MEMORANDUM
ON UNITED STATES' MOTION FOR SUMMARY JUDGMENT
STAIR, JR., Bankruptcy Judge: On
October 19, 2001
, the Plaintiffs, Kenneth and Peggy Hurley,
filed the Complaint initiating this adversary
proceeding in which they seek equitable relief
from this court setting aside certain recorded
deeds transferring the Plaintiffs' real
property, which the Plaintiffs claim were
fraudulendy [fraudulently] obtained by the
Debtor, Ragip Sinan Mungan d/b/a Mortgage
Masters, Inc. The United States of America,
"by and through the Internal Revenue
Service" (
IRS
) is named as a defendant due to federal tax
liens levied against the real property on
account of taxes assessed against the Plaintiffs
and Defendant Mortgage Masters, Inc. (Mortgage
Masters).
Before the court is a Motion for Summary
Judgment (Motion) filed by the
IRS
on
October 4, 2002
, asserting that regardless of which entity
actually owns the real property real at issue,
the Plaintiffs or Mortgage Masters, the
IRS
has liens encumbering the real property based on
recorded federal tax liens. The Plaintiffs filed
a "Plaintiffs' Response to
United States
' Motion for Summary Judgment" on
October 15, 2002
, stating that their tax liability has been
satisfied pursuant to payment and settlement
with the
IRS
. Neither Mortgage Masters, the Longs, nor any
other defendant filed a response to the Motion.
Accordingly, no defendant opposes the Motion. 1
This is a core proceeding. 28 U.S.C.A
§157(B)(2)(A), (K), and (O). (West 1993).
I
The facts, as pertinent to the Motion, are set
forth in the Plaintiffs' Complaint and the
Motion. Prior to December 1997, the Plaintiffs
owned two parcels of real property, one located
at
4220 Van Dyke Drive
,
Knoxville
,
Tennessee
(collectively, the Real Property). For reasons
in dispute and still to be litigated, the
Plaintiffs transferred at the Van Dyke property
to the Defendants Michael and Robin Hunley and
transferred the Van Dyke property was
subsequently transferred to Mortgage Masters. By
this adversary proceeding, the Plaintiffs are
seeking to set aside these conveyances as
fraudulent.
The
IRS
filed four federal tax liens against the
Plaintiffs: (1) on August 15, 1994, in the
aggregate amount of $12,920.98; (2) on September
29, 1994, in the amount of $1,617.00; (3) on
February 10, 1998, in the aggregate amount of
$2,285.64; and (4) on March 23, 2001, in the
amount of $1,083.34 (the Federal Tax Liens). 2
The
IRS
claims that these tax liens are secured by the
Real Property, regardless of whether it is owned
by tho Plaintiffs, the Longs, or Mortgage
Masters. The
IRS
argues that if the Plaintiffs still own the Real
Property, the 1994 tax liens attached to it
prior to any alleged fraudulent conveyances or
other encumbrances. Additionally, if the court
later determines that the Real Property is owned
by Mortgage Masters and/or the Longs, the
IRS
again claims to be a secured creditor by virtue
of its tax liens. 3
II
Rule 56 of the Federal Rules of Civil Procedure
provides for summary judgment "if the
pleadings, depositions, answers to
interrogatories, and admissions on file,
together with the affidavits, if any, show that
there is no genuine issue as to any material
fact and the moving party is entitled to a
judgment as a matter of law."
FED
R.
CIV
. P. 56(c). Rule 56(c) is made applicable to
this adversary proceeding by Rule 7056 of the
Federal Rules of Bankruptcy Procedure.
The
IRS
, as the moving party, bears the initial burden
of proving both that there is no issue of
material and that it is entitled to judgment as
a matter of law. Owens Corning v. Nat'l Union
Fire Ftre Ins. Co., 257 F.3d 484, 491 (6th
Cir. 2001), The burden then shifts to the
nonmoving party, in this case, the Plaintiffs,
to produce specific facts showing that there is,
in fact, a genuine issue for trial. Matsushita
Elec. Indus. Co., Ltd. v. Zenith Radio Corp.,
106 S.Ct. 1348, 1356 (1986) (citing
FED
. R.
CIV
. P. 56(e)). In doing so, the nonmoving party
must cite specific evidence and may not merely
rely upon allegations contained in the
pleadings. Harris v. Gen. Motors Corp,
201 F.3d 800, 802 (6th Cir. 2000). The facts,
and all resulting inferences must be viewed in
the light most favorable to the nonmovant. Matsushita,
106 S.Ct. at 1356. The court must then decide
whether "the evidence presents a sufficient
disagreement to require submission to a jury or
whether it is so one-sided that one party must
prevail as a matter of law." Anderson v.
Liberty Lobby, Inc., 106 S.Ct. 2505, 2512
(1986).
III
In support of its Motion for Summary Judgment,
the
IRS
attached copies of the Federal Tax Liens
recorded against both the Plaintiffs and
Mortgage Masters. The Federal Tax Liens
concerning the Plaintiffs are itemized as
follows:
(1) Lien filed
August 15, 1994
, which includes taxes in the amount of
$12,920.98 for the periods ending
December 31, 1989
, and
December 31, 1992
. These taxes were assessed on
May 28, 1990
, and
October 4, 1993
, respectively.
(2) Lien filed
September 29, 1994
, which includes taxes in the amount of
$1,617.00 for the period ending
December 31, 1993
, which were assessed on
September 5, 1994
.
(3) Lien filed
February 10, 1998
, which includes taxes in the amount of
$2,285.64 for the periods ending
December 31, 1994
,
December 31, 1995
, and
December 31, 1996
. These taxes were assessed on
October 2, 1995
,
September 9, 1996
, and
September 29, 1997
, respectively.
(4) Lien filed
March 23, 2001
, which includes taxes in the amount of
$1,083.34 for the period ending
December 31, 1997
, and assessed on
November 16, 1998
.
In response, the Plaintiffs rely upon the
Affidavit of the Plaintiff, Kenneth Hunley,
together with a payment receipt showing payment
to the
IRS
in the amount of $359.84 on
October 9, 2001
, and a second copy of the payment receipt with
a handwritten "Paid in full. D. Sester ID
62-11031" and marked "Received
October 10, 2001
Internal Revenue Service, W & I Area 3,
Territory 4,
Knoxville
,
Tennessee
." In his Affidavit, the Plaintiff states
that Ms. Sester, an employee of the
IRS
in Knoxville, Tennessee, told him that payment
of the $359.84 would clear the Plaintiffs' debt
with the
IRS
because "the rest of the debt was in a
`non-collectable [sic] status."' The
Plaintiff also avers that Ms. Sester told the
Plaintiffs that "the uncollectable [sic]
debt liens would be gone or expire by the end of
2003." The Plaintiffs therefore contend
that their debt to the
IRS
has been "fully satisfied and paid in
full."
IV
Federal Tax Liens are governed by the Internal
Revenue Code (I.R.C.), located at title 26 of
the United States Code. The statutes pertinent
to this action are, as follows:
§6321. Lien for taxes.
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 or
personal, belonging to such person.
I.R.C. §6321 (West 2002).
§6322. Period of lien.
