Conveyances Part2 page6
United States of America
, Plaintiff v. Robert S. Waltman, Loretta J. Waltman, Helen Pratt
Vogel, and C.E. Development Corporation, Defendants
District Court, So.
Dist. Ind., Indianapolis Div., IP 96-155-C-T/G, 9/16/97
Secs. 6323 and 7403
Liens: Property or property rights, transfer of: Consideration:
Fraudulent conveyances: Tenants by the entirety.--To satisfy
outstanding tax liabilities, the IRS was entitled to foreclose on and
sell four properties owned and fraudulently transferred by an
individual. Since he transferred the properties for no consideration and
the transferees quit claimed the properties to his son's corporation for
no consideration, each transferee took the properties subject to the tax
liens. The transfers were made to reduce the individual's net worth and,
thus, were fraudulent. Even though state (
) law prevented the seizure and sale of one parcel that was owned by the
individual and his wife as tenants by the entirety, the IRS could
foreclose on the property since the wife would not be prejudiced. She
was not residing in the property and had little interest in it since she
deeded it to the corporation and received no money in return. However,
the IRS was required to give the wife one half of the sale proceeds
derived from that property.
Jeffrey L. Hunter,
Assistant United States Attorney, Indianapolis, Ind. 46204, Gerald H.
Parshall, Jr., Department of Justice, Washington, D.C. 20530, for
plaintiff. Alan L. Crapo,
3035 S. Keystone Ave.
, for defendants.
ENTRY FOLLOWING BENCH TRIAL
TINDER, District Judge:
After being assessed for
unpaid federal taxes, Robert Waltman transferred four of his properties
to various individuals, who have subsequently transferred the properties
to C.E. Development Corporation ("C.E."). The
, through the Internal Revenue Service ("IRS"), now wants to
foreclose its liens on those properties, contending that the liens
survived the transfers. C.E., of course, wants to keep its properties,
or in the alternative, be reimbursed for the amounts spent to improve
the properties. After a bench trial in which evidence presented by both
parties was heard and a review of the evidence and the law governing
this case, the following are issued as findings of fact and conclusions
of law pursuant to FED. R. Civ. P. 52(a). 1
Pursuant to 26 U.S.C. §6672,
the IRS assessed Defendant Robert S. Waltman ("Robert") $40,
372.85 for unpaid federal employment taxes on February 3, 1986. To date,
only $1,310.00 has been paid against that assessment. The outstanding
balance, with interest accruals, was $110,397.57 as of March 1, 1997,
and interest continues to accrue. On the day of the assessment, a tax
lien arose against all property and rights to property of Robert, in
existence at that time and thereafter acquired.
At dispute are four
specific properties in which Robert had an ownership interest at some
point. The first property, generally known as
1815 North Rural Street
, was received by Robert and Defendant Loretta J. Waltman
("Loretta"), his estranged wife, from their son, David
Waltman, on February 1, 1978, and was owned by Robert on the day of the
assessment. Robert quitclaimed his interest in this property to Loretta
on May, 13, 1986, for no consideration. Loretta then quitclaimed 1815 N.
Rural to Defendant C.E. on December 22, 1986. In return, C.E. agreed to
assume and be responsible for the mortgages on the property. David
Waltman owns all the stock of C.E. and his brother Steve manages the
Robert also owned property
generally known as 838 North Tacoma Street, Indianapolis, which he
received on or about November 6, 1985, from Ruth Lynn, a third party
seller, for $5,000.00. He owned this property on the date of the
assessment. Robert then quitclaimed this property to Defendant Helen
Pratt Vogel ("Helen"), with whom he had been living, on May 2,
1986, for no consideration. Helen quitclaimed this property to C.E. on
December 22, 1986. In return, C.E. agreed to take the property and board
it up. The property apparently needed significant repairs and was under
citation by either the local Board of Health or the local Health and
Hospital Corporation for various Indianapolis code violations.
Robert received from a
third party the property generally known as 1838 N. Rural Street,
Indianapolis on or about December 11, 1985. He owned this parcel on the
date of assessment, but quitclaimed his interest to Helen on May 2,
1986, for no consideration. Helen quitclaimed the property to C.E. on
December 22, 1986. No consideration was paid, but again, Helen did not
want the responsibility for correcting the various Indianapolis code
Finally, Robert received
the property generally known as 1028 East Ohio Street, Indianapolis,
from David Waltman, his son, on March 25, 1986. Robert again quitclaimed
his interest in this property to Helen on May 2, 1986, for no
consideration. Helen also quitclaimed this property to C.E. on December
22, 1986, on the understanding that C.E. would take care of citations
from the State Board of Health.
At all times relevant to
this case, the combined value of the four parcels was greatly exceeded
by the outstanding tax assessment and the lien securing it. However,
C.E. has invested in the properties and their value has increased since
the assessment arose on February 3, 1986. The combined effect of all the
transfers of the four properties by Robert was to reduce his net worth.
The introduction of a
certified transcript of assessments and payments satisfies the United
States' prima facie case for its entitlement to reduce its
assessment to a judgment. United States v. Rindskopf, 105 U.S.
418, 422 (1881). Upon making the assessment, and after notice and demand
without payment, the United States possessed a tax lien upon all
property and rights to property of Robert in the amount of the
assessment, and this lien increased as the debt grew by reason of
statutory interest. 26 U.S.C. §6321. The federal tax lien against
Robert's property is valid until the liability is satisfied or otherwise
becomes unenforceable as a matter of law. Id. §6322. Although
certain transferees (purchasers, security interest holders, mechanic's
lienors or judgment lien creditors) are protected from the federal tax
lien in certain circumstances, id. §6323(a), none of the
Defendant transferees in this case (Loretta, Helen or C.E.) qualify for
this protection, as none of them fit within the definition of any
protected category. See 26 CFR §301.6323(h)-1 (defining each
category of protected transferee).
Thus, each of the
transferees took the properties subject to the tax liens. United
States v. Librizzi [97-1 USTC ¶50,263], 108 F.3d 136, 137 (7th Cir.
1997) ("[T]he Supreme Court noted . . . that 'once a lien has
attached to an interest in property, the lien cannot be extinguished
(assuming proper filing and the like) simply by a transfer or conveyance
of the interest.' ") (quoting United States v. Rodgers [83-1
USTC ¶9374], 461 U.S. 677, 691 n.16 (1983)). The Defendants do not
contest this conclusion as to the properties at 838 North Tacoma Street,
1838 North Rural Street, and 1028 East Ohio Street. However, they do
contest the attachment of the lien to the property at 1815 North Rural
Street, which Robert held in a tenancy by the entirety with Loretta at
the time of the assessment.
The United States insists
that its tax lien attached to Robert's interest, whatever it was, in
this property at the time of assessment and that, even if a creditor of
one spouse cannot seize entirety property, the subsequent transfers
fixed Robert's interest at one-half the value of the property.
Alternatively, the United States argues that Robert's conveyance to
Loretta was fraudulent and void under Indiana law. Rather than reverting
back to a status of tenancy by the entirety, the United States argues
that the eventual conveyance to C.E. should be treated as a joint
conveyance from Loretta and Robert, and Robert's one-half interest
conveyed is subject to the tax lien. This prevents Robert from profiting
from his fraud. The Defendants contend that the lien never attached to
the property and the remedy under Indiana law for a fraudulent transfer
is to restore the property to the owner before the transfer. In this
case, the owners would be Robert and Loretta as tenants by the entirety,
and again, the Defendants argue that "the creditor of one spouse
may not seize, sell or attach entirety property." Schoon v. Van
Dienst Supply Co., 511 N.E.2d 12, 13 (Ind. Ct. App. 1987) (citing Anuszkiewicz
v. Anuszkiewicz, 360 N.E.2d 230, 232 (Ind. Ct. App. 1977)).
It is clear that state law
controls in determining a taxpayer's interest in property to which the
tax lien may attach. Rodgers [83-1 USTC ¶9374], 461 U.S. at 683;
United States v. Davenport [97-1 USTC ¶50,213], 106 F.3d 1333,
1335 (7th Cir. 1997). Even if a creditor of one spouse cannot seize,
sell or attach an entire property, each spouse does have an interest in
the property, because each tenant has rights in the property, such as
those to reside on the property or share in the profits or to convey
one's interest to the other spouse. Thus, under Indiana law, Robert had
rights to property at 1815 North Rural Street.
Once the incidents of
ownership are determined under state law, federal law controls the
consequences of the tax lien. Rodgers [83-1 USTC ¶9374], 461
U.S. at 683 & 702-03 n.31. See also United States v. National
Bank of Commerce [85-2 USTC ¶9482], 472 U.S. 713, 719 (1985)
("The statutory language 'all property or rights to property,'
appearing in §6321 . . ., is broad and reveals on its face that
Congress meant to reach every interest in property that a taxpayer might
have.") Therefore, the fact that a creditor could not reach
Robert's interest in the property under Indiana law is irrelevant to
whether the federal tax lien could attach, as the federal statutes apply
to the taxpayer's rights to any property, not to his creditors'
rights. National Bank [85-2 USTC ¶9482], 472 U.S. at 727. The
tax lien attached to Robert's interest in the property and the question
becomes whether the United States may foreclose the property to satisfy
The first step in
determining the answer to that question is to assess the validity of
Robert's transfer of the property to Loretta, and again, state law
controls as to whether the transfer was fraudulent. Commissioner of
Internal Revenue v. Stern [58-2 USTC ¶9594], 357 U.S. 39, 42-45
(1958). Whether a transfer was made with a fraudulent intent is a
question of fact and, under Indiana law, the "[i]ntent can be
inferred from certain indicia called 'badges of fraud.' " U.S.
Marketing Concepts, Inc. v. Don Jacobs Buick-Subaru, Inc., 547
N.E.2d 892 (Ind. Ct. App. 1989). The badges include:
the transfer of property by
a debtor during the pendency of a suit; a transfer of property that
renders the debtor insolvent or greatly reduces his estate; a series of
contemporaneous transactions which strip a debtor of all property
available for execution; secret or hurried transactions not in the usual
mode of doing business; any transaction conducted in a manner differing
from customary methods; a transaction whereby the debtor retains
benefits over the transferred property; little or no consideration in
return for the transfer; a transfer of property between family members.
When several of the badges are present concurrently, an inference of a
fraudulent intent is warranted. Id.
Clearly, fraudulent intent
exists in this case. Robert made the initial transfers while he was
nearly insolvent and after the tax lien was assessed. The effect of the
transfers was to further reduce his net worth and he received no
consideration in the exchanges. The transfers were each made to his wife
or his paramour. All this evidence points to a fraudulent intent, and
Robert has offered no innocent explanations to rebut a finding of such
an intent. See United States v. Denlinger [93-1 USTC ¶50,040],
982 F.2d 233, 23637 (7th Cir. 1992). Each of the initial transfers by
Robert are therefore voidable. See IND. CODE ANN. §32-2-7-17
Nor is C.E. protected by
the further transfer of each property by Loretta or Helen. Under Indiana
law, a subsequent transferee may be protected from a voiding of the
fraudulent transfer if he is "good faith transferee who took for
value." Id. §32-2-718(b)(2). C.E., owned by one of Robert
and Loretta's sons and run by another, did not take in good faith nor
for value. C.E. did not provide consideration other than agreeing to be
responsible for the upkeep of the properties. Also, the sons knew their
father made the initial transfers in an attempt to reduce his net worth
and keep the property from his creditors. Thus, the transfers to C.E.
are not protected.
Further, even though the
1815 North Rural Street property would revert to ownership by Robert and
Loretta in a tenancy by the entirety, this does not prevent the United
States from foreclosing the property, even if Indiana law does not allow
the seizure and sale of such property for the benefit of one spouse's
creditors. The Internal Revenue Code, on its face, does not grant an
exemption to a sale where an innocent third party holds an interest in
the property. See 26 U.S.C. §7403; Davenport [97-1 USTC
¶50,213], 106 F.3d at 1336-37. As the Seventh Circuit has explained:
Our path in the face of
explicit contradiction between the two statutes [§7403 and state
statutes which grant a tenancy by the entirety] is of course lit by the
Supremacy Clause. We need not speculate on the textual conflict,
however, in light of the Supreme Court's broad and binding
interpretation of §7403 announced in United States v. Rodgers.
. . .
The Supreme Court [held]
that although the non-delinquent third party interest holder must be
compensated for her interest, the Supremacy Clause prevents the use of a
state-created interest to block a forced sale under §7403.
. . .
Any language from [state]
entireties or homestead law that limits or prohibits sale constitutes a
state-created limitation on forced sale, which conflicts with the
textually unfettered sale power in §7403. State-created limitations
have no force to except federal law, even when an innocent third-party's
rights are at issue: "the Supremacy Clause ... is as potent in its
application to innocent bystanders as in its application to delinquent
at 1337 (citations omitted).
However, the Supreme Court
did find that district courts retained limited power to refuse to order
a sale if it would cause undue hardship to the third party. The Court
noted four factors for consideration when deciding whether to order a
sale: 1) the extent to which a sale only of the delinquent taxpayer's
interest would prejudice the government's interest; 2) whether the
innocent third party has a reasonable expectation that the property
would not be subject to a forced sale by the taxpayer or his creditors;
3) the potential prejudice to the third party in terms of relocation
costs and undercompensation; and 4) the character and value of the
liable and nonliable interests in the property. Id. n.6. (citing Rodgers
[83-1 USTC ¶9374], 461 U.S. at 710-11).
These factors do not
support refraining from an order for sale of the property, as Loretta
will not be prejudiced in this case. She is not residing on the property
and apparently does not have much interest in it as she deeded it to
C.E. and received no money in return. In light of the transfer to C.E.
and considering the condition of the property, Loretta in all likelihood
would rather have the cash from the sale. Therefore, the United States
may sell the property and take one-half of the proceeds, which
represents Robert's interest in the property. The other one-half of the
proceeds should be distributed to Loretta.
Therefore, as each of the
initial transfers was made subject to the federal tax lien, and
alternatively, was a fraudulent conveyance, judgment will be ordered for
the Plaintiff. The United States may foreclose on the properties and
sell them pursuant to 26 U.S.C. §7403. As to 1815 North Rural Street,
one-half of the proceeds from the sale is to be distributed to Loretta
Waltman to reimburse her for her share of ownership in the property. As
to each of the other three properties, should the proceeds exceed
Robert's tax liability, which is unlikely, the excess should be
distributed to C.E. to reimburse it for improvements made to the
properties. The Plaintiff is directed to propose a form of judgment and
order for sale within ten days of this date.
ALL OF WHICH IS ORDERED.
Should any of the findings of fact be more appropriately called
conclusions of law, or vice versa, then they should be considered by the
reader to support the result reached in this entry regardless of how
such findings or conclusions are labeled.
United States of America, Plaintiff v. Harold E.
Wilfley, et ux., et al., Defendants Harold E. Wilfley and Ellen J.
Wilfley, Debtors/Plaintiffs v. United States of America, Department of
Treasury, I.R.S., Oregon Department of Revenue, and Oregon Department of
Human Resources, Defendants
District Court, Dist. Ore., Civ. 92-909-HA, 93-96-HA, 5/1/97
Secs. 6203 and 6303
Assessments: Form 4340: Notice and demand.--The Forms 4340,
Certificate of Assessments and Payments, submitted by the IRS for
married taxpayers provided presumptive evidence that they were given all
the documentation of tax assessments they were entitled to receive.
Furthermore, the IRS properly issued notices of assessment and demand
for payment. Thus, their tax liability was properly assessed. Their tax
protestor arguments and their unsupported contentions that they never
received notices of assessment were rejected.
Sec. 6321 ]
Liens and levies: Sham transfers to avoid taxes.--Married
taxpayers' contentions that assessments were based upon an erroneous
determination concerning trust income were rejected. The trust was
invalid under state (Oregon) law because it had no identifiable
beneficiaries. A deed by which the taxpayers purported to convey real
property to the trust was void as a sham transfer because it failed to
identify a valid grantee. Therefore, title remained with the taxpayers.
Kristine Olson, United
States Attorney, Portland, Ore. 97204-2024, Sanford W. Stark, Department
of Justice, Washington, D.C. 20530, for plaintiff. Harold E. Wilfley,
Ellen J. Wilfley, 16532 S. Mills Rd., Mulino, Ore. 97402, pro se.
John Stuart Salter, Northwest Farm Management, P.O. Box 1111, Mulino,
Ore. 97042, pro se. Lowell Becraft, 209 Lincoln St., Huntsville,
Ala. 35801, Micaela R. Dutson, 12900 S.W. Pacific Hwy., Tigard, Ore.
97223, for Northwest Farm Management Co. Theodore R. Kulongoski,
Attorney General, Mary Lou Haas, Assistant Attorney General, Department
of Justice, Portland, Ore. 97201, for State of Oregon.
HAGGERTY, District Judge:
The United States filed
this action pursuant to 26 U.S.C. §§7401 and 7403 seeking judgment on
an outstanding federal tax assessment against defendants Harold and
Ellen Wilfley for the tax years 1976-81 and 1983. In relation to the
assessment, the government also seeks to foreclose tax liens on property
located in Mulino, Oregon by setting aside an alleged sham transfer of
that property by the Wilfleys to the Wilfleys' Health Food Trust
Organization ("Wilfley Trust"), an entity the government
claims is the alter ego of the Wilfleys. The government also seeks to
set aside two subsequent transfers of that property from the Wilfley
Trust to First National Trust Unincorporated ("First
National") and then from First National to Northwest Farm
Management Company, Unincorporated ("Northwest Farm
The government's complaint
alleges that the trustees of First National are defendants Merlin
Harris, Allen Hardy (dba Pacific North West Trust Company), James
Carlson and Fred Ortiz, and that the trustees of Northwest Farm
Management are defendants Harris and Hardy (dba Pacific North West Trust
Company). John Stuart Salter filed a notice of appearance claiming that
he is the trustee for Northwest Farm Management.
government dismissed Carlson from the action due to his death. By
opinion dated August 4, 1993, the government's motion to strike the
appearance of Hardy was granted on the basis that a trustee with no
beneficial interest in the trust could not appear pro se. By
order dated October 4, 1993, the government's motion to strike the
appearances of Harris and Ortiz was granted with respect to Harris on
the ground that he had improperly appeared pro se. With respect
to Ortiz, the motion was moot because he had resigned as trustee. Thus,
Salter is the only remaining trustee defendant. He is represented by
counsel in his capacity as trustee of Northwest Farm Management and he
is appearing pro se in his individual capacity.
This civil action was
consolidated with an adversary proceeding the Wilfleys initiated in the
United States Bankruptcy Court for the District of Oregon. In that
adversary proceeding, the Wilfleys sought a determination that the tax
liabilities at issue were discharged in bankruptcy and the tax
assessments themselves were made after the expiration of the applicable
statute of limitations.
The government filed a
Renewed Motion For Partial Summary Judgment. Oral argument was heard on
these matters. For the reasons that follow the government's Renewed
Motion For Partial Summary Judgment is granted.
By the instant motion, the
United States renews its previously-filed Motion For Partial Summary
Judgment and Amended Motion For Partial Summary Judgment, filed on March
19, 1993, and April 22, 1993, respectively. Briefly, the procedural
history is as follows: On April 27, 1993, Judge Marsh denied the
original and amended summary judgment motions as "premature"
due to defendant Hardy's pending motion to set aside the default entered
against him. Specifically, the April 27, 1993, order issued by Judge
Marsh stated as follows:
In light of deft Hardy's
pending motion to set aside default and the expressed desire of the
successor trustee of Northwest Farm Management to appear in this action,
pltf's motion for partial summary judgment and amended motion for
partial summary judgment are premature and are DENIED with the right to
reraise. Pltf may "reraise" its motion for partial summary
judgment and amended motion for partial summary judgment after the
resolution of deft Hardy's motion to set aside default.
On May 19, 1993, Judge
Marsh issued an order granting defendant Hardy's motion to set aside the
default entered against him. The resolution of defendant Hardy's motion
allowed the United States to reassert its request for summary judgment.
Accordingly, on August 6, 1993, the government filed its Renewed Motion
For Partial Summary Judgment, which simply incorporated the original and
amended summary judgment motions.
On November 3, 1993, the
court entered an order staying the entire action due to the medical
condition of Mrs. Wilfley. Based on the stay of proceedings, the court
struck the renewed summary judgment motion from the pending motions
inventory and indicated that the motion would be
"recalendared" when the stay was lifted.
On March 28, 1994, the
court lifted the stay of the proceedings. Simultaneously, the court
recalendared the government's renewed summary judgment motion by
establishing a briefing schedule and setting oral argument on May 23,
1994, along with defendant Salter's cross-motion for summary judgment.
The case was transferred to this court in late March 1994. On May 23,
1994, the court heard oral argument on the government's Renewed Motion
For Partial Summary Judgment and defendant Salter's Motion For Partial
After the hearing, the
parties submitted written responses to written questions that the court
had propounded at oral argument. Upon receipt of the responses on June
28, 1994, the court issued an order stating that the United States'
Renewed Motion For Summary Judgment was under advisement as of the date
of oral argument, May 23, 1994. Approximately one year later, on May 24,
1995, the government filed a Motion For Entry Of Order requesting that
the court rule on the renewed summary judgment motion that was pending.
Approximately 10 months later, the court entered an order denying
defendant Salter's partial summary judgment motion pending since May 23,
1994. The court concluded that the government was not time-barred from
its right to seek recovery of the Mulino property in satisfaction of the
outstanding tax liabilities. In addition, the court determined the
Wilfleys' bankruptcy discharge was not a bar to the government's right
With respect to the
government's renewed summary judgment motion the court stated:
An examination of the
court's internal docketing system reveals that the Renewed Motion is not
currently pending; rather, it appears to have been resolved. Thus, the
government's motion for entry of order is DENIED. However, to the extent
that the government believes the issues presented in its Renewed Motion
have not been adjudicated, it is hereby granted leave to reassert such
The government accurately
submits that the issues presented in its original and amended summary
judgment motions, as reasserted in its renewed summary judgment motion,
have never been adjudicated by the court.
Summary judgment is
appropriate if the court finds that there is no genuine issue of
material fact and the moving party is entitled to judgment as a matter
of law. Fed. R. Civ. P. 56(c). There is no genuine issue of material
fact where the nonmoving party fails "to establish the existence of
an element essential to that party's case, and on which that party will
bear the burden of proof at trial." Celotex Corp. v. Catrett,
477 U.S. 317, 323 (1986); Harper v. Wallingford, 877 F.2d 728,
731 (9th Cir. 1989).
All reasonable doubts as to
the existence of genuine issues of fact must be resolved against the
moving party. Hector v. Wiens, 533 F.2d 429, 432 (9th Cir. 1976).
The inferences drawn from underlying facts must be viewed in the light
most favorable to the party opposing the motion. Valandingham v.
