. Eldridge, 424 U.S. 319,

334-35 (1976); Mitchell v. W.T. Grant Co., 416

U.S. 600 (1974); North Georgia Finishing, Inc.

v. Di-Chem., Inc., 419 U.S. 601 (1975).

il. The Circuit Court and Trial Court plainly

erred when they chose to disregard the proper

standards required as prerequisites for "piercing

the corporate veil" enunciated in a multitude of

cases and rather followed an erroneous inter-

pretation of the dicta in G, M. Leasing Corp. v.

United States, 514 F.2d 935 (10th Cir. 1975); 429

U.S. 338 (1977), in its determination that PDI

was the "alter ego" of the stockholder.

The ''alter ego" reasoning of the government

under the purported authority of G.M. Leasing

Corp. v. United States, 429 U.S. 338 (1977) does

36

not and should not be expanded to modify or re-

verse the principles established by this Court in

Laing, supra, which is the result of the Circuit

Court's decision herein,

"piercing of the

The legal standard fora

corporate veil'’ has by numerous cases been well

established. In this case the government seeks

to greatly expand the scope of situations where

the government can assert the "alter ego" theory

without demonstrating the historical requirement

of fraud or grossly unconsionable conduct [See

generally, United States v. Plastic-Electro

Finishing Corp., 313 F.Supp. 330, 333-334 (E.D.

N.Y. 1970) aff'd meM. 71-1 U.S. T.C. para. 9421

(2nd Cir. 1971) and Quinn v. Butz, 510 F.2d 743

(D.C. Cir. 1975; Avco Delta Corp. Canada Ltd.

v. United States, 540 F.2d 258 (7th Cir. 1976),

cert. denied, 42 U.S. 1040 (1976), and other

progeny. ]

In those cases the element of fraud or wrong-

ful conduct is an essential factor in making an

37

alter ego determination. The G.M. Leasing,

supra, cases stand forthe propositionthat where

there is no business activity the government

may disregard the corporate form, where a clear

intent is present to interfere with the otherwise

valid tax collection process.

The government has simply not satisfied in

any respect the requirements of the very cases

relied upon by the lower courts, because it has

the lower courts, because it has not demonstrated

a Single instance of fraud, tort or statutory

violation. Further, PDI has demonstrated that it

was well capitalized (See Exhibit A, Appendix 66a

and 67a and had substantial business activities.

For these reasons, the lower courts clearly

misapplied the standard for "piercing the corp-

orate veil" via its alter ego theory.

For this and other reasons set forth above,

the petition for the writ should be granted.

38

CONCLUSION

Approximately two million small U.S. corp-

orations of a comparable size to the petitioner,

PDI, are owned by sole stockholders. If, at whim,

the government can act ex parte in contravention

of explicit dictates of Congress, and the standards

established by this Court, and destroy, at will,

any corporation owned by one individual, then the

rule of reason and law in Internal Revenue

matters is lost.

The reliance of the government and the lower

courts upon the specious reasoning of the "re-

verse piercing of the corporate veil", i.e., the

"alter ego'' theory is not properly applicable with-

out a clear showing of overt public wrong, a fraud

against the public interest or the contravention

of a strong public policy. To apply this theory

merely for purposes of the purported collection

of a nonexistent tax based upon nonexistent juris-

diction cannot have been he intent of Congress

in formulating the Internal Revenue Code. Had

39

it been so however, under the clear facts of this

case, that objective (to tax foreign income in the

hands of a nonresident alien) would clearly have

been unconstitutional.

The acts of seizure by the Internal Revenue

Service of petitioner's corporate assets without

payment of the just debts of the corporation, when

ali of thefacts ofrecord indicate no tax can pos-

sibly be due, is a destructive, arbitrary and

capricious activity, not justified by the spirit or

intent ofany partof the Constitution of the United

States norof any just interpretation of the Internal

Revenue Code upon which the entire fiscal struc-

ture of the federal government depends. The

actions of the Internal Revenue Service in this

case indicate that it may act on its own, arbi-

trarily and ex parte and that its activities are

as amatter of practice, beyond the control of

the judiciary and beyond the reach of the Consti-

tution which is the foundation of this Republic.

The petitioners therefore, respectfully re-

quest that the petition be granted in order to

40

establish the right of the petitioners to their re-

spective properties, to assess the damages to the

parties harmed, and to assess attorney's fees,

all as deemed appropriate by the court.

For the foregoing reasons, the petition for

certiorari should be granted.

Respectfully submitted,

Walter T. Charlton

Charlton & Tupling

2011 I Street, N.W.

Suite 303

Washington, D.C. 20006

(202) 296-2975

Richard T. Sampson

Semmes, Bowen & Semmes

10 Light Street

Baltimore, Maryland 21202

Attorneys for Petitioner

la

Appendix A

Supreme Court of the United States

No. A-585

VALLEY FINANCE, INC., ETAL.,

Petitioners,

Vv.

UNITED STATES

ORDER EXTENDING TIME TO FILE

PETITION FOR WRIT OF CERTIORARI

Upon Consideration of the application of

counsel for petitioner(s),

It Is Ordered that the time for filing a

petition for writ of certiorari in the above-

entitled cause be, and the same is hereby,

extended to and including March 16, 1981.

/s/ Warren E. Burger

Chief Justice of the United States

Dated this 8th

day of January, 1981

Notice: This opinion is subject to formal revision before publication

in the Federal Reporter or U.S.App.D.C. Reports. Users are requested

to notify the Clerk of any formal errors in order that corrections may be

made before the bound volumes go to press.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 78-1585

VALLEY FINANCE, INC., et al., APPELLANTS

v.

UNITED STATES OF AMERICA, et al.

No. 79-1151

PACIFIC DEVELOPMENT, INC., APPELLANT

V.

UNITED STATES OF AMERICA, et al.

No. 79-1301

PACIFIC DEVELOPMENT, INC., APPELLANT

V.

UNITED STATES OF AMERICA, et al.

Bills of costs must be filed within 14 days after entry of judgment. The

court looks with disfavor upon motions to file bills of costs out of time.

3a

Appeals from the United States Distriet Court

for the District of Columbia

(D.C. Civil Aetion Nos. 78-0089 and 77-0690)

Argued May 12, 1989 Judgaant suteved

taia gato

Decided July 14, 198 frame

Oe me ee eee

Walter T. Chariton and Richard T. Sampson with whom

FE. William Tupling was on the brief, for appellants.

Daniel F. Ross, Attorney, Department of Justice with

whom MM. Carr Ferguson, Assistant Attorney General,

Carl S. Rauh, United States Attorney at the time the

brief was filed, and Crombie J. D. Garrett were on the

brief, for appellees. Charles F. C. Ruff, United States

Attorney, and Myron C. Baum, William A. Friedlander,

S. Martin Teel, Jr., Attorneys, Department of Justice,

also entered appearances for appellees.

Before: TAMM and MIKVA, Circuit Judges and GESELL,”*

United States District Court Judge for the

District of Columbia.

Opinion for the Court filed by District Judge GESELL.

GESELL, J.: These companion appeals were consoli-

dated for argument with consent of counsel and will be

dealt with in a single opinion. They arise from a jeopardy

assessment for income taxes exceeding 4.5 million dollars

made by the Internal Revenue Service (“IRS”) against

one Tongsun Park on January 18, 1977. The IRS seized

assets of Pacific Development, Inc. (“Pacific”), a corpora-

tion wholly owned by Park, claiming that the company

was a mere alter ego of the taxpayer. Pacific, incor-

* Sitting by designation pursuant to 28 U.S.C. § 292(a).

4a

porated in the District of Columbia in 1968, officially

engages in the business of international brokerage and

consulting. Park was its founder, president, and con-

tinuous sole shareholder. In an action brought under

26 U.S.C. § 7426(a)! and 28 U.S.C. § 2410,? Pacific

sought return of its property and damages. The District

Court upheld the seizure after finding that Pacific was

not a separate entity for tax purposes but “a mere in-

strumentality of Park and a facade for his operations.” ®

As appellant in Nos. 79-1151 and 79-1301, Pacific

challenges the District Court’s factual determination of

its alter ego status, claiming that such a finding is clearly

erroneous on the record. .In addition, it contends that the

United States violated its statutory rights by failing to

provide notice of deficiency, and that the absence of a

prompt post-seizure hearing amounts to a violation of its

right to due process of law under the Fifth Amendment

to the Constitution. Appellants in No. 78-1585 are

1Section 7426 of the Internal Revenue Code authorizes

civil actions by persons other than taxpayers:

(a) Actions permitted

(1) Wrongful levy.—If a levy has been made on property

or property has been sold pursuant to a levy, any person

(other than the person against whom is assessed the

tax out of which such levy arose) who claims an interest

in or lien on such 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 Under 28 U.S.C. § 2410, a party may bring suit against

the United States “to quiet title to real or personal property

on which the United States has or claims a mortgage or other

lien.”