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.
I.R.C. §6322 (West 2002).
§6325. Release of lien or discharge of property.
(a) Release of lien. --Subject to such regulations as the Secretary
may prescribe, the Secretary shall issue a
certificate of release of any lien imposed with
respect to any internal revenue tax not later
than 30 days after the day on which --
(1) Liability satisfied or unenforceable. --The Secretary finds
that the liability for the amount assessed,
together with all interest in respect thereof,
has been fully satisfied or has become legally
unenforceable; ...
....
(f) Effect of certificate. --
(1) Conclusiveness. --... [I]f a certificate is issued pursuant to
this section by the Secretary and is filed in
the same office as the notice of lien to which
it relates (if such notice of lien has been
filed) such certificate shall have the following
effect:
(A) in the case of a certificate of release, such certificate shall
be conclusive that the lien referred to in such
certificate is extinguished;
(B) in the case of a certificate of discharge, such certificate
shall be conclusive that the property covered by
such certificate is discharged from the lien[.]
I.R.C. §6325(a)(1) (West 2002).
§7122. Compromises.
(a) Authorization. --The Secretary may compromise any civil or
criminal case arising under the internal revenue
laws prior to reference to the Department of
Justice for prosecution or defense; ...
(b) Record. --Whenever a compromise is made by the Secretary in any
case, there shall be placed on file in the
office of the Secretary the opinion of the
General Counsel for the Department of the
Treasury or his delegate, with his reasons
therefor, with a statement of --
(1) The amount of tax assessed,
(2) The amount of interest, additional amount, addition to the tax,
or assessable penalty, imposed by law on the
person against whom the tax is assessed, and
(3) The amount actually paid in accordance with the terms of the
compromise.
Notwithstanding the foregoing provisions of this subsection, no
such opinion shall be required with respect to
the compromise of any civil case in which the
unpaid amount of tax assessed (including any
interest, additional amount, addition to the
tax, or assessable penalty) is less than
$50,000. However, such compromise shall be
subject to continuing quality review by the
Secretary.
I.R.C. §7122 (West 2002).
In summary, a valid tax lien, once recorded,
remains as long as the underlying tax liability
is enforceable. I.R.C. §6322; United States
v. Hodes [ 66-1
USTC ¶9232], 355 F.2d 746, 748 (2d
Cir. 1966). There are only three methods for
releasing an
IRS
tax lien: "1) the tax lien becomes
unenforceable by operation of time, (2) the debt
which is the basis of the lien is paid in full
or (3) an Offer in Compromise is accepted by the
IRS
which would settle the debt and any tax lien
associated with the debt would be no longer
enforceable and have to be released." United
States v. Alfano [ 99-1
USTC ¶50,303], 34 F.Supp.2d 827, 840
(
E.D.
N.Y.
1999) (quoting In re Robert Turner Optical,
Inc. [ 94-2
USTC ¶50,555], Bankr. No. 93-01004,
1994 WL 779352, at *4 (Bankr. N.D.
Ala.
Sept. 8, 1994
)). To be unenforceable under I.R.C. §6322,
"all of the [
IRS
's] remedies ... must be extinguished."
Id.
at 839 (quoting Dillard v.
United States
(In re Dillard), 118 B.R. 89, 93 (Bankr.
N.D.
Ill.
1990)).
V
In the present case, there is no question that
the Federal Tax Liens have not become
unenforceable by operation of time. As noted on
the Federal Tax Liens, with the exception of the
1989 assessments, the re-file deadlines have not
yet expired. As such, the Liens would still be
enforceable. 4
Additionally, there is no question that the
Plaintiffs have not paid in full the total
amounts assessed and covered by the Federal Tax
Liens.
The first issue is whether the Plaintiffs'
$359.84 payment to the
IRS
constituted a compromise for the entire amount
of tax liability owed by the Plaintiffs, such
that it would release the Federal Tax Liens on
the Real Property.
"An offer to compromise a tax liability
must be made in writing, must be signed by the
taxpayer under penalty of perjury, and must
contain all of the information prescribed or
requested by the Secretary." 26 C.F.R.
§301.7122-1(d)(1). The offer must also be
accepted by an
IRS
delegate authorized to accept such compromises. See
Foulds v. Comm'r [ CCH
Dec. 45,433(M)], 56 T.C.M. (CCH) 1112
(1989). "An offer to compromise has not
been accepted until the IRS issues a written
notification of acceptance to the taxpayer or
the taxpayer's representative." 26 C.F.R.
§301.7122-1(e)(1). These regulations are
strictly construed and compliance therewith is
mandatory. Delohery v. Internal Revenue Serv.
[ 94-1
USTC ¶50,144], 843 F.Supp. 666, 669
(D. Colo. 1994) (citing Boulez v. Comm'r
[ 87-1
USTC ¶9177], 810 F.2d 209, 215 (D.C.
Cir. 1987)). These regulations provide the only
means by which a compromise with the IRS may be
effectuated.
Id.
(citing Klein v. Comm'r [ 90-1
USTC ¶50,251], 899 F.2d 1149, 1152
(11th Cir. 1990); Laurins v. Comm'r [ 89-2
USTC ¶9636], 889 F.2d 910, 912 (9th
Cir. 1989); Brooks v. United States [ 87-2
USTC ¶9626], 833 F.2d 1136, 1145
(4th Cir. 1987)).
An informal "agreement" does not
constitute a compromise under the I.R.C. and
does not bind the government. See Botany
Worsted Mills v. United States [1 USTC
¶348], 49 S.Ct. 129, 132 (1929). Therefore,
"even if subordinate revenue officials at a
conference informally [agree] to accept the
taxpayer's payment of a lien in full
satisfaction of [his] liability, that agreement
would not bind [the IRS]." Foulds [ CCH
Dec. 45,433(M)], 56 T.C.M. 1112
(citing Parks v. Comm'r [ CCH
Dec. 23,848], 33 T.C. 298, 301
(1959)).
The Plaintiffs have the burden of proving that
their payment of $359.84 was a compromise of
their entire tax liability of $17,906.96.
Id.
(citing Welch v. Helvering [3 USTC
¶1164], 290 U.S. 111 (1933)). The Plaintiffs
must likewise prove that D. Sester, as the
government official who allegedly formed a
compromise with them, had the actual authority
to bind the IRS to such agreement. See
Brubaker v. United States [ 65-1
USTC ¶9274], 342 F.2d 655, 662 (7th
Cir. 1965); Buesing v. United States [ 99-1
USTC ¶50,246], 42 Fed.Cl. 679, 688
(Fed. Cl. 1999) (citing, among others, City
of El Centro v. United States, 922 F.2d 816,
820 (Fed. Cir. 1990)).
The documents provided by the Plaintiffs do not
convince the court that the Plaintiffs and the
IRS entered into a compromise whereby the
Plaintiffs were released from their total
$17,906.96 tax liability by the payment of
$359.84. First, there was no offer to compromise
in writing, as required by 26 C.F.R.