Bojorquez, 866 F.2d 1135, 1137 (9th Cir. 1989). Where different
ultimate inferences can be drawn, summary judgment is inappropriate. Sankovich
v. Life Ins. Co., 638 F.2d 136, 140 (9th Cir. 1981).
In responding to a motion
for summary judgment, the nonmoving party must set forth specific facts
showing that there is a genuine issue for trial. Fed. R. Civ. P. 56(c).
"If he does not so respond, summary judgment, if appropriate, shall
be entered against him." Oltarzewski v. Ruggiero, 830 F.2d
136, 138-139 (9th Cir. 1987).
Whether the United States' complaint correctly identifies the amount of
taxes, penalties and interest for which the Wilfleys are liable and for
which the United States will be entitled to judgment if it prevails in
The government seeks a
determination that the Wilfleys are liable for the assessments of income
tax, interest and penalties for the tax years 1976-1981 and 1983 as set
forth in its complaint. In support of its motion for partial summary
judgment, the United States submitted exhibits that establish that the
taxes at issue, in fact, have been assessed. Specifically, the
government has presented a copy of Form 4340, Certificate of Assessments
and Payments, for Harold E. & Ellen J. Wilfley, for United States
Individual Income Tax Return for tax periods December 31, 1976 through
December 31, 1981, and December 31, 1983.
Certificates of Assessments
and Payments are an accepted method of establishing the fact that
assessments were made and that notices and demand for payment were sent.
Koff v. United States [93-2 USTC ¶50,520], 3 F.3d 1297, 1298
(9th Cir. 1993), cert. denied, 511 U.S. 1537 (1994); Hughes v.
United States [92-1 USTC ¶50,086], 953 F.2d 531, 535 (9th Cir.
1992). A properly certified assessment for unpaid federal taxes is
presumptively correct evidence of a taxpayer's liability. United
States v. Janis [76-2 USTC ¶16,229], 428 U.S. 433, 440-41 (1976); Koff
[93-2 USTC ¶50,520], 3 F.3d at 1298; Hughes [92-1 USTC ¶50,086],
953 F.2d at 540. If the taxpayer fails to meet his burden of showing the
assessments to be incorrect, summary judgment in favor of the Government
is appropriate upon submission of the Certificates of Assessments and
Payments. Adams v. United States, 358 F.2d 986, 994 (Ct.Cl.
1966). The government's submission of these documents adequately
evidences the Wilfleys' tax liability. Accordingly, the government has
satisfied its initial burden for summary judgment.
To defeat summary judgment,
the Wilfleys must present specific facts that show there is a genuine
issue for trial related to whether the assessments are correct. See
Fed. R. Civ. P. 56(e). Although the Wilfleys' are pro se
defendants in this matter, it is clear from their pleadings filed in
opposition to the government's motion for partial summary judgment that
they understand their burden on summary judgment. Indeed, the Wilfley's
set forth a detailed explanation of the mechanics for summary judgment,
including appropriate legal citations, the form of evidence that must be
submitted, the proper view of the evidence, the inferences to be drawn
and the shifting burdens. The court is satisfied that the Wilfleys'
understand their burden on summary judgment.
As a threshold matter, the
court will not consider the discredited arguments frequently used by tax
protestors and consistently rejected by the Ninth Circuit. All of the
Wilfleys challenges to this action based on constitutional grounds and
subject matter jurisdiction grounds are wholly without merit.
The Wilfleys vigorously
challenged the correctness of the assessments set forth in the
government's complaint. Although it is not entirely clear from their
pleadings, it appears the Wilfleys oppose summary judgment on this issue
for the following reasons: 1) the "Assessment Certificate"
they requested and received under the Freedom of Information Act
("FOIA") does not include their name, social security number,
the assessment amount, a proper signature, and is three years earlier
than the date of assessment relied on by the government; 2) they have
not received the mandated "Notice of Assessment and Demand"
for the taxes summary of assessments as required by 26 U.S.C. §6303;
and 3) the underlying computations supporting the government's
assessments are based upon an administrative, rather than judicial,
determination to disallow the Wilfley Trust.
The first contention of the
Wilfleys concerning the discrepancies in the documents they received
pursuant to their FOIA request is irrelevant. Here, the government
submitted a Form 4340, Certificate of Assessments and Payments, for both
of the Wilfleys. These forms set forth, for each of the taxable years:
their names and a social security number; the amounts of tax, penalties,
and interest assessed; the type of tax assessed; the period for which
the tax was assessed; the date on which the tax was assessed (the
"23C date"); and the dates various notices were issued. Thus,
the government submitted presumptive evidence that it properly assessed
the Wilfleys' taxes for the years in question.
Furthermore, because the
Forms set forth all the information that section 6203 requires, the
government submitted presumptive evidence that the Wilfleys were given
all the documentation they were entitled to under section 6203. See
Koff [93-2 USTC ¶50,520], 3 F.3d at 1298 (citing James v. United
States [92-2 USTC ¶50,389], 970 F.2d 750, 755 (10th Cir. 1992)
("notices [of assessment] also satisfy 26 U.S.C. §6203, the
requirement that the IRS provide a copy of the record of
assessment")). The Wilfleys do not present sufficient evidence to
rebut the presumption that the assessments were valid. Apart from their
own conclusions, the Wilfleys fail to come forward with either evidence
or legal authority to challenge the validity of the Form 4340
certificates submitted by the government. Accordingly, the Wilfleys
cannot avoid summary judgment solely on the ground that the Certificates
submitted by the government are not valid.
The Wilfleys next contend
that the Internal Revenue Service ("IRS") failed to properly
issue the notices of assessment and demand for payment pursuant to
section 6303. This contention also lacks merit. Section 6303 requires
that a notice of assessment must be sent to the taxpayer within 60 days
after making an assessment pursuant to section 6203. 26 U.S.C. §6303.
"Form 4340 is probative evidence in and of itself and, in the
absence of contrary evidence, [is] sufficient to establish that notices
and assessments were properly made." Hansen v. United States,
7 F.3d 137, 138 (9th Cir. 1993).
Here, Form 4340 supports
the government's contention that timely notices and demands were sent to
the Wilfleys for the tax years in question. The Wilfleys contend that
they never received the notices of assessment. They failed, however, to
present any specific facts showing that the IRS did not send the notices
and demands. Accordingly, the Wilfleys cannot avoid summary judgment
solely on the ground that they did not receive the notice of
Finally, the Wilfleys
insist that the underlying computations supporting the government's
assessments are based upon an erroneous determination to disallow the
Wilfley Trust. Specifically, the Wilfleys contend that the amounts of
the tax assessments are incorrect because the trust is a valid trust and
so trust income was improperly imputed to them. The Wilfleys fail to
support this defense to the tax assessments with competent evidence.
The government acknowledges
that the tax assessments against the Wilfleys are based, in part, upon
the IRS's finding that certain income allegedly earned by the Wilfley
Trust should be included in the Wilfleys' personal gross income on the
theory, inter alia, that such trust is invalid. In support of its
theory, the United States has supplemented the record with complete
copies of two Declarations of Trust, Exhibits T and U to Amendment to
Declaration of Mark E. Nebergall. Exhibit T is dated March 17, 1976, and
was recorded with the Sacramento, County, California recorder's office
on September 30, 1976. Exhibit U is dated May 15, 1976, approximately
four and one-half months prior to the recording of the March 17, 1976
Declaration, and is not recorded.
The parties dispute which
Declaration of Trust actually governs the Wilfley Trust. The court need
not resolve that issue because, regardless of which Declaration actually
governs, the Wilfley Trust is invalid as a matter of law. Various
treatises on the law of trusts define a trust as "a fiduciary
relationship with respect to property subjecting the person to whom the
title to property is held to equitable duties to deal with the property
for the benefit of another person, which arises as a result of a
manifestation of an intention to create it." See, e.g.,
Restatement 2d, Trusts §2; W. Fratcher, Scott on Trusts §2.3
(4th ed. 1987). See also Templeton v. Bockler, 73 Or. 494, 506,
144 P. 405, 409 (1914); accord Shipe v. Hillman, 206 Or. 556,
562, 292 P.2d 123, 126 (1955).
In Oregon, four elements
are necessary to create a valid trust: 1) property, 2) a trustee, 3)
identifiable beneficiaries, and 4) some manifestation of intent by the
grantor to create the relationship. See United States National Bank
of Portland v. Krautwashl, 221 Or. 609, 611, 351 P.2d 947, 948
(1960). The burden is on the Wilfleys to establish that each of the
requirements were satisfied with respect to the Wilfley Trust. The
Wilfleys simply do not meet that burden on summary judgment.
Relevant to this case is
the requirement that there exist identifiable beneficiaries before a
trust can be created. See, e.g., United States v. Spurgeon [88-2
USTC ¶9583], 861 F.2d 181, 183 (8th Cir. 1988); see generally Agan
v. United States Nat'l Bank, 227 Or. 619, 626, 363 P.2d 765, 769
(1961); Endicott v. Bratzel, 145 Or. 654, 658, 27 P.2d 883, 885
(1933); In re Johnson's Estate, 100 Or. 142, 156, 196 P. 385, 389
(1921). Neither of the Declarations of Trust for the Wilfley Trust
provides a means for identifying the Wilfley Trust's beneficiaries.
Although the Declarations of Trust provide the trustees with authority
to issue 100 interim certificates of beneficial interest, there is no
means for identifying the Trust's intended beneficiaries. The Wilfleys
point out that Exhibit U references an "Attachment C" that
lists the certificate holders. The Wilfleys, however, failed to submit
this document in opposition to the government's motion for summary
On the record before the
court, it is impossible to determine the persons to whom the
certificates may be issued. Indeed, there is no description of the class
of persons to whom the trustees may issue the certificates, and there is
no method by which the certificates will be issued to the class. Thus,
there are no identifiable beneficiaries and the Wilfley Trust is invalid
under Oregon law. See Agan, 227 Or. at 626, 363 P.2d at 769; Endicott,
145 Or. at 658, 27 P.2d at 885; In re Johnson's Estate, 100 Or.
at 156, 196 P. at 389. The court notes that the result would be the same
under California law. See Chang v. Redding Bank of Commerce, 29
Cal.App.4th 673, 684, 35 Cal.Rptr.2d 64, 70 (1994) ("A trust is
created by a manifestation of intention of the settlor to create a
trust, trust property, a lawful trust purpose, and an identifiable
As stated above, the
government presented presumptive evidence that the amount of the tax
assessments set forth in its complaint were correct. The burden shifted
to the Wilfleys to prove that the challenged assessments are improper.
They have not been able to carry their burden of rebutting the
presumption of correctness by presenting competent and relevant evidence
to establish that there is a material question concerning whether the
assessments were arbitrary or erroneous. See United States v.
Stonehill [83-1 USTC ¶9285], 702 F.2d 1288, 1293-94 (9th Cir.
1983), cert. denied, 465 U.S. 1079 (1984). Thus, summary judgment
is granted in favor of the government on the question of whether the
United States' complaint correctly identifies the amount of taxes,
penalties and interest for which the Wilfleys are liable and for which
the United States will be entitled to judgment if it prevails in this
Whether the deeds by which the Wilfleys purported to convey the real
property at issue are void, such that title to the property remains with
The government contends
that the deed by which the Wilfleys purported to convey the property at
issue is void because it fails to identify a valid grantee. The
government argues alternative theories for its contention that the deed
at issue in this case is void: 1) the deed purports to convey the
property to a trust, but a trust is legally incapable of holding title
to property; or 2) even if a trust were legally capable of holding title
to property, the trust to which the Wilfleys purported to transfer the
subject property is invalid. Because the court has determined that the
Wilfley Trust is invalid, it need not determine whether the Wilfley
Trust was legally capable of holding title to the property.
The deed by which the
Wilfleys purported to convey their property to the Wilfley Trust is void
because the Trust was invalid. As such, any subsequent conveyances of
the property by the Wilfley Trust must be declared void as well. Thus,
summary judgment is granted in favor of the government on the question
of whether the deeds by which the Wilfleys purported to convey the real
property at issue are void, such that title to the property remains with
Based on the foregoing, the
government's Renewed Motion For Partial Summary Judgment (doc. #428) is GRANTED.
The remaining issue for trial is whether the Wilfleys' tax liabilities
at issue are excepted from discharge pursuant to certain provisions of
the United States Bankruptcy Code. The 10-day trial is set to begin at
9:00 am on August 5, 1997, in Portland, Oregon.
IT IS SO ORDERED.
United States of America, Plaintiff-Appellee v.
Gerald J. Landsberger, Betty A. Landsberger, John Wilde, Eileen Lipari,
U.S. Court of Appeals, 9th Circuit, 98-15176, 98-15299, 98-15573,
2/12/99, Affirming a District Court decision, 97-2
Sec. 6321 ]
Property subject to lien: Trusts: Nominee or alter ego.--The IRS
was entitled to foreclose on residential property held by a trust that
qualified as delinquent taxpayers' alter ego. Tax liens on the property
were properly ordered enforced because the trust and the alleged
transfers of ownership to it were invalid.
Sec. 7402 ]
Property subject to lien: Trusts: Nominee or alter ego: Appeal:
Extension of time: Amended judgment: Jurisdiction.--A trial court
did not err in denying married taxpayers' motions to extend the period
of time in which they could appeal a foreclosure order on residential
property held by their alter ego trust or amend the judgment. Its
determination that it lacked subject matter jurisdiction over the
taxpayers was sustained.
Before: CANBY, O'SCANNLAIN
and WARDLAW, Circuit Judges. 1
This court has designated this opinion as NOT FOR PUBLICATION. Consult
the Rules of the Court before citing this case.
Gerald and Betty
Landsberger, John P. Wilde and Eileen Lipari (collectively
"Landsbergers") appeal pro se three orders of the
district court. We affirm the district court's decree of foreclosure
allowing enforcement of federal tax liens on the Landsbergers' property
and finding the tax liens valid, because the district court properly
concluded the subject trust and alleged transfers of ownership were
invalid since the trusts were alter egos for the Landsbergers. See
G.M. Leasing Corp. v. United States [77-1 USTC ¶9140], 429 U.S. 338
(1977); Towe Antique Ford Foundation v. I.R.S. [93-2 USTC ¶50,430],
999 F.2d 1387, 1391 (9th Cir. 1993); Hughes v. United States
[92-1 USTC ¶50,086], 953 F.2d 531, 537 (9th Cir. 1992).
The district court did not
err by denying the Landsbergers' motion to extend time to appeal the
district court's January 5, 1996 Order, and the district court did not
err by denying the Landsbergers' Fed. R. Civ. P. (60(b) motion to alter
or amend judgment for lack of subject matter jurisdiction over them.
Accordingly, the district
court's orders are
The panel unanimously finds this case suitable for decision without oral
argument. See Fed. R. App. P. 34(a).
This disposition is riot appropriate for publication and may not be
cited to or by the courts of this circuit except as may be provided by
9th Cir. R. 36-3.
United States of America, Plaintiff v. Gerald J.
Landsberger, et al., Defendants
District Court, Dist. Ariz., CIV 94-0883-PHX-SMM, 9/30/97
Sec. 6321 ]
Property subject to lien: Trusts: Nominee or alter ego: Economic
realty: Sham transactions.--The IRS was entitled to foreclose on
residential property that was held in a married couple's nominee or
alter ego trust. The nominee or alter ego theory applied because the
creation of the trust did not coincide with economic realty and the
trust was, in effect, a sham. The husband admitted that the trust was
set up as a shell for the purpose of keeping his property at arm's
length from potential creditors, including the IRS, and the undisputed
facts established that he maintained active and substantial control over
the trust. Since the trust was the nominee or alter ego of the couple,
the timing of its creation was irrelevant.
Sec. 6323 ]
Validity of lien: Priority over third-party interests: Bona fide
purchaser.--Pursuant to both federal and state (Arizona) law,
federal tax liens on residential property took priority over any
interest held by alleged bona fide purchasers who took title with full
knowledge of the tax liens.
MCNAMEE, District Judge:
On September 29, 1995, this
Court entered an Order holding that the United States' tax assessments
against Defendants Gerald and Betty Landsberger for the years of 1979,
1980, 1981 and 1982 could be reduced to judgment. Additionally, the
Court held that the United States could foreclose its tax liens on the
Landsberger's residential property related to the assessments made
against them for the years of 1979 and 1980. However, subsequent to the
entry of judgment, the United States moved to enter default judgment
against Defendants Nancy Fieldman and Jeffrey Fadden as trustees of the
trust that held the residential property. The Court denied the motion
for default judgment and order and decree of foreclosure with respect to
the property, and set discovery deadlines for this action to proceed
forward on the issue of foreclosure of the property.
Currently pending before
this Court is Plaintiff's Renewed Motion for Summary Judgment on a
different theory again seeking an Order that would allow the United
States to foreclose on the tax liens arising from the 1979 and 1980
income tax assessments. 1
The following facts are
undisputed. In October of 1961, Defendants Gerald and Betty Landsberger
took title to property at 1677 West County Road F in St. Paul, Minnesota
("St. Paul Property"), and lived in the property until March
of 1982. In January of 1981, the Landsbergers transferred the St. Paul
property to the G. J. Landsberger Family Trust 2-372 ("Trust
#2-372") for "$1.00 and other good and valuable
consideration"). See Deposition Transcripts Filed in Support
of the United States Renewed Motion for Summary Judgment, Deposition of
Gerald J. Landsberger ("Depo. G. Landsberger"), at p. 19 at
ll. 2-4, p. 23 at ll. 6-23, and Exh. 2. The St. Paul property was worth
in excess of $100,000 at the time of the transfer. See id. at p.
25, ll. 4-7. Gerald Landsberger was the trustee of Trust #2-372 and
directed the activities of the trust. See id. at p. 24, ll. 2-4,
and p. 3, ll. 6-20.
Mr. Landsberger has
maintained and espoused tax protester-type beliefs since the late
1970's. See id. at p. 20, ll. 1-15, p. 21, ll. 7-21, p. 22, ll.
8-17, p. 52, ll. 1-7, p. 53, ll. 7-23, and Exhs. 13-15; see also
United States v. Gerald Landsberger [82-1 USTC ¶9171], 534 F.Supp.
142 (D. Minn. 1981). Mr. Landsberger had many trusts set up in 1977, the
purpose of which was to keep himself an "arms length" from any
transaction related to the subjects of the trust, in order to protect
the properties from potential creditors including the IRS. See
Depo. of G. Landsberger, at p. 49, l. 9-p. 51, l. 25. Mr. Landsberger
did not at that time have any tax deficiency assessments against him. See
id. at p. 51, ll. 1-2.
Shortly after the transfer
of the St. Paul property to Trust #2-372, the trust sold the property to
an unrelated third party for a cash down payment of approximately
$37,000, plus monthly payments and assumption of the mortgage. See
id. at p. 29, ll. 23-25, p.30, ll. 1-20, and Exh. 3. After the sale
of the property, the proceeds and all future payments for the property
were transferred to Gerald Landsberger Investments, a Trust under Trust
#2-988 (Trust #2-988), with the beneficiary being Constitutional Trust
#1-988. Second Declaration of Gerald J. Landsberger ("Sec. Decl. G.
Landsberger"), at ¶4; see also, Depo. G. Landsberger, at p.
30, ll.21-25, p. 31, ll. 1-25, p. 32 ll. 1-25, and p. 34, ll. 6-18. Mr.
Landsberger was also the trustee of Trust #2-988, and directed the
trust's activities. See id. at p. 32, ll. 12-14, p. 33, ll.
21-25, p. 34, ll. 1-2 and 19-25, and p. 35, ll. 1-4.
Sometime in 1981 or 1982,
Trust #2-988 used the proceeds of the sale of the St. Paul property to
purchase the residential real property at 4502 Cortez in Phoenix
Arizona, also referred to as Lot No. 127, Village Fairways ("Cortez
property"). See id. at p. 34, ll. 6-18, and Exh. 4. The
Landsbergers resided at the Cortez property. See id. at p. 6, ll.
10-21; Deposition Transcripts Filed in Support of the United States
Renewed Motion for Summary Judgment, Deposition of Nancy (Landsberger)
Fieldman ("Depo. N. Fieldman"), at p. 6, ll. 11-24.
On or around November 21,
1984, Mr. Landsberger received a Notice of Deficiency from the IRS
pertaining to the tax years of 1979 and 1980. See Depo. G.
Landsberger, at p. 16, ll. 13-25, p. 17, ll. 1-17, and Exhs. 14 &
15. On January 4, 1985, Trust #2-988 transferred the Cortez property to
Esther, a Trust under Trust #2-1703 (the "Esther trust"). See
id. at p. 37, ll. 1-10, and Exh. 17; Sec. Decl. of G. Landsberger,
Nancy Fieldman, the
Landsberger's daughter, and Jeffrey Fadden were co-trustees of the
Esther trust. Depo. G. Landsberger, at p. 38, ll. 5-7. Fieldman never
had a communication with Fadden, and knew of him only by her father's
mention of him. See Depo. N. Fieldman, at p. 12, ll. 1-10.
Fieldman became a co-trustee of the Esther trust at the behest of her
father. See id. at p. 10, ll. 10-25.
In July of 1985, Fieldman
signed a "Joint Tenancy Deed" as trustee of the Esther trust
conveying the Cortez property to an unrelated third party. In June of
1986, the Esther trust used the proceeds of the Cortez property sale to
purchase the residential real property located at 11815 North 91st
Place, Scottsdale, Arizona ("91st Place"). Sec. Decl. G.
Landsberger, at ¶6; see also, Depo. N. Fieldman, at p. 17, ll.
23-25, p. 18, ll. 1-11, and Exh. 5. The Landsbergers then moved into the
91st Place property where they continue to reside today. See Sec.
Decl. G. Landsberger, at ¶5; Depo. G. Landsberger, at p. 5, ll. 18-25,
p. 6, ll. 1-2.
The Landsbergers do not pay
rent to live on the 91st Place property. See Depo. G.
Landsberger, at p. 56, ll. 21-23; Depo. J. Wilde, at p. 55, ll. 2-25,
and p. 56, ll. 18-24. The Landsbergers pay all the utilities and
maintenance costs of the property as they did with the Cortez property. See
Depo. G. Landsberger, at p. 56, ll. 24-25, and p. 57, ll. 1-10;
Deposition Transcripts Filed in Support of the United States Renewed
Motion for Summary Judgment, Deposition of John Wilde ("Depo. J.
Wilde"), at p. 56, ll. 1-20.
On June 16, 1988, Nancy
Fieldman signed her resignation as trustee of the Esther trust. See
Depo. N. Fieldman, at p. 29, ll. 2-10, and Exh. 27. She was replaced by
Jimmy C. Chisum. Sec. Decl. G. Landsberger, at ¶9.
On September 29, 1988, the
Arizona Tax Court upheld the deficiency determination for the tax years
of 1979 and 1980, and found Betty and Gerald Landsberger liable for
deficiencies of $13,554.00 for the taxable year of 1979 and $55,631.00
for the taxable year of 1980, with a fraud addition of $34,593.00. See
Court's Order of Sept. 29, 1995, at p. 3. On February 13, 1989, the IRS
assessed Gerald and Betty Landsberger's deficiency for 1979 and 1980,
plus interest, and sent a demand for payment to the Landsbergers. Id.