8’ Memorandum Opinion, January 38, 1979, at Pacific Joint

Appendix (“PJA”’) 7.

‘Pacific also asserted a Fourth Amendment claim in its

papers, but abandoned that position prior to oral argument.

—

5a

various creditors of Pacific® who sought to challenge the

seizure on the same statutory and constitutional grounds.

They proceeded by separate suit against Pacifie and IRS

under 26 U.S.C. $ 7426(a)," and also by attempted in-

tervention in the main Pacific action described above.

They appeal from dismissal of their separate action on

jurisdictional grounds.

The two actions progressed below along distinct tracks.

Pacific filed suit on April 21, 1977, while the creditors

did not bring an action until some nine months later.

The District Judge granted the Government’s motion to

dismiss the creditors’ action, at the same time denying

the creditors’ motion to intervene as party plaintiffs in

Pacifie’s lawsuit.’ Following extensive discovery, the

main action was tried to the Court and judgement was

entered for the United States. We conclude that Pacifie’s

creditors properly were barred from maintaining suit,

and find no statutory or constitutional infirmities in the

action taken by the IRS as to Pacific. Accordingly, we

affirm the District Court’s judgment in all respects.

Assuming it prevails on one or more of the three points

raised, Pacific claims it is entitled to money damages and

attorney fees under relevant statutory authority. In light of :

our disposition of the substantive claims, we need not reach

this separate matter of statutory interpretation.

*Of the four plaintiffs in this action, three claimed to be

owed monies for various services performed as salaried em-

ployees or consultants of Pacific. The fourth plaintiff was

Valley Finance, Inc. (“Valley”), a corporation also wholly

owned by Tongsun Park. Valley loaned money to Pacific,

and held a second deed of trust on certain real property as

collateral for the loan.

® Pacific did not answer the complaint or otherwise contest

the existence of the debts alleged.

7 See Memorandum and Orders, April 26, 1978, at Valley

Joint Appendix (“VJA’) 5-11.

8 See Memorandum Opinion and Orders, January 3, 1979,

and February 1, 1979, at PJA 1-11, 25-26.

_

se

6a

STANDING

Following a lengthy investigation into the tax liability

of Park, the IRS concluded that Park owed some 4.5

million dollars in personal Federal income taxes for the

four-year period ending December 31, 1975. The IRS,

believing that immediate action was necessary to safe-

guard collection of this substantial deficiency, entered a

jeopardy assessment against Park on January 18, 1977.

See 26 U.S.C. § 6861 (1976). Park was sent a statutory

notice of deficiency within the applicable 60-day time

period. 26 U.S.C. § 6861(b) (1976). He then petitioned

the United States Tax Court, seeking a redetermination

of the deficiency. See 26 U.S.C. § 6213(a) (1976). That

action, which concerns the merits of the taxpayer’s li-

ability under the Internal Revenue Code, is still pending

before the Tax Court.

Meanwhile, based on the apparent exigencies of the

situation, the IRS moved quickly to ensure collection.

Once demand for payment went unheeded, the IRS im-

mediately filed notices of tax liens against the taxpayer

himself and against Pacific as the “alter ego and nominee”

of Park. See 26 U.S.C. § 6321 (1976).* It followed up

this action by instituting levies or seizures of various

® Section 6321 reads in its entirety as follows:

States upon all property and rights to property, whether

real or personal, belonging to such person.

Notices of lien were filed January 19, 20, and 24, 1977. The

record contains 17 separate notices, eight addressed to Tong-

sun Park and nine to Pacific. They were filed with local court

clerks and recorders of deeds in California, Maryland, Vir-

ginia, the District of Columbia, and New York. See PJA 78-94.

7a

properties belonging to Pacific, including bank account

deposits, shares of stock, a life insurance policy and

several automobiles. See 26 U.S.C. $6331 (1976).'°

These liens and levies are still outstanding. Attachment

by the Government will continue until the Tax Court

resolves the nature and extent of Park’s tax liability.

The apparent effect has been to shut down Pacific’s opera-

tions and deny payment to all complaining creditors.

No issue arises as to Pacifie’s right to challenge seizure

of its property. However, an initial question addressed

by the District Court and raised on appeal concerns

whether or not Pacifie’s creditors have standing to test

the action taken by the IRS.

Standing to sue in federal court is conferred on com-

plainants alleging concrete injury to an interest that is

“arguably within the zone of interests” to be protected

by the statute in question. Association of Data Process-

10 Section 6331 provides in part as follows:

(a) Authority of Secretary or delegate.—If any person

liable to pay any tax neglects or refuses to pay the same

within 10 days after notice and demand, it shall be lawful

for the Secretary or his delegate to collect such tax... by

levy upon all property and rights to property ... belong-

ing to such person or on which there is a lien provided in

this chapter for the payment of such tax. .. . If the Secre-

tary or his delegate makes a finding that the collection of

such tax is in jeopardy, notice and demand for immediate

payment of such tax may be made by the Secretary or

his delegate and, upon failure or refusal to pay such tax,

collection thereof by levy shall be lawful without regard

to the 10-day period provided in this section.

(b) Seizure and sale of property.—The term “levy” as

used in this title includes the power of distraint and

seizure by any means....

The actual levies occurred between March 8, 1977, and Sep-

tember 28, 1977. In each instance, a notice of levy or seizure

was sent to the property-holder. See PJA 143-47.

8a

ing Serv. Orgs. Vv. Camp, 397 U.S. 150, 153 (1970). In

this instance, all complainants sue as persons other than

taxpayers, claiming protection under 26 U.S.C. § 7426

(a). The provision permits actions challenging a levy

by the United States only if the plaintiff “claims an

interest in or lien on” the property at issue. Pacific’s

creditors allege such an interest, arguing that any claim

for payment on an outstanding debt amounts to an “in-

terest” protected under the statute. At the outset, we

must decide which of the interests asserted below argu-

ably falls within the terms of the statute.

Section 7426 of the Internal Revenue Code was en-

acted as part of the Federal Tax Lien Act of 1966.4

Recognizing that the Government’s rigorous tax enforce-

ment activities at times encroached upon persons other

than the delinquent taxpayer, Congress sought to provide

a measure of protection for the property rights of these

third parties. See S. Rep. No. 1708, 89th Cong., 2d Sess.

29, reprinted in [1966] U.S. Code Cong. & Admin. News

3722, 3750. In so doing, Congress created a new excep-

tion to the broad statutory rule prohibiting suits in re-

straint of federal tax assessment efforts. 26 U.S.C. § 7421

(a) (1976 & Supp. II 1978). This exception is precisely

drawn and of limited scope. The statutory language, by

effectively equating the terms “interest”? and “lien” and

relating both to “property,” indicates that only persons

claiming specific, possessory rights are entitled to seek

judicial review. Subsequent discussion of relief afford-

able when property interests are found “superior to

rights of the United States in such property” conveys a

similar understanding that litigants must advance a

particular, secured interest. 26 U.S.C. § 7426(b) (1)

(1976). This traditional reading of the term “interest”

1 Pub. L. No. 89-719, § 110(a), 80 Stat. 1142.

9a

is consistent with usage elsewhere in the Act.’ It is

further supported by a legislative understanding that the

Act as a whole “substantially improves the status of

private secured creditors.”

As already indicated, Pacific, the actual owner of the

various properties levied or seized by the Government,

unquestionably has standing under section 7426(a). It

is equally apparent, however, that Pacific’s three general

creditors lack standing to sue. Their mere claim of a

contractual right to be paid, unsecured by a lien or other

specifically enforceable property interest, does not pro-

vide judicial access. To hold otherwise would invite liti-

gation from numerous parties only remotely aggrieved

by IRS levies, with consequent disruptive effects on fed-

eral tax enforcement. Congress intended a far narrower

right to sue, and we see no reason to deviate from that

clearly expressed design.

‘The situation as to Valley Finance, Inc. (“Valley”) is

somewhat different. Valley held a second deed of trust

on the land and premises at 1604 K Street, N.W., Wash-

ington, D.C., making it a partly secured creditor of

Pacific.’ This deed of trust, entered into on February

15, 1977, and recorded one month later, is the type of

property interest which does confer standing. Flores v.

