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United States v. Rapower-3 LLC

United States District Court, D. Utah

March 2, 2018

UNITED STATES OF AMERICA, Plaintiff,
v.
RAPOWER-3, LLC, INTERNATIONAL AUTOMATED SYSTEMS, INC., LTB1, LLC, R. GREGORY SHEPARD, NELDON JOHNSON, and ROGER FREEBORN, Defendants.

          MEMORANDUM DECISION AND ORDER DENYING [251] MOTION FOR PARTIAL SUMMARY JUDGMENT AND [252] MOTION TO FREEZE ASSETS AND APPOINT RECIEVER

          David Nuffer United States District Judge.

         The United States alleges that Defendants violated 26 U.S.C. §§ 7408 and 7402(a) and requests a permanent injunction and other equitable relief.[1] The United States moved for partial summary judgement on claims 7 through 11 of the Complaint.[2] Defendants responded in opposition.[3] The United States replied.[4] The United States also moved to freeze assets and appoint a receiver.[5] Defendants responded in opposition.[6] The United States replied.[7].

         STANDARD OF REVIEW

         Summary judgment is appropriate if “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”[8] A factual dispute is genuine when “there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way.”[9] In determining whether there is a genuine dispute as to a material fact, the court should “view the factual record and draw all reasonable inferences therefrom most favorably to the nonmovant.”[10]

         The moving party “bears the initial burden of making a prima facie demonstration of the absence of a genuine issue of material fact and entitlement to judgment as a matter of law.”[11]

         DISCUSSION

         There are disputed material facts in the Motion for Partial Summary Judgment. Principal among them are those relating to Defendants' statements to RaPower customers about the availability of certain tax benefits, including a depreciation deduction and a solar energy credit.

         Claims 7 through 11 of the Complaint allege that Defendants violated 26 U.S.C. § 7408. Section 7408 “authorizes a district court to enjoin any person from engaging in conduct subject to penalty under 26 U.S.C. § 6700 if injunctive relief is appropriate to prevent recurrence of that conduct or any other activity subject to penalty under the Internal Revenue Code.”[12] Section 6700 penalizes “a person who 1) organizes or sells any plan or arrangement involving taxes and 2) makes or furnishes, or causes another to make or furnish, a statement connecting the allowability of a tax benefit with participating in the plan or arrangement, which statement the person knows or has reason to know is false or fraudulent as to any material matter.”[13]

Central issues presented by the United States' allegations are;

• whether statements Defendants made, concerning the allowability of a depreciation deduction and a solar energy tax credit to RaPower customers while promoting the solar lenses, were false or fraudulent;
• whether Defendants knew or had reason to know such statements were false or fraudulent; and
• whether RaPower customers were in a trade or business related to leasing solar lenses or were holding the lenses for the production of income.[14]

         Disputed material facts exist on these issues. The United States contends that Defendants knew that RaPower customers were not in a trade or business, making Defendants' statements false or fraudulent.[15] The United States supports its contention with the following allegations (1) the business failed to earn income; (2) customers did not control the business rather it stayed with the promoter; (3) contract documents were illusory; and (4) the promoter encouraged customers to buy into the plan by heavily emphasizing a reduction or the elimination of tax liability.[16] In opposition, Defendants argue that their statements were not false or fraudulent, and even if they were, the Defendants “had the understanding and justified belief that the tax benefits were lawfully allowed to RaPower customers based on the legal advice ...


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