In November of 1995, the
title to the 91st Place property was transferred to John Wilde and
Eileen Lipari for "ten dollars and other valuable
considerations." See Depo. J. Wilde, at p. 10, ll. 3-9, p.
59, ll. 9-25, p. 62, ll. 17-21, and Exhs. 10 & 11. John Wilde is a
"very good friend" of Mr. Landsberger who also assists Mr.
Landsberger in this litigation although he is not a lawyer. See
Depo. J. Wilde, at p. 13, ll. 17-25, and p. 14, ll. 1-13. Mr. Wilde
decided that the property should be transferred to him, and his friend
Eileen Lipari, as a litigation tactic to so that they could join in this
action as defendants and proceed pro se as the owners of the property. See
id. at p. 59, l. 9-p. 60, l. 18. At the time of the transfer the
property was worth in excess of $100,000. See id. J. Wilde, at p.
65, ll. 12-18.
Around October of 1995, the
Arizona Tax Court ordered Mr. Landsberger incarcerated for failure to
comply with the court's order compelling him to comply with a subpoena
for tax records. Declaration of James A. Susa ("Susa Decl."),
at ¶3. In an attempt to comply with the subpoena and to have him
released from jail, in December of 1995, Mr. Landsberger's attorney
submitted a document to James M. Susa, an Assistant Attorney General for
the State of Arizona. Id. at ¶4. The document, signed under
penalty of perjury on, lists the 91st Place property under Real Estate
assets of Mr. Landsberger, and states that he is the one half owner of
the property. See id., Exh. A. 2
STANDARD OF REVIEW
A court must construe a pro
se litigant's pleadings and papers liberally. McGuckin v. Smith,
974 F.2d 1050, 1055 (9th Cir. 1992). Nevertheless, a pro se
litigant is held to the same legal standard in determining whether
summary judgment should be granted. See King v. Atiyeh, 814 F.2d
565, 567 (9th Cir. 1987). Where a motion to dismiss contains matters
outside the pleadings, a court must construe the motion as a motion for
summary judgment and give the parties "reasonable opportunity"
to present all material pertinent to a motion for summary judgment. Fed.
R. Civ. P. 12(b) (1995).
A court must grant summary
judgment if the pleadings and supporting documents, viewed in the light
most favorable to the nonmoving party, "show that there is no
genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c)
(1995); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23
(1986); Jesinger v. Nevada Federal Credit Union, 24 F.3d 1127,
1130 (9th Cir. 1994). Substantive law determines which facts are
material. Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986); see
also Jesinger, 24 F.3d at 1130. "Only disputes over facts that
might affect the outcome of the suit under the governing law will
properly preclude the entry of summary judgment." Anderson,
477 U.S. at 248. The dispute must also be genuine, that is, "the
evidence is such that a reasonable jury could return a verdict for the
nonmoving party." Id.; see also Jesinger, 24 F.3d at 1130.
A principal purpose of
summary judgment is "to isolate and dispose of factually
unsupported claims." Celotex, 477 U.S. at 323-24. Summary
judgment is appropriate against a party who "fails to make a
showing sufficient to establish the existence of an element essential to
that party's case, and on which that party will bear the burden of proof
at trial." Id. at 322; see also Citadel Holding Corp. v.
Roven, 26 F.3d 960, 964 (9th Cir. 1994). The moving party need not
disprove matters on which the opponent has the burden of proof at trial.
Celotex, 477 U.S. at 317. The party opposing summary judgment
"may not rest upon the mere allegations or denials of [the party's]
pleadings, but . . . must set forth specific facts showing that there is
a genuine issue for trial." Fed. R. Civ. P. 56(e); see also
Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 585-88
(1986); Brinson v. Linda Rose Joint Venture, 53 F.3d 1044, 1049
(9th Cir. 1995).
Plaintiffs are attempting
to foreclose on the tax lien on the 91st Place property for the tax
assessments made on Defendants for the tax years of 1979 and 1980
reduced to judgment on February 13, 1989. Section 6321 of Title 26 of
the United States Code reads:
If any person liable to pay
any tax neglects or refuses to pay the same after demand, the amount
(including any interest, additional amount, addition to tax, or
assessable penalty, together with any costs that may accrue in addition
thereto) shall be a lien in favor of the United States upon all property
and rights to property, whether real of personal, belonging to such
U.S.C. §6321. Defendants in this action allege that the 91st Place
property belonged to another since before the time of the assessment
through today, and that accordingly, the government cannot foreclose on
the lien on the property.
The United States seeks to
foreclose on the tax lien on the 91st Place property under three
alternative theories. The government first argues that the Esther Trust
was the nominee of the Landsbergers who held equitable title to the
property on the date that the tax assessments were made. Accordingly,
under 26 U.S.C. §6321, the government may foreclose on the property.
Alternatively, Plaintiff argues that the transfer of the Cortez property
from Trust #2-998 was fraudulent, and should be set aside under the
Arizona Uniform Fraudulent Transfer Act, A.R.S. §44-1001, et seq.
Finally, Plaintiff argues that any interest held in the property by John
Wilde and Eileen Lipari is inferior to the Federal tax liens under 26
U.S.C. §6323(a) and Arizona property law.
Defendant makes three
counter arguments. First, Defendant argues that Plaintiff impermissibly
amends its Complaint in this action without leave of Court by including
its claim under the Arizona Fraudulent Transfer Act. Secondly, Plaintiff
argues that under Arizona law the "nominee/alter ego theory"
can only arise against a corporation. In any event, the theory is not
available where the transfer took place before the tax assessment.
Finally, Plaintiff argues that assuming arguendo that either the
nominee/alter ego theory or the fraudulent transfer theory can be
raised, genuine issues of material fact exist precluding summary
Nominee/Alter Ego Theory
"nominee/alter" ego theory is clearly viable in this instance
even though the assets are held by a trust, and not a corporation. See
e.g., F.P.P. Enterprises and D & S Trust v. United States [87-2
USTC ¶9536], 830 F.2d 114 (8th Cir. 1987); Neely v. United States
[85-2 USTC ¶9791], 775 F.2d 1092 (9th Cir. 1985). The underlying
principle is the "sham" nature of the arrangement. See
F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.2d at 117 ("A
transaction will not be given effect according to its form if that form
does not coincide with the economic reality and is, in effect, a
sham."); Neely [85-2 USTC ¶9791], 775 F.2d at 1094 (sham
transaction will not be recognized for tax purposes).
In addition, there is no
requisite that the nominee/alter ego arrangement come into existence
after the assessment of the tax liability. If the Court finds that the
Esther trust was the alter ego of the Defendant existing at the time of
the assessment simply to avoid creditors, then the timing of its
creation has no import. See G.M. Leasing Corp. v. United States
[77-1 USTC ¶9140], 97 S.Ct. 619, 627 (1977) (under §6321 assets of
alter ego are properly levied as assets to satisfy tax liability of tax
payer) (F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.2d at 118
(property held by alter ego trusts not held by "separate
persons" apart from taxpayer, and therefore, my be levied). The
timing of the trust arrangement, may however, be a factor for the Court
to consider in determining whether the trust is actually a nominee or
"Property held in the
name of an entity which is the alter ego of the taxpayer may be levied
on to satisfy the tax liabilities of the taxpayer." F.P.P.
Enterprises [87-2 USTC ¶9536], 830 F.3d at 118; See G.M. Leasing
Corp. v. United States [77-1 USTC ¶9140], 97 S.Ct. 619, 627-28
(1977); Shades Ridge Holding Co, Inc. v. United States [89-2 USTC
¶9472], 888 F.2d 725, 728 (11th Cir. 1989). The Court may find that an
entity is the alter ego of the taxpayer where:
(1) the taxpayer treats the
property as it belongs to him, See F.P.P. Enterprises [87-2 USTC
¶9536], 830 F.2d at 116, Shades Ridge Holding Co., Inc. [89-2
USTC ¶9472], 888 F.2d at 729;
(2) minimal or no
consideration is paid by the entity in consideration for the property, see
e.g., F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.2d at 116;
(3) the taxpayer has
expressed the intent to shelter the asset via the trust mechanisms, see,
F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.2d at 116,
(4) the taxpayer maintains
"active" or "substantial" control over the
operations and decisions of the property, see Valley Finance, Inc. v.
United States [80-2 USTC ¶9554], 629 F.2d 162, 172 (1980), Shades
Ridge Holding Co. [89-2 USTC ¶9472], 888 F.2d at 728 (11th Cir.
(5) a family or close
relationship exists between the taxpayer and the holding entity, see
Shades Ridge Holding Co. [89-2 USTC ¶9472], 888 F.2d at 729.
There is substantial
evidence in this action that the Esther trust, as well as the many other
Landsberger trusts, existed as the alter ego or nominee of Mr.
Landsberger. He specifically states that the trusts were set up as
"shells" for the purpose of keeping his property at an
"arms length" to shelter them from potential creditors
including the IRS. Nor has he attempted to argue any other reason for
the existence of his trusts. Under these facts alone it is difficult to
see how any court could find a question of fact with respect to the
alter ego/nominee status of the Landsbergers' trusts.
Further, the Landsbergers
continued to treat the property as their own at all times. See F.P.P.
Enterprises [87-2 USTC ¶9536], 830 F.2d at 117. Despite living in
the 91st Place property for over 10 years, they never paid rent, and
they paid all the utilities, upkeep, and maintenance costs of the
property. See Depo. G. Landsberger, at p. 56.
The main issue Defendants
raise as a genuine issue of material fact is in relation to the
contradicting testimony of Mr. Landsberger and his daughter, Nancy
Fieldman, regarding her role as a trustee. Fieldman testifies that she
became trustee at the request of her father, that she felt obligated to
do so because she was living in their home, that she believed he chose
her because she was family which allowed him to maintain control over
the trust. Mr. Landsberger does not dispute any of these facts.
However, in addition,
Fieldman testified that she performed no duties as trustee other than
signing her name as trustee wherever and whenever her father requested,
that she never had control over the trust or made any decisions
regarding the transactions of the trust, that her father made all
decisions regarding the trust including the decision to sell the Cortez
property and purchase the 91st Place property. See Depo.
Fieldman, at p. 12, ll. 11-18, pp. 13-15, pp. 17-25. She testifies that
she never had any checks for the Trust account, and that she never saw
nor had control over the $100,000 used by the trust as a downpayment on
the 91st Place property. Id. at 23-25. Additionally, she
testifies that Mr. Landsberger signed her signature on at least two
documents conducting trust business without her knowledge or permission.
See Depo. p. 27, ll. 23-25; p. 28, ll. 11-17; Exhs. 24 & 25.
Mr. Landsberger admits that
he signed his daughter's signature on several occasions, but testifies
that he did so to help her out and with her permission. He testifies
that because she was inexperienced in her knowledge and duties as
trustee, that she relied heavily on his advise and guidance as she
carried out her duties. He also testifies that he drafted the majority
of the trust documents in the record. Ultimately, however, Mr.
Landsberger states that his daughter had control over the trust and
could do whatever she wanted. Depo. G. Landsberger, at p. 43.
With respect to the Cortez
property, Mr. Landsberger testifies that he had nothing to do with the
transfer of the property, and that Mr. Fadden and his daughter, as
co-trustees handled the transfer. The deed transferring the Cortez
property to the third party, however, bears only the signature of Nancy
Landsberger (Fieldman). Mrs. Fieldman testifies that she never had a
conversation with Mr. Fadden. Plaintiff provides no evidence to support
Mr. Fadden's involvement or otherwise controvert Mrs. Fieldman's
statements that she never spoke with Mr. Fadden. From the evidence, the
Court must conclude the no reasonable jury could find that Mr. Fadden
was involved in the transaction where the relevant trust transaction
documents bear only the signature of Nancy Landsberger as co-trustee,
and avers that she never had a conversation with Mr. Fadden.
Nonetheless, accepting as
true Mr. Landsberger's testimony, the remaining undisputed facts show
that he maintained active and substantial control over the
trust through his involvement. Moreover, the degree of control Mr.
Landsberger maintained is not dispositive. There are a multitude of
undisputed facts in this litigation supporting the conclusion that the
Esther trust, and others, were alter egos of Mr. Landsberger. Mr.
Landsberger's own admission as to his purpose and intent for creating
and operating the trust is the most probative of all. Nowhere does Mr.
Landsberger provide controverting evidence establishing any legitimate
purpose for the trust. Accordingly, Plaintiff is entitled to summary
judgment in its favor on the theory that the Esther trust was a mere
nominee/alter ego of the Landsbergers at the time the tax was assessed
in February of 1989.
John Wilde and Eileen Lipari's Interest
The Internal Revenue Code
provides that a federal tax lien takes priority over an interest held by
an alleged bonafide purchaser when the purchaser acquired the property
with notice of the lien. 26 U.S.C. §6323(a). Arizona law on judgments
is consistent with this principle. See Warren v. Whithall Income
Fund, 823 P.2d 689 (Ariz. App. 1991); Hatch Companies contracting
Inc. v. Arizona Bank, 826 P.2d 1179 (Ariz. App. 1991).
The property was conveyed
to Wilde and Lipari for "ten dollars and other valuable
considerations." See Depo. J. Wilde, at p. 10, ll. 3-9, p.
59, ll. 9-25, p. 62, ll. 17-21, and Exhs. 10 & 11. It is undisputed
that Mr. Wilde and Ms. Lipari took title to the 91st Place property with
full knowledge that the property was subject to the federal tax liens. See
Depo. J. Wilde, at p. 59, l. 9-p. 60, l. 18. Accordingly, any interest
these third parties may have in the property is clearly subordinate.
There is no genuine issue
of material fact in dispute that precludes summary judgment in
Plaintiff's favor on the issue of the trust functioning as the alter ego
or nominee of Gerald Landsberger. In addition, there is no dispute that
any interest in the 91st Place property the current title holders may
have is subordinate to the federal tax liens. 3
Accordingly, Plaintiff is entitled summary judgment as a matter of law,
and may foreclose on the 91st Place property accordingly. For the
IT IS THEREFORE ORDERED
Defendant's Renewed Motion for Summary Judgment filed on September 3,
1996 is GRANTED. [doc. #106].
IT IS FURTHER ORDERED
the United States shall lodge and serve a copy upon all Defendants, a
Proposed Order and Decree of Foreclosure pursuant to 28 U.S.C. §2001 no
later than October 31, 1997.
IT IS FURTHER ORDERED
the Clerk of the Court shall MAIL copies of the Order to each
Defendant and to all counsel of record.
This motion was stayed pending resolution of a series of motions that
may ultimately have affected its resolution. See Order of August
19, 1997. The previous issues now resolved, the Court lifts the stay as
to Defendant's renewed motion for summary judgment.
Mr. Landsberger disputes the accuracy of this document on the grounds
that the information was provided by his wife, and that she does not
understand how the Trusts operate. See Depo. G. Landsberger, at
Because it is unnecessary to the resolution of this action, the Court
declines to determine the remaining issues raised by the parties
United States of America, Plaintiff v. Neil Nirelli
and Christine Nirelli, Defendants
District Court, West. Dist. N.Y., 92-CV-563C, 9/16/97
Sec. 6321 ]
Lien for taxes: Real property: Fraudulent conveyances: Inadequate
consideration: Intent to defraud creditors.--A husband's transfer of
his interest in their house to his wife was set aside because the
transaction was a fraudulent conveyance under state (New York) law. The
husband was insolvent at the time of the transfer, and the most credible
testimony indicated that he simply gave her the interest so that her
father would lend her money to stave off foreclosure by his creditors.
An alleged oral agreement in which the wife agreed to pay outstanding
tax and mortgage liabilities and to forgive her husband's failure to pay
child support in consideration for the transfer was not supported by any
documentary evidence, and the deed stated that no consideration other
than one dollar was given. The fact that there was no appraisal of the
parties' assets and liabilities in the transaction was a further
indication that the oral agreement did not occur.
Philip J. Berkowitz,
Department of Justice, Washington, D.C. 20530, for plaintiff. Joseph W.
Keefe, 1720 Liberty Bldg., Buffalo, N.Y., for Neil Nirelli, Sabatino
Santarpia, Feuerstein & Santarpia, 17 St. Louis Place, Buffalo,
N.Y., for Christine Nirelli.
CURTIN, District Judge:
In August 1992, the
plaintiff United States instituted this action to (1) reduce to judgment
the outstanding federal tax liabilities of defendant Neil Nirelli, (2)
set aside as fraudulent the transfer by Neil Nirelli to his ex-wife and
co-defendant Christine Nirelli of his interest in their home, (3) have
Neil Nirelli declared the true owner of that interest, (4) foreclose the
federal tax liens on Neil Nirelli's interest in the property, and (5)
have the court order a judicial sale of the home and the distribution of
the proceeds pursuant to court order. Item 16.
At this stage, the
government seeks to set aside as a fraudulent conveyance the transfer of
defendant Neil Nirelli's interest in the house.
Defendant Neil Nirelli was
assessed a penalty pursuant to 26 U.S.C. §6672 (the Internal Revenue
Code) as a responsible person who willfully failed to withhold,
truthfully account for, or pay over to the United States withheld income
and FICA taxes of the employees of Empire State Tire & Automotive
Supplies, Inc. ("Empire") for several periods ending before
January 1, 1986. Notice of the assessment and demand for payment was
given to defendant. As of May 17, 1995, with interest accrued through
that date, the IRS claimed defendant owed the United States $29,284.96.
Item 16, p.2.
Neil and Christine Nirelli,
husband and wife, purchased a house at 145 Caesar Boulevard, Amherst,
New York in July 1975. They lived in the house with their two daughters.
On March 28, 1986, after accruing the above tax liabilities, but before
the couple divorced in 1992, defendant transferred his ownership
interest in the residence to his ex-wife for the stated consideration of
one dollar. Item 16, p.3.
The government states that
as of the date of transfer, defendant was already indebted to the United
States for a 100 percent penalty for the withholding taxes of Empire,
for periods during 1983, 1984, and 1985. By June 2, 1986, the government
claims his assessed liability for taxes alone was $16,599.35. Item 16,
In a deposition conducted
on May 14, 1993, defendant testified that at the time of the transfer,
he owned no property other than the house. Item 17, Exh. C., p.35.
Christine Nirelli, defendant's wife, testified that in addition to the
residence, she and her husband owned no property, except possibly two
ten-year-old cars. Item 17, Exh. D, p.24. Consequently, this court held,
on the government's motion for summary judgment, that Neil Nirelli was
insolvent as a matter of law at the time of the transfer.
Neil Nirelli entered into
an installment agreement with the government to satisfy his outstanding
tax liability. The Form 433-D agreement was signed by defendant Neil
Nirelli on November 18, 1991. Item 19, Exh. 5. The agreement provided
for monthly payments of $200.00 until the alleged debt is satisfied. The
agreement also provided that "1992 and future years taxes [are] to
be paid in full via estimated tax payments as required by law," and
that "[i]f the Terms or Conditions of this Installment Agreement
are not met, it will be terminated and the entire tax liability may be
collected by levy on income, bank accounts, or any other assets, or by
seizure of property." Defendant defaulted on the installment
agreement by failing to timely pay his personal income taxes in 1991,
1992, 1993, and 1994. Item 22, Exh. I, ¶¶4, 5, 6.
The IRS may unilaterally
terminate, alter or modify the installment agreement upon default by the
taxpayer. Treas. Reg. §301.6159-1(c)(2). In addition, a Form 433-D
installment agreement, which is the form signed by the defendant, is not
a closing agreement and does not represent the IRS's final agreement
concerning the tax payer's tax liability. Pearson v. Commissioner
[CCH Dec. 42,064(M)], 49 T.C.M. 1391, T.C. Memo 1985-211 (1985).
Of the $9,359.27 defendant
has paid in installments, $3,116.50 was applied to the penalty
assessment against Empire's tax liability; the balance of the payments,
$6,242.77, were applied to defendant's personal tax liabilities.
Accounting for the installment payments made by the defendant, he
continued to owe the IRS a total of $29,284.96 in outstanding federal
tax liabilities, as of the government's last submission. Item 16, p.1.
A bench trial was held
before this court on July 29 and August 19, 1996, on the issue of
whether the transfer of the house was a fraudulent conveyance under New
York State law. Both parties submitted proposed findings of fact and
conclusions of law. In an order dated February 18, 1997, the court
stated that defendants' submissions were inadequate and did not comport
with the order of the court. The court granted defendants leave to file
further submissions, but defendants filed nothing. The court therefore
considers the matter fully submitted.
The transfer of the house was a fraudulent conveyance.
Section 273 of New York
Debtor and Creditor Law states:
conveyance made and every obligation incurred by a person who is or will
be thereby rendered insolvent is fraudulent as to creditors without
regard to his actual intent if the conveyance is made or the obligation
is incurred without a fair consideration.
are three elements to a fraudulent conveyance claim. The transfer must
be (1) a conveyance within the meaning of the Debtor and Creditor Law;
(2) made by a person who is or will thereby be rendered insolvent, and
(3) made without consideration. Only the third point is at issue here.
Although the burden is
generally on the government to prove that a conveyance is without
consideration, that burden may be shifted "where the evidentiary
facts as to the nature and value of the consideration are within the
transferee's control, [in such cases] the burden of coming forward with
evidence on the fairness of the consideration shifts to the
transferee." ACLI Government Securities, Inc., 653 F. Supp.
1388, at 1391 (S.D.N.Y. 1987), aff'd, 842 F.2d 1287 (2d Cir.
1988). The court noted in an earlier order that the defendants have
never contested this shifted burden.
The transfer to an ex-wife
by a husband of all of his interest in marital property as payment for
child support is not a fraud on creditors, as it is supported by valid
consideration. First Federal Sav. and Loan Ass'n of Rochester v.
Kasmer, 528 N.Y.S.2d 216 (N.Y.A.D. 3d Dep't 1988). In addition,
discharge of antecedent debt is fair consideration for a conveyance even
though the debt arises out of the husband's obligation of support. Vinlis
Const. Co. v. Roreck, 325 N.Y.S.2d 457 (N.Y. Supreme Court 1971), aff'd,
351 N.Y.S.2d 648, appeal dismissed in part. denied in part, 361
N.Y.S.2d 1026, appeal dismissed in part, denied in part, 361
N.Y.S.2d 645. Finally, when a deed specifies that the property was
transferred for nominal consideration, it is proper to show by separate
evidence what the actual consideration was. Medical College
Laboratory v. New York University, 178 N.Y. 153, 70 N.E. 467 (1904).
Defendant Neil Nirelli
testified at trial that between 1982 and 1986, he failed to meet any of
his financial responsibilities to his family. July 29 Tr. p. 41. He
stated that at the time he abused drugs and alcohol, and that
consequently he was not paying the mortgage or taxes on the family home
and was paying utility bills only sporadically when service was about to
be cut off. July 29 Tr. pp. 41-42.