United States, 551 F.2d 1169, 1171 (9th Cir. 1977). The

interest asserted in this instance, however, is clearly

12 See, e.g., Pub. L. No. 89-719, § 101(a), 80 Stat. 1125,

codified at 26 U.S.C. § 6323 (1976); S. Rep. No. 1708, supra

at 3, reprinted in [1966] U.S. Code Cong. & Admin. News

3722, 3724 (identifying interests having priority over tax

liens).

138. Rep. No. 1708, supra at 2, reprinted in [1966] U.S.

Code Cong. & Admin. News 3722, 3723; H.R. Rep. No. 1884,

89th Cong., 2d Sess. 2 (1966).

4The deed of trust was valued at $110,500, less than the

$122,500 that Valley previously had advanced to Pacific.

108:

junior to that claimed by the Government. The Federal

tax lien, which was filed on January 19, 1977, with the

Recorder of Deeds in Washington, D.C., attached to all

property owned by Pacific as of that date. Pacific’s sub-

sequent transfer by deed of trust was therefore a con-

veyance without legal effect. See generally United States

v. Ptoneer American Ins. Co., 374 U.S. 84 (1968).

Valley’s claim is not one on which relief can be granted,

and it was properly dismissed."* Accordingly, we con-

sider only the various challenges by Pacific to the legality

of IRS conduct.

NOTICE AND HEARING RIGHTS

In the first instance, Pacific claims to have been de-

nied certain procedural rights due under the Internal

Revenue Code. The failure to provide it with a notice

of deficiency following the jeopardy assessment is said

to invalidate the liens and levies imposed. Notice is a

jurisdictional prerequisite under sections 6861(b) and

6212(a) of the Code. DaBoul v. Commissioner of In-

ternal Revenue, 429 F.2d 88 (9th Cir. 1970). Pacific

contends that having not received notice, it was effec-

tively denied any opportunity to litigate before the Tax

Court. Because such foreclosure is not expressly permit-

ted by statute, Pacific urges that the IRS proceeded in

1° In view of the priority established by the Government’s

tax lien, the precise date of the levy challenged by Valley is

of little importance. The absence of a levy would mean that

suit could not be brought under section 7426(a) as to the

particular property. We note, however, that on September 28,

1977, the IRS levied upon 100° of the Pacific stock owned by

Tongsun Park. See Statement of Undisputed Facts, § 12, VJA

at 18. With its action, the government effectively took posses-

sion of all corporate assets not previously seized. This final

act of distraint constituted a levy against the real property

in question, under the broad statutory construction given to

that term. See 26 U.S.C. §6331(b) (1976). Thus Valley’s

claim was properly raised, although no relief is available.

lla

an unlawful manner. See Laing v. United States, 423

U.S. 161, 176 (1976).

The plain language of the statutory provisions at issue,

however, compels a contrary result. Under section 6212,

it is the taxpayer who is entitled to notice of deficiency,

and thereby assured of access to the Tax Court in order

to contest his tax liability. By requiring notification of

the individual whose delinquency is at issue, Congress

reasonably conferred the right to seek redress only on

the party directly at risk. See Graham v. United States,

243 F.2d 919, 922 (9th Cir. 1957). In this instance,

Park, the taxpayer, duly received notice and was able to

seek redress in the Tax Court.

The claim that Pacific also is entitled to notice of

Park’s deficiency must be rejected. The IRS has as-

serted that Pacific, although a separate legal entity, is

for these limited purposes simply an extension of the

taxpayer, Park. If, as the Government contends, Pacific

is identified as Park’s alter ego, then Pacific possesses

no separate statutory rights to additional notice. See

generally G. M. Leasing Corp. v. United States, 429 U.S.

338, 350-51 (1977). It is owed no separate notice of

deficiency, because it has been adequately informed by

virtue of the notice to the taxpayer. Under such circum-

stances, to require that the corporation be furnished with

an identical “ticket to the Tax Court” would be super-

fluous and unduly wasteful of both administrative and

judicial resources, Neither the statute nor its legislative

history support such a conclusion.

Accepting Pacific’s view that it is not Park’s alter ego

yields no different result. Should the two entities be

treated as unrelated, Pacific, in effect, becomes a third

party, without the right to contest the merits of the

taxpayer's assessment. See 26 U.S.C. §$ 7426(c) (1976).

The corporation, of course, retains a right to contend

that the IRS has wrongfully levied upon its property in

12a

order to satisfy the tax liability of another person. This

complaint, however, properly arises not in the Tax Court

but in the District Court, under section 7426(a). In-

deed, Pacific relied on the latter remedial provision here.

An action to contest alter ego status was prosecuted in

District Court, and is appealed to this forum. Absence

of parallel, duplicative litigation in the Tax Court is

hardly evidence that Pacific was denied appropriate ju-

dicial access or statutory notice.

As the owner of property levied upon, Pacific was

entitled to notice of the seizures themselves. 26 U.S.C.

§ 6335(a) (1976). Such notice, including a description

of the property seized, protects inter alia the rights of

innocent third parties. The requirement that such no-

tice be “as soon as practicable after seizure” suggests

a desire to assure more immediate access to judicial re-

view than may be otherwise available under the pro-

visions governing notice of deficiency. Cf. 26 U.S.C.

§§ 6861(b), 6213(a) (1976). We can find no indica-

tion in the record that notice required under section

6335 was not received. Appellant, as plaintiff below,

carried the burden of proving the Government’s failure

to follow prescribed statutory procedures. Because this

issue was not raised before either the District Judge or

this panel on appeal, we must assume that Pacific re-

ceived the notice to which it was lawfully entitled.

In addition to questioning the Service’s statutory com-

pliance, Pacific asserts its constitutional right to a

prompt hearing, which it allegedly did not receive. Re-

lying on a line of cases that confers an opportunity to

be heard prior to the taking of property, appellant argues

that lack of promptness here interfered with its right to

due process of law under the Fifth Amendment. See

generally North Georgia Finishing, Inc. v. DiChem, Inc.,

419 U.S. 601 (1975); Fuentes v. Shevin, 407 U.S. 67

(1972).

13a

The opportunity to be heard in accordance with prin-

ciples of due process is not absolute. Its nature and tim-

ing require “appropriate accommodation of the competing

interests.” Goss v. Lopez, 419 U.S. 565, 579 (1975).

The jeopardy collection power exercised by the IRS,

while directed to exigent circumstances, is a critical as-

pect of the overall self-assessment tax system. G. M.

Leasing Corp. v. United States, 429 U.S. 338, 350

(1977). Government’s substantial interest in swiftly se-

curing its revenues has been found to justify seizure of

assets without a prior hearing. E.g., Commissioner of

Internal Revenue v. Shapiro, 424 U.S. 614, 630 n. 12

(1976) ; Fuentes v. Shevin, supra, 407 U.S. at 92.

It is conceded that under the law applicable at the

time, taxpayers challenging jeopardy seizures were de-

nied access to a judicial forum for up to 60 days, and

no provision existed for preliminary inquiry or review

at the administrative level. The Supreme Court has ex-

pressly reserved judgment as to whether a 60-day delay

following jeopardy seizure of a taxpayer’s assets amounts

to denial of procedural due process.'® In the present con-

16 Laing v. United States, 423 U.S. 161, 183-84 n.26 (1976).

See also Commissioner of Internal Revenue v. Shapiro, 424

U.S. 614, 680 n.12 (1976). The Court in Shapiro, while en-

couraging administrative inquiry well before the 60-day

period expires, did not impose such inquiry as a constitutional

requirement. Congress, however, responded to the Court’s

suggestion, and enacted a scheme for expedited administrative

and judicial review of jeopardy assessment procedures. Pub.

I. No. 94-455, § 1204(a), 90 Stat. 1695, codified at 26 U.S.C.

§ 7429 (1976). See S. Rep. No. 938, Part I, 94th Cong., 2d

Sess. 363-66, reprinted in [1976] U.S. Code Cong. & Admin.

News 3439, 3792-95. Under this scheme, which became effec-

tive on February 28, 1977, the taxpayer must receive within

five days a written statement explaining the basis for the

government’s determination that tax collection was in

jeopardy. He then can initiate administrative and judicial

review on an accelerated schedule, resulting in a judicial

l4a

text, however, this matter is without consequence. Pacific

has insisted throughout these proceedings that it is not

the delinquent taxpayer. As a third party challenging

the Government’s finding of a nexus between itself and

Park, its proper avenue of redress is in the District

Court under section 7426.17 See Al-Kim, Inc. v. United

States, 610 F.2d 576, 579-80 (9th Cir. 1979); Flores v.