301.7122-1(d)(1), nor was there a written
acceptance by the IRS of an offer of compromise,
as required by 26 C.F.R. §301.7122-1(e)(1). The
receipt of payment evidencing the handwritten
"Paid in full. D. Sester ID 62-11031"
and marked "Received October 10, 2001
Internal Revenue Service, W&I Area 3,
Territory 4, Knoxville, Tennessee" does not
satisfy this requirement.
Moreover, after reviewing these documents, it is
obvious to the court that the $359.84 payment
made by the Plaintiffs was in satisfaction of
their past due 1999 taxes, for which the IRS has
not recorded or asserted a lien. The taxes
covered by the Federal Tax Liens are for the
years 1989, 1992, 1993, 1994, 1995, 1996, and
1997.
Second, the IRS did not file a certificate of
release pertaining to the Federal Tax Liens with
the Knox County Register of Deeds, as it is
required to do in the event of a party's
satisfaction. See I.R.C. §6325. A
certificate of release of the lien must be
filed, otherwise, the tax lien is not released. United
States v. Waite, Inc. [ 80-1
USTC ¶9128], 480 F.Supp. 1235,
1239-40 (W.D. Pa. 1979). Clearly, the IRS did
not intend for the Plaintiffs' $359.84 payment
to satisfy the entire $17,906.96 balance owed by
the Plaintiffs and secured by the Federal Tax
Liens. 5
VI
The next issue before the court is whether the
Federal Tax Liens which attached to the Real
Property prior to any alleged conveyances or
transfers would still attach regardless of the
current owner of the Real Property.
Federal tax liens attach to the property and
property rights of the delinquent taxpayer. Pronto
Enters., Inc. v. United States, 188 B.R. 590
(W.D. Mo. 1995). This includes real and personal
property owned at the time of assessment and
after-acquired. United States v. Gen. Motors
Corp. [ 91-2
USTC ¶50,158], 929 F.2d 249, 251
(6th Cir. 1991). Once a federal tax lien has
attached, the delinquent taxpayer "cannot
avoid or defeat liability by disclaiming or
renouncing interest in the property or
transferring or conveying the interest." United
States v. Jepsen [ 2000-2
USTC ¶50,608], 131 F.Supp.2d 1076,
1085 (W.D. Ark. 2000) (citing United States
v. Rodgers [ 83-1
USTC ¶9374], 103 S.Ct. 2132, 2141
n.6 (1983)). Likewise, once the lien has
attached, any subsequent purchaser of the
property takes subject to the
IRS
lien. See United States v. Bess [ 58-2
USTC ¶9595], 78 S.Ct. 1054, 1058
(1958) ("The transfer of property
subsequent to the attachment of the
lien...."); United States v. Donahue
[ 90-2
USTC ¶50,343], 905 F.2d 1325, 1331
(9th Cir. 1990) ("[A] lien continues to
attach to a taxpayer's property regardless of
any subsequent transfer of the property.").
It does not matter whether the Real Property is
presently owned by the Plaintiffs, by the Longs,
or by Mortgage Masters. In either event, the
IRS
maintains a security interest in the Real
Property pursuant to its Federal Tax Liens filed
prior to any sort of transfer. Accordingly, if
the Plaintiffs still own the Real Property, it
is encumbered by the Federal Tax Lies filed in
their names. However, if Mortgage Masters is the
owner of the Van Dyke property, that property is
encumbered not only by the Federal Tax Liens in
Mortgage Masters' name, but also by the Federal
Tax Liens filed in the Plaintiffs' names prior
to the first date of transfer, i.e., all
Federal Tax Liens filed prior to August 1, 1999.
Likewise, the
Jade Road
property allegedly transferred to the Longs is
encumbered with the Federal Tax Liens in the
Plaintiffs' names prior to and at the time of
the transfer.
VII
Taking all facts and inferences in the light
most favorable to the Plaintiffs, the court
finds that there is no genuine issue of material
fact. There was no compromise of the total tax
liability evidenced by the Federal Tax Liens.
Additionally, pursuant to the Internal Revenue
Code, the Federal Tax Liens attaching the Real
Property remain until either released or
satisfied. As such, the
IRS
is entitled to summary as a matter of law.
An order consistent with this Memorandum will be
entered.
ORDER
Pursuant to the Memorandum on
United States
' Motion for Summary Judgment filed this date,
the court directs the following:
1. The United States' Motion for Summary
Judgment filed October 4, 2002, by the Defendant
United States of America, on behalf of its
agency, the Internal Revenue Service, is
GRANTED.
2. The Federal Tax Liens filed against the
Plaintiffs by the Internal Revenue Service on
August 15, 1994, September 29, 1994, February
10, 1998, and March 23, 2001, unless otherwise
released by the Internal Revenue Service,
continue to encumber the real property known as
4220 Van Dyke Drive, Knoxville, Tennessee, and
610 Jade Road, Knoxville, Tennessee, and the
interest of the Defendant United States in these
properties is superior to all subsequently filed
interests in the properties.
3. The Federal Tax Liens filed against the
Defendant Mortgage Masters, Inc., by the
Internal Revenue Service on February 23, 2001,
April 10, 2001, and October 29, 2001, continue
to encumber the real property known as 4220 Van
Dyke Drive, Knoxville, Tennessee, and the
interest of the United States in this property
is superior to all subsequently filed interests
in this property.
SO ORDERED.
1
Pursuant to E.D.Tenn. LBR 7007-1, a party
opposing a motion for summary judgment
"shall be respond within twenty days after
the date of the filing of the motion.... A
failure to respond shall be construed by the
court to mean that the respondent does not
oppose the relief requested by the motion."
2
Additionally, the
IRS
filed the following three Federal Tax Liens
against Mortgage Masters: (1) February 23, 2001,
in the aggregate amount of $65,897.03; (2) April
10, 2001, in the amount of $1,650.00; and (3)
October 29, 2001, in the amount of $7,363.61.
Because Mortgage Masters and Robert and Melissa
Long do not oppose the Motion, summary judgment
will be granted the
IRS
as to them. See supra 1.
3
Summary judgment is being granted on this claim,
so if Mortgage Masters and the Longs are deemed
to own the Real Property, the Real Property is
subject to the
IRS
liens.
4
The Federal Tax Lien notices each provide that:
With respect to each assessment below, unless
notice of lien is refiled by the date in column
(e), this notice shall constitute the
certificate of release of lien as defined in IRC
6235(a).
The deadline for re-filing the Federal Tax Lien
as to the 1989 assessment was June 27, 2000. It
appears that the 1989 assessment was not
re-filed, and if so, the tax liability therefor,
in the amount of $11,079.25, was in fact
released.
5
As noted earlier, however, if the
IRS
did not re-file its Federal Tax Lien for the
1999 assessment prior to June 27, 2000, the
Notice of Tax Lien recorded on August 15, 1994,
will, in fact, serve as the Certificate of
Release of Lien as to $11,079.25 in tax
liability, thus leaving the Plaintiffs' total
tax liability as $6,827.71.