On June 13, 1985, Neil
Nirelli met with IRS agents to discuss the tax liability. He testified
that it was at this meeting that he first understood that he might be
personally liable for the tax in question. July 29 Tr., p. 46.
By October 1985, over
$6,758.00 was due in back taxes on the property. Neil Nirelli stated
that this debt was paid by Christine Nirelli from money given to her by
her father and brother. Christine's father also paid past due mortgage
payments. July 29 Tr., pp. 60-61.
Neil Nirelli further
testified that at that time his financial straits, coupled with criminal
charges for disorderly conduct, caused him to realize that his
"life was at the bottom." July 29 Tr., p. 63. At the same
time, he testified that his marriage was over. Id.
On March 28, 1986, Neil
Nirelli recorded an indenture for the transfer of the property to his
wife, Christine Nirelli. This deed was recorded on April 15, 1986.
Plaintiffs Ex. 2; July 29 Tr., p. 33. At the time of the transfer, Neil
and Christine were still married. According to the indenture, Neil
transferred his interest to Christine for one dollar. Ex. 2.
Although he stated that he
entered preliminary consultation with several attorneys concerning his
tax problems and the transfer, none of these attorneys ever suggested
that he put the terms of the agreement in writing. July 29 Tr., p. 77.
At the time of the transfer, there was no court order of support, nor
was there a support agreement. July 29 Tr., pp.63-64,
Neither party had the
property appraised prior to the transfer, and neither knew the precise
value of the property, or the precise value of Neil's interest. July 29
Tr., p. 40. When both Neil and Christine were asked at their respective
depositions if Neil was given anything of value in exchange for his
interest in the property, both answered that he had not. Plaintiffs Ex.
14, p.33; Plaintiffs Ex. 15, p.21.
Christine Nirelli testified
that when the couple divorced in 1992, Neil Nirelli was ordered to pay
her $500 per month in child support and maintenance. In addition, she
testified that she took less than the amount to which she was legally
entitled in order to keep the house. July 29 Tr., p. 29.
Alan Feuerstein, an
attorney who represented the Nirellis on various matters, prepared the
deed that transferred the interest to Christine. He testified that he
stated that the consideration was one dollar because "[t]here was
no consideration that was being passed from Christine Nirelli to Neil
Nirelli at that point." August 19 Tr. p. 12. Feuerstein then
testified that by no consideration, he meant no "actual
dollars." Id. at 13. Feuerstein also testified that he never
prepared any document that showed that Mr. Nirelli was no longer
obligated to pay Mrs. Nirelli the hypothetical debt for past support
that allegedly formed the true consideration for the transaction. August
19 Tr., p. 25.
The government argues that
the parties entered into the transfer agreement because Christine
Nirelli's family told her that they would not lend her the money to save
the house from the government as long as her husband was the co-owner.
Consequently, according to the government, Neil Nirelli received no
consideration for the transfer.
The Nirellis argue that
Christine Nirelli demanded that Neil Nirelli "sign over his
undivided one half interest in the residence ... and in turn she would
not require him to pay the $10,858.88 needed to get the home out of tax
and mortgage foreclosure. Additionally, she agreed to forgive his
failure to pay any and all child support for the four (4) years
prior." Item 39, p. 2.
The evidence supports the
government's argument. First, although Neil was represented by counsel
at the time of the transfer, there is no record of a release of
antecedent serving as consideration. The only record is that the
consideration was "one dollar and no more." Neil, Christine,
and attorney Alan Feuerstein all first said that nothing of value was
given by Neil for the transfer. Each then said they meant that no money
was exchanged. The court has noted that such an oversight is perhaps
understandable in the case of Neil and Christine, though it is less
understandable in the case of their attorney. In any event, had the
release been the actual consideration, it is impossible to believe that
no one would have thought of and mentioned it.
It is also significant that
neither Christine nor Neil ever had the property appraised or had any
detailed idea of the amount of Neil's debt to Christine. The court
acknowledges that the transaction was an informal one, concluded at a
difficult time in their lives. But it is difficult to believe that they
would not have made some rudimentary effort to figure out what Neil was
giving and what Christine was getting.
According to Neil Nirelli's
testimony at trial, he and Christine "entered into an oral
agreement that [they] both realized the marriage was over, and that her
family was willing to come up with the taxes and the mortgage, and that
at that point she wouldn't be coming after [him] legally for support and
maintenance to her for that period," on the condition that he turn
his interest in the house over to her. July 29 Tr., pp. 65, 66.
More credible was Christine
Nirelli's testimony that the transfer was required because she told Neil
that there was "absolutely no way that [her] father would give any
more money to this house unless it was fully in [her] name." July
29 Tr. pp. 98-99. Christine Nirelli also testified that the purpose of
the transfer was to protect the house from Neil Nirelli's creditors.
July 29 Tr. pp. 101-102. In addition, she testified that prior to the
transfer she said to her husband: "[I]f you really want to make an
effort [to reconcile], let's get the house transferred into my name and
I'll go to my father to get the money to stop the foreclosure so our
girls can live comfortably." July 29 Tr., pp. 116-17.
Examining all the testimony
and exhibits, the Nirellis failed to bear the burden of persuading the
court that the transfer was made for the consideration alleged. There
was no documentary evidence of such consideration, and the deed actually
states that no consideration other than one dollar was given. There was
no appraisal of the parties' assets and liabilities in the alleged
transaction. And the most credible testimony supports the conclusion
that Neil Nirelli simply gave his interest in the house to Christine so
that her father would lend or give her the money to stave off
foreclosure. Such a conveyance, when made by an insolvent creditor, is a
fraudulent transaction under New York law.
For the foregoing reasons,
the court finds that the transfer of defendant Neil Nirelli's interest
in the property at 145 Caesar Boulevard, Amherst, New York was a
fraudulent conveyance as defined by section 273 of the New York Debtor
& Creditor Law. The transfer is therefore set aside, and Neil
Nirelli is found to be the owner of the transferred interest.
A telephone conference will
be held on September 29, 1997, at 3:30 p.m. Buffalo counsel shall attend
United States of America, Plaintiff-Appellee v.
Thomas P. Sheridan and Diane M. Sheridan, Defendants-Appellants
U.S. Court of Appeals, 7th Circuit, 96-3804, 8/21/97, Affirming an
unreported District Court decision
Sec. 6321 ]
Tax liens: Fraudulent conveyance.--Under state (Illinois) law, a
husband's transfer of his interest in his home to his wife was a
fraudulent conveyance. The amount paid by the wife for the interest was
inadequate consideration, and the government was actively seeking to
collect the back taxes owed by the husband at the time he sold his
interest in the home. Moreover, following the transfer, the husband
retained insufficient property to satisfy his tax obligations.
Sec. 7402 and Fed. R. App. P. 38 ]
Constitutional arguments: Seventh Amendment: Right to a jury trial:
Summary judgment: Frivolous appeal: Sanctions: Default judgment:
Sufficiency of complaint.--Tax liabilities of married taxpayers who
failed to file income tax returns for several years were not eliminated
when the lower court vacated an earlier default judgment in favor of the
government. The vacation was not a judgment in favor of the taxpayers.
Furthermore, the lower court's subsequent grant of summary judgment in
favor of the government did not deprive the taxpayers of their Seventh
Amendment right to a jury trial and was properly granted. Even assuming
that the government misinformed the taxpayers as to the dates of status
hearings and failed to serve them with discovery requests, as alleged by
the taxpayers, they failed to allege that they suffered any prejudice
from those actions. Moreover the taxpayers' appeal was deemed frivolous.
Therefore, absent a showing by the taxpayers that they should not be
sanctioned, the court of appeals indicated that sanctions will be
Before: CUMMINGS, BAUER,
and WOOD, Circuit Judges.
This court has designated this opinion as NOT FOR PUBLICATION. Consult
the Rules of the Court before citing this case.
Thomas Sheridan decided
that federal income taxes are voluntary, and so, beginning in 1979, he
stopped filing complete federal tax returns or paying income taxes. The
IRS made annual tax and penalty assessments against Sheridan from 1981
through 1993. Sheridan refused to pay the assessments, and in March 1995
the United States commenced this civil action against him to reduce to a
judgment more than $230,000 in taxes and penalties that he owed. (As of
October 1996, Sheridan's debt had increased to more than $250,000.) The
government also named as a defendant Sheridan's wife, Diane, and sought
a judgment setting aside as fraudulent Sheridan's 1985 conveyance of his
interest in his house to Diane for $2.00. Finally, the government sought
the foreclosure of various tax liens on Sheridan's house and its
After this suit was
commenced, the Sheridans ignored the government's requests for
discovery, though the Sheridans claim that the government did not
properly serve various discovery requests upon them. In any case, the
government moved for an order compelling the Sheridans to respond to its
discovery requests. The Sheridans still refused to cooperate with
discovery, and the government moved for and was granted a default
judgment. The court later vacated the default judgment, apparently
either because the Sheridans had begun to cooperate with discovery, or
because they had agreed to do so in the future.
Discovery proceeded, the
government moved for summary judgment, and the Sheridans responded. In
September 1996, the district court granted summary judgment in favor of
the United States. The court entered judgment against Mr. Sheridan for
the amount of $259,642.96. The court ruled that Mr. Sheridan's purported
transfer of his interest in his home to his wife was fraudulent under
state law, and that Mr. Sheridan therefore retained his interest in the
property. Finally, the court ordered the foreclosure of the tax liens
and the sale of the house. This appeal followed.
The Sheridans' appellate
brief consists largely of personal attacks and accusations against the
district court judge and the government attorneys who litigated this
case before the district court and this court. Such ad hominem
attacks are wholly inappropriate and completely unfounded.
Beside personal attacks,
the Sheridans' appellate brief contains only baseless factual assertions
and erroneous legal conclusions; it is devoid of any citations to
authorities, statutes or parts of the record relied upon. See
Fed. R. App. P. 28(a)(6). Accordingly, they have failed to preserve any
argument for appellate review. See Gagan v. American Cablevision,
Inc., 77 F.3d 951, 965 (7th Cir. 1996) (failure to cite any factual
or legal basis for an argument waives it); Bratton v. Roadway Package
Sys. Inc., 77 F.3d 168, 173 n.1 (7th Cir. 1996) (argument that is
not developed in any meaningful way is waived); Freeman United Coal
Mining Co. v. Office of Workers' Compensation Programs, Benefits Review
Bd., 957 F.2d 302, 305 (7th Cir. 1992) ("[W]e have no
obligation to consider an issue that is merely raised on appeal, but not
developed in a party's brief"); United States v. Haddon, 927
F.2d 942, 956 (7th Cir. 1991) ("A skeletal 'argument', really
nothing more than an assertion, does not preserve a claim [for appellate
Even if we were to consider
the Sheridans' arguments, however, they are utterly meritless. Their
principal argument is that the district court terminated the case in
their favor and eliminated any underlying debt they owed to the United
States when it vacated the default judgment it had previously entered
against them. According to the Sheridans, "[w]hen the 'so called'
judgment was vacated[,] so was the so called or assumed debt to the
United States. [The government] never legally re-opened the case. . .
." This assertion is simply wrong. The district court's vacation of
the default judgment against the Sheridans was not a judgment in
their favor. Rather, the vacation merely relieved them from the judgment
that had been entered against them, see Fed. R. Civ. P. 55(c),
60(b), and afterward, the case properly proceeded. See McCall-Bey v.
Franzen, 777 F.2d 1178, 1186 (7th Cir. 1985) (effect of vacation of
default judgment is to restore case to trial calendar); see also
Thompson v. American Home Assurance Co., 95 F.3d 429, 434 (6th Cir.
1996) (same); Civic Center Square Inc. v. Ford (In re Roxford
Foods Inc.), 12 F.3d 875, 881 (9th Cir. 1993) (same); Joseph v.
Office of Consulate General of Nigeria, 830 F.2d 1018, 1028 (9th
Cir. 1987) (same), cert. denied, 485 U.S. 905 (1988). Thus, the
government did not need to "re-open" the case because it was
The Sheridans next argue
that the district court denied them their Seventh Amendment right to a
jury trial when it granted summary judgment in favor of the government.
However, it has long been held that resolution of a case on summary
judgment does not violate the Seventh Amendment. Fidelity &
Deposit Co. v. United States, 187 U.S. 315, 319-21 (1902); United
States v. Strangland, 242 F.2d 843, 848 (7th Cir. 1957). The
Sheridans do not direct our attention to any genuine questions of
material fact which should have precluded summary judgment, and thus,
the district court properly granted summary judgment in favor of the
government. Fed. R. Civ. P. 56(c); Celotex Corp v. Catrett, 477
U.S. 317, 322-23 (1986).
The Sheridans also submit
that they were misinformed as to the dates of various status hearings
and that the government failed timely to serve them with certain
discovery requests. Even if these claims are true, the Sheridans fail to
allege that they suffered any prejudice from these errors. All of the
alleged errors of which the Sheridans complain occurred before the
district court granted the default judgment in favor of the government.
Accordingly, any such errors were cured when the court vacated that
judgment. The Sheridans do not claim that they were denied notice of the
government's motion for summary judgment, or that they were denied the
opportunity to respond. Because none of the errors of which the
Sheridans complain in any way prejudiced them, they do not state a
ground for reversal. Fed. R. Civ. P. 61; Kwasny v. United States,
823 F.2d 194, 196 (7th Cir. 1987).
The Sheridans' final
argument is that Mr. Sheridan's transfer of his interest in his home to
his wife was a valid conveyance, and that their house is therefore not
subject to seizure and sale to satisfy Mr. Sheridan's tax bill. Again,
this unsupported assertion is premised on erroneous legal conclusions.
The Sheridans' house is in Illinois, and so Illinois law determines
whether the transfer was fraudulent. Under Illinois law, a creditor (in
this case, the United States) may have a fraudulent conveyance set
aside. Ill. Rev. Stat. 1985 ch. 59, ¶4. A conveyance is presumptively
fraudulent if, (1) it is made for inadequate consideration; (2) there is
an existing or anticipated indebtedness against the transferor; and (3)
the transferor did not retain sufficient property to pay his
indebtedness. See Gendron v. Chicago & North Western Transp. Co.,
564 N.E.2d 1207, 1214-15 (Ill. 1990), Anderson v. Ferris, 470
N.E.2d 518, 521 (Ill. App. Ct. 1984), First Sec. Bank of Glendale
Heights v. Bawoll, 458 N.E.2d 193, 197 (Ill. App. Ct. 1983).
All three elements are
satisfied in this case. The district court found that the $2.00 Ms.
Sheridan paid for Mr. Sheridan's interest in his house was inadequate
consideration. On appeal, the Sheridans point to no evidence suggesting
the contrary. (In fact, the record indicates that the house is worth
between $70,000 and $100,000.) The Sheridans argue that they jointly
agreed to the $2.00 sale price, but that fact does not establish that
this consideration was "adequate" for the purposes of the
fraudulent conveyance statute. See, e.g., Casey Nat'l Bank v. Roan,
668 N.E.2d 608, 611 (Ill. App. Ct.) (father's conveyance of half
interest in 60- and 25-acre tracts of land to children for $10 each
deemed inadequate consideration for purposes of fraudulent conveyance
statute), appeal denied, 675 N.E.2d 631 (Ill. 1996); Effingham
State Bank v. Blades, 487 N.E.2d 431, 435 (Ill. App. Ct. 1985)
(husband's conveyance of land worth $60,000 to wife for $100 deemed
inadequate consideration for purposes of fraudulent conveyance statute).
Second, the Sheridans do
not deny that Mr. Sheridan was indebted to the federal government for
his back taxes, and that the government was actively seeking to collect
that debt from him when he sold his interest in the house. The Sheridans
do argue that there was no lien on their house when Mr. Sheridan
conveyed his interest, 1
but that fact is irrelevant to whether the transfer was fraudulent under
Illinois law. The only relevant issue is whether Mr. Sheridan was or
anticipated being indebted at the time of the conveyance. See Casey
Nat'l Bank, 668 N.E.2d at 611 (transfer of real estate when loan was
delinquent and bank was pressing debtor to refinance loan held to be
transfer while debtor was indebted); Reagan v. Baird, 487 N.E.2d
1028 (Ill. App. Ct. 1985) (indebtedness exists at time of conveyance,
for purposes of fraudulent conveyance statute, regardless of whether
creditor has reduced claim to a judgment or initiated legal action). As
we said above, Mr. Sheridan does not deny that he owed back taxes when
he sold his interest in his home.
Third, the district court
found that after he sold his interest in the house, Mr. Sheridan
retained insufficient property to satisfy his tax obligations. Again,
the Sheridans point to no evidence to the contrary. Accordingly, under
Illinois law, Mr. Sheridan's conveyance of his interest in his house to
his wife was fraudulent in law, see Gendron, 564 N.E.2d at
1214-15, and the district court properly set it aside. See, e.g.,
United States v. Denlinger [93-1 USTC ¶50,040], 982 F.2d 233 (7th
Cir. 1992), cert. denied, 510 U.S. 859 (1993); Indiana Nat'l
Bank v. Gamble [84-2 USTC ¶9884], 612 F.Supp. 1272 (N.D. Ill.
1984). Thus, the district court properly ordered the tax liens
foreclosed and the house sold.
Finally, we deem this
appeal to be frivolous. Accordingly, we believe that a $2,000 sanction
may be warranted. See Cohn v. Commissioner [96-2 USTC ¶50,665],
101 F.3d 486 (7th Cir. 1996) (per curiam). We therefore direct the
Sheridans to show cause why they should not be sanctioned for filing
this appeal. Fed. R. App. P. 38, Cir. R 38. They have 14 days to file a
response. We strongly caution them that any further opprobrious or
insulting language directed at this court, the district court or the
government attorneys will not be tolerated.
ORDER TO SHOW CAUSE ISSUED.
After an examination of the briefs and the record, we have concluded
that oral argument is unnecessary in this case; accordingly, the appeal
is submitted on the briefs and the record. See Fed. R. App. P
34(a), Cir. R 34(f).
Under 26 U.S.C. §§6321-22, a lien arises on all of a taxpayer's
property for unpaid taxes when the IRS makes an assessment of liability.
So far as the record shows, the IRS did not make an assessment of
liability against Mr. Sheridan until July 1985--four months after he
sold his interest in his house.
United States v. Paul and Louise Marguglio
District Court, Dist. N.J., Civ. 94-2741 (WGB), 2/13/97
Sec. 6321 ]
Transfers: Property: Fraudulent: Tax avoidance: Liability for
deficiencies.--A husband, who had unpaid tax liabilities,
fraudulently conveyed under state (New Jersey) law his interest in their
personal residence to his wife in an attempt to defraud his creditors,
including the IRS. Therefore, the wife, as transferee of fraudulently
conveyed property, was liable for her husband's interest in the property
at the time of the transfer. The transfer, which was made for one dollar
and rendered the husband insolvent, occurred within weeks after the
initiation of a Housing and Urban Development audit, undertaken to
investigate the staffing of a housing authority for which the husband
served as executive director and in which, without the agency's
knowledge, he held multiple salaried positions.
Faith S. Hochberg, United
States Attorney, Neil R. Gallagher, Assistant United States Attorney,
Newark, N.J. 07102, Beverly A. Moses, Department of Justice, Washington,
D.C. 20530, for U.S. Paul Marguglio, Louis Marguglio, 1001 Seafarer
Circle #506, Jupiter, Fla. 33477, pro se.
This court has designated this opinion as NOT FOR PUBLICATION. Consult
the Rules of the Court before citing this case.
LECHNER, JR., District
Plaintiff, United States of
America (the "Government"), commenced this law suit against
Paul Marguglio ("P. Marguglio") to reduce tax assessments to
judgment and against Louise Marguglio ("L. Marguglio") to
obtain a judgment of liability against her as transferee of property
which the Government claims was a fraudulent conveyance to her by P.
This matter was and is
assigned to William G. Bassler, United States District Judge. Because of
a scheduling conflict, I agreed to try this matter for Judge Bassler.
The matter was tried on 11 December 1996. Thereafter, the parties were
given an opportunity to and, did in fact, submit proposed findings of
fact and conclusions of law.
Many of the findings of
fact are substantiated with citations to stipulations, or testimony, or
documentary evidence or a combination of such authority. Such citations
are not meant to be exhaustive concerning the finding. Some findings are
based upon the record or inferences from the record which are not cited.
Page or document citations are not set forth to support general
findings. This opinion, including the introduction, background,
discussion and findings of fact and conclusions constitute my Findings
of Fact and Conclusions of Law. It is presumed the reader of this
opinion is familiar with the earlier opinions of Judge Bassler upon
which this opinion is based. All proposed findings of fact and
conclusions of law inconsistent with those set forth herein are rejected
pursuant to Rule 52 of the Federal Rules of Civil Procedure.
The complaint (the
"Complaint") was filed in this matter on 16 June 1994. 1
It appears L. Marguglio executed a waiver of service on 3 July 1994 and
that P. Marguglio was served with a summons and complaint on 8 September
1994. A document styled "Answer of Defendants" was filed 3
November 1994, but was signed only by P. Marguglio, pro se. It
was not signed by L. Marguglio. From a review of the file, it appears L.
Marguglio has not answered the Complaint. Nevertheless, a motion for
summary judgment was filed on 22 February 1995 and signed by both P.
Marguglio and L. Marguglio. This motion was denied by Judge Bassler on
10 April 1995. Thereafter, pretrial discovery and motion practice took
It does not appear the
signature of L. Marguglio is on any additional documents filed with the
court, with the exception of the Final Pretrial Order which was signed
by both P. Marguglio and L. Margugiio and was filed on 13 March 1996.
The Final Pretrial Order sets forth a list of stipulations to which the
parties agreed. The Final Pretrial Order left open the scheduling of a
trial in this matter.
On 17 July 1996, Judge
Bassler decided cross-motions for summary judgment filed by the parties.
He granted summary judgment against P. Marguglio "as to tax
liability absent interest and penalties accruing from February 14,
1994;" and further granted judgment in favor of the Government
against P. Marguglio in the amount of $314,323.14. He denied the motion
by the Government for judgment against P. Marguglio as to interest and
penalties accruing from 14 February 1994 and further denied the motion
by the Government for judgment against L. Marguglio. The cross-motion
for summary judgment in favor of L. Marguglio was denied. See
Order, dated 17 July and entered 19 July 1996.
This matter was scheduled
several times for trial by Judge Bassler. As mentioned, because of a
scheduling conflict, Judge Bassler requested I try the matter for him.
Accordingly, the matter was tried on 11 December 1996.
L. Marguglio did not appear
for trial. P. Marguglio did appear for trial and attempted to represent
L. Marguglio. This was addressed at trial. See trial transcript
("Tr.") at 12-16.