United States, 551 F.2d 1169 (9th Cir. 1977). Nothing

in that statutory provision prohibits or otherwise limits

the right to bring an immediate action in order to contest

the Government’s levy.'* The fact that Pacific did not

choose to act immediately, or to seek preliminary or

emergency relief, cannot be construed as a bar to prompt

judicial access. Because the statutory scheme affords

ample and prompt hearing rights to affected third-party

property holders, no constitutional problem arises.’®

determination as to the reasonableness of the jeopardy assess-

ment within as little as 40 days.

17 Once again, if it is assumed that Pacific is the taxpayer’s

alter ego, then the corporation’s position is identical to that

of its owner. Park has brought an action challenging the

assessment in Tax Court. Any related constitutional chal-

lenge should be raised in that pending action. Knowles v.

Hirsch, 65 F. Supp. 690 (D.D.C. 1946) (three-judge court).

Because the new section 7429 procedures, described in note

16 supra, place an initial burden on the government, and the

initial required statement of reasons implicates the govern-

ment’s contention that a taxpayer and his alter ego are one

and the same, it would appear that Pacific shares with Park

the right to seek expedited review. Thus as a policy matter,

third parties charged with alter ego status are now assured

an early ruling on the question of whether collection of a de-

linquent tax from the alter ego’s assets is in jeopardy.

18 Under section 7426(b) (1), a third party upon sufficient

showing of irreparable injury may enjoin the enforcement of

such a levy.

19 At the post-levy proceeding, the Service must justify its

extraordinary action in connecting a third party’s property

15a

DISTRICT COURT FINDINGS

Finally, turning to the merits, Pacific contends the

District Court’s findings of fact constitute plain error.

Claiming that the trial judge relied primarily on stale

evidence and ignored more relevant recent developments,

Pacific urges that the record properly understood utterly

fails to justify a disregard for its separate corporate

status.

to the particular delinquent taxpayer. The government’s bur-

den of establishing a basis for its summary seizure will vary,

depending on the type of relief sought and the timing of the

judicial inquiry. See generally Enochs v. Williams Packing &

Navigation Co., 370 U.S. 1 (1962); Flores v. United States,

supra, 551 F.2d at 1175 nn.5-6. In this instance, the parties

do not raise the issue of what precise standard was or ought

to have been applied at trial. The District Judge did not

address the matter in his opinion below. It is, however, im-

portant to distinguish Pacific’s situation from one in which

the third party seeks prior injunctive relief or an immediate

hearing following seizure.

The moving party, of course, retains the ultimate burden of

proof in its attempt to persuade a District Court that govern-

ment action should be overturned. A government showing of

probable cause, familiar in other Fourth Amendment settings,

can rebuff immediate challenges to the propriety of a levy.

However, stronger support from the IRS is needed where, as

here, the basis for government action is explored in depth

during discovery, and the trial court is rendering its final

judgment. Considerations of fairness impel us to conclude

that once the factual record has been fully developed over

time, and the seizure of property threatens to become perma-

nent, the government must establish its asserted nexus be-

tween taxpayer and a third party by substantial evidence.

We are applying this stronger standard for purposes of

review. Accordingly, the trial judge’s conclusion that the

government had reasonable grounds for disregarding Pacific’s

corporate existence must be supported by substantial evidence

in the record if we are to affirm.

16a

The concept of district corporate entity has long served

useful business purposes, encouraging risktaking by in-

dividual investors as well as overall convenience of fi-

nancial administration. See generally Moline Properties,

Inc. v. Commissioner of Internal Revenue, 319 U.S. 436

(1943). Ordinarily, such considerations justify treating

the corporation as a separate entity, independent of its

owner. Quinn v. Butz, 510 F.2d 748, 757 (D.C. Cir.

1975). On occasion, however, this concept is abused,

and yields results contrary to the interests of equity or

justice. Courts have not hesitated to ignore the fiction

of separateness and approve a piercing of the coiporate

veil when the corporate device frustrates clear intend-

ment of the law. 7d. at 757-58 (citing cases). The Gov-

ernment’s inability otherwise to satisfy legitimate tax

debts clearly may form a sound basis for such disregard

of corporate form. See, e.g., Avco Delta Corp. Canada

Ltd. v. United States, 540 F.2d 258, 264 (7th Cir.),

cert. denied, 429 U.S. 1040 (1976); G. M. Leasing Corp.

v. United States, 514 F.2d 9385 (10th Cir. 1975), rev’d

in part on other grounds, 429 U.S. 338 (1977).

Given the diversity of corporate structures and the

range of factual settings in which unjust or inequitable

results are alleged, it is not surprising that no uniform

standard exists for determining whether a corporation

is simply the alter ego of its owners. The fact of sole

ownership is not by itself sufficient, although it is cer-

tainly not irrelevant. Evidence of plain fraud is similarly

of probative value, though not a prerequisite. DeWitt

Truck Brokers, Inc. v. W. Ray Fleming Fruit Co., 540

F.2d 681, 684 (4th Cir. 1976). We have previously sug-

gested that the court may ignore existence of the cor-

porate form whenever an individual so dominates his

organization “as in reality to negate its separate per-

sonality.” Quinn v. Rutz, supra, 510 F.2d at 758. Ob-

viously, control by the individual must be active and

substantial, but it need not be exclusive in a hypertechni-

17a

cal or day-to-day sense. The test is a practical one,

based largely on a reading of the particular factual cir-

cumstances. As a fact issue, its ultimate determination

is dependent upon the sound discretion of the trial judge

in his appraisal of the evidence. His resolution will be

left undisturbed on appeal unless clearly erroneous.

In the course of these proceedings, the trial court

heard from numerous employees and officers of Pacific,

from Mr. Park, and from the IRS Special Agent in

charge of the investigation. After reviewing the volumi-

nous testimony and documentation adduced at deposition

and trial, we are entirely persuaded that no error was

made in the finding of alter ego status.

Park founded Pacific in 1968, and was its president

and sole shareholder on a continuous basis thereafter.

Despite protestations in the record, there is no evidence

that a major corporate decision was ever made by any-

one other than Park. The Board of Directors played no

meaningful role. There is serious doubt as to whether a

Board existed at all prior to December, 1974. After that

date, directors met infrequently. When they did meet,

Board members approved corporate decisions and policies

without discussion or question. Many purported meet-

ings consisted of brief telephone conversations. Individual

officers performed ministerial functions at the behest of

the president. They exercised no significant discretionary

authority. The conclusion that board members neither

controlled nor influenced corporate affairs is amply

supported.

It is equally apparent that Park used corporate funds

and staff for his own private purposes on a regular

basis. He wrote checks on Pacific’s bank accounts to

cover unrelated personal and business expenses. Pacific

employees served as Park’s chauffeur, managed his do-

mestic staff, entertained his guests, and ran other per-

18a

sonal errands for him, often of an elaborate interna-

tional nature. They spent substantial amounts of time,

at his behest, on these various personal matters. Pacific

provided similar administrative and managerial services

to assist Park in other business ventures. The record

sufficiently establishes that the corporation operated pri-

marily, if not exclusively, to perform staff functions for

its founder and sole shareholder.

This conclusion is further supported by substantial

evidence that Park manipulated the few ventures in

which Pacific was involved in order to advance his own

distinct business or financial interests. To this end, he

assigned profits from work performed by Pacific either

to himself or to other companies. He forgave bad loans

made to influential figures with Pacific funds. He also

assigned funds to Pacific for ventures in which the cor-

poration had played no part. By persistently exercising

control over the assignment of profits and payments,

Park effectively used Pacific as an incorporated pocket-

book. In short, the record is replete with evidence that

the corporation was fundamentally an extension of its

taxpayer-owner. The trial court’s findings on this score

were clearly well-founded and not error.

CONCLUSION

Pacific’s general creditors were properly dismissed.

Although the partly secured creditor, Valley Finance,

Inc., had standing to sue, its lack of priority also war-

rants dismissal. For the reasons set forth above, Pacific’s

statutory and constitutional due process claims are with-

out merit, as is the challenge to factfinding at trial. Ac-

cordingly, the judgment of the District Court in both

cases is

Affirmed.

19a

JNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

VALLEY FINANCE, INC., et al.,

Plaintiffs,

Vv. C.A. No. 7-0089

UNITED STATES OF AMERICA, et al.,

Defendants.

MEMORANDUM

This case is presently before the Court on

the federal defendant's motion to dismiss and

plaintiffs' motion for summary judgment . The

Court has carefully considered the points and

authorities filed by the respective parties here-

in, as well as the pertinent pleadings filed in

the related case of Pacific Development, Inc.

v. U.S.A., C.A. No. 77-690. Based on said

consideration, the Court concludes that it must

grant defendants motion to dismiss.