[2000-1 USTC ¶50,386] James R. Smith and Thelma J. Smith,
Plaintiffs v. The
United States
, Defendant
U.S. Court of Federal Claims, 99-227T,
4/10/2000
[Code
Sec. 6402 ]
Refund claims: Tax overpayment: Offset of
prior years' liability.--Married taxpayers
who filed suit for payment of income tax refunds
allegedly due failed to raise any triable issue
of fact. The government's introduction into
evidence of assessments against the couple for
unpaid taxes, penalties and interest from prior
years established a prima facie case of
liability. Although the couple alleged that the
IRS
had wrongfully retained refunds due them as a
result of overpayments for several tax years,
they did not introduce any evidence to rebut the
government's prima facie case that the
couple had outstanding tax liabilities to which
the overpayments had been applied. BACK
REFERENCES: ¶38,519.16
ORDER
MEROW, Senior Judge:
This case is currently before the court on the defendant's Motion
for Summary Judgment. After a careful review of
the parties' submissions, the defendant's motion
is GRANTED.
FACTS
Plaintiffs James R. and Thelma J. Smith filed suit in this court
seeking payment of personal income tax refunds
allegedly due. Plaintiffs previously litigated
personal income tax deficiencies in the United
States Tax Court. In a decision filed November
26, 1990, 1
the Tax Court determined that plaintiffs had an
income tax deficiency of $5,810, a substantial
understatement of liability penalty of $1,453
and a late filing penalty of $1,183 for the 1983
tax year. In addition, the Tax Court found a tax
deficiency of $12,312, a substantial
understatement of liability penalty of $3,078,
and a late payment penalty of $3,078, for the
1984 tax year. A second Tax Court Decision,
filed April 29, 1994, 2
determined that plaintiffs had an income tax
deficiency of $3,545 and a late filing penalty
of $100 for the tax year 1986. Finally, the
decision determined that plaintiffs had an
income tax deficiency of $4,142 and a late
filing penalty of $671 for 1987.
Following each of the Tax Court decisions, the Internal Revenue
Service ("
IRS
") assessed against plaintiffs the amounts
determined by the Tax Court 3
along with interest. On or about April 24, 1991,
the
IRS
assessed $7,485.56 in interest on plaintiffs'
1983 tax return and $15,219.75 in interest on
plaintiffs' 1984 tax return. On or about July 4,
1994, the
IRS
assessed $3,582.78 in interest for plaintiffs'
1986 tax return and $3,178.91 in interest for
plaintiffs' 1987 tax return. As of
May 26, 1999
,
IRS
records show that plaintiffs have an outstanding
balance of $7,925.90 in accrued interest for tax
year 1983; assessed tax, penalties, and interest
of $34,509.35 for tax year 1984; assessed tax,
penalties, and interest of $7,251.78 for tax
year 1986; and assessed tax, penalties, and
interest of $8,591.91 for tax year 1987.
Following the first Tax Court decision, plaintiffs filed their
personal income tax return for the 1991 tax
year, on or about April 15, 1992. 4
Plaintiffs overpaid $2,548 and this amount was
refunded to them, along with $40.76 in interest.
On or about April 15, 1993, plaintiffs filed
their 1992 tax return and requested a refund of
$925. On or about March 25, 1993, the
IRS
applied the $925 tax overpayment against
plaintiffs' outstanding liability for income
tax, penalties and interest assessed for their
1983 tax year. On or about April 15, 1994,
plaintiffs filed their 1993 tax return and
requested that their $1,102 overpayment be
refunded. On or about April 4, 1994, the
IRS
applied plaintiffs' $1,102 refund to their
outstanding assessments for the 1983 tax year.
On or about April 15, 1995, plaintiffs filed
their 1994 tax return and requested a refund of
their overpayment of $869. On or about April 15,
1995, the
IRS
applied the $869 overpayment to plaintiffs'
outstanding assessments for the tax year 1983.
On or about April 15, 1996, plaintiffs filed
their 1995 tax return and requested a refund of
$2,115. On or about April 15, 1996, the
IRS
applied the $2,115 overpayment to plaintiffs'
outstanding assessments for the tax year 1983.
On or about April 15, 1997, plaintiffs filed
their 1996 tax return and reported an amount
owed of $1,189. Plaintiffs included payment of
$1,189 with their return. The
IRS
determined that plaintiffs made an error in
calculating their tax liability and had overpaid
by $721. The
IRS
applied the $721 overpayment to plaintiffs'
outstanding assessments for the tax year 1983.
Plaintiffs filed their first Complaint, pro se, on April 16,
1999. 5
On June 4, 1999, the defendant filed a Motion
For a More Definite Statement Pursuant to RCFC
12(e), as the Complaint did not contain
sufficient information to allow a responsive
pleading. The defendant's motion was allowed on
June 8, 1999
, and plaintiffs filed a First Amended Complaint
on
June 21, 1999
. Following defendant's Motion to Dismiss
Pursuant to RCFC 12(b)(4) for Failure to State a
Claim Upon Which Relief Can Be Granted, this
Court held that plaintiffs:
have asserted a claim within this Court's
jurisdiction pursuant to 28 U.S.C. §1491 for
refunds allegedly due them for the tax years
1991-1996. To the extent plaintiffs' papers can
be construed to request relief beyond refund
claims for these years, the Court does not have
jurisdiction to grant relief and this will be
reflected in the final resolution of this
litigation.
DISCUSSION
Plaintiffs maintain that the
IRS
has wrongfully retained money due them from
income tax overpayments for the tax years 1991
to 1996. The defendant maintains that any
overpayments were either refunded or properly
credited against outstanding assessments for
previous tax years. The defendant correctly
points to 26 U.S.C. §6402(a) to demonstrate
that the
IRS
' application of income tax overpayments to
other outstanding assessments is proper. The
section provides that:
In the case of any overpayment, the Secretary, within the
applicable period of limitations, may credit the
amount of such overpayment, including any
interest allowed thereon, against any liability
in respect of an internal revenue tax on the
part of the person who made the overpayment and
shall, subject to subsections (c), (d) and (e),
refund any balance to such person.
26 U.S.C. §6402(a) (1994).
The
IRS
records demonstrate that plaintiffs received a
refund for the tax year 1991 and that refunds
for the tax years 1992 to 1996 were applied to
outstanding assessments. Plaintiffs, for their
part, deny that they received any funds from the
IRS
. Assessments by the
IRS
, properly entered into evidence establish a prima
facie case of liability. See e.g. Welch
v. Helvering [3 USTC ¶1164], 290 U.S. 111,
15 (1933); Adams v. United States, 358
F.2d 986, 994 (Ct.Cl. 1966); Michaud v.
United States [97-2 USTC ¶50,972], 40
Fed.Cl. 1, 15 (1997). As plaintiffs have not
introduced any evidence to rebut the defendant's
prima facie case, or to raise any triable
issue of fact, the Motion for Summary Judgment
must be granted. 6
CONCLUSION
Based on the foregoing, it is hereby ORDERED:
(1) Defendant's
November 8, 1999
Motion For Summary Judgment is GRANTED.
(2) Final Judgment shall be entered dismissing plaintiffs'
Complaint amended. No costs to be assessed.
1
Smith v. Comm'r of Internal Revenue, No.
15262-89 (T.C.
Nov. 26, 1990
).
2
Smith v. Comm'r of Internal Revenue, No.
517-93 (T.C.
April 29, 1991
).