At the commencement of
trial, counsel for the Government indicated that there was no relief
sought against P. Marguglio at trial and that the only relief sought was
against L. Marguglio. Tr. at 13-16. This representation by the
Government that it sought relief only against L. Marguglio is consistent
with the trial brief which states: "Count II against Louise
Marguglio on the issue of fraudulent conveyance is left to be
tried." Government Trial Brief at 1. Although this appears
inconsistent with the Complaint and the issues that apparently remained
after the last motion for summary judgment, it is deemed that from the
statements of the Government in its trial brief and at trial, as well as
from the evidence offered by the Government at trial, that the only
relief sought was that against L. Marguglio on the fraudulent transfer,
and any remaining issues were, and are, waived by the Government and are
dismissed with prejudice.
1. On 30 September 1985, P.
Marguglio and his wife, L. Marguglio, purchased a home located at 60 Ivy
Place (the "Property") as tenants by the entireties. Tr. at
16, lines 14-17; Stipulation of Fact #1, Final Pretrial Order
("FPO") at 2.
2. At the time of the
purchase, the Marguglios placed a down payment of $100,000 in cash and
effected a $150,000 mortgage on the Property. Stipulation of Fact #2,
FPO at 2.
3. On 8 March 1989, P.
Marguglio transferred his interest in the Property to L. Marguglio for
one dollar. Tr. at 16, lines 19-21; Stipulation of Fact #3, FPO at 2.
4. P. Marguglio continued
to live on the Property after the time of the conveyance. Tr. at 16,
5. On 8 March 1989, the
Property was worth $550,000 and had a $130,000 mortgage balance. Tr. at
17, lines 1-7; Stipulation of Fact #4 and #5; FPO at 2.
6. The value of the
Property transferred was one-half of $420,000 or $210,000.
7. P. Marguglio was the
Executive Director of the Passaic Housing Authority (PHA) from the early
1970s until January 1990. Tr. at 17, lines 8-10, 24 and at 18, line 2.
8. The Passaic Housing
Authority was under contract with the U.S. Department of Housing and
Urban Development (HUD) to provide decent, safe and sanitary housing for
the benefit of low income families. Tr. at 17, lines 11-19.
9. HUD in turn provides
annual subsidies to PHA for this purpose. Tr. at 17, lines 20-23.
10. The program which HUD
provides funds is known as the Comprehensive Improvement Assistance
Program ("CIAP"). Tr. at 18, lines 3-7.
11. Under its contract with
HUD, PHA had to abide by numerous obligations and requirements. Tr. 17,
12. In order to obtain the
subsidies from HUD, PHA and P. Marguglio, as Executive Director,
submitted budgets to HUD. Tr. at 17, lines 24 to page 18, line 2.
13. In 1988, P. Marguglio
earned a salary of $85,000 as Executive Director of PHA. Tr. at 18,
14. The position of
Executive Director was a full time position. Tr. at 22, lines 16-20.
15. In addition to holding
the position of Executive Director, P. Marguglio held various other
positions under CIAP, which were not disclosed to HUD. Tr. at 19, lines
2-12 and page 23, lines 15-23.
16. These undisclosed
positions included modernization officer, contracting officer and
purchasing agent. Tr. at 23, lines 15-23, and page 19, lines 5-12.
17. In total, P. Marguglio
held two full time positions and three part time positions with PHA. Tr.
at 23, lines 1-9.
18. From August of 1988
until December of 1989, P. Marguglio earned $125,000 from these
undisclosed positions. Tr. at 23, lines 10-14.
19. On or about 2 August
1988, P. Marguglio received a letter from HUD asking the names, titles
and duties of all persons working under CIAP. Tr. at 23, lines 15-19.
20. P. Marguglio responded
to that letter in such a way to conceal the fact that he was holding and
being paid for multiple positions. Tr. at 23, lines 20-23.
21. On or about 10 August
1988, HUD made further inquiries concerning the staffing of the CIAP.
Tr. at 23, lines 25-24, to page 24, line 3.
22. P. Marguglio and others
agreed to respond to HUD in such a ways as to conceal the fact that
Marguglio held multiple positions. Tr. at 24, lines 6-10.
23. In February 1989, HUD
auditors began an audit of PHA. Tr. at 24, lines 19-21.
24. HUD auditors were
present at PHA on a regular basis from February, 1989, until September,
1989. Tr. at 24, lines 22-24.
25. During the course of
the audit, P. Marguglio and others took actions to prevent the HUD
auditors from discovering that P. Marguglio held multiple positions. Tr.
at 24, line 25, to page 25, line 7.
26. In 1987, P. Marguglio
received $54,000 in illegal kickbacks which he failed to report on his
federal income tax return. Tr. at 25, lines 8-11.
27. As a result of P.
Marguglio's actions relating to PHA, he was ultimately removed from the
premises of PHA and a criminal information was filed against him. Tr. at
27, lines 3-11.
28. In July 1990, P.
Marguglio pleaded guilty to and was convicted of two felonies: one was
conspiracy to defraud HUD and the other was income tax evasion. Tr. at
27, lines 7-11.
29. In addition, in July
1990, P. Marguglio filed amended returns for the tax years 1984 through
1988, all of which showed significant additional income ranging from
$66,000 to $115,000. Tr. at 27, line 12, to page 29, line 1.
30. As a result of those
amended returns, the IRS assessed income taxes against P. Marguglio for
an amount in excess of $200,000. Tr. at 29, lines 2-4.
31. In September 1990, HUD
instituted suit against P. Marguglio under the False Claims Act. Tr. at
29, lines 6-9.
32. As a result of that
suit, HUD has obtained judgments against P. Marguglio in excess of
$900,000 for his actions relating to the PHA. Tr. at 29, lines 13-20.
33. The Property was sold
by L. Marguglio on or about 15 April 1992 for $490,00 and $33,000 of the
proceeds from the sale of the Property were paid over to the Government
and credited to P. Marguglio's income tax liability. Stipulation of Fact
#6 and 11, FPO at 2.
34. Immediately after the
transfer at issue in this suit, on 8 March 1989, P. Marguglio had the
following assets and liabilities:
a. 1984 Jaguar valued at
$15,000. Tr. at 31, lines 6-7.
b. Florida condominium
valued at $115,000 which had a mortgage in the amount of $85,000. Tr. at
31, lines 11-21.
c. 401K retirement account
worth approximately $70,000. Tr. at 31, lines 19-24.
d. Savings account with
approximately $4,000 on deposit. Tr. at 32, lines 2-4.
e. Income tax liabilities
for the tax years 1984 through 1988 in the amount of $209,000. Tr. at
28, line 12, to page 29, line 4.
35. Although P. Marguglio
testified that he had numerous other assets on 8 March 1989 after the
transfer, he was unable to support such testimony with any credible
evidence and it is my finding that he had no other assets at the time.
36. As a result of the
transfer of the Property, P. Marguglio's liabilities exceeded the value
of his assets.
37. P. Marguglio was fully
aware that if the HUD audit revealed that he held multiple positions
than he would be both criminally and civilly liable; this is why he
attempted on numerous occasions to conceal these facts from the HUD
38. Just weeks after the
HUD audit began, P. Marguglio transferred his interest in the Property
to L. Marguglio for one dollar.
39. The transfer of his
interest in the Property just weeks after the audit began was done with
the actual intent to defraud his creditors.
40. P. Marguglio was not a
credible witness when he sought to explain his position and that of L.
Marguglio. This determination was based upon the manner in which he
testified, including his demeanor and the content of his testimony.
41. Any finding of fact
more properly denominated as a conclusion of law is hereby designated as
a conclusion of law.
1. In New Jersey, a
creditor may obtain judgment against a transferee (of a fraudulent
conveyance) for the value of the asset transferred or the amount of the
creditor's claim, whichever is less. N.J.S.A. §25:2-30.
2. A transfer of property
is fraudulent as to a creditor if the transfer is made with the actual
intent to hinder, delay or defraud any creditor, or, as to a creditor
whose claim arose before the transfer, if it is made without receiving a
reasonable equivalent value in exchange for the transfer and the
transfer renders the transferor insolvent. N.J.S.A. §§25:2-25,
3. There are two ways of
proving that a transfer was fraudulent, one by establishing actual fraud
and the other by establishing constructive fraud.
4. The Government was a
creditor before the transfer occurred. It became a creditor of P.
Marguglio when his obligation to pay the income tax accrued. United
States v. Klayman, 736 F.Supp. 647, 649 (E.D.Pa. 1990); United
States v. St. Mary [72-1 USTC ¶9319], 334 F.Supp. 799, 803 (E.D.Pa.
1971); see also United States v. 58th Street Plaza Theatre, Inc.
[68-1 USTC ¶9407], 287 F.Supp. 475, 496 (S.D.N.Y. 1968); Coca-Cola
Bottling Co. of Tucson v. Commissioner [CCH Dec. 25,380], 37 T.C.
1006, 1011 (1962), aff'd [64-2 USTC ¶9643], 334 F.2d 875 (9th
5. Income tax liabilities
accrue at the close of the taxable year at issue. Edelson v. C.I.R.
[87-2 USTC ¶9547], 829 F.2d 828, 834 (9th Cir. 1987); In re Ad-Yu
Electronics, Inc., 71-1 USTC ¶9132 (D.N.J. 1968); see also,
United States v. Jones [95-1 USTC ¶50,190], 877 F.Supp. 907, 914
(D.N.J. 1995), aff'd without op. [96-1 USTC ¶50,056], 74 F.3d
1228 (3d Cir. 1995).
6. P. Marguglio's 1984 tax
liability accrued on 31 December 1984, and that is the date upon which
the Government became his creditor. In the same manner, P. Marguglio's
1985 liability accrued on 31 December 1985 and his 1988 liability
accrued on 31 December 1988.
7. At the time of the
transfer, 8 March 1989, P. Marguglio was indebted to the Government for
all of the taxes at issue in this case (1984-1988) in the approximate
amount of $206,000.
8. A debtor is insolvent if
the sum of his debts is greater than all of his assets. N.J.S.A. §25:2-23(a).
9. The calculation of a
debtor's solvency does not include the value of any assets transferred
and any debts secured by those assets. N.J.S.A. §25:2-23(d) and (e).
10. After the transfer of
the Property, P. Marguglio's debts exceeded the value of his assets.
11. The transfer of the
Property rendered him insolvent.
12. Because P. Marguglio
did not receive reasonably equivalent value in consideration for the
transfer and because the transfer rendered P. Marguglio insolvent, as
defined by New Jersey Fraudulent Transfer Act, the transfer was
fraudulent as to the Government.
13. In addition, the
transfer, made just weeks after the HUD audit began, was made with the
actual intent to defraud P. Marguglio's creditors.
14. Once a transfer has
been determined to be fraudulent, the creditor may obtain judgment
against the transferee for the value of the asset transferred or the
amount necessary to satisfy the creditor's claim, whichever is less.
15. In this case, the
Government's claim exceeds the value of the asset transferred.
Accordingly, it is entitled to judgment against L. Marguglio for the
value of P. Marguglio's interest in the Property at the time of the
16. The Marguglios had
$420,000 in equity in their home.
17. P. Marguglio's interest
in that equity was worth $210,000.
18. The Property was later
sold and $33,000 of the net proceeds was paid to the Government on
behalf of the Marguglios. Accordingly, L. Marguglio is liable, under the
New Jersey Uniform Fraudulent Transfer Act, N.J.S.A. §25:2-1 et seq.,
for $177,000 ($210,000 minus $33,000) and judgment is entered against
her in that amount.
19. Any conclusion of law
more properly denominated a finding of fact is hereby designated a
finding of fact.
The Government is to submit
within seven business days a form of order consistent with this opinion.
The Clerk's file for this matter was misplaced; I attempted to recreate
the file from some available filed documents, copies of several
documents and from the docket sheet.
United States of America, Plaintiff v. Ross P.
Upton, Amelia A. Upton, and James D. Upton, Defendants
District Court, Dist. Conn., Civ. 3:92CV524 (AWT), 3/18/97
Secs. 6321 and 7402
Fraudulent conveyances: Statute of limitations: State law: Federal
Debt Collection Procedure Act.--A state (Connecticut) statute of
limitations for setting aside fraudulent transfers was not applicable
with respect to the government's fraudulent conveyance claims against a
delinquent taxpayer. Moreover, the limitations period prescribed in the
Federal Debt Collection Procedure Act did not bar the government's
Sec. 6203 ]
Assessments: Validity of: Form 4340.--A taxpayer failed to show
that the IRS's Form 4340 (Certificate of Assessments and Payments), was
invalid simply because the information on the form was computer
generated, rather than handwritten or typed as provided in the Internal
Revenue Manual. Further, the taxpayer failed to meet his burden of
proving that the amounts set forth on the form were incorrect.
H. Gordon Hall, John B.
Hughes, New Haven, Conn. 06508, John V. Cardone, Keith V. Morgan,
Department of Justice, Washington, D.C. 20530, for plaintiff. Ross P.
Upton, Amelia A. Upton, 86 Woodpark Dr., Watertown, Conn. 06795, pro
se. James D. Upton, Brook Rd., Goshen, Conn. 06756, pro se.
THOMPSON, District Judge:
Plaintiff United States of
America moves for partial summary judgment seeking a judgment against
defendant Ross P. Upton in the amount of $146,226.69, plus statutory
additions from January 23, 1989, for federal income tax liabilities for
the tax years 1980, 1981, and 1982. The defendants also move for summary
judgment. For the reasons set forth below, the plaintiff's motion should
be granted and the defendants' motion should be denied.
Defendant Ross P. Upton
("Upton") resides in Watertown, Connecticut. During the years
1980, 1981, and 1982, Upton did business as Upton Products Company.
Upton Products Company designed and built special machinery for
manufacturing. Upton Products Company was not a corporation or
partnership and did not file separate tax returns. In addition, Upton
did not file federal income tax returns for 1980, 1981, and 1982.
On January 23, 1989, a
delegate of the Secretary of the Treasury made assessments against Upton
for unpaid federal income taxes, interest, and penalties, for the tax
years 1980, 1981, and 1982. The total of these assessments was
$146,226.69. A delegate of the Secretary of the Treasury issued notices
of these assessments and made demands for payment. Upton refused or
neglected to pay the assessed liabilities and remains indebted to the
United States for the total amount of $146,226.69, plus statutory
additions from the date of assessment. The Government now moves for
partial summary judgment against Upton with regard to this income tax
liability. The Government does not seek summary judgment on its
fraudulent conveyance claims.
Summary judgment shall be
granted "if the pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits . . . show that
there is no genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law." Fed.R.Civ.P.
56(c). "[T]he mere existence of some alleged factual dispute
between the parties will not defeat an otherwise properly supported
motion for summary judgment; the requirement is that there be no genuine
issue of material fact." Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 247-48 (1986). While the court must view the inferences to
be drawn from the facts in the light most favorable to the party
opposing the motion, Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986), a party may not "rely on mere
speculation or conjecture as to the true nature of the facts to overcome
a motion for summary judgment." Knight v. U.S. Fire Ins. Co.,
804 F.2d 9, 12 (2d Cir. 1986), cert. denied, 480 U.S. 932 (1987).
The non-moving party may
defeat the summary judgment motion by producing sufficient specific
facts to establish that there is a genuine issue of material fact for
trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Mere
conclusory allegations or denials in legal memoranda or oral argument
are not evidence and cannot by themselves create a genuine issue of
material fact where none would otherwise exist. Quinn v. Syracuse
Model Neighborhood Corp., 613 F.2d 438, 445 (2d Cir. 1980).
The court addresses first
the defendants' motion for summary judgment. The defendants argue that
Connecticut's three-year statute of limitations applies to the
Government's fraudulent conveyance claims. The court previously ruled on
this issue in the "Ruling on Pending Motions" dated December
28, 1993 (Document #23). The Connecticut three-year statute of
limitations for setting aside fraudulent transfers is not applicable to
a suit by the United States to recover the value of allegedly
fraudulently conveyed property in partial satisfaction of outstanding
tax deficiencies. See United States v. Fernon [81-1 USTC ¶9287],
640 F.2d 609, 612 (5th Cir. 1981).
The defendants also argue
that the Federal Debt Collection Procedure Act ("FDCPA"), 28
U.S.C. §§3001-3309, bars the plaintiff's claims. As the defendants
recognized in their brief, other district courts in this circuit have
held that the FDCPA is not the exclusive judicial means by which the
United States may collect its taxes. See United States v. Carney,
796 F. Supp. 700, 703 (E.D.N.Y. 1992); United States v. Bushlow
[93-2 USTC ¶50,556], 832 F. Supp. 574, 581 (E.D.N.Y. 1993). This court
agrees. The FDCPA specifically provides that:
This chapter shall not be
construed to curtail or limit the right of the United States under any
other Federal law or any State law to collect taxes or to collect any
other amount collectible in the same manner as a tax.
U.S.C. §3003(b)(1). Congress clearly intended that the Government
retain its option to proceed under other federal or state law.
Accordingly, the FDCPA does not apply to this action and the Government
is free to proceed under other state or federal law. The court therefore
rejects Upton's claim that the periods of limitations prescribed by the
FDCPA bar this action.
The court next addresses
the plaintiff's motion. As stated in the court's ruling filed on
December 29, 1993, a tax assessment is prima facie evidence of
liability, United States v. Lease [65-2 USTC ¶9478], 346 F.2d
696, 698 (2d Cir. 1965), and a certificate of assessment is presumptive
proof of a valid assessment. United States v. Red Stripe, Inc.
[92-1 USTC ¶50,277], 792 F. Supp. 1338, 1341 (E.D.N.Y. 1992). In
opposing the Government's claim of tax liability, Upton bears the burden
of disproving this liability. See Burke v. Commissioner [91-1
USTC ¶50,179], 929 F.2d 110, 112 (2d Cir. 1991).
Upton's primary opposition
to this motion is his argument that the Government is not entitled to a
presumption of a valid assessment and therefore it has not proven that
there are no genuine issues of material fact. Upton alleges defects in
the Government's proof contained in IRS Form 4340. Without a valid Form
4340, Upton argues, a valid assessment does not exist and the court must
deny this motion. The court disagrees.
First, Upton has failed to
cast doubt on the validity of the Government's Form 4340. He
acknowledges that the asserted form labeled 4340 "contains
information that might be found on a Form 4340," but relying on the
Affidavit of Marsden S. Furlow, asserts that Plaintiff's Exhibit A is
invalid because the Internal Revenue Service's manual provides that the
information on a Form 4340 is handwritten or typed, not computer
generated, and Plaintiff's Exhibit A is computer generated. There is no
reason why a computer generated IRS form that has been properly
authenticated should be found to be invalid, merely because it was
produced on a computer, even if the IRS's manual indicates that the
information is not computer generated. The provisions of the IRS's
manual are directory rather than mandatory, are not codified
regulations, and do not have the force and effect of law. See Pomeroy
v. United States [89-1 USTC ¶9168], 864 F.2d 1191, 1994-95 (5th
Cir. 1989). Upton has not set forth any other reason why one should
doubt that this form is a valid IRS form. Upton does not submit what he
considers to be a valid Form 4340. Nor does Upton identify any material
difference that would exist between Plaintiff's Exhibit A and a Form
4340 that he would consider genuine. In the absence of more, the court
rejects the defendants' challenge to the Government's Form 4340, and the
court finds that there is no genuine issue of material fact regarding
Second, the court also
rejects Upton's argument that the amounts set forth in the Form 4340 are
incorrect. As the Government correctly asserts in its reply memorandum,
Upton's dispute regarding these amounts stems from his misunderstanding
and/or misreading of the documents. Even if Upton himself legitimately
doubts the accuracy of the figures in Form 4340, he has not presented
the court with any reason to question these figures.
Again, in opposing the
Government's claim of tax liability, Upton bears the burden of
disproving this liability. He has failed to meet this burden.
For the foregoing reasons,
the United States of America's motion for partial summary judgment
(Document #99) is hereby GRANTED and the defendants' motion for summary
judgment (Document #107) is hereby DENIED.
It is so ordered.
United States of America, Plaintiff v. Frances A.
Brickman, Michael P. Brickman, Robert T. Brickman and William B.
District Court, No. Dist. Ill., East. Div., 95 C 2843, 11/2/95, 906
FSupp 1164, 906 FSupp 1164
Sec. 6502 ]
Limitations period: Collection after assessment: Liens.--The
statute of limitations did not bar an action to collect taxes from
members of a family because the IRS was enforcing a tax lien against
property fraudulently transferred to them by a deceased individual. The
lien arose after the decedent failed to respond to assessments. The
court proceeding brought against that individual stopped the running of
the limitations period. The IRS obtained a judgment against the
individual and was seeking to enforce that judgment.
Sec. 6901 ]
Transferred assets: Family transfers.--The fact that an
individual who had transferred property subject to a lien to family
members was a transferee of a delinquent corporate taxpayer did not bar
the IRS from bringing an action against the transferees of the original
transferee. The action against the family members was ancillary to the
collection action previously brought against the assessed taxpayer.
Sec. 6321 ]
Liens: Transfer prior to assessment: Fraudulent conveyance:
Government as creditor.--A tax lien on property transferred to
family members by an individual who was the transferee of property from
a delinquent corporate taxpayer prior to the issuance of assessments
against the transferee was valid because the conveyances were
fraudulent. The government was a creditor as to all of the unpaid tax
liabilities belonging to the corporation and assessed against the
transferee. The transferee was aware of contemplated or existing
indebtedness prior to the assessments.
Ramune Rita Kelecius,
Assistant United States Attorney, Department of Justice, Drug
Enforcement Agency, Chicago, Ill. 60604, for plaintiff. Harvey M.
Silets, Timothy J. Patenode, Sean M. Berkowitz, Katten, Muchin &
Zavis, 525 W. Monroe St., Chicago, Ill. 60661-3693, for defendants.
OPINION AND ORDER
CASTILLO, District Judge:
Plaintiff United States of
America ("United States") brought this action against the
defendants Frances A. Brickman, Michael P. Brickman, Robert T. Brickman,
and William B. Brickman ("Brickman Family") to enforce federal
tax liens on property transferred by Joseph M. Brickman ("J.
Brickman") to the defendants, or, alternatively, to set aside the
transfers made by J. Brickman to the defendants as fraudulent
conveyances. The Brickman Family moves to dismiss pursuant to
Fed.R.Civ.P. 12(b)(6), arguing that the United States' claims are time
barred by §6501 of the Internal Revenue Code ("IRC"), 26
U.S.C. §6501. Alternatively, the Brickman Family argues that this Court
should dismiss that portion of the complaint pertaining to transfers
made before J. Brickman was assessed transferee liability for
outstanding corporate taxes.
factual allegations, which the Court accepts as true for purposes of
deciding the present motion, Sladek v. Bell Sys. Mgt. Pension Plan,
880 F.2d 972, 974-75 (7th Cir. 1989), are as follows. In the 1950s and
1960s, J. Brickman operated various corporate construction and
real-estate businesses ("unnamed corporations"). Compl. ¶10.
These unnamed corporations were eventually dissolved with all the
corporate assets going to J. Brickman. Id. At the time of
dissolution, outstanding corporate federal income taxes remained unpaid.