Plaintiffs are four creditors of Pacific

Development, Inc. (hereinafter, ''PDI''), the

properties of which have been the subject of

20a

federal tax liens by the United States Govern-

ment. These liens were based on the Govern-

ment's contention that PDI is merely the alter

ego or nominee of Tongsun Park, the sole share-

holder of PDI, who is the subject of jeopardy

tax assessments of over $4.5 million. Plaintiffs

contend that because of the Government's actions

against PDI, they have heen unable to collect

from PDI sums to which they are entitled.

Plaintiffs' sole claim against the United

States, if they have any cognizable claim at

all, is based on 26 U.S.C. § 7426(a) which

provides:

If a levy nas been made on property

or property has been sold pursuant

to a levy, any person. .. who

claims an interest in or lien on such

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.

2la

Plaintiffs allege that the Government filed liens

and levied upon PDI's various properties, in-

cluding its property at 1604 K Street N.W., in

Washington, D.C., and that said levies were

"wrongful" within the meaning of the section

742 6(a).

The Courtinterprets the phrase "interest in

or lien on such property" as requiring a specific

property interest, e.g., aleaseholdor a vested

remainder, in the particular property subject to

the challenged levy. Plaintiffs Lawrence D.

Huntsman and Frank L. Frantz are mere general

creditorsof PDI. Plaintiff Marina V. McLaren,

who is an employee of PDI, is also in the posi-

tion of a general creditor of PDI, though she

argues that she has some form of "employee's

lien" upon PDI's properties. None of these plain-

tiffs have a specific property interest in any of

PDI's properties allegedly levied upon by the

United States. None of them can therefore

properly maintain this action under 26 U.S.C.

22a

§ 7426(a), and they thus fail to state a claim

upon which relief can be granted.

Plaintiff Valley Finance is in the same posi-

tion as the other plaintiffs with respect to all of

PDI's properties except the property at 1604 K

Street N.W., in Washington, D.C. This real

property was recently sold by consentof all the

parties hereto and the proceeds of said sale are

presently being heldin escrow. With respect to

this 1604 K Street N.W. property, plaintiff

Valley Finance alleges that it has a specific

property interest in the form of a second deed

of trust, which was entered into on February 15,

1977, and recorded on March17, 1977. This

second deed of trust would in the usual case rep-

resent a sufficient property interest to support

a suit under 26 U.S.C. § 7426(a). However, in

the instant case, the alleged property interest

was not created until after the Government

filed its lien and allegedly levied*/ on 1604 K

*/ ‘rhere appears to be a substantial question

as to whether, and if so, when, the 1604 K

Street N.W. property was actually subject to

23a

Street N.W. Since the Government's alleged

levy preceded the second trust agreement be-

tween PDI and Valley Finance, PDI could not

property [sic] have conveyed any interest to

Valley Finance since the Government's levy

effectively divested PDI of title over the 1604 K

Street N.W. property. Accordingly, the Court

concludes that Valley Finance cannot properly

maintain this action under 26 U.S.C. § 7426(a),

and it thus fails to state a claim upon which

relief can be granted.

* Continued

levy by the United States. The Government

appears to contend that this particular property

was not subject to levy. if this were true,

no suit under section 7426(a) would be appro-

priate with respect to this particular property.

The complaint alleges that this particular pro-

perty, as well as other of PDI's properties, was

subject to both lien and levy on January 19,

1977. If this were true, then Valley Finance's

claim under section 7426(a) would in any case

be barred by the nine month statute of limita-

tions of 26 U.S.C. §6532(c). In view of the

Court's conclusion that plaintiff Valley Finance

fails to state a claim under 26 U.S.C. § 7426(a)

because of its lack of a sufficient "interest" in

the 1604 K Street N.W. property, it is unneces-

sary to resolve the aforestated dispute.

24a

Based on the foregoing, the Court will

grant defendants' motion to dismiss. However,

the Court's conclusion herein that none of the

plaintiffs in this action have properly stated a

claim under 26 U.S.C. § 7426(a) does not mean

that these individuals and this corporation will

not ultimately recover the sums properly due

and owingthem by PDI. PDI will still be able

to assert its rights against the United States

and if itprevails in C.A. No. 77-690, none of

the plaintiffs herein will be prejudiced by the

Court's order of dismissal. Moreover, the

Government has expressly stated that it will

permit the repayment of legitimate creditors

of PDI, including the individual plaintiffs here-

in -- McLaren, Huntsman, Frantz. Indeed, it

appears to the Court that the Government has

already permitted these individuals to receive

a partial paymentof these sums from the pro-

ceeds of the sale of the 1604 K Street N.W.

property. The Court implores the government

25a

to take steps to ensure that these individuals

are fully compensated for the sums properly

due them by PDI.

Again, Valley Finance isina different

posture from the individual plaintiffs. The

Government continues to maintain that Valley

Finance (like PDI) is merely the alter ego or

nominee of Tongsun Park, and the Government

will not, therefore, agree to permit Valley

Finance to be compensated for its alleged

loans to PDI until Tongsun Park's tax liability

is fully adjudicated in the United States Tax

Court. Nevertheless, as the Government has

contended, Valley Finance is not without a

remedy: It can institute a foreclosure suit,

based onits allegedly-vlid second deedof trust,

against the proceeds ofthe sale of 1604 K

Street N.W.

26a

An Order in accordance with the fore-

going will be issued of even date herewith.

/s/

Charles R. Richey

United States District Judge

DATE: 4/25/78

27a

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

VALLEY FINANCE, INC., et al.,

Plaintiffs,

v. C.A. No. 78-0089

UNITED STATES OF AMERICA, et al.,

Defendants.

ORDER

Upon consideration of the federal defen-

dant's motion to dismiss, plaintiff's motion for

summary judgment, and the respective points

and authorities in support thereof and in op-

position thereto, as well as the pertinent plead-

ings filedinthe related case of Pacific Devel-

opment, Inc. v. U.S.A., C.A. No. 77-690,

and for the reasons set forth in this Court's

Memorandum of even date herewith, it is, by

the Court, this 25 day of April, 1978,

ORDERED, that defendant's motion to

dismiss be, and the same hereby is, granted;

and it is

28a

FURTHER ORDERED, that plaintiff's

motion for summary judgment be, and the same

hereby is, denied; and it is

FURTHER ORDERED, that the complaint

herein be, and the same hereby is, dismissed.

/s/

Charles R. Richey

United States District Judge

29a

UNITED STATES DISTRICT COURT

FOR Tik DISTRICT OF COLUMBIA

PACIFIC DEVELOPMENT, INC.,

Plaintiff,

Vv. C.A. No. 77-0690

UNITED STATES OF AMERICA,

Defendant.

ORDER

This case is presently before the Court

on the motion of Valley Finance, Inc., Lawrence

D. Huntsman, Frank C. Frantz, and MarinaV.

McLaren to intervene as party plaintiffs. Also

before the Court is a motion to compel answers

to requests for admissions filed by the proposed

intervenors.,.

By a separate Memorandum and Order the

complaint filed in connection with a separate

suit captioned Valley Finance, Inc., etal. v.

U.S.A., C.A. No. 78-0089. The basis of this

dismissal was that the plaintiffs therein, who

are identical to the proposed intervenors herein,

30a

had failed to state a claim upon which relief

could be granted. The claim asserted by the

proposed intervenors in the instant suit is

identical to that asserted in C.A. No. 78-0089,

and the proposed intervenor's present claim

thus also fails to state a claim upon which re-

lief could be granted. In these circumstances,

the pending motion to intervene is appropriately

denied. See C. Wright & A. Miller, Federal

Practice and Procedure, § 1914, at 569 (1972).

Wherefore, itis, bythe Court, this 25th

day of April, 1978,

ORDERED, that the motion to intervene

as party plaintiffs, filed by Valley Finance,

Inc., etal., be, and the same hereby is,

denied; and it is

FURTHER ORDERED, that proposed in-

tervenors' motion to compel answers to re-

quests for admissions be, and the same hereby

is, denied; and it is

FURTHER ORDERED, that counsel for

3la

plaintiff Pacific Development, Inc., and de-

fendant United States of America appear in

Courtroom 11 at 9:30 a.m. on May 8, 1978,

for a status conference in the above-captioned

matter.

/s/

Charles R. Richey

United States District Judge

32a

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

PACIFIC DEVELOPMENT, INC.,

Plaintiff,

Vv. C.A. No. 77-0690

UNITED STATES OF AMERICA,

Defendant.