3
The $1,183 late filing penalty for tax year 1983
was assessed by the
IRS
prior to the Tax Court decision.
4
Timely tax returns are considered to be filed on
the last day for filing. See 26 U.S.C. §6513(a)
(1994).
5
Plaintiffs' Complaint is dated March 28, 1999.
6
In addition to the submissions filed in this
matter as permitted by the Rules, an additional
"Response," dated December 6, 1999,
was mailed directly to chambers by plaintiffs,
and was received on December 16, 1999. This
Response adds nothing of significance to this
matter but since it was received, to complete
the record, it is ORDERED that it now be
filed by leave of Court.
[2001-1 USTC ¶50,185] TTK Management v.
United States of America
U.S.
District Court, Cent. Dist.
Calif.
, So. Div., SA CV 99-1542 AHS (ANx), 11/21/2000
[Code
Sec. 6330 ]
Collection due process hearing: District
court review, standard: Abuse of discretion.--A
de novo standard of review was not the
proper standard to be applied to Appeals
determinations made at the taxpayer's collection
due process hearing. Although Code
Sec. 6330 is silent as to the proper
standard of review, the legislative history
clearly indicated that Congress intended review
to be based on an abuse of discretion standard
when the amount of tax liability was not in
issue.
[Code
Sec. 6330 ]
Collection due process hearing: Office of
Appeals: Jurisdiction: District court:
Rehearing, order for.--The district court
did not have authority to order the
IRS
Office of Appeals to grant a taxpayer another
hearing in connection with the taxpayer's
compromise offer in satisfaction of its past-due
payroll taxes. The Office of Appeals still had
jurisdiction over the matter pursuant to Code
Sec. 6330(d)(2) . Neither the statute
nor its legislative history suggested that a
district court had authority to order Appeals to
reconsider its decisions.
[Code
Sec. 7121 ]
Settlement agreement: Offer in compromise:
Appeals officer: Abuse of discretion.--An
appeals officer did not abuse his discretion
when he did not accept a taxpayer's
offer-in-compromise and instituted collection
proceedings for past-due payroll taxes. The
taxpayer had a long history of noncompliance
with payroll tax laws. In addition, it was not
meeting current payroll tax obligations at the
time of the appeals hearing. Similarly, the
officer's decision not to give the taxpayer a
full quarter to demonstrate an ability to comply
was not an abuse of discretion.
ORDER: (1) GRANTING DEFENDANT'S MOTION FOR
SUMMARY JUDGMENT
AND
(2) GRANTING DEPENDANT'S MOTION TO STRIKE THE
TAYLOR DECLARATION AS UNTIMELY
I. Procedural History
STOTLER, Judge:
On January 19, 2000, plaintiff TTK Management filed a corrected
Complaint for Lien or Levy Action under 26 U.S.C.
§6330(d). In its Complaint, plaintiff appeals
the
December 8, 1999
Notice of Determination of the Internal Revenue
Service ("
IRS
") Appeals Office to undertake a levy
action against plaintiff's hair salon at
22461 Antonio Parkway
A-155 in Rancho Santa Margarita,
California
.
On September 25, 2000, defendant
United States of America
filed a motion for summary judgment that the
Appeals Officer did not abuse his discretion by
making the determination set forth in the Notice
of Determination. Plaintiff filed its opposition
to defendant's motion on October 24, 2000.
Defendant filed its reply on November 6, 2000.
Hearing on the matter was set on the Court's
November 13, 2000 hearing calendar. On November
6, 2000, plaintiff filed the declaration of A.
Lavar Taylor in support of its opposition to the
motion. On November 7, 2000, defendant filed a
motion to strike the
Taylor
declaration as untimely filed.
The Court took defendant's motion for summary judgment and motion
to strike under submission, and removed the
hearing on both motions from the Court's
November 13, 2000.
II. Rulings
1. Jurisdiction
Pursuant to 26 U.S.C. §6330(d)(1), the Court may review a
timely-filed appeal of an
IRS
Notice of Determination. On appeal to this
Court, plaintiff may raise only those issues
raised with the Appeals Office at the Collection
Due Process Hearing. See Temporary
Treasury Regulation §301.6320-1T, Q & A F5.
The parties do not dispute that during the
appeals hearing, plaintiff asked Appeals Officer
Robert Bottoms to consider an installment plan
or offer-in-compromise as an alternative to a
levy action for collection of plaintiff's
past-due taxes. This Court, therefore, has
jurisdiction to review the Appeals Office's
rejection of these alternatives.
2. Standard of Review
Plaintiff urges the Court to apply a de novo standard of
review on the ground that the circumstances of
plaintiff have changed since the Appeals Office
issued the Notice of Determination, i.e,
plaintiff has been in compliance with its
employment tax obligations for the three
consecutive quarters following the Notice of
Determination. Opp'n at 17:23-18:3.
Although section 6330(d) does not specify the standard of review a
district court should apply to an appeal of a
Notice of Determination, the legislative history
unequivocally indicates that Congress intended
the Court to review the Notice of Determination
for abuse of discretion where, as here, the
amount of the tax liability was not in dispute
at the hearing. See H. Conf. Rept.
105-599, at 266 (1998) ("Where the validity
of the tax liability is not properly part of the
appeal, the taxpayer may challenge the
determination of the appeals officers for abuse
of discretion."); see also Goza v.
Commissioner of Internal Revenue [
CCH
Dec. 53,803], 114 T.C. 176, 179-80 (2000); and
Sego v. Commissioner [
CCH
Dec. 53,938], 114 T.C. No. 603 (2000). The Court
will not substitute such a clear congressional
statement of legislative intent for a de novo
standard of review unsupported by any
legislative history or statutory language.
The Court reviews the decision of the Appeals Office in the Notice
of Determination for abuse of discretion. An
abuse of discretion is "a plain error,
discretion exercised to an end not justified by
the evidence, a judgment that is clearly against
the logic and effect of the facts as are
found." Wing v. Asarco, Inc., 114
F.3d 986 (9th Cir. 1997).
3. No Abuse of Discretion
Plaintiff contends that Appeals Officer Bottoms abused his
discretion by not considering an installment
plan or offer-in-compromise as an alternative to
a levy action against the
Antonio Parkway
hair salon.
The Court finds that the Appeals Officer did, in fact, consider
plaintiff's proposal that the
IRS
select an installment plan or
offer-in-compromise to collect plaintiff's
overdue taxes. Bottoms and plaintiff's counsel
discussed these two alternatives in telephone
conversations prior to the August 2, 1999
meeting, conversations that both parties concede
were part of the "hearing" by the
Appeals Office. Opp'n at 5:3-9, 15:19-23; Linas
Udrys Decl. at ¶14; Robert Bottoms Decl. at
¶11:11-4. Bottoms and plaintiff's counsel also
discussed the installment plan and
offer-in-compromise options at the August 2,
1999 hearing. Opp'n 16:1-12; Udrys Decl. at
¶16:8-20; Bottoms' Decl at ¶11:14-7. By
informing plaintiff in these conversations that
the proposed alternatives were not appropriate
and by explaining his rationale for not
selecting those alternatives, Bottoms clearly
considered and rejected the installment plan and
offer-in-compromise, despite Bottoms' choice of
words in his declaration and misunderstanding of
"hearing" to mean only the August 2,
1999 in-person meeting.