Id. The outstanding corporate taxes gave rise to over 160
separate tax assessments against J. Brickman as transferee of the
unnamed corporations. Id. The taxes were assessed on the
following dates: (1) 39 assessments on November 9, 1962; (2) 35
assessments on September 6, 1963; (3) 55 assessments on September 13,
1963; (4) 13 assessments on December 6, 1963; (5) 8 assessments on
December 13, 1963; (6) 14 assessments on December 27, 1963; and (7) 1
assessment on December 9, 1965. Id.
On October 20, 1977, the
United States District Court for the Northern District of Illinois
entered judgment in favor of the United States and against J. Brickman
for the unpaid taxes assessed against J. Brickman. Id. ¶11; see
United States v. Brickman, No. 73-C-3244. The amount of the judgment
was $1,291,064.22, plus interest at the rate of 6% from the date
judgment was entered. Id. J. Brickman failed to pay the
assessments and judgment against him, and that judgment, plus statutory
interest, remains due and owing. Id. ¶12. To date, the amount
outstanding exceeds $3 million. Id. ¶11.
On November 28, 1960, aware
that his taxes were being audited and that he had substantial pending
federal tax liabilities, J. Brickman formed the J.M. Brickman Mid-West
Corporation ("Brickman Mid-West"). Id. ¶13. Brickman
Mid-West issued 160,000 shares of common stock. Id. Subsequently,
J. Brickman transferred all of his assets to Brickman Mid-West and
issued 124,845 shares to himself, 20,385 shares to Frances A. Brickman
(his wife) and 2,954 shares to each of his sons, William B. Brickman,
Robert T. Brickman, and Michael P. Brickman. Id. The unaccounted
for 5,908 shares were apparently issued to J. Brickman who subsequently
transferred 130,753 shares to the Brickman Family. 1
Id. ¶14. At the time the transfers were made, they had a
combined value in excess of $1.2 million. Id. ¶15.
From 1963 through 1966, J.
Brickman transferred personal assets into Highland Park Country Club,
Inc. ("HPCC"), a company in which the Brickman Family owned
72.5% of the stock. Id. ¶16. No consideration was provided for
this transfer. Id. From 1964 through 1969, J. Brickman
transferred personal assets into Chicagoland Investment Corporation
("Chicagoland"), a company in which the defendants owned 100%
of the stock. Id. ¶17. No consideration was provided for this
J. Brickman failed to pay
the federal tax liabilities after notice and demand for payment, giving
rise to federal tax liens under 26 U.S.C. §6321. Id. ¶18. The
liens attached to all property and rights to property belonging to J.
Brickman, including the stock of Brickman Mid-West and the assets
transferred to HPCC and Chicagoland. Id. ¶18. The transfers of
corporate stock described above were made subject to the federal tax
liens securing all assessments made prior to the dates of transfer. Id.
¶19. Additionally, as a result of the October 20, 1977 judgment, the
United States gained a judgment lien against the property belonging to
J. Brickman which was recorded in Cook County on May 31, 1978. Id.
J. Brickman died on
December 14, 1977. Id. ¶21. At the time of his death, J.
Brickman's estate consisted of personal property valued at approximately
$3,000. Id. ¶22. The various transfers of assets from J.
Brickman to the companies controlled by the Brickman Family were made
without consideration and at a time when J. Brickman was insolvent or
was rendered insolvent as a result of the transfers. Id. ¶23.
After the transfers took place, the remaining assets of J. Brickman were
less than the amount necessary to pay his liabilities then owing to the
United States. Id.
The United States alleges
that the transfers of J. Brickman's assets were made with the intent to
delay, hinder or defraud creditors and, therefore, were null and void. Id.
¶24. The United States filed suit seeking the following: (A) a
determination that the transfers of J. Brickman's assets to the Brickman
Family were made subject to a federal tax lien or, in the alternative,
that the transfers were fraudulent and void as against the United
States, id. ¶A; (B) judgment that the United States has valid
and continuing liens on all property and rights to property belonging to
J. Brickman, including property fraudulently conveyed, id. ¶B;
(C) judgment that the Brickman Family became constructive trustees of
the property fraudulently conveyed to them by J. Brickman, and,
therefore, hold such property, and any proceeds from such property, for
the benefit of the United States, id. ¶C; (D) an accounting by
the Brickman Family to determine the value of the property fraudulently
conveyed to them by J. Brickman as of the dates of the transfers, and to
determine the value of the income from the property subject to the
constructive trust, id. ¶D; and (E) judgment that the Brickman
Family members are jointly and severally liable to the United States for
the value of the property fraudulently transferred to them by J.
Brickman, to the extent that the value of such property does not exceed
J. Brickman's liability to the United States. Id. ¶E.
The Brickman Family
subsequently filed a motion to dismiss for failure to state a claim upon
which relief can be granted pursuant to Fed.R.Civ.P. 12(b)(6). The
Brickman Family argues that in the absence of assessments against the
Brickman Family, the United States' claims are time-barred by 26 U.S.C.
§6501, since the claims were not brought within three years from the
date the corporate tax returns were filed. Defs.' Mem. at 1-2.
Alternatively, the Brickman Family argues that this Court should dismiss
the portion of the complaint seeking to recover transfers made before J.
Brickman was assessed transferee liability for the corporate taxes. Id.
A motion to dismiss tests
the sufficiency of the complaint, not the merits of the suit. Triad
Assocs., Inc. v. Chicago Housing Auth., 892 F.2d 583, 586 (7th Cir.
1989), cert. denied, 498 U.S. 845, 111 S.Ct. 129, 112 L.Ed.2d 97
(1990). The only question is whether relief is possible under any set of
facts that could be established consistent with the allegations. Perkins
v. Silverstein, 939 F.2d 463, 466 (7th Cir. 1991) (citing Conley
v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80
(1957)). All well-pleaded facts are taken as true, all inferences are
drawn in favor of the plaintiff and all ambiguities are resolved in
favor of the plaintiff. Id. A Rule 12(b)(6) motion will only be
granted if " 'it is beyond a doubt that the non-movant can plead no
facts that would support his claim for relief.' " Palda v.
General Dynamics Corp., 47 F.3d 872, 874 (7th Cir. 1995) (quoting Conley,
355 U.S. at 45-46 78 S.Ct. at 101-102)).
The limited questions
presently before this Court are (1) whether the United States' complaint
is time-barred, and (2) whether the United States may proceed under a
"lien" theory or fraudulent conveyance theory as to transfers
made prior to the assessments against J. Brickman.
Section 6501 of the IRC
requires the United States to assess taxes within three years after the
filing of a return. 26 U.S.C. §6501(a). 2
Absent such an assessment, Section 6501 requires a proceeding in court
to collect the tax to be commenced within three years after the return
was filed. 26 U.S.C. §6501(a). Where the assessment of any tax has been
made within the three year period, Section 6502 requires the United
States to commence an action to collect the assessed taxes within six
years of the assessment. 26 U.S.C. §6502(a)(1). 3
Where a timely action has been commenced by the United States, the
statute of limitations stops running, and the United States can enforce
the judgment at any time. United States v. Ettleson [47-1 USTC ¶9137],
159 F.2d 193, 196 (7th Cir. 1947).
The Brickman Family argues
that, because no assessment was made against either the unnamed
corporations or the Brickman Family, the United States is time-barred
under 26 U.S.C. §6501(a), applied to "transferees of a
transferee" by 26 U.S.C. §6901(c)(2), 4
from a proceeding to collect taxes against the Brickman Family. Defs.'
Mem. at 1-2. The United States, on the other hand, argues that it seeks
not to collect taxes from the Brickman Family, but rather to enforce a
tax assessment lien levied against J. Brickman and to hold the Brickman
Family liable for the value of property fraudulently transferred to them
by J. Brickman. Pl.'s Resp. at 4. As such, the United States contends
that there is no specific time limitation on the collection of a tax
assessment lien. Id. at 5. Instead, it suggests that a lien, once
valid, survives so long as the underlying liability for the tax is
enforceable. Id. We concur with the government's position.
The "Lien" Theory
Section 6321 of the IRC
provides that "[i]f any person liable to pay any taxes neglects or
refuses to pay the same after demand, the amount . . . shall be a lien
in favor of the United States upon all such property and rights to
property, whether real or personal, belonging to such person." 26
U.S.C. 6321. In the present case, J. Brickman failed, after notice and
demand for payment, to respond to assessments issued in 1962, 1963, and
1965. Compl. ¶18. As a result, federal tax liens arose under 26 U.S.C.
§6321. There is no specific time limitation on the life of an
assessment lien. United States v. Hodes [66-1 USTC ¶9232], 355
F.2d 746, 747 (2d Cir.), cert. granted, 384 U.S. 968, 86 S.Ct.
1858, 16 L.Ed.2d 680 (1966), cert. dismissed, 386 U.S. 901, 87
S.Ct. 784, 17 L.Ed.2d 779 (1967); Ettelson [47-1 USTC ¶9137],
159 F.2d at 196; Investment & Secs. Co. v. United States
[44-1 USTC ¶9210], 140 F.2d 894, 896 (9th Cir. 1944). Rather, under
Section 6322 of the IRC, those liens survive until the underlying
liability is satisfied or "become[ ] unenforceable by reason of
lapse of time." 26 U.S.C. §6322. 5
The phrase "by reason of lapse of time" must be interpreted in
light of 26 U.S.C. §6502, Moyer v. Mathas [72-1 USTC ¶9342],
458 F.2d 431, 433 (5th Cir. 1972); United States v. Colamatteo
[86-2 USTC ¶9719], No. 83 C 7439, 86-2 U.S. Tax Cas. (CCH) ¶9719, 1986
WL 9752 (N.D.Ill. 1986), which requires that the United States commence
its action to collect a tax from an assessed taxpayer within six years
of the assessment of the tax. Thus, the appropriate statute of
limitations in the present action is Section 6502, not Section 6501(a)
as the Brickman Family suggests.
In the present action, the
United States assessed J. Brickman as the transferee of the unnamed
corporations. Compl. ¶10. Subsequently, the United States brought a
suit and obtained a judgment to collect taxes against J. Brickman. Id.
¶11. The court proceeding brought against J. Brickman was sufficient to
stop the running of the statute of limitations contained within §6502,
and the resulting judgment could thereafter be enforced at any time. United
States v. Weintraub [80-1 USTC ¶9172], 613 F.2d 612, 619-20 (6th
Cir. 1979), cert. denied, 447 U.S. 905, 100 S.Ct. 2987, 64
L.Ed.2d 854 (1980) ("There is no time limit whatsoever on an action
. . . to enforce a timely levy or judgment obtained in a timely filed
court proceeding."); United States v. Hodes [66-1 USTC ¶9232],
355 F.2d at 748 ("The institution of a suit to enforce the lien of
a tax liability extends the life of an assessment lien beyond the normal
six-year period."); Ettelson [47-1 USTC ¶9137], 159 F.2d at
196 (A timely "judgment could thereafter be enforced at any time.
There is no federal statutory provision as to the period of limitation
on this judgment."). The judgment was a proper claim upon which to
assert a lien. Id. Therefore, the tax liens against J. Brickman's
property are valid and enforceable.
In its motion to dismiss,
the Brickman Family relies on United States v. Continental Nat'l Bank
& Trust Co. [39-1 USTC ¶9227], 305 U.S. 398, 59 S.Ct. 308, 83
L.Ed. 249 (1939), United States v. Updike [2 USTC ¶533; 1930 CCH
¶9364], 281 U.S. 489, 50 S.Ct. 367, 74 L.Ed. 984 (1930), and Signal
Oil & Gas Co. v. United States, 125 F.2d 476 (9th Cir. 1942) for
the proposition that when the original taxpayer has not been assessed,
the applicable limitation for a suit against the "transferee of a
transferee" is found within Section 6501. Defs.' Mem. at 9. The
Brickman Family's reliance on these cases is misplaced.
In none of the cases relied
on by the Brickman Family was there a personal judgment against the
taxpayer transferor determining the taxpayer's liability for previously
assessed taxes. In Updike, for example, a grain company filed
income taxes for the year 1917. [2 USTC ¶533; 1930 CCH ¶9364], 281
U.S. at 490, 50 S.Ct. at 367. Three years later, the United States
assessed the grain company additional income taxes for the year 1917. Id.
The grain company never paid the additional taxes, and, in 1927, the
United States first brought suit against the corporate stockholders as
transferees of the corporation. Id. The issue, as the Court
framed it, was "whether the suit, having been brought more than six
years after the assessment, was barred by the provisions of section 278
[now Section 6502]. . . ." 6
The Court first determined that the action, though not against the
original taxpayer corporation but against its transferees, was "in
every real sense a proceeding in court to collect a tax. The tax imposed
upon the corporation is the basis of the liability, whether sought to be
enforced directly against the corporation or by suit against its
transferees." Id. at 494, 50 S.Ct. at 368. The Court then
determined that if "the period of limitation had run in favor of
the corporation, it had run in favor of the transferees." Id.
The Court reasoned that where an assessment "has in fact been made,
a proceeding to collect must be begun within six years thereafter. . .
Unlike Updike, in
the present case the United States assessed the original taxpayers'
transferee, filed suit against the transferee, and obtained a judgment
against the transferee. Compl. ¶¶10-11. The United States seeks now
only to enforce the judgment; it does not seek to collect a tax (that
was done in the previous action against J. Brickman). This distinction
is critical. Having gained a timely judgment against J. Brickman, the
statute of limitations stops running, and the United States can enforce
the judgment at any time. Ettelson [47-1 USTC ¶9137], 159 F.2d
at 196. Absent such a judgment, we agree with the Brickman Family that
the United States would be time-barred from suing the Brickman Family as
"transferees of a transferee" to collect the unpaid taxes. See
26 U.S.C. 6901(c)(2). But we must acknowledge the judgment against J.
Brickman. As such, the tax liens against J. Brickman's property are
valid and enforceable.
The Brickman Family puts
much weight on the fact that J. Brickman was not the original taxpayer. See
Defs.' Reply at 2-3. For instance, the Brickman Family attempts to
distinguish United States v. Ettelson [47-1 USTC ¶9137], 159
F.2d at 193, and United States v. Colamatteo [86-2 USTC ¶9719],
No. 83 C 7439, 86-2 U.S. Tax Cas., on the ground that neither case
involved a "transferee of a transferee," but rather both cases
involved the assessment of an original taxpayer followed by a timely
court proceeding against the original taxpayer. See Defs.' Reply
at 2-3. This distinction, however, is of no consequence.
The IRC does not require
the United States to assess and sue the original taxpayer prior to
assessing a transferee. To the contrary, the IRC allows the United
States to assess and sue either a transferee or a "transferee of a
transferee" so long as the relevant time limitations are followed. Compare
26 U.S.C. §6901(a)(1)(A) (discussing the liabilities of a transferee) 7
with 26 U.S.C. §6901(c)(2) (discussing the liabilities of a
transferee of a transferee). In the present case, J. Brickman, a
transferee of the original taxpayer, was timely assessed followed by a
timely court proceeding resulting in a judgment for the United States.
The United States is not time-barred from bringing the present action to
enforce assessment liens precisely because the United States previously
obtained a judgment against J. Brickman as the transferee of the
original taxpayer. The United States can enforce that judgment at any
time. Ettelson [47-1 USTC ¶9137], 159 F.2d at 196. The fact that
J. Brickman was a transferee of the original taxpayer and not the
original taxpayer does nothing to undermine this determination which is
well supported by precedent. See, e.g., Moyer v. Mathas [72-1
USTC ¶9342], 458 F.2d 431, 434 (5th Cir. 1972) (allowing foreclosure
suit brought twenty years after timely lien); United States v.
Overman [70-1 USTC ¶9342], 424 F.2d 1142, 1147 (9th Cir. 1970)
(holding that foreclosure suit brought six years after judgment in
timely suit was not time-barred because tax liens are enforceable at any
time); Hodes [66-1 USTC ¶9232], 355 F.2d at 748-49 (finding that
the institution of a suit to enforce tax liability extends the life of
an assessment lien beyond the six-year period); Hector v. United
States [58-1 USTC ¶9372], 255 F.2d 84, 85 (5th Cir. 1958) (holding
that suit filed within six years of assessment tolls the limitation
period indefinitely); Ettelson [47-1 USTC ¶9137], 159 F.2d at
196 (holding claim filed in probate court within six years of assessment
tolls the limitation period so that judgment could be enforced at
anytime thereafter); Investment & Secs. Co. [44-1 USTC ¶9210],
140 F.2d at 896 (finding that no federal statutory limitation on
enforcing a judgment won in a timely suit exists allowing a tax to be
collected at any time); United States v. Mandel [75-1 USTC ¶9141],
377 F.Supp. 1274, 1276-77 (S.D.Fla. 1974) (following Moyer); United
States v. American Cas. Co. [65-1 USTC ¶9167], 238 F.Supp. 36,
38-39 (W.D.Ky. 1964) (following Ettelson); United States v.
Caldwell [47-2 USTC ¶9363], 74 F.Supp. 114, 117 (M.D.Tenn. 1947)
(finding no time limit on enforcing a lien acquired in timely suit). 8
The Fraudulent Conveyance Theory
Section 6501 is also
inapplicable to the United States' fraudulent conveyance theory. In this
case, the original taxpayers were the unnamed corporations. Compl. ¶10.
J. Brickman was a transferee of the unnamed corporations. 9
Id. The Brickman Family is, therefore, a "transferee of a
transferee." Section 6901 governs assessments against and
collection from transferees of a transferee. 26 U.S.C. §6901(c)(2).
However, Section 6901 "does not apply to actions to set aside
fraudulent conveyances, actions brought ancillary to collection actions
against assessed taxpayers." United States v. Colamatteo
[86-2 USTC ¶9719], No. 83 C 7439, 86-2 U.S. Tax Cas. (CCH) at ¶9720; see
also, Hall v. United States [68-2 USTC ¶9665], 403 F.2d 344, 345
(5th Cir. 1968), cert. denied, 394 U.S. 958, 89 S.Ct. 1306, 22
L.Ed.2d 560 (1969).
The Brickman Family has not
been sued personally as "transferees of a transferee." Rather,
the Brickman Family has been sued because the United States seeks to set
aside allegedly fraudulent conveyances of property to them and to
satisfy J. Brickman's tax liability from that property. Compl. ¶¶A-E.
Section 6901 does not bar the present action against the Brickman
Family, which is ancillary to the collection action previously brought
against J. Brickman, the assessed taxpayer. Thus, we deny the Brickman
Family's motion to dismiss the United States' complaint on the ground
that the complaint is time-barred.
Having determined that the
United States' complaint is not time-barred, we turn now to the Brickman
Family's alternative ground for dismissal. The Brickman Family argues
that the United States should not be allowed to proceed on the portion
of the complaint that seeks to recover conveyances that occurred prior
to the assessments against J. Brickman. Defs.' Mem. at 9-10. 10
Federal tax liens under
Section 6321 do not arise until unpaid taxes are assessed. 26 U.S.C. §6321;
United States v. Speers [66-1 USTC ¶9101], 382 U.S. 266, 267 n.
1, 86 S.Ct. 411, 412 n. 1, 15 L.Ed.2d 314 (1965); United States v.
General Motors Corp. [91-1 USTC ¶50,158], 929 F.2d 249, 253 (6th
Cir. 1991); Zeddies v. United States [66-1 USTC ¶9273], 357 F.2d
897, 899 (7th Cir. 1966). As a result, "a tax lien cannot attach to
property which has been previously assigned or transferred by the
taxpayer at the time the assessment is made. Assignments made prior to a
tax assessment preclude lien attachment." General Motors
[91-1 USTC ¶50,158], 929 F.2d at 253. Therefore, in the present case,
the United States can only recover the property transferred prior to
assessment on a theory of fraudulent conveyance. See Zeddies
[66-1 USTC ¶9273], 357 F.2d at 899 (noting that where transfer are made
prior to assessment, the United States can only recover on a theory that
the conveyance was fraudulent).
To set aside transfers as
fraudulent conveyances, the United States must establish that its rights
as a "creditor" were impaired at the time the conveyances were
made. Thus, the limited question that this Court must decide today is
whether the United States was a "creditor" whose rights were
impaired at the time J. Brickman transferred his property to the
Brickman Family. If so, then the United States may be able to invalidate
the conveyances as being fraudulent, rendering the property subject to
the United States' tax lien (provided that the United States can
successfully establish all the elements of fraudulent conveyance, an
issue which is not presently before the Court). United States v.
Kitsos, 770 F.Supp. 1230, 1236 (N.D.Ill. 1991), aff'd without
op., 968 F.2d 1219 (7th Cir. 1992). 11
Courts facing this issue in
this district have found that for fraudulent conveyance purposes, the
United States is a creditor as to any unpaid tax liabilities prior to
the issuance of an assessment. United States v. Brown [93-2 USTC
¶50,375], 820 F.Supp. 374, 383 (N.D.Ill. 1993); United States v.
Kitsos, 770 F.Supp. at 1234-35; Indiana Nat'l Bank v. Gamble
[84-2 USTC ¶9884], 612 F.Supp. 1272, 1276-77 (N.D.Ill. 1984). The
courts reason that such liabilities become due and owing on the date the
tax returns are required to be filed, not on the date of assessment. Brown
[93-2 USTC ¶50,375], 820 F.Supp. at 383; Gamble [84-2 USTC ¶9884],
612 F.Supp. at 1276. We find these cases to be persuasive and hold that
the United States in the instant case is a creditor as to all the unpaid
tax liabilities belonging to the unnamed corporations and assessed
against J. Brickman.
The Brickman Family
attempts to distinguish these cases on the ground that the assessments
in the above cited cases were against a taxpayer for deficiencies
arising from the taxpayers' own return while the present case involves
an assessment against a transferee of a taxpayer's property. Def.'s Mem.
at 10. We find this distinction to be without merit.
In the present case, the
United States became a creditor of the unnamed corporations on the date
the corporate tax returns were required to be filed. See Brown
[93-2 USTC ¶50,375], 820 F.Supp. at 383. Subsequently, the corporations
dissolved with all the corporate assets going to J. Brickman. As a
result, the United States' claims against J. Brickman as transferee of
the corporate property arose as soon as J. Brickman obtained the
corporate property. Indeed, the United States alleges that as early as
November 28, 1960, J. Brickman was "aware that his taxes were under
audit by the Internal revenue Service and that he had substantial
pending federal tax liabilities. . . ." Compl. ¶13.