MEMORANDUM OPINION OF UNITED STATES

DISTRICT JUDGE CHARLES R. RICHEY

This action was brought by Pacific

Development, Inc., [hereinafter, 'PDI"] for

declaratory relief to remove and cancel a lien

placed upon its real and personal property by

the Commissioner of Internal Revenue and for

damages caused by this allegedly illegal action.

This cause came on for trial, and the court, for

the reasons hereinafter stated, finds for the

defendant.

I. BACKGROUND

PDI was incorporated under the laws of the

District of Columbia on April 1, 1968. Tongsun

Park has atall times ownedall of the corporate

stock and been president of PDI. On January 18,

33a

1977, a delegate of the Secretary of the Treasury

of the United States of America made jeopardy

assessments against Tongsun Park totalling

$4,500,619.20, for federal income taxes al-

legedly owed by Mr. Park, additionsto tax pur-

suant to section 6654 of the Internal Revenue

Code of 1954, and interest .1/ On January 19

and 20, 1977, the International Revenue Service

filed notices of tax liens against PDI as the

"alter ego or nominee" of Tongsun Park in

Washington, D.C., and other localities. The

Internal Revenue Service also levied, pursuant

to section 6331 of the Internal Revenue Code of

1954, against PDI as the alter ego or nominee

of Tongsun Park, with respect to the following

property:

(a) monies contained in the National

Bank of Washington (checking

account number 1 25 7 250);

1/ Tongsun Park has filed an action in the Tax

Court challenging the underlying assessment of

these taxes, The actionis still pending.

34a

(b) monies contained in the National

Bank of Washington (payroll account

number 1 274 759);

(c) 50,000 shares of preferred stock of

International Oil and Gas Corporation;

(d) three automobiles;

(1) one Mercedes Sedan;

(2) one Cadillac El Dorado Convertible;

(3) one Lincoln Limousine; and

(e) Shenandoah Life Insurance Policy

(#496822) for $1 million on life of

Tongsun Park and payable to PDI.

On April 21, 1977, PDI filed this action for

relief from wrongful levy, pursuant to 26 U.S.C.

§ 7426(a); to quiet title, pursuant to 28 U.S.C.

§ 2410; for declaratory judgment, pursuant to 28

U.S.C. § 2201;, and for damages.

Il. THE CIRCUMSTANCES NECESSARY

FOR VOIDING THE INSULATION OF

INCORPORA TION

In this case, the government alleged that

Tongsun Park owed taxes. The government

35a

assessed PDI, a corporation owned by Park,

for the taxes owed by Park.

Generally, a corporation is treated asa

separate and distinct entity, independent of

its owner. Quinn v. Butz, 510 F.2d 743,

757 & n.89 (D.C. Cir. 1975). Even when it

is wholly owned by one individual, a corpora-

tion is recognized as an autonomous being.

Id. at 757 & n.90. This fiction encourages

risk-taking by insulating investors from the

debts of their related but legally separate

bodies. Anderson v. Abbott, 321 U.S. 349

(1944),

The insulation provided by incorporation

serves important goals, but when these goals

are thwarted, when the fiction of separateness

no longer servesthe ends of justice, the law

abandons the fiction, and pierces the corporate

veil. Quinn v. Butz, supra at 757 & n.91.

When the corporate form is twisted to defeat

public convenience, justify wrong, protect

36a

fraud, cr defend crime, the law will disregard

the corporate entity concept. Id. at 758 quoting

United Statesv. Milwaukee Refrigerator Transit

Co., 142 F. 247, 255 (C.C.E.D. Wisc. 1905).

This case presents a scenario somewhat

distinct from the typical piercing-the-corporate-

veil paradigm. In the classic case, debts of the

undercapitalized corporation are assessed

against the wealthy owner for the benefit of the

injured third party. See Walkovszky v. Carlton,

18 N.Y. 2d 414, 223 N.E. 2d 6 (1966). Inthe

case before the Court, the debts of the wealthy

nonresident alien shareholder are being asses-

sed against the wholly owned local corporation.

Thus, the Court is faced with what could be

termed a "reverse" piercing the corporate

veil problem.

"Reverse" piercing the corporate veil --

that is, disregarding the corporate form to

reach assets of a corporation for debis of a

shareholder -- is clearly permissible where

37a

justice so requires. See G.M. Leasing Corp.

v. United States, 514 F.2d. 935 (19th Cir.

1975), aff'din partand rev'd in part on other

grounds, 429 U.S. 338 (1977); Stone v. Eacho,

27 F.2d 284, 288 (4th Cir. 1942). However,

the reverse piercing paradigm may alter cer-

tain factors included in the traditional test.

For example, undercapitalization is often cited

as a determinative factor for the traditional

paradigm. See Francis O. Day v. Shapiro,

267 F.2d 669, 673 (D.C. Cir. 1959). Where

a shareholder is assessed for the debts ofa

corporation, undercapitalization would be a

crucial indicator of an improper use of the

corporate form. However, where the corpor-

ation may not square with the contours of the

alleged fraud. For example, keeping a corp-

oration poor would not indicate that an in-

dividual was hiding assets by incorporation.

In fact, where a shareholder is attempting to

escape his or her debts, over capitalization

38a

of a wholly owned corporation may be an in-

dicator of fraud and serve as a ground for

penetrating the corporation's shell to reach

its assets for the shareholder's debts.

Accordingly, the Court cannot mechanic-

ally apply the traditional tests to the facts

of this case, but must engage in the sensitive

process of assessing the relationship between

PDI and Park to determine whether the corp-

orate form was used in violation of public

policy and tothwart the beneficial goals of in-

corporation,

III. FINDINGS OF FACT

Pursuant to Rule 52({a) of the Federal

Rules of Civil Procedure, the Court finds the

following facts.

PDI was incorporated under the laws of the

District of Columbia on April 1, 1968. Tongsun

Park has at all times owned 100 per cent of the

corporate stock of PDI and has been PDI's

president since its incorporation.

39a

PDI often failed to observe formalities.

PDI filed no income tax returns for 1968

through 1972, and allowed its corporate

charter totemporarily lapse in September of

1975 by failing to file an annual report with

the District of Columbia for two consecutive

years. Until 1974, the minute book did not

reflect substantial board of directors' actions.

Throughout its history, PDI neglected to

have a genuine board of directors. Tongsun

Park treated the members of PDI's board as

mere figureheads serving as a courtesy to

Park. Members of the board exercised no in-

fluence or controlover the corporation's af-

fairs. The first minutes of a meeting of the

board concern a meeting which supposedly

occurred on December 10, 1974, six years

after PDI was incorporated. Two of the per-

sons listedas being directors at the commence-

ment of the purported meeting were never ad-

vised that they had been "elected" directors

40a

of the corporation. Another never attended

any meetings of the board, and was merely a

figurehead for Park. The minutes, therefore,

falsely state that meetings took place at which

the boardmember was present. In fact, the

evidence shows that many of the purported

meetings never occurred.

From 1968 to 1973, Tongsun Park used

PDI completely for personal purposes. A

bank account was opened on May 20, 1968,

through a purported corporate resolution of

PDI. At thistime, PDI did not have a Board

of Directors, and an employee of another cor-

poration owned by Park signed the resolution

as secretary to establish the account. Park

deposited various funds in this account and

wrote numerous checks for personal purposes

during 1968 through 1973. In effect, Park

used the corporate account during this period

as a personal checking account.

Throughout PDI's existence, Park exer-

4la

cised controlover payments by the corpora-

tion and made all of the important corporate

decisions. As sole shareholder, Park viewed

money in his corporation's accounts as his, to

be usedashe saw fit. Park viewed PDI em-

ployees as his own staff.

Park used PDI to further his own business

ventures and exercised total control over what

profits of those ventures would be assigned to

PDI, keeping PDlina position where it could

not meet its operating expenses. Park en-

gaged in many shipping ventures in his name or

the name of one of his other corporations.

None of the profits of these ventures went to

PDI, but PDI paid wubétantio’ expenses for them

without charge to Park. Moreover, PDI per-

sonnel, without charge to Park or any other

corporation, devoted substantial time to these

endeavors. This is illustrated by Park's use

of PDI resources on Japan Lines matters; the

Burma Oil Tankers, Ltd. settlement; the GATX

EES

42a

matter, PDI's paying Park's expenses for his

trips involving shipping matters; Park's use

of B. Y. Lee, who was paid by PDI, on ship-

ping matters for other corporations; and by

Park's use of PDI's resources on various

shipping matters.

