# Petition — Pacific Development, Inc. v. United States > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_1589%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1981 - **Citation:** 451 U.S. 1018 ## Text 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 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385007_1589%3A1. Public record. Not legal advice.