Taking all well-pleaded
facts as true, as we are required to do in deciding a motion to dismiss,
J. Brickman was aware of contemplated or existing indebtedness prior to
the assessments. This awareness is sufficient to allow the United States
to proceed on a fraudulent conveyance theory. See Gamble [84-2
USTC ¶9884], 612 F.Supp. at 1276-77. Even though the United States'
claim against J. Brickman was not reduced to assessments and judgment
until after J. Brickman conveyed some of his property to the Brickman
Family, "for purposes of a fraudulent conveyance action a
'creditor' becomes such when its claim arises, even if its claim is
contingent and regardless of the fact that the claim has not matured or
been reduced to judgment until after the conveyance." Brown
[93-2 USTC ¶50,375], 820 F.Supp. at 383. Thus, we hold that the United
States may proceed on a fraudulent conveyance theory pertaining to all
of the allegedly fraudulent transfers. The Brickman Family's motion to
dismiss is denied.
The Brickman Family's
motion to dismiss is denied in all respects.
The 130,753 went to the Brickman sons as well as J. Brickman's wife. The
three sons each received an additional 24,690 shares in three
increments: (1) 20,000 shares on February 18, 1962; (2) 2,500 shares on
December 21, 1968; and (3) 2,460 shares on January 19, 1969. J.
Brickman's wife received an additional 55,873 shares in five increments:
(1) 2,954 shares on August 5, 1961; (2) 2,954 shares on March 20, 1962;
(3) 45,000 shares on April 7, 1965; (4) 2,500 shares on December 21,
1968; and (5) 2,465 shares on January 19, 1969.
Section 6501(a) provides in pertinent part:
Except as otherwise
provided in this section, the amount of any tax imposed by this title
shall be assessed within three years after the return was filed (whether
or not such return was filed on or after the date prescribed) . . ., and
no proceeding in court without assessment for the collection of such tax
shall be begun after the expiration of such period.
Section 6502 provides in pertinent part:
(a) Where the assessment of
any tax imposed by this title has been made within the period of
limitation properly applicable thereto, such tax may be collected by
levy or by a proceeding in court, but only if the levy is made or the
(1) within  years after
the assessment of the tax. . ..
U.S.C. §6502(a)(1). The current version of Section 6502 provides a ten
year limitation period; however, the statute provided a six year
limitation period during the times relevant to the current suit.
Section 6901 provides in pertinent part:
(c) Period of
limitations.--The period of limitations for assessment of any such
liability of a transferee . . . shall be as follows:
* * * * *
(2) Transferee of
transferee.--In the case of the liability of a transferee of a
transferee, within 1 year after the expiration of the period of
limitation for assessment against the preceding transferee, but not more
than 3 years after the expiration of the period of limitation for
assessment against the initial transferor; except that if, before the
expiration of the period of limitation for the assessment of the
liability of the transferee, a court proceeding for the collection of
the tax or liability in respect thereof has been begun against the
initial transferor or the last preceding transferee, respectively, then
the period of limitation for assessment of the liability of the
transferee shall expire 1 year after the return of execution in the
Section 6322 provides:
Unless another date is
specifically fixed by law, the lien imposed by section 6321 shall arise
at the time the assessment is made and shall continue until the
liability for the amount so assessed (or a judgment against the taxpayer
arising out of such liability) is satisfied or becomes unenforceable by
reason of lapse of time.
Section 278 was the predecessor to the current Section 6502 and provided
that where an assessment was made, the assessed tax could be collected
by a proceeding in court if begun within six years after the assessment.
Updike [2 USTC ¶533; 1930 CCH ¶9364], 281 U.S. at 491-91, 50
S.Ct. at 367-68 (quoting and discussing section 278).
Section 6901(a)(1)(A) provides in pertinent part:
(a) Method of
collection.--The amounts of the following liabilities shall, except as
hereinafter in this section provided, be assessed, paid, and collected
in the same manner and subject to the same provisions and limitations as
in the case of the taxes to which the liabilities were incurred:
(1) Income, estate, and
liability, at law or in equity, of a transferee of property--
(i) of a taxpayer in the
case of a tax imposed by subtitle A (relating to income taxes). . ..
In a similar vein, courts have held that the limitations period
contained in Section 6502 does not apply to section 6332 actions, 26
U.S.C. §6332, against third parties in possession of a taxpayer's
property or property rights. See, e.g., United States v. Weintraub
[80-1 USTC ¶9172], 613 F.2d at 619-20; United States v. Marine
Midland Bank, N.A. [88-1 USTC ¶9159], 675 F.Supp. 775, 778
(W.D.N.Y. 1987). These courts reason that, unlike suits against
taxpayers, Section 6332 actions are not actions to collect taxes but to
enforce personal liability for failure to surrender property after
receiving a notice of levy. Weintraub [80-1 USTC ¶9172], 613
F.2d at 620.
The United States erroneously refers to J. Brickman as the original
taxpayer. See, e.g., Pl.'s Resp. at 2. This error, however, is of
The first assessment against J. Brickman occurred on November 9, 1962.
Compl. ¶10. Prior to that assessment, J. Brickman formed Brickman
Mid-West, transferred all of his assets to Brickman Mid-West, and issued
20,385 shares to his wife, and 2,954 shares to each of his three sons. Id.
¶13. Three other transfers predated the first assessment against J.
Brickman: (1) the transfer of 20,000 shares to each of his sons on
February 18, 1962; (2) the transfer of 2,954 shares to his wife on
August 5, 1961; and (3) the transfer of 2,954 shares to his wife on
March 20, 1962. ¶14. All remaining transfers to the Brickman Family and
to corporations controlled by the Brickman Family occurred after the
assessments began. ¶¶14, 16-17.
The Illinois Supreme Court has succinctly articulated the means by which
a plaintiff can establish fraudulent conveyance:
Illinois recognizes two
categories of fraudulent conveyances: those which are fraudulent in fact
and those which are fraudulent in law. In fraud-in-fact cases a specific
intent to "disturb delay, hinder or defraud" must be proved. .
.. In fraud-in-law cases, on the other hand, a conveyance may be
presumed fraudulent based on certain circumstances surrounding the
conveyance. In order to establish that a conveyance is fraudulent in
law, three elements must be present: (1) there must be a transfer made
for no or inadequate consideration; (2) there must be existing or
contemplated indebtedness against the transferor; and (3) it must appear
that the transferor did not retain sufficient property to pay his
Gendron v. Chicago & N.W. Transp. Co., 139
Ill.2d 422, 437-38, 151 Ill.Dec. 545, 552-53, 564 N.E.2d 1207, 1214-15
(1990) (citations omitted).
United States of America, Plaintiff v. Martin
Carlin, Barbara Carlin, Park Drive Manor Partnership, Gold Hawk Joint
Venture, LRSE Realty Corporation and Free Lunch, Inc., Defendants
District Court, So. Dist. N.Y., 92 Civ. 8553 (BDP), 11/18/96, 948 FSupp
271, 948 FSupp 271
Sec. 6672 ]
Assessment and collection: Payroll taxes: Partnership: Liability of
partner.--An individual was jointly and severally liable, pursuant
to state (New York) law, for tax liabilities attributable to a
partnership's failure to remit withheld payroll taxes. Although the
individual asserted that he never had any association with, or knowledge
of, the partnership, he entered into an agreement with the other two
partners, was identified by one of the other partners as a co-partner,
and was identified in the partnership's federal return, by name and
social security number, as a partner.
Sec. 6321 ]
Real property: Fraudulent conveyances: Inadequate consideration:
Fraudulent intent.--An the individual's transfer of his interest in
realty to his wife was a fraudulent conveyance under state (New York)
law because his goal in the transaction was to place the property beyond
the reach of his creditors, including the IRS. He conveyed the interest
voluntarily and without consideration at a time when he was insolvent.
In addition, subsequent conveyances of the interest from the wife to
related parties, for inadequate consideration, were attempts to defraud
the individual's creditors. Thus, all conveyances of his interest in
realty were set aside.
Secs. 6321 and 7425
Tax lien: Priority of: Notice to IRS.--An IRS's lien against
realty, in which an individual with outstanding tax liabilities had an
interest, had priority over the interests of a judgment creditor. The
tax lien arose when the assessments were made, and the IRS filed its
notice of lien four months later. The creditor did not record its
judgment until nine days after the IRS filing. Since the IRS had a
senior lien and since it was not notified of the nonjudicial sale of the
property to the creditor, the realty remained subject to the tax lien.
Neil Corwin, Assistant
United States Attorney, New York, N.Y. 10007, for plaintiff. Martin Paul
Solomon, 286 5th Ave., New York, N.Y., for defendants Martin Carlin,
Barbara Carlin, LRSE Realty Corp., Free Lunch, Inc., Michael S. Etkin,
Gold & Wachtel, 110 E. 59th St. New York, N.Y. 10022, for defendant
Gold Hawk Joint Venture, Adam M. Schuman, Corbin Silverman &
Sanseverino, 805 Third Ave., New York, N.Y. 10022, for defendant New
York Federal Savings Bk.
DECISION AND ORDER
PARKER, District Judge:
The United States of
America brings this action (1) to reduce to judgment a federal tax lien
filed against defendant Park Drive Manor Partnership ("Park
Drive" or "the partnership") and its partners; (2) to set
aside the conveyance of Park Drive partner Martin Carlin's interest in
real property located at 175 Crary Avenue, Mount Vernon, New York
("Mount Vernon realty") to defendant Barbara Carlin; and (3)
for an order declaring that the Internal Revenue Service's
("IRS") lien on the Mount Vernon realty has priority over the
interests of defendants Barbara Carlin, LRSE Realty Corporation
("LRSE"), Free Lunch, Inc., and Gold Hawk Joint Venture
("Gold Hawk"). Before the Court is the Government's motion for
summary judgment pursuant to Rule 56 of the Federal Rules of Civil
Procedure. For the reasons set forth, the Government's motion is
Recognizing that on a
motion for summary judgment all factual ambiguities and reasonable
inferences are drawn in the nonmoving party's favor, see Quinn v.
Syracuse Model Neighborhood Corp., 613 F.2d 438, 444-45 (2d Cir.
1980), the following unopposed facts are properly before the Court for
purposes of this motion.
In 1985, Martin Carlin,
along with two brothers, Vlad Stevens and Steve Stevens, purchased a
building complex known as the Park Drive Manor apartments, located at
600 West Harvey Street in Philadelphia, Pennsylvania. A 1985 federal
partnership tax return identified Martin Carlin and both Stevens
brothers, by name and social security number, as partners of the Park
Drive Manor Partnership and lists the partnership's address as 600 West
Harvey Street, Philadelphia.
On February 23, 1987, the
IRS assessed a tax deficiency against Park Drive in the amount of
$22,351.55 for unpaid tax obligations under 26 U.S.C. §§6671-6672. On
March 30, 1987, the IRS issued another assessment against Park Drive in
the amount of $20,088.98. The assessments against Park Drive and its
partners arose out of the partnership's unpaid payroll tax obligations
for the taxable quarters ending September 30, 1986 and December 31,
1986. On July 14, 1987, the IRS filed its notice of federal tax lien
against Park Drive in the Westchester County Clerk's office.
Approximately six weeks
later, on August 26, 1987, Martin Carlin conveyed his interest in the
Mount Vernon realty to his wife, Barbara Carlin, a transfer for which he
received no consideration. On March 28, 1988, Barbara Carlin, in turn,
transferred that interest to an entity appropriately named Free Lunch,
of which she was the sole officer. She received no consideration for the
transfer. Later that year, Free Lunch conveyed its interest in the
property to LRSE, an entity whose sole officer was Martin Carlin's
cousin, Michael Jaffe. That conveyance was made for inadequate
Despite notice and due demand, Park Drive and the partners of Park Drive
have neglected to pay in full the outstanding assessed liability and
accrued statutory interest.
Meanwhile, in May 1987,
Gold Hawk obtained a judgment against Martin Carlin in Texas in the
amount of $7,928,519.41. Gold Hawk filed a transcript of judgment in the
Southern District of New York on July 14, 1987 and recorded its judgment
in the Westchester County Clerk's office on July 23, 1987. On or about
July 23, 1987, Gold Hawk delivered its judgment against Martin Carlin
for execution to the Westchester County Sheriff, who scheduled and
issued a notice of nonjudicial sale of the Mount Vernon realty. No
notice of the sale was provided to the IRS. On July 18, 1988, Gold Hawk
purchased the Mount Vernon realty by a Sheriff's deed which was recorded
in the Westchester County Clerk's office on July 29, 1988.
As of December 22, 1995,
the taxpayer liability on the assessments issued against Park Drive,
including accrued interest and accrued lien costs, totaled $114,798.58.
On November 24, 1992, the Government instituted this action against
defendants and, on February 2, 1996, moved for summary judgment, arguing
that there were no genuine issues of material fact concerning the
underlying tax liability of Park Drive or the priority of its interests
in the Mount Vernon realty over those of the defendants.
Standard For Summary Judgment
Under Rule 56 of the
Federal Rules of Civil Procedure, "a motion for summary judgment
must be granted if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with affidavits, if
any, show that there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter of
law." Fed.R.Civ.P. 56(c). The moving party must initially satisfy a
burden of demonstrating the absence of a genuine issue of material fact.
Celotex Corp. v. Catrett, 477 U.S. 317, 323-25, 106 S.Ct. 2548,
2552-54, 91 L.Ed.2d 265 (1986); see also Gallo v. Prudential
Residential Servs. Ltd., 22 F.3d 1219, 1223 (2d Cir. 1994). The
burden then shifts to the nonmoving party to come forward with
"specific facts, showing that there is a genuine issue of fact for
trial," Fed.R.Civ.P. 56(e), by a showing sufficient to establish
the existence of every element essential to the party's case, and on
which the party will bear the burden of proof at trial The Court cannot
try issues of fact, but can only determine whether there are issues to
be tried. Donahue v. Windsor Locks Bd. of Fire Com'rs, 834 F.2d
54, 58 (2d Cir. 1987). When making that determination, the Court is to
inquire whether there is "sufficient evidence favoring the
nonmoving party for a jury to return a verdict for the party." Anderson
v. Liberty Lobby Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2510-11,
91 L.Ed.2d 202 (1986).
In deciding whether a
genuine issue of material fact exists, "the court is required to
draw all factual inferences in favor of the party against whom summary
judgment is sought." Ramseur v. Chase Manhattan Bank, 865
F.2d 460, 465 (2d Cir. 1989). A genuine issue, however, "is not
created by a mere allegation in the pleadings . . ., nor by surmise or
conjecture on the part of the litigants." United States v.
Potamkin Cadillac Corp., 689 F.2d 379, 381 (2d Cir. 1982) (citations
omitted); Knight v. United States Fire Ins. Co., 804 F.2d 9,
11-12 (2d Cir. 1986), cert. denied, 480 U.S. 932, 107 S.Ct. 1570,
94 L.Ed.2d 762 (1987). Indeed, Rule 56(e) of the Federal Rules of Civil
Procedure requires that affidavits opposing summary judgment "be
made on personal knowledge." Fed.R.Civ.P. 56(e). Thus, unsupported
denial, upon information and belief, is insufficient to raise any issue
of fact so as to defeat a motion for summary judgment. Baker v.
Latham Sparrowbush Assoc., 72 F.3d 246, 255 (2d Cir. 1995); Kramer,
Levin, Nessen, Kamin & Frankel v. Aronoff, 638 F.Supp. 714, 720
Under Rule 3(g) of the
Civil Rules for the United States District Courts for the Eastern and
Southern Districts of New York ("Rule 3(g)"), upon any motion
for summary judgment, the moving party must submit a statement of the
material facts as to which that party contends there is no genuine issue
to be tried. The nonmoving party, in response to the movant's statement
of facts not in dispute, must submit a counter-statement of facts in
dispute. Those facts not disputed are deemed admitted unless
controverted by the statement required to be served by the opposing
party. Rule 3(g). See Russell v. Selsky, 35 F.3d 55, 58 (2d Cir.
In support of its motion
for summary judgment, the Government submitted a Rule 3(g) statement
setting forth the material facts as to which the Government contended
there was no genuine dispute. ("Rule 3(g) Statement"). The
Government's Rule 3(g) Statement, inter alia, advert to the 1985
federal partnership tax return that clearly identifies Martin Carlin as
a partner of the Park Drive Manor Partnership, 600 West Harvey Street in
Philadelphia, Rule 3(g) Statement ¶3; the tax assessments made against
Park Drive in the total amount of $42,440.53, Rule 3(g) Statement ¶4;
and the sequence of events surrounding the multiple, intrafamily
conveyances of the Mount Vernon realty. Rule 3(g) Statement ¶¶8-11.
Only defendants Martin
Carlin, Barbara Carlin, LRSE, and Free Lunch filed a response to the
Government's summary judgment motion. Defendants' 3(g) statement,
however, does not controvert any of the material facts supporting the
Government's motion for summary judgment. 2
Because the defendants' opposing papers raise no genuine issue and fail
to controvert the facts recited in the Government's Rule 3(g) statement,
those facts are deemed admitted. Rule 3(g); San Filippo v. United
States Trust Company of New York, Inc., 737 F.2d 246, 247 (2d Cir.
Federal Tax Liens on the Park Drive Manor Partnership
Under the Internal Revenue
Code, employers are required to withhold federal income and social
security taxes from their employees' wages. Employers must keep the
withheld funds "in trust for the United States," 26 U.S.C. §7501(a),
and pay the funds to the IRS on a quarterly basis. Fiataruolo v.
United States [93-2 USTC ¶50,627], 8 F.3d 930, 938 (2d Cir. 1993).
An employer who fails to pay the withheld funds is liable for their
payment. The assessments against Park Drive were made pursuant to 26
U.S.C. §§667-6672 because of partnership's willful failure to collect,
truthfully account for, and pay over to the United States the income and
Federal Insurance Contributions Act taxes withheld from the wages of
employees of Park Manor. 3
Internal Revenue Service
tax assessments, like those issued against Park Drive, are entitled to a
presumption of correctness. United States v. McCombs [94-2 USTC
¶50,363], 30 F.3d 310, 318 (2d Cir. 1994); Llorente v. Commissioner
of Internal Revenue [81-1 USTC ¶9446], 649 F.2d 152, 156 (2d Cir.
1981). Thus, a taxpayer who wishes to challenge the validity of a tax
deficiency assessment bears the burden of production and persuasion. United
States v. Janis [76-2 USTC ¶16,229], 428 U.S. 433, 440, 96 S.Ct.
3021, 3025, 49 L.Ed.2d 1046 (1976); McCombs [94-2 USTC ¶50,363],
30 F.3d at 318; DeLorenzo v. United States [77-1 USTC ¶16,262],
555 F.2d 27, 29 (2d Cir. 1977). Defendants do not contest Park Drive's
tax liability or in any way challenge the accuracy of the assessments
made against the partnership.
Martin Carlin alone
attempts to immunize himself from liability by calling into question his
status as a partner of Park Drive. Martin Carlin asserts, on
"information and belief," that he never had any association
with, or knowledge of, an entity called Park Drive Manor Partnership. In
opposing a summary judgment motion, however, an adverse party "may
not rest upon the mere allegations or denials of the adverse party's
pleading, but the adverse party's response by affidavit or as otherwise
provided in this rule, must set forth specific facts showing that there
is a genuine issue for trial." Fed.R.Civ.P. 56(e); see Randell
v. United States [95-2 USTC ¶50,468], 64 F.3d 101, 108 (2d Cir.
1995), cert. denied, -- U.S.--, 117 S.Ct. 65, 136 L.Ed.2d 26
(1996). Facts alleged in Carlin's affidavit in opposition to the
Government's summary judgment motion did not purport to be made on
personal knowledge as required under Rule 56(e) of the Federal Rules of
Civil Procedure. As unsupported assertions they were inadequate to
defeat a motion for summary judgment. Randell [95-2 USTC ¶50,468],
64 F.3d at 109; Potamkin Cadillac Corp., 689 F.2d at 381.
Not only are Martin
Carlin's assertions unsubstantiated, but the undisputed facts before
this court clearly establishes Carlin's status as a partner of Park
Drive. Martin Carlin admits to having entered into a partnership with
Vlad Stevens and Steve Stevens for the purpose of purchasing "a
building complex known as Park Drive Manor Apartments in Philadelphia,
Pennsylvania." Carlin Dep. at 15-16. Vlad Stevens identified Martin
Carlin as a co-partner of the Park Drive Manor Partnership. Decl. of
Vlad Stevens ¶6. The federal partnership tax returns, IRS Forms 941 and
1065, list Martin Carlin as a partner of the Park Drive Manor
Partnership. Those returns contain a partner identification number for
each partner, including Martin Carlin.
In light of the presumption
of correctness afforded to government tax assessments and the failure of
defendants to introduce any evidence rebutting Park Drive's underlying
tax liability, the assessments rendered against the partnership are
taken as accurate. Furthermore, since Martin Carlin has failed to
establish that a genuine issue exists as to his status as partner of
Park Drive, this Court finds that he is jointly and severally liable,
under N.Y. Partnership Law §26, for the partnership's tax assessments.
Conveyances of the Mount Vernon Realty
The Government further
moves this Court to set aside the transfer of Martin Carlin's interest
in the Mount Vernon realty to his wife Barbara Carlin on the grounds
that the conveyance was effected to place the property beyond the reach
of Martin Carlin's creditors, including the IRS. The Government argues
that the conveyance was constructively fraudulent under New York's
Debtor and Creditor Law §273.
Section 273 of New York's
Debtor and Creditor Law states:
[e]very conveyance made and
every obligation incurred by a person who is or will be thereby rendered
insolvent is fraudulent as to creditors without regard to his actual
intent if the conveyance is made or the obligation incurred without a
& Cred.Law §273. Thus, to establish a fraudulent conveyance under
this provision, the Government must prove that (1) Martin Carlin
conveyed the property to his wife, (2) Martin Carlin was or would
thereby have become insolvent at the time he made the conveyance, and
(3) he made the conveyance without fair consideration.
The uncontested facts in
this case support the Government's claim. It is undisputed that Martin
Carlin conveyed his interest in the Mount Vernon realty to his wife
voluntarily and without consideration. Furthermore, Martin Carlin
conveyed the realty at a time that he was indebted to the United States
for federal taxes, and, according to his own testimony, in over $80
million of debt. Carlin Dep. at 35. When a transfer is made without
consideration, the initial burden to demonstrate solvency is on the
defendant. ACLI Government Securities, Inc. v. Rhoades, 653
F.Supp. 1388, 1393 (S.D.N.Y. 1987), aff'd, 842 F.2d 1287 (2d Cir.
Here, defendants have
adduced no evidence that Martin Carlin was solvent at the time of the
conveyance, nor have they otherwise challenged the Government's showing
that Martin Carlin was, in fact, insolvent at the time of the
conveyance. Accordingly, this Court finds that the August 26, 1987
conveyance was fraudulent under section 273 of the N.Y. Debtor &
Creditor Law. 4
This Court further finds
that the subsequent conveyances of the Mount Vernon realty, first from
Barbara Carlin to Free Lunch and then from Free Lunch to LRSE Realty,
were fraudulent under section 276 of New York's Debtor & Creditor
Law. Section 276 provides that "[e]very conveyance made and every
obligation incurred with actual intent, as distinguished from intent
presumed in law, to hinder, delay, or defraud either present or future
creditors, is fraudulent as to both present and future creditors."