In addition to taking care of Park's own

business affairs, PDI employees also acted as

Park's personal caretakers, caring for his

domestic and other non-business affairs. Park

was not charged for the time the employees

spent in doing these personal services for him.

Park's chauffeur was paid by PDI and PDI

employees entertained Park's guests.

PDI's meagre investments were designed

to prevent Park from realizing United States

source income. As a nonresident alien, Park's

United States source income was subject to

federalincome tax. PDI invested in various

assets on Park's behalf so that he could avoid

realizing United States source income. Most

of these investments were in real estate or

43a

stock, as well as in automobiles that were

held for the personal use of Park and his

friends. Ventures in PDI's name were gener-

ally insignificant, and some appear to have

been an afterthought as Park's American enter-

prises began to disintegrate.

Finally, rather than investing capital in

PDI, Park made repeated non-interest-bearing

loans to the corporation. Loans were made to

PDI only when necessary to meet operating ex-

penses.

In conclusion, Park used PDI facilities and

employees as personal caretakers and to further

his business ventures, exercised total control

over what profits of those ventures, if any,

would be assigned to PDI, and assigned few, if

any, profits to PDI, keeping it in a position

where it could not: meet its operating expenses.

The circumstances surrounding PDI's invest-

ments reveal that PDI served as a mere instru-

mentality of Park, existing to service his per-

44a

sonal and economic desires. Park treated the

corporation as a mere pocketbook. Whenever

he desired, he used the corporate funds for

his own purposes, and he loaned the corpor-

ation money only as necessary to meet oper-

ating expenses. Overall, there exists an in-

extricable unity between Park and PDI.

IV. CONCLUSIONS OF LAW

The Court finds that PDI is the alter ego of

Tongsun Park. ‘To treat PDI and Park as

independent wouldignore reality and be in-

just to Park's creditor, the United States.

The factors which this Court deems conclu-

sive of the relationship between Park and

PDI are:

(a) the complete control exercised

over PDI by Park for his individual

purposes, such that PDI became a mere

instrumentality of Park and a facade for

his operations; seeG. M. Leasing Corp.

v. United States, 514 F.2d 935, 939-40

45a

(10th Cir. 1975), aff'dinpartand rem'd

in parton other grounds 429 U.S. 338

(1977); TSS Sportswear, Ltd. v. Swank

Shop (Guam) Inc., 380 F.2d 512, 516-17

(9th Cir. 1967);

(b) the use of PDI staff and facilities

for the benefit of Park without charge,

thereby intermingling the finances of

Park and PDI; seeIn re County Green

Ltd. Partnership, 438 F. Supp. 701,

707 (W.V. Va. 1977); Harris v. Wagshal,

343 A.2d 283, 287 (D.C. Ct. Ap. 1975)

(per curiam);

(c) the failure to observe corporate

formalities and to maintain a genuine

board of directors; see DeWitt Truck

Brokers, Inc. v. W. Roy Fleming Fruit

Co., 540 F.2d 681, 686 & n.14 (4th

Cir. 1976); Palmer v. Stokely, 255 F.

Supp. 674, 679 (W.D. Okla. 1966);

Harris v. Wagshal, supra at 287; and

46a

(d) the failure to supply PDI with

sufficient capital to meetits operating

expenses; see Anderson v. Abbott, 321

U.S. 349, 361 (1944); Francis O. Day

v. Shapiro, 267 F.2d 669, 673 (D.C.

Cir. 1959).

To interfere with the government's at-

tempt to assess Park's debts against PDI

would be a serious injustice. Accordingly,

the levies against PDI's assets to collect

Park's liabilities were not wrongful.

An order in accordance with this memo-

randum shall be issued of even date here-

with.

/s/

Charles R. Richey

United States District Judge

DATE: January 3, 1979

47a

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

PACIFIC DEVELOPMENT, INC.,

Plaintiff,

Vv. C.A. No. 77-0690

UNITED STATES OF AMERICA,

Defendant.

ORDER

Presently before the Court are motions to

strike defendant's proposed findings of fact and

conclusions of law. The Court has considered

the plaintiff's objections in determining its

findings of fact, and feels that striking objec-

tional material is not necessary. Material

not called for by the Court's order has not been

considered, and matters referred to, which

were admitted for impeachment only, have been

considered for those purposes only. Accord-

ingly, it is, by the Court this 3 day of January,

1979,

48a

ORDERED, that the motions of the plaintiff

to strike be, and the same hereby are, denied.

/s/

Charles R. Richey

United States District Judge

49a

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

PACIFIC DEVELOPMENT, INC.,

Plaintiff,

Vv. C.A. No. 77-0690

UNITED STATES OF AMERICA,

Defendant.

ORDER

Presently before the Court is a motion for

partial summary judgment by the plaintiff. In

the Memorandum issued of even date herewith,

the Court found that Pacific Development, Inc.

(hereinafter, 'PDI''], is the alter ego of

Tongsun Park. Therefore, the levy by the

government against PDI's assets was proper

because notice to Park was as a practical

matter notice to PDI. Furthermore, there is

no right to a pre-levy hearing. See Fuentes

v. Shevin, 407 U.S. 67, 91-92 & n. 24 (1972).

Accordingly, it is, by the Court, this 3 day of

January, 1979,

50a

ORDERED, that the motion of the plaintiff

for partial summary judgment be, and the same

hereby is, denied.

/s/

Charles R. Richey

United States District Court

5la

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

PACIFIC DEVELOPMENT, INC.,

Plaintiff,

V. C.A. No. 77-0690

UNITED STATES OF AMERICA,

Defendant.

ORDER

Upon consideration of the trial held in this

matter and in accordance with the Memorandum

issued of even date herewith, it is, by the

Court, this 3rd day of January, 1979,

ORDERED, that judgment be, and the same

hereby is, entered for the defendant.

/s/

Charles R. Richey

United States District Cour’

52a

IN THE UNITED STATES DISTRICT COURT

FOR Tiik DISTRICT OF COLUMBIA

PACIFIC DEVELOPMENT, INC.,

Plaintiff,

Vv. Civil Action No. 77-0690

UNITED STATES OF AMERICA,

Defendant.

ORDER

Upon consideration of Plaintiff's Motion to

Vacate this Court's Order of December &th,

1978, granting Defendant's Motion to receive

additional briefs, and further upon considera-

tion of Plaintiff's Opposition to that Motion, it

is Hereby ORDERED, this 11 day of January,

1979 that the Court's ORDER of December 8th

is VACATED, and that further, Defendant's

Brief which is the subject of that Order, as

well as Plaintiff's reply thereto, shall not be

accepted into the record of this case.

/s/

Judge, United States District Court

53a

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

PACIFIC DEVELOPMENT, INC.,

Plaintiff,

v. Civil Action No. 77-0690

UNITED STATES OF AMERICA,

Defendant.

ORDER

This action is currently before the Court

on the plaintiff's motion to stay execution of judg-

ment and for a protective order and the govern-

ment's motion to amend the Court's findings of

fact.

In its motion to stay execution and fora

protective order, the plaintiff displayed some

confusion concerning the Court's findings of fact.

The plaintiff suggested that the Court found

Tongsun Park to be a non-resident alien for fed-

eral tax purposes. Understandingly, the govern-

ment then moved for clarification of the Court's

order pursuant to Rule 52(b) of the Federal Rules

of Civil Procedure.

54a

The issue before this Court was whether

the plaintiff was the alter ego of Tongsun Park.

An important factor in that determination was

the way in which Park directed certain invest-

ments to the plaintiff. Park's behavior was

understandable because he believed himself to be

a non-resident alien. The relevent issue in this

proceeding was Park's subjective perceptions

that motivated his behavior. Whether Park was

a non-resident alien for tax purposes was com-

pletely irrelevent to this Court's determination.

The issue whether a person is a non-

resident alien requires a complex factual in-

quiry. This issue was not litigated in this

forum, was not briefed by the parties, and was

not decided by this Court.

Accordingly, it is, by the Court, this

3 day of January, 1979,

ORDERED, that the Court's Memorandum

Opinion of January 3, 1979, be, and the same

hereby is, amended as follows:

55a

1. The sentence begining at line 12, of

page 3, is amended to state:

In the case before the Court, the debts

of a wealthy shareholder, who maintains

that he is a non-resident alien, are being

assessed against the wholly owned local

corporation.

2. The sentence beginning at line 12 of

page 6 is amended to state:

Believing himself to be a non-resident,

Park wanted to avoid United States source

income which would be nevertheless sub-

ject to federal tax.

