Guess? Co-Founder Loses Suit for IRS Investigation

Guess?, Inc. co-founder Georges Marciano has lost his bid in Washington federal court for an order forcing the Internal Revenue Service to investigate his tax returns and liabilities.

Marciano had argued that the audit could reveal money owed to the government that he believes former employees mishandled. In dismissing (PDF) the suit on Friday, U.S. District Court Judge Henry Kennedy Jr. noted that the property rights protected under the Fifth Amendment don't guarantee anyone's right to pay taxes.

In his complaint (PDF), Marciano claimed that he uncovered evidence of “substantial financial irregularities” in his personal and business affairs around 2005. He believed he was the victim of identity theft, fraud, embezzlement and a host of other financial crimes.

As part of his investigation into these irregularities, Marciano alleges that he repeatedly asked the IRS for copies of previous years’ tax returns, but was told that they were unavailable. He claims he also asked the IRS to do an audit of his previous returns, but they refused.

Marciano sued his former accountants, bookkeepers and employees in Los Angeles Superior Court, accusing them of failing to properly file his tax returns and of concealing unauthorized transfers of Marciano’s assets over the years. The employees filed counterclaims for libel and emotional distress, and the California court entered judgments against Marciano.

Following the judgment, Marciano’s creditors filed involuntary bankruptcy proceedings against him in California, according to Kennedy's opinion. Marciano filed suit against the IRS in U.S. District Court for the District of Columbia, seeking a stay of the California judgments and an injunction ordering the IRS to turn over his tax return information and commence an investigation.

Marciano noted that he believes he owes millions of dollars, and accuses the IRS of standing in the way of that money coming back to the government.

The IRS moved to dismiss (PDF) the suit, claiming Marciano had failed to state a viable claim and that the court lacked jurisdiction.

In his opinion,Kennedy sided with the IRS, finding that Marciano had failed to exhaust administrative remedies and that Marciano could not sue the IRS through statutes designed to give individuals legal remedies in cases where the IRS is demanding payment.

In response to Marciano’s claim that the IRS violated his Fifth Amendment rights, the judge wrote that Marciano has failed to show where the IRS threatened his property interests or liberties.

“The extraction by the government of money or property via taxation implicates a constitutionally protected property interest, but, as noted above, Marciano has asserted repeatedly that he owes the government money, rather than the reverse,” Kennedy wrote. “The Court is aware of no precedent establishing a protected property interest in the ability to pay taxes.”

Marciano was represented by Herbert Harmon of Washington's Harmon & Wilmot and Scott Bloch, the former head of the Office of Special Counsel who has recently faced his own set of legal troubles. Neither could immediately be reached for comment. Justice Department and IRS representatives declined to comment.

Comments

[accountant in nyc]

The money or property through taxation and allegations of constitutionally protected property interest. Marciano has repeatedly stated that he owes the state money, and not vice versa.

[Investigation Services]

This kind of issue always happen in different companies and even in the government. This kind of people must not be placed in any position in the government.

[k]

now, can Marciano use this ruling against the government if it decides at a later date to audit him? Is the government somehow estopped from making any claim on the returns for the years at issue? I would bet the answer is "no" -- by virtue of the legal truism that the government can do whatever it wants -- what *that* is the $50 million dollar question....