Furthermore, the decision to reject the installment plan and
offer-in-compromise alternatives was not an
abuse of discretion. At the time of the appeals
hearing, plaintiff had a long history of
non-compliance with payroll tax laws, had failed
to pay payroll taxes for every quarter since its
inception in May 1997, and was not in compliance
for the then-current quarter. Bottoms' Decl. at
¶4(d)-(e). The Court finds that Bottoms did not
abuse his discretion to reject the proposed
collection alternatives for past liabilities
when the plaintiff was not meeting its current
payroll tax obligations.
In addition, plaintiff contends that Bottoms abused his discretion
by not giving plaintiff one full financial
quarter after the August 2, 1999 meeting to show
compliance. Opp'n at 21:12-5. The parties do not
dispute that during and after the August 2, 1999
in-person meeting, Bottoms stated that he might
approve an installment agreement if plaintiff
could show one quarter of compliance. Udrys Decl.
¶16:10-20, ¶17:22-8. To show compliance, a
taxpayer must be making timely payroll deposits
for the current quarter. Mot. at 4 n.1. The
parties also do not dispute that Bottoms advised
plaintiff at the August 2, 1999 meeting and in
telephone conversations with plaintiff's counsel
thereafter that the Notice of Determination
would be issued "shortly." Udrys Decl.
¶17. Plaintiff contends that Bottoms should
have waited at least 180 days after the August
2, 1999 meeting for plaintiff to show
compliance.
The Court finds that Appeals Officer was not required to wait, nor
did he agree to wait, one full quarter to show
compliance. The August 2, 1999 hearing occurred
during the third financial quarter ending
September 30, 1999. Plaintiff did not show
compliance for that quarter despite having
nearly two months after the August 2 meeting to
comply and receiving Bottoms' warning that the
Notice would be issued "shortly." The
Notice of Determination was not issued until
December 8, 2000. Therefore, the Appeals Office
waited four months, or over half of the third
quarter and most of the fourth, for plaintiff to
show compliance.
Furthermore, plaintiff's hiring of a service to pay plaintiff's
payroll taxes automatically to the
IRS
when due did not require the Appeals Office to
continue to wait for timely payments,
particularly given plaintiff's long-standing
record of delinquency. Plaintiff has presented
no evidence that plaintiff informed the Appeals
Office that plaintiff had hired this payroll
service to ensure future compliance, although
the Notice of Determination was not mailed for
at least a month after plaintiff hired the
payroll service. In short, the Court finds that
the Appeals Office did not abuse its discretion
by giving plaintiff no more than part of one and
most of another financial quarter to show
compliance.
Finally, plaintiff urges the Court to order the
IRS
Appeals Office to reconsider its Notice of
Determination given plaintiff's compliance for
three quarters since the Notice of Determination
was issued. Opp'n at 23:18-25. The
IRS
Office of Appeals retains jurisdiction over its
Notice of Determination pursuant to 26 U.S.C.
§6330(d)(2). However, absent any indication in
the Internal Revenue Code or its legislative
history that a district court can or should
order the
IRS
to reconsider a Notice of Determination in light
of "changed circumstances," this Court
will not order the
IRS
Appeals Office to exercise its jurisdiction.
4.
Taylor
Declaration
Plaintiff's opposition papers to defendant's motion for summary
judgment were due on October 24, 2000, pursuant
to Local Rule 7.6. Plaintiff did not file the
declaration of A. Lavar Taylor until November 6,
2000. Plaintiff has filed no response to
defendant's motion to strike, or otherwise
offered any explanation for the late filing. The
Court grants defendant's request to strike the
Taylor
declaration as untimely.
III
.
Conclusion
For the foregoing reasons, the Court finds that plaintiff has
raised no triable issue of fact indicating that
the Appeals Officer abused his discretion by
making the determination set forth in the Notice
of Determination. The Court, therefore, grants
defendant's motion for summary judgment and
enters judgment for defendant.
The Court has this date signed and filed the proposed Judgment
lodged by defendant on September 25, 2000.
Defendant's proposed Statement of Uncontroverted
Facts and Conclusions of Law lodged on September
25, 2000, has been modified by strike-outs and
interlineations in accordance with the foregoing
ruling, and, as modified, is adopted by the
Court.
The Clerk shall serve this minute order on counsel for all parties
in this action and provide an advance copy by
telecopier.
[2001-1 USTC ¶50,184] AJP Management v.
United States of America
U.S.
District Court, Cent. Dist.
Calif.
, So. Div., SA CV 99-1541 AHS (ANx), 11/21/2000
[Code
Sec. 6330 ]
Collection due process hearing: District
court review, standard: Abuse of discretion.--A
de novo standard of review was not the
proper standard to be applied to Appeals
determinations made at the taxpayer's collection
due process hearing. Although Code
Sec. 6330 is silent as to the proper
standard of review, the legislative history
clearly indicated that Congress intended review
to be based on an abuse of discretion standard
when the amount of tax liability was not in
issue.
[Code
Sec. 6330 ]
Collection due process hearing: Office of
Appeals: Jurisdiction: District court:
Rehearing, order for.--The district court
did not have authority to order the
IRS
Office of Appeals to grant a taxpayer another
hearing in connection with the taxpayer's
compromise offer in satisfaction of its past-due
payroll taxes. The Office of Appeals still had
jurisdiction over the matter pursuant to Code
Sec. 6330(d)(2) . Neither the statute
nor its legislative history suggested that a
district court had authority to order Appeals to
reconsider its decisions.
[Code
Sec. 7121 ]
Settlement agreement: Offer in compromise:
Appeals officer: Abuse of discretion.--An
appeals officer did not abuse his discretion
when he did not accept a taxpayer's
offer-in-compromise and instituted collection
proceedings for past-due payroll taxes. The
taxpayer had a long history of noncompliance
with payroll tax laws. In addition, it was not
meeting current payroll tax obligations at the
time of the appeals hearing. Similarly, the
officer's decision not to give the taxpayer a
full quarter to demonstrate an ability to comply
was not an abuse of discretion.
ORDER: (1) GRANTING DEFENDANT'S MOTION FOR
SUMMARY JUDGMENT
AND
(2) GRANTING DEFENDANT'S MOTION TO STRIKE THE
TAYLOR DECLARATION AS UNTIMELY
I. Procedural History
STOTLER, Judge:
On December 29, 1999, plaintiff AJP Management filed a corrected
Complaint for Lien or Levy Action under 26 U.S.C.
§6330(d). In its Complaint, plaintiff appeals
the
December 1, 1999
Notice of Determination of the Internal Revenue
Service ("
IRS
") Appeals Office to undertake a levy
action against plaintiff's hair salons at 30035
Alicia Parkway in Laguna Niguel, California, and
26878 La Paz Road in Alisio Viejo, California.
On September 25, 2000, defendant
United States of America
filed a motion for summary judgment that the
Appeals Officer did not abuse his discretion by
making the determination set forth in the Notice
of Determination. Plaintiff filed its opposition
to defendant's motion on October 24, 2000.
