Criminal tax evasion offers legal option in targeting dog, puppy mills

(IL file photo)

Hundreds of dogs and puppies kept in squalid cages and neglected to the point of being diseased were seized in two separate
criminal raids, putting those animals in the hands of rescue workers who could best care for the animals.

The dogs were transported to 10 different shelters statewide and outside Indiana, and more than $10,000 worth of volunteer
time and service came to the state for free in addition to court judgments of more than $100,000 against each breeder or seller.

It wasn’t the animal neglect that did in those breeders or sellers, but a little-used provision in state statute that
the Indiana Attorney General’s Office refers to as the “Al Capone approach.”

Using the same type of criminal sales tax evasion enforcement law that did in the Chicago crime boss in the 1930s, the Indiana
AG’s Office used that legal option to take down dog and puppy mill operators in the past few years, as well as an illegal
stereo-selling racket where the person didn’t comply with the tax law.

That tax law has held more of a bite than what state statute historically provided and led to a new law in July 2009 that
put more strength behind local prosecutors and state regulators who can now more diligently pursue these types of illegal
animal activity.

“This was never about puppies per se, it’s been about tax cheats,” said attorney Andrew Swain in the AG’s
tax division. “From a tax law point of view, there’s no distinction between these cases because they were all
failing to collect and report taxes. This law had been on the books, but I’d never used it and was just waiting for
the right taxpayer (or non-taxpayer) to come along and test it, to see if we could get a bad operator with it.”

That chance arose in late 2008, when under former Attorney General Steve Carter the state agency filed an action against
Tammy Gilchrist in Cloverdale who was operating a puppy mill but not paying taxes as required, Swain said. This was the first
time the tax evasion law was used against this type of activity, he said, and it paid off. Authorities seized 74 dogs and
puppies and also four horses in that case, and in early 2009 the state obtained a guilty plea against Gilchrist on two felony
counts of failing to collect taxes and permit examination of tax records. She received two years suspended; 40 hours of community
service with the county’s animal welfare league, and was prohibited from having direct contact with animals.

Swain

Another case came in June 2009 against an operation in Harrison County, culminating in guilty pleas last month. Virginia
Garwood, 64, and her daughter Kristen Garwood, 27, pleaded guilty to a Class D felony of failure to remit or collect sales
tax in connection with their cash-and-carry dog-breeding operation in Mauckport that had been ongoing since 2004. The mother
also pleaded guilty to a separate felony count of income tax evasion, while the daughter’s felony was reduced to a misdemeanor.

The AG’s Office charged the two following a raid of their operation during which police and animal-rescue workers seized
244 dogs and puppies that were confined in squalid cages and enclosures and tested positive for disease.

Marion Superior Judge Annie Christ-Garcia accepted the plea agreements and ordered an 18-month and one-year suspended sentence
for the mother and daughter respectively, in addition to prohibiting them from breeding or selling dogs while on probation
or working in any business not complying with state sales tax laws. Each also had to pay court and probation costs.

Those penalties came on top of a civil tax case seeking $132,440 in unpaid taxes on several of the dog-sale transactions
and a consumer-protection lawsuit filed against them in November under the Deceptive Consumer Sales Act because four consumers
complained the dogs weren’t healthy as advertised.

Those tax evasion legal options were the only way to go after these operators, according to Swain and animal advocates who
lobbied for the new 2009 law. Under the Indiana tax law, the AG’s office assumes a non-traditional role in being able
to go after delinquent taxpayers with criminal actions. Swain said that allows the state to essentially seize bank accounts
and take any inventory and sell it to apply to the amount owed in taxes.

“This wasn’t common in Indiana, but it can be used as a deterrent factor to enhance civil collections by sending
a message to taxpayers that states are going to aggressively pursue this, now more than ever,” Swain said. “Very
few tax crimes in Indiana are felonies, but this is and we’re using it in the way it’s intended. Some might think
this is akin to public urination, but this is all theft and could be charged that way.”

Lawson

Nationally, states such as New Mexico and New York have had more aggressive tax crime divisions than what Indiana and others
have had in going after a problem that results in $2.5 trillion annually in non-reported income, Swain said. He heard about
this topic and how it is used when attending national tax administration seminars, he said.

When teaching seminars, Swain said he refers to these cases as being subjects of what he calls the “Al Capone approach.”

“If you allow businesses to get away with this, you’re giving them a competitive advantage and that undermines
the law. It undermines legit people trying to play by the rules and creates an uneven playing field,” Swain said.

Litigation spokesman Bryan Corbin for the AG’s Office said the goal of the Garwood and Gilchrist cases was never about
them going to prison, it was about making sure they pay the taxes they owe. While animal-cruelty laws have historically been
weak in Indiana, the state wouldn’t have targeted these operators if they had been paying their taxes as required by
law, Corbin said.

“We’re not the puppy police, and this is not an animal-rights case; it’s a tax case,” he said. “This
may be novel from a legal standpoint, but we almost never have the authority to do something like this.”

In addition to the tax crime aspect of what’s happened, the additional animal-cruelty benefit is what many have taken
out of these actions in recent years. Animal advocates say the AG’s Office has helped put a stronger law in place, one
that’s been long overdue.

Rep. Linda Lawson, D-Hammond, who is also a Humane Society volunteer, championed the law change during the General Assembly
last year.

The new law requires commercial dog-breeding operations to register with the state, and it authorizes the AG to take civil
actions against those who fail to register. It also requires that caged dogs be allowed out to exercise, increases the penalties
for animal cruelty, and gives local prosecutors more ability to pursue those cases.

Until the change, the state’s only requirement for animal owners was that they provided food and water; it didn’t
require that animals have shelter or medical care. That meant that when a pit bull in Gary was found chained and frozen to
death, the only reason the owner could be prosecuted was if the dog didn’t have food and water.

“Prior to July last year in Indiana, you had more regulation if you owned a barber shop than you did if you had 700
dogs on your property,” said Anne Sterling, Indiana state director for the Humane Society of the United States. “For
puppy mills, it’s been extremely difficult to address the most basic needs of the animals, and we desperately needed
to strengthen the cruelty code.”•