And it is

FURTHER ORDERED, that the plaintiff's

motion to stay execution of judgment and for a

protective order be, and the same hereby is,

denied.

/s/

Judge Charles R. Richey

United States District Judge

ee ee

56a

UNITED STATES DISTRICT COURT

FOR TUE DISTRICT OF COLUMBIA

Valley Finance, et al.,

Plaintiff,

vs. Civil No. 78-0089

United States of America,

Defendant.

NOTICE OF APPEAL

Notice is hereby given this 16th day of May

1978, that Valley Finance, Inc., Marina V.

McLaren, Lawrence W. Huntsman, and Frank

C. Frantz hereby appeal to the United States

Court of Appeals for the District of Columbia

from the judgment of this Court entered on the

26th day of April, 1978 in favor of the United

States of America against said Valley Finance,

Inc., Marina V. McLaren, Lawrence W.

Huntsman, and Frank C. Frantz.

/s/

Charlton, Imse & Tupling

2011 1St., N.W., Suite 303 Walter T. Charlton

Washington, D.C. 20006

296-2975 . Attorney for

Valley Finance, Inc., Marina V. McLaren,

Lawrence W. Huntsman and Frank C. Frantz

57a

CLERK: Please mail copies of the above Notice

of Appeal to the following at the addres-

ses indicated:

Lawrence D. Huntsman

Attorney for Pacific Development

10560 Main St., Fairfax, VA 22030

and

EFari J. Silbert, U.S. Attorney

U.S. Court House

John Marshall Plece

Washington, D.C.

John J. McCarthy

Donald J. Gavin

S. Martin Teel, Jr.

F, Gerald Burnett

Attorneys, Tax Division

U.S. Department of Justice

Washington, D.C. 20530

58a

UNITED STATES DISTRICT COURT'

FOR THE DISTRICT OF COLUMBIA

PACIFIC DEVELOPMENT, INC.,

Plaintiff,

Vs. Civil No. 77-0690

UNITED STATES OF AMERICA

Defendant.

NOTICE OF APPEAL

Notice is hereby given this 8th day of

January, 1979, that

PACIFIC DEVELOPMENT, INC.

hereby appeals to the United States Court of

Appeals for the District of Columbia from the

judgment of this Court entered on the 3rd day

of January, 1979 in favor of

against said PACIFIC DEVELOPMENT, INC.

Walter T. Charlton

Attorney for

PACIFIC DEVELOPMENT, INC.

59a

CLERK: Please mail copies of the above Notice

Notice of Appeal to the following at the ad-

dresses indicated:

S. Martin Teel, Jr., Esquire

Attorney, Tax Division

Department of Justice

Earl Silbert, U.S. Attorney

for the District of Columbia

U.S. Court House

Washington, D.C. 20001

Honorable Griffin Bell

Attorney General of the United States

U.S. Department of Justice

Washington, D.C. 20530

60a

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

Pacific Development, Inc.

Plaintiff.

vs Civil No. 77-0690

United States of America

Defendant.

NOTICE OF APPEAL

Notice is hereby given this 8th day of

February, 1979, that Pacific Development, Inc.

niall appeals to the United States Court of

Appeals for the District of Columbia from the

judgment of this Court entered on the 31st day of

January, 1979 in favor of the United States of

America against said Pacific Development, Ine.

Walter T. Charlton

2011 I Street, N.W. (303)

Washington, D.C. 20006

296-2975

Attorney for

Pacific Development, Inc.

CLERK: Please mail copies of the above Notice

of Appeal to the following at the

6la

addresses indicated:

S. Martin Teel, Jr., Esquire

Department of Justice

Washington, D.C.

62a

UNITED STA TES COURT OF APPEALS

For the District of Columbia Circuit

No. 78-1585 September Term, 1978

Valley Finance, Inc., etal.,

Appellants

Vv. Civil Action No. 78-0089

The United States of America,

et al. .

No. 79-1151

Pacific Development, Inc.,

Appellant

Vv. Civil Action No. 79-0690

United States of America, etal.,

No. 79-1301

Pacific Development, Inc.,

Appellant

Vv. Civil Action No. 77-0690

i'nizced States of America, et al.

On consideration of appellant's motion to

consolidated appeals (Nos. 79-1151 and 78-1301),

63a

and for enlargement of time to file brief, and of

appellants' motion for enlargement of time for

filing brief in No. 78-1585, itis

ORDERED that Nos. 79-1151 and 79-1301

are consolidated. Itis

FURTHER ORDERED that the Clerk is

directed to schedule No. 78-1585 with Nos.

79-1151 and 79-1301 on the same day and be-

fore the same panel, and, it is

FURTHER ORDERED that the time for

filing appellants' initial briefs in the above

cases is extended to and including May 5, 1979.

FOR THE COURT:

GEORGE A. FISHER, Clerk

BY: /s/

Daniel M. Cathey

First Deputy Clerk

64a

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 78-1585 September Term, 1980

Valley Finance, Inc., etal. Civil Action 78-0089

Appellants

v. FILED OCT 17, 1980

United States of America, et al.

No. 79-1151

Pacific Development, Inc.,

Appellant Civil Action 77-0690

v.

United States of America, et al.

And Consolidated Case No. 79-1301

Before: Tamm and Mikva, Circuit Judges;

Gesell*, U.S. District Judge for the

District of Columbia.

ORDER

Upon consideration of the petition for re-

hearing filed in these cases by appellants (Valley

Finance, Inc., et al.), itis

ORDERED, by the court, that appellants'

65a

aforesaid petition for rehearing is denied.

Per Curiam

For the Court:

/s/

George A. Fisher

Clerk

*Sitting by designation pursuant to Title 28

U.S.C. §292(a).

66a

Exhibit A

Pacific Development, Inc.

Pro-Forma (Computed From Records and

Testimony in Evidence)

Financial Statement as of December 31, 1976

ASSETS

Total Assets Per Books

Schedule A-1 $ 2,022,508. 00

Increase in Market value of

International Oil & Gas Stock 1, 000, 000. 00

Add: Goodwill-Not Booked 5900, 000. 00

Total Assets $3,522,508. 00

67a

Exhibit A (continued)

LIABILITIES

Accounts and Notes Payable $2, 288, 262.00

Less: Park Advances

Capitalized in 1976 = 2,000, 000.00

Notes and Accounts Payable $ 288, 262.00

Loans from Stockholder 366, 926.00

Total Liabilities $ 655,188.00

CAPITAL AND ACCUMULATED EARNINGS

(DEFICIT)

Capital Stock (as of 12/31/75) $ 265, 000.00

Add: Capitalized in 1976 2, 000, 000. 00

Total Capital Stock 1/17/77 $2, 265, 000. 00

Deficit at 12/31/75 ($605, 878. 00)

Add: Goodwill Not Booked 560, 000.00

Increase in Market Value

of International Oil &Gas Stock 1,000, 000. 00

Loss for the year 1976 (291, 802. 00)

Marnings and Profits $ 602, 320.00

Total Liabilities and Capital $3,522.508.00

68a

Schedule A-1

Pacific Development, Inc.

Analysis of Total Assets in Evidence As of

December 31, 1976

Total Cash in Bank 12/31/76 $77, 394.00

Accounts Receivable 21, 861.00

Notes Receivable 25, 979. 00

Deposits 50, 951. 00

Cash Value-Officer's Life

Insurance 39, 000. 00

Prepaid Expenses 25,491.00

Total Current Assets

12/31/76 $240, 676. 00

Investments

International Oil &Gas-Stock$500, 000. 00

3040 M Street-Notes 395, 000. 00

Wide World of Travel-Stock 37,500.00

Pacific Enterprises, Inc.

(Subsidiary) 146, 865. 00

Lambus, Inc. #1 (Subsidiary) 250, 000. 00

69a

Schedule A-1 (Continued)

Suter's Tavern-Notes 142,500.00

Total Investments $1,471, 865. 00

Less: Reserve for Bad Debts 355,500. 00

Book Value of Investments $1, 116, 365. 00

Fixed Assets

Land-1604 K St., N.W. ¢ 40,000.00

Land-Scarsdale, N. Y. 11, 316. 00

Building-1604 K St., N.W. 363, 303. 00

Building-Scarsdale, N.Y. 64,127.00

Ocean City Condominium 43,200.00

Office Equipment-K St. 31, 711.00

Building Improvements-K St. 54, 718.00

Equipment-K St. 5,010.00

Equipment-Ocean City 4,108.00

Improvements-Woodland Dr. 4,000.00

Automobiles & Accessories 43,974.00

$665,467.00

Total Assets $2, 022,508. 00