Defendant filed its reply on November 6, 2000.
Hearing on the matter was set on the Court's
November 13, 2000 hearing calendar. On November
6, 2000, plaintiff filed the declaration of A.
Lavar Taylor in support of its opposition to the
motion. On November 7, 2000, defendant filed a
motion to strike the
Taylor
declaration as untimely filed.
The Court took defendant's motion for summary judgment and motion
to strike under submission, and removed both
motions from the Court's November 13, 2000
hearing calendar.
II. Rulings
1. Jurisdiction
Pursuant to 26 U.S.C. §6330(d)(1), the Court may review a
timely-filed appeal of an
IRS
Notice of Determination. On appeal to this
Court, plaintiff may raise only those issues
raised with the Appeals Office at the Collection
Due Process Hearing. See Temporary
Treasury Regulation §301.6320-1T, Q & A F5.
The parties do not dispute that plaintiff asked
Appeals Officer Robert Bottoms to consider an
installment plan or offer-in-compromise as an
alternative to a levy action for collection of
plaintiff's past-due payroll taxes. This Court,
therefore, has jurisdiction to review the
Appeals Office's rejection of these
alternatives.
2. Standard of Review
Plaintiff urges the Court to apply a de novo standard of
review, on the ground that the circumstances of
plaintiff have changed since the Appeals Office
issued the Notice of Determination, i.e,
plaintiff has been in compliance with its
employment tax obligations for the last three
consecutive quarters. Opp'n at 17:23-18:3.
Although section 6330(d) does not specify the standard of review a
district court should apply to an appeal of a
Notice of Determination by the
IRS
Appeals Office, the legislative history
unequivocally indicates that Congress intended
the Court to review Appeals Office decisions for
abuse of discretion where, as here, the amount
of the tax liability was not in dispute at the
hearing. See H. Conf. Rept. 105-599, at
266 (1998) ("Where the validity of the tax
liability is not properly part of the appeal,
the taxpayer may challenge the determination of
the appeals officers for abuse of
discretion."); see also Goza v.
Commissioner of Internal Revenue [
CCH
Dec. 53,803], 114 T.C. 176, 179-80 (2000); and
Sego v. Commissioner [
CCH
Dec. 53,938], 114 T.C. No. 603 (2000). The Court
will not substitute such a clear congressional
statement of legislative intent for a de novo
standard of review unsupported by any
legislative history or statutory language.
The Court reviews the decision of the Appeals Office as outlined in
the Notice of Determination for abuse of
discretion. An abuse of discretion is "a
plain error, discretion exercised to an end not
justified by the evidence, a judgment that is
clearly against the logic and effect of the
facts as are found." Wing v. Asarco,
Inc., 114 F.3d 986 (9th Cir. 1997).
3. No Abuse of Discretion
Plaintiff contends that Appeals Officer Bottoms abused his
discretion by not considering an installment
plan or offer-in-compromise as an alternative to
a levy action to collect the overdue payroll
taxes.
The Court finds that the Appeals Officer did consider
plaintiff's suggestion that the
IRS
select an installment plan or
offer-in-compromise to collect plaintiff's
overdue taxes. Bottoms and plaintiffs' counsel
discussed these two alternatives in telephonic
conversations prior to the August 2, 1999
meeting, conversations that both parties concede
were part of the "hearing" by the
Appeals Office. Opp'n at 13:11-25; Linas Udrys
Decl. at ¶14; Robert Bottoms Decl. at 11:3-12.
Bottoms and plaintiffs' counsel also discussed
the installment plan and offer-in-compromise
options at the August 2, 1999 hearing. Opp'n
13:11-15, 18-25; Udrys Decl. at ¶16:14-20;
Bottoms' Decl. at ¶11:12-5. By informing
plaintiff in these conversations that the
proposed alternatives was not appropriate, and
by explaining his rationale for not selecting
those alternatives, Bottoms clearly considered
and rejected the installment plan and
offer-in-compromise options, despite Bottoms'
choice of words in his declaration and
misunderstanding of "hearing" to mean
only the
August 2, 1999
in-person meeting with plaintiff's counsel.
Furthermore, the decision to reject the installment plan and
offer-in-compromise alternatives was not an
abuse of discretion. At the time of the appeals
hearing, plaintiff had a long history of
non-compliance with payroll tax laws, had failed
to pay payroll for every quarter since its
inception in May 1997, and was not in compliance
for the then-current quarter. Bottoms' Decl. at
¶4(d)-(e). The Court finds that Bottoms did not
abuse his discretion to reject the proposed
collection alternatives for past liabilities
when the plaintiff was not meeting its current
payroll tax obligations.
In addition, plaintiff contends that the Appeals Officer abused his
discretion by not giving plaintiff one full
financial quarter after the August 2, 1999
meeting to show compliance. Opp'n at 21:12-5.
The parties do not dispute that during and after
the August 2, 1999 in-person meeting, Bottoms
stated that he might approve an installment
agreement if plaintiff could show one quarter of
compliance. Udrys Decl. ¶16:19-20, ¶17:3-8. To
show compliance, a taxpayer must be making
timely payroll deposits for the current quarter.
Mot. at 4 n.1. The parties also do not dispute
that Bottoms advised plaintiff at the August 2,
1999 and in telephone conversations with
plaintiff's counsel thereafter that the Notice
of Determination would be issued
"soon." Plaintiff contends that
Bottoms should have waited 180 days, at least,
for plaintiff to show compliance.
However, the Court cannot find an abuse of discretion because the
Appeals Officer did not wait. Nor did the
Appeals Officer agree to wait for one full
quarter to show compliance. The August 2, 1999
hearing occurred during the third financial
quarter ending September 30, 1999. Plaintiff did
not show compliance for that quarter despite
having nearly two months after the August 2
meeting to do so and receiving Bottoms' warning
that the Notice would be issued
"shortly." Udrys Decl. at ¶17. In
fact, the Notice of Determination was not issued
until December 1, 2000. Therefore, the Appeals
Office waited nearly four months, or over half
of the third quarter and most of the fourth, for
plaintiff to pay accruing payroll taxes.
Furthermore, plaintiff's hiring of a service to pay plaintiff's
payroll taxes automatically to the
IRS
when due did not require the Appeals Office to
continue to wait for timely payments,
particularly given plaintiff's long-standing
record of delinquency. Plaintiff has presented
no evidence that plaintiff informed the Appeals
Office that plaintiff had hired this payroll
service to ensure future compliance, although
the Notice of Determination was not mailed for
at least a month after plaintiff hired the
payroll service. In short, the Court finds that
the Appeals Office did not abuse its discretion
by giving plaintiff no more than part of one and
most of another financial quarter to show
compliance.
Finally, plaintiff urges the Court to order the
IRS
to allow the Appeals Office to reconsider its
Notice of Determination given plaintiff's
compliance for the last three quarters. Opp'n at
23:21-25. The
IRS
Office of Appeals retains jurisdiction over its
Notice of Determination pursuant to 26 U.S.C.
§6330(d)(2). Absent any indication in the
Internal Revenue Code or its legislative history
that a district court can or should order the
IRS
to reconsider a Notice of Determination in light
of "changed circumstances," this Court
declines plaintiff's invitation to order the
IRS
Appeals Office to exercise its jurisdiction.