N.Y.Debt. & Cred.Law §276.
Where actual intent to
defraud creditors is proven, the conveyance will be set aside regardless
of the adequacy of consideration. McCombs [94-2 USTC ¶50,363],
30 F.3d at 328. Under section 276, intent need not be shown by direct
evidence and is normally inferred from the circumstances surrounding the
transfer. Id.; In re Grand Jury Subpoena Duces Tecum Dated
Sept. 15, 1983, 731 F.2d 1032, 1041 (2d Cir. 1984); ACLI
Government Securities, 653 F.Supp. at 1394. Factors to consider
include close relationships among the parties, secrecy and haste in
making transfer, inadequacy of consideration, and the transferor's
knowledge of creditor's claims and any inability to pay them. McCombs
[94-2 USTC ¶50,363], 30 F.3d at 328. Only an actual intent to hinder
and delay need be established, not an actual intent to defraud, and lack
of fair consideration gives rise to a rebuttable presumption of
fraudulent intent. Atlanta Shipping Corp., Inc. v. Chemical Bank,
631 F.Supp. 335, 346-47 (S.D.N.Y. 1986), aff'd, 818 F.2d 240 (2d
The conveyances to Free
Lunch and LRSE had all of the indicia of fraudulent intent. On or about
March 28, 1988, Barbara Carlin transferred her interest in the Mount
Vernon realty to Free Lunch, an entity of which she was the sole
officer, for no consideration. Free Lunch's later conveyance of its
interest in the Mount Vernon realty to LRSE, an entity whose sole
officer was Martin Carlin's cousin, Michael Jaffe, was also for
inadequate consideration. Thus, plaintiff has asserted sufficient facts
to establish a presumption of fraudulent intent. Those facts remain
unchallenged by defendants.
Where a conveyance is
fraudulent as to a creditor, that creditor, when his claim has matured,
may have the conveyance set aside to the extent necessary to satisfy his
claim. N.Y.Debt. & Cred.Law §278(1)(a). Having determined that the
conveyances of the Mount Vernon realty to (1) Barbara Carlin, (2) Free
Lunch, and (3) LRSE were independently fraudulent, this Court orders
that those conveyances be set aside.
Priority of the IRS's Lien on the Mount Vernon Realty
The remaining issue is the
Government's request for an order declaring that the IRS's lien on the
realty has priority over the interests of defendant Gold Hawk.
Section 6321 of Title 26
authorizes the Government to impose a tax lien upon property of
defaulting taxpayers. 26 U.S.C. §6321; see McCombs [94-2 USTC ¶50,363],
30 F.3d at 321; United States v. 110-118 Riverside Tenants Corp.
[90-2 USTC ¶50,493], 886 F.2d 514, 518 (2d Cir. 1989), cert. denied,
495 U.S. 956, 110 S.Ct. 2560, 109 L.Ed.2d 743 (1990). Courts have long
held that priority of federal tax liens is to be determined by the rule
of "first in time, first in right." United States v. New
Britain [54-1 USTC ¶9191], 347 U.S. 81, 85, 74 S.Ct. 367, 370, 98
L.Ed. 520 (1954); 110-118 Riverside Tenants Corp. [90-2 USTC ¶50,493],
886 F.2d at 518. A federal tax lien is deemed to arise at the time that
the assessment is made, even where the lien has not been recorded, and
continues until the amount of liability set forth in the assessment is
satisfied. McCombs [94-2 USTC ¶50,363], 30 F.3d at 321; Don
King Productions, Inc. v. Thomas [91-2 USTC ¶50,474], 945 F.2d 529,
534 (2d Cir. 1991).
Once a lien is imposed, the
sale of any property on which the United States has such a lien is
subject to notice requirements set forth in 26 U.S.C. §7425(c)(1).
Notice of sale must be given in writing, by registered or certified mail
or by personal service, not less than 25 days prior to such sale, to the
Secretary of Treasury. 26 U.S.C. §7425(c)(1). Moreover, the judicial
sale of property in which the United States holds a tax lien is made
subject to, and without disturbing, the United States' tax liens. 26
U.S.C. §7425(b); see Berlin v. United States [82-1 USTC ¶9384],
535 F.Supp. 298 (E.D.N.Y. 1982) (holding that sheriff's execution sale,
pursuant to a junior judgment lien, did not extinguish the senior tax
lien of the IRS even where the plaintiff complied with all federal and
state notice requirements).
The uncontested facts
before the Court clearly establish the priority of the IRS's tax liens
over the interests of defendant Gold Hawk. The IRS made its assessments
on February 27, 1987 and March 30, 1987 and, on July 14, 1987, filed a
notice of federal tax lien against the partnership in the Westchester
County Clerk's office.
Meanwhile, defendant Gold
Hawk did not record its judgment in the Westchester County Clerk's
office until July 23, 1987, nine days after the IRS filed its notice of
lien and almost four months after the IRS made its final assessment
against Park Drive. Gold Hawk's judgment lien was, therefore, second in
time to the IRS's senior federal tax lien.
Thus, when Gold Hawk
subsequently arranged for the Westchester County Sheriff to schedule a
nonjudicial sale of the Mount Vernon realty, Gold Hawk was obligated,
pursuant to 26 U.S.C. §7425, to provide the IRS, as senior lien holder,
with notice of the sale. The sale, of which the IRS received no notice,
resulted in the property being sold to Gold Hawk by Sheriff's deed.
Accordingly, that sale was made subject to, and without disturbing, the
federal tax lien. See 26 U.S.C. §7425(b).
For the reasons set forth
above, the Government's motion for summary judgment is granted pursuant
to Fed.R.Civ.P. 56. The government shall submit a proposed judgment
consistent with this opinion by December 2, 1996 on five days notice to
On September 27, 1995, the Government and counsel for Barbara Carlin
appeared before Magistrate Judge Fox for reconsideration of sanctions
imposed on Barbara Carlin for her repeated failure to appear for
deposition. After determining that Barbara Carlin's noncompliance was
due to wilfulness and bad faith rather than any inability to comply,
Magistrate Judge Fox made the following findings of fact in accordance
with Fed. R.Civ.P. 37(b)(2):
Barbara Carlin can identify
no consideration supporting her husband, Martin Carlin's, conveyance of
his interest in the reality [sic] located at 175 Creary [sic] Avenue,
Mount Vernon New York (the "Realty") to her on August 26 1987.
. .. Barbara Carlin's subsequent conveyance of the Realty to defendant,
Free Lunch Incorporated ("Free Lunch") . . . was, again, for
no consideration. And third, Free Lunch's conveyance of it's [sic]
interest in property to LRSE Realty Corporation . . . was for inadequate
Without addressing the Government's recitation of facts not in dispute,
defendants' 3(g) statement simply asserts that "legal title to [the
Mount Vernon realty] was taken in the name of Park Drive Associates,
Inc.," and that "equitable title to the property was to be
held by Park Drive Associates, Ltd., a California limited
partnership." We presume that these statements are intended to call
into question the existence of the Park Drive Manor Partnership and to
raise the inference that Martin Carlin was not, in fact, a partner of a
partnership so named. The statements are supported by a 1994 letter of a
non-party attorney who had represented Martin Carlin and the Stevens
brothers in connection with their purchase of Park Drive Manor
apartments and the purported cover sheet of the closing papers for the
purchase of the Park Drive Manor Apartments. This Court finds that
neither document raises a genuine issue of material fact that would
preclude summary judgment.
The letter merely
establishes that an attorney who represented Carlin and the Stevens
brothers "as local counsel for limited purposes" was "not
aware of the Park Drive Manor Partnership." The attorney's
"awareness" of the partnership has no real probative value as
to whether the partnership in fact existed or owned the Park Drive Manor
The cover sheet for the
closing papers similarly lacks evidentiary value for the purposes of
this motion. The cover sheet states: "Property Title: Legal Title,
Park Drive Associates, Inc., a Pennsylvania corporation . . . Equitable
Title, Park Drive Associates, Ltd., a California limited
partnership." It further reflects that the closing date for the
sale and purchase of the Park Drive Manor apartment complex was October
30, 1985, over one year before the tax assessments at issue in the
underlying action were made. The cover sheet does not dispute the
existence of the Park Drive Manor Partnership in 1986, during which the
unpaid tax obligations leading to the assessment arose or in any way
contradict the facts adduced by the government, most notably the
existence of the federal tax return filed by the Park Drive Manor
Partnership reporting the income derived from the apartment complex
which it owned.
26 U.S.C. §6672 provides in pertinent part: Any person required to
collect, truthfully account for, and pay over any tax imposed by this
title who willfully failed to collect such tax, or truthfully account
for and pay over such tax, or willfully attempts in any manner to evade
or defeat such tax or the payment thereof, shall . . . be liable to a
penalty equal to the total amount of the tax evaded, or not collected,
or not accounted for and paid for.
The Government further contends that the conveyance was fraudulent on
the grounds that it was made (1) for inadequate consideration at a time
when the transferor believed that he would incur debts beyond his
ability to pay, N.Y.Debt. & Cred.Law §275; and (2) with the actual
intent to defraud the IRS. N.Y.Debt. & Cred.Law §276. Having
determined that the conveyance to Barbara Carlin was fraudulent under
section 273, this Court need not consider whether the conveyance was
fraudulent under those alternative theories.
United States of America, Plaintiff v. Linda K.
Hudnall and Daniel E. Oakes, Defendants
District Court, So. Dist. Fla., CIV-RYSKAMP 95-14324, 7/23/96
6321 and 7403
Liens and levies: Action to enforce lien: Fraudulent transfer.--The
conveyance of a personal residence between joint tenants was fraudulent;
therefore, the transferor remained the owner of the property in its
entirety and a federal tax lien attached to her interest. The transferee
recommended that the transfer be made in order to protect it from the
tax lien, and no reasonably equivalent value was given for the property.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
RYSKAMP, District Judge:
Following trial of this
matter by the Court without a jury on July 16, 1996, the Court enters
the following findings of fact and conclusions of law:
This civil action was
brought by the United States of America (1) to obtain a judgment against
Linda K. Hudnall for her unpaid federal tax liabilities, (2) to set
aside a fraudulent transfer of real property from defendant Hudnall to
defendant Oakes, and (3) to foreclose a federal tax lien on real
Oakes met Hudnall in West
Virginia in April 1991, and they began cohabiting before the end of the
year. In early 1992, Hudnall withdrew funds from her pension plan and
moved to Florida with Oakes. Hudnall received over $300,000 in pension
funds but did not pay income taxes on these funds. Hudnall's income tax
liability in 1992 was $107,671.82, not including interest and penalties.
On February 4, 1992,
Hudnall used some of her retirement funds to purchase a house at 7203
Santa Clara, Fort Pierce, Florida (hereinafter, the "subject
property"), whose legal description is:
Lot 24, Block 102, LAKEWOOD
PARK, UNIT 9, according to the Plat thereof, recorded in Plat Book 11,
Page 27, of the Public Records of St. Lucie County, Florida.
paid approximately $67,900 for the house; Oakes provided no funds or
other value for this purchase. At Oakes' suggestion, the subject
property was deeded to Hudnall and Oakes, as "joint tenants with
rights of survivorship and not as tenants in common."
Both Hudnall and Oakes were
aware of Hudnall's tax liability, even before Hudnall received any of
her pension funds. Oakes told Hudnall not to worry about her tax
liability and that he would pay it if necessary.
By quit-claim deed dated
July 17, 1992, Hudnall transferred her interest in the subject property
to Oakes. This transfer was made at Oakes' insistence, for the purpose
of protecting the subject property from the federal tax lien, and
Hudnall followed Oakes' recommendation. Oakes did not give reasonably
equivalent value for the transferred property.
On the dates and in the
amounts set forth in the table on the following page, a delegate of the
Secretary of the Treasury made assessments of income tax, penalties,
interest and costs against Hudnall:
Date of Amount of
Tax Year Assessment Assessment
1992 05/24/93 $107,671.82 Tax
06/20/94 12.00 Costs
Although notice has been
given and demand for payment of the liabilities set forth in the
preceding paragraph has been made, there is presently due and owing from
Hudnall the sum of $110,014.93 plus interest and statutory additions
thereon from May 24, 1993, as provided by law, which the defendant Linda
K. Hudnall has refused and neglected to pay.
On June 7, 1994, a notice
of federal tax lien for the liabilities described above was filed in the
official records of St. Lucie County, Florida.
conveyances of interests in the subject property to Oakes were made with
actual intent to hinder, delay, or defraud a creditor of Hudnall,
namely, the United States.
The record discloses that
Hudnall was served with a summons and complaint in this action on
December 7, 1995, and has not answered or otherwise responded to the
summons and complaint. Default was entered against Hudnall on May 22,
1996. Hudnall is neither an infant nor an incompetent person.
The Court has jurisdiction
over this action pursuant to Sections 1340 and 1345 of Title 28, U.S.C.,
7402 and 7403
of the Internal Revenue Code of 1986 (26 U.S.C), in that this
civil action is brought by the United States of America and arises under
an Act of Congress providing for Internal Revenue.
conveyances of interests in the subject property to Oakes were made with
actual intent to hinder, delay, or defraud a creditor of Hudnall,
namely, the United States.
The federal tax lien for
Hudnall's 1992 income tax liability attaches to the subject property.
The purported conveyances
at issue are and were fraudulent as to the United States of America, the
purported conveyances are null and void, Linda K. Hudnall is the owner
of the subject property in its entirety, and the tax lien of the United
States attaches to her right, title and interest therein.
The United States of
America has a valid federal tax lien by virtue of the assessments set
forth above on all property and rights to property belonging to Linda K.
Hudnall, including the subject real property.
Said federal tax lien has
priority over any claim of defendant Oakes to the subject property.
A separate judgment shall
be entered in accordance with these findings of fact and conclusions of
law, giving judgment against Hudnall, foreclosing the federal tax lien,
and ordering the sale of the subject property.
United States of America, Plaintiff-Appellee v.
Ronald L. Bodwell, Defendant-Appellant
U.S. Court of Appeals, 9th Circuit, 97-15316, 1/15/98, Affirming
District Court decisions, 96-2
USTC ¶50,592 and 97-1
Sec. 6203 ]
Assessments: Res judicata: Discovery: Burden of proof.--An
individual raising tax protestor arguments was barred by the doctrine of
res judicata from challenging the validity of tax assessments
that had been reduced to judgment and that he could have contested in an
earlier Tax Court action. Additionally, the individual was not entitled
to a continuance for further discovery in a suit for tax assessment
because he sought information concerning issues that were resolved in an
earlier order granting partial summary judgment to the government. He
failed to allege on appeal how further discovery would assist him in
rebutting the government's evidence.
Sec. 6303 ]
Assessments: Notice and demand for payment: Form 4340.--An
individual failed to prove that he was not properly served with notice
and demand for payment of a tax assessment. The Form 4340 submitted by
the government constituted sufficient evidence of notice and demand for
Secs. 6321 and 6502
Fraudulent conveyances: Statute of limitations.--In a proceeding
reducing tax assessments to judgment, the government's complaint against
an individual for fraudulently conveying property to third parties was
timely filed within the applicable 10-year limitations period.
Sec. 7401 ]
Authorization of government to bring civil suit.--The IRS Chief
Counsel and the Assistant Attorney General of the tax division had the
authority to commence a tax assessment proceeding against an individual.
[Fed. R. App. P. 38 ]
Frivolous appeal: Sanctions.--The government's motion for
sanctions against a taxpayer for filing a frivolous appeal from a
district court's tax assessment judgment was denied.
Jeffrey R. Meyer, Robert L.
Baker, Department of Justice, Washington, D.C. 20530, for
plaintiff-appellee. Ronald L. Bodwell, P.O. Box 41843, Sacramento,
Calif. 95841-0843, for defendant-appellant.
KLEINFELD, and THOMAS, Circuit Judges. *
This court has designated this opinion as NOT FOR PUBLICATION. Consult
the Rules of the Court before citing this case.
Defendant Ronald L. Bodwell
("Bodwell") appeals pro se from a grant of summary judgment in
favor of the United States reducing a tax assessment for the years 1979,
1980, and 1981 to a federal tax lien on Bodwell's Kyburz property
("Kyburz"). Bodwell also argues that the district court abused
its discretion in denying his motions to compel discovery and for a
continuance. We have jurisdiction pursuant to 28 U.S.C. §1291. We
We review de novo a
grant of summary judgment. Hansen v. United States, 7 F.3d 137,
138 (9th Cir. 1993).
Bodwell argues that the
district court failed to review the tax assessment which the government
reduced to judgment against him. The district court found that any
arguments raised to challenge the tax assessment were barred by the
doctrine of res judicata. "Under [the doctrine of res judicata], a
final judgment on the merits of an action precludes the parties from
relitigating issues that were or could have been raised in that
action." Baker v. IRS (In re Baker), 74 F.3d 906, 909-10
(9th Cir. 1996) (emphasis added).
In this case, the tax
assessments for the years 1979, 1980, and 1981 were made after Bodwell
received a notice of deficiencies which he challenged in federal tax
court. See Ronald L. Bodwell and Betty Bodwell v. C.I.R., Docket
No. 1113-84, entered on July 17, 1985, aff'd, 798 F.2d 472 (9th
Cir. 1986), cert. denied, 479 U.S. 1093 (1987). Thus, the
district court was correct in refusing to consider arguments by Bodwell
challenging the validity of the tax assessment. We also refuse to
consider these arguments on appeal. 1
Bodwell contends that the
court's consideration of the form 4340 submitted by the government to
show the tax assessment against Bodwell constituted an improper reliance
on hearsay evidence. Bodwell also argues that the form 4340 is
insufficient evidence of notice and demand for payment of the tax
assessment required by 26 U.S.C. §6303(a). 2
We rejected similar arguments in Hansen, 7 F.3d at 138 (9th Cir.
1993) (holding that the computer-generated form 4340 is reliable
evidence and sufficient in the absence of contrary evidence to establish
that notice and demand were made). Bodwell asserts that notice and
demand were not served. Bodwell failed, however, to submit evidence
establishing a genuine issue of fact as to service. Id.
Bodwell states several
additional contentions in support of a reversal of summary judgment.
Bodwell first contends that the IRS has no authority to seize Kyburz. We
will not consider this argument because the record indicates that it was
not raised before the district court. See Speck v. United States
[95-2 USTC ¶50,341], 59 F.3d 106, 109 (9th Cir. 1995) (declining to
consider argument raised for the first time on appeal where no reason
for delay is offered).
Second, Bodwell contends
that the government did not have the proper authorization to commence
this action against him. Bodwell relies on 26 U.S.C. §7401, which
No civil action for the
collection of taxes, or of any fine, penalty, or forfeiture, shall be
commenced unless the Secretary authorizes or sanctions the proceedings
and the Attorney General or his delegate directs that the action be
U.S.C. §7401 (1997).
We agree with the district
court's finding that the government did have the proper authority to
commence this action pursuant to §7401. The court referred to a letter
from the Chief Counsel of the Internal Revenue Service ("IRS")
authorizing the action against Bodwell and a letter from the Assistant
Attorney General of the tax division directing commencement of this
action against Bodwell. Pursuant to 26 U.S.C. §7701, which provides the
definitions for terms used in the Internal Revenue Code, the term
"Secretary" shall include "the Secretary of the Treasury
or his delegate." 26 U.S.C. §7701(a)(11)(B) (1997). The term
"delegate" includes "any officer, employee, or agency of
the Treasury Department. . ." 26 U.S.C. §7701(a)(12)(A) (1997).
Thus, the Chief Counsel for the IRS and the Assistant Attorney General
of the tax division are authorized to direct commencement of this action
Third, Bodwell contends
that summary judgment was inappropriate because the government failed to
prove that Bodwell fraudulently conveyed Kyburz to any of the other
defendants. The court found that only Bodwell had any remaining interest
in Kyburz because default judgments were entered against all other
defendants. None of the other defendants have appealed the court's entry
of default judgment against them.
"Upon entry of a
default judgment, the facts alleged to establish liability are binding
upon the defaulting party, and those matters may not be relitigated on
appeal." Alan Neuman Prods., Inc. v. Albright, 862 F.2d
1388, 1392 (9th Cir. 1989). The status of the property as to all
defaulted defendants is that it was fraudulently conveyed to them by
Bodwell. Bodwell's argument that Kyburz was not fraudulently conveyed is
tantamount to claiming that he has no interest in Kyburz. This argument
is inherently inconsistent. None of the other defendants have come
forward to dispute the allegations in the government's complaint
asserting that Bodwell is the true owner of Kyburz. In light of this, we
conclude that there is no genuine issue of material fact as to Bodwell's
ownership of Kyburz.
Fourth, Bodwell contends
that the statute of limitations for extinguishing a fraudulent
conveyance pursuant to 28 U.S.C. §3306(b), expired three years before
the United States filed suit. The district court correctly applied 26
U.S.C. §6502(a)(1) which allows for a ten year statute of limitations
in this case. See United States v. Bacon, 82 F.3d 822, 825 (9th
Cir. 1996). Therefore, the government's complaint was timely.
Bodwell also argues that
the district court erred in denying his motions to compel discovery and
for a continuance of summary judgment to allow more time for discovery.
"We review for abuse of discretion a district court's decision not
to permit further discovery." Qualls v. Blue Cross of Cal., Inc.,
22 F.3d 839, 844 (9th Cir. 1994). To establish abuse of discretion
Bodwell must show, 1) he diligently pursued previous discovery
opportunities, and 2) how allowing additional discovery would have
precluded summary judgement. Id.
The district court found
that a continuance for further discovery was unnecessary because Bodwell
sought information only regarding issues already resolved by the court's
earlier order granting partial summary judgment. This ruling is not an
abuse of discretion. Furthermore, Bodwell fails to allege on appeal how
further discovery would assist him in rebutting the government's
evidence against him.
The government's request
for sanctions against Bodwell for filing a frivolous appeal is denied.
The panel unanimously finds this case suitable for decision without oral
argument. See Fed. R. App. P. 34(a); 9th Cir. R. 34-4.
This disposition is not appropriate for publication and may not be cited
to or by the courts of this circuit except as provided by 9th Cir. R.
Bodwell's arguments which are barred by the doctrine of res judicata
are: 1) the tax court had no authority and no jurisdiction to implement
federal income taxes against him, 2) applicable regulations are invalid
for failure to comply with notice and comment procedures, 3) the notice
of deficiencies was invalid, thereby depriving the tax court of
jurisdiction. All of these are challenges Bodwell could have brought in
his petition to the tax court and on appeal from the tax court's
Section 6303(a) provides:
Where it is not otherwise
provided by this title, the Secretary shall, as soon as practicable, and
within 60 days, after the making of an assessment of a tax pursuant to
section 6203, give notice to each person liable for the unpaid tax,
stating the amount and demanding payment thereof. Such notice shall be
left at the dwelling or usual place of business of such person, or shall
be sent by mail to such person's last known address.
U.S.C. §6303(a) (1997).