4.
Taylor
Declaration
Plaintiff's opposition papers to defendant's motion for summary
judgment were due on October 24, 2000, pursuant
to Local Rule 7.6. Plaintiff did not file the
declaration of A. Lavar Taylor until November 6,
2000, the day before defendant's reply was due.
The Court grants defendant's request to strike
the
Taylor
declaration as untimely.
III
.
Conclusion
In light of the uncontroverted evidence, the Court finds that
plaintiff has raised no triable issue of fact
indicating that the Appeals Officer abused his
discretion by making the determination set forth
in the Notice of Determination. The Court,
therefore, grants defendant's motion for summary
judgment and enters judgment for defendant.
The Court has this date signed and filed the proposed Judgment
lodged by defendant on September 25, 2000.
Defendant's proposed Statement of Uncontroverted
Facts and Conclusions of Law lodged on September
25, 2000, has been modified by strike-outs and
interlineations in accordance with the foregoing
ruling, and, as modified, is adopted by the
Court.
The Clerk shall serve this minute order on counsel for all parties
in this action and provide an advance copy by
telecopier.
2001-2 USTC ¶50,783] United States of
America
, Plaintiff v. Jacob Evseroff, et al.,
Defendants
U.S.
District Court, East. Dist. N.Y.,
CIV
. CV 00-6029 (DGT), 11/6/2001, Related opinions
at (DC) 2000-2
USTC ¶50,807 and (CA) 2001-2
USTC ¶50,486 .
[Code
Sec. 6501 ]
Deficiencies: Evidence: Burden of proof: Form
4340.--The government was entitled to an
award of summary judgment with respect to its
action to reduce to judgment federal income tax
deficiencies assessed against an attorney that
arose as a result of his investments in illegal
tax shelters. The government's submission of
properly certified Form 4340's for all of the
tax years at issue constituted presumptive proof
that the assessments were valid. Absent proof by
the taxpayer that the assessments and a
subsequent levy of his personal property were
improper, he failed to meet his burden of proof.
[Code
Sec. 7122 ]
Deficiencies: Offers-in-compromise,
fraudulent: Evidence: Equitable estoppel:
Discovery.--An attorney's equitable estoppel
defense was rejected where the government proved
that an offer-in-compromise that he submitted
was fraudulently prepared by his accountant.
There was no misrepresentation on the part of
the government that the offer was accepted.
Moreover, rather than attempting to establish
the authenticity of the documents in issue, the
taxpayer unsuccessfully argued that further
discovery was necessary to demonstrate that the
IRS
had accepted his offer. Because his request for
additional discovery was speculative and failed
to demonstrate that further discovery would turn
up any genuine issues, his request for
additional discovery was denied.
[Code
Sec. 6502 ]
Deficiencies: Enforcement of liens:
Assessment date: Statute of limitations.--The
government was entitled to reduce to judgment
federal income tax deficiencies assessed against
an attorney that arose as a result of his
investments in illegal tax shelters. His statute
of limitations defense was rejected because the
government's attempts to collect were made
within 10 years from the date of the
assessments. BACK REFERENCES: ¶39,020.12
[Code
Secs. 7401 and 7403
]
Deficiencies: Assessment date:
Offers-in-compromise, fraudulent: Evidence:
Failure to state a claim.--The government
was entitled to an award of summary judgment
with respect to its action to reduce to judgment
federal income tax deficiencies assessed against
an attorney that arose as a result of his
investments in illegal tax shelters. He failed
to carry his burden of proving that the
assessments were incorrect. Moreover, his
contention that the government failed to state a
claim lacked merit because the government had
authority, under Code
Sec. 7401 and Code
Sec. 7403 to request that the
assessments be reduced to judgment. BACK
REFERENCES: ¶41,543.78
and ¶41,653.80
MEMORANDUM
AND
ORDER
TRAGER, District Judge:
The
United States
brought this action to: (1) reduce to judgment
federal tax assessments against Jacob Evseroff,
(2) establish the validity of liens on
Evseroff's property, (3) foreclose on those
liens, and (4) determine the interests of
various parties in some of that property. The
United States
alleges that Evseroff owes taxes, interest, and
penalties from 1978-82, 1991-92, and 1996. The
assessments from 1978-82 were entered as a
decision of the United States Tax Court in
November 1992, and the
IRS
subsequently assessed Evseroff with additional
tax liabilities for 1991-92 and 1996. The
United States
now moves for all of the assessments to be
reduced to judgment on the pleadings pursuant to
Rule 12(c) of the Federal Rules of Civil
Procedure ("FRCP"), or, in the
alternative, for summary judgment under Rule 56.
In addition, the
United States
moves for the assessments to be entered as final
judgment pursuant to Rule 54(b) of the FRCP,
leaving the claims regarding the validity and
foreclosure of the liens and the determination
of interests in the property pending.
Background
Evseroff, a licensed attorney and a former Assistant District
Attorney in
Brooklyn
, purchased a series of tax shelter investment
programs between 1978 and 1982 from his office
suite co-tenant, John Serpico. Affidavit of
Jacob Evseroff ("Evseroff Aff.") ¶6.
Evseroff believed the tax shelters were legal
and approved by the
IRS
.
Id.
After an audit, however, the
IRS
notified Evseroff in December 1990 that he owed
approximately $900,000 in taxes, penalties, and
interest relating to the tax shelters. Evseroff
Aff. ¶8. When Evseroff confronted Serpico with
the notice, Serpico told him that the
IRS
had disallowed the tax benefits in 1985 or 1986.
Id.
Represented by Serpico, Evseroff challenged the
IRS
assessments in the United States Tax Court in
April 1992. Evseroff Aff. Ex. A. On June 4,
1992, Evseroff transferred his interest in
certain properties to his sons and grandchildren
through a trust agreement.
United States
' Complaint ("
U.S.
Compl.") Ex. 4; Evseroff Ans. ¶22. On
November 5, 1992, the Tax Court entered a
decision for $209,113 in taxes and penalties on
consent. Evseroff Aff. Ex. B.
In an attempt to reduce the amount of his tax liability, in 1993
Evseroff retained James Graves, a public
accountant, to represent him before the
IRS
. Evseroff Aff. ¶11. Evseroff claims that
Graves told him that the
IRS
told
Graves
it would accept $110,000 as full settlement of
Evseroff's tax liability under its "Offer
in Compromise" program.
Id.
Evseroff claims he authorized
Graves
to submit the offer to the
IRS
. Evseroff Aff. ¶12.
According to Evseroff, he received a letter from the
IRS
dated December 31, 1993 accepting the
offer-in-compromise agreement. Evseroff Aff. Ex.
C. The purported
IRS
letter instructed Evseroff to pay the
IRS
$1,600 per month for 48 months to satisfy his
liability.
Id.
Two other purported
IRS
letters reflecting the offer-in-compromise
exist, one allegedly sent to
Graves
dated July 6, 1994, and one allegedly sent to
Evseroff and his wife dated August 2, 1994.
United States
' Reply in Support of Motion for Judgment
("
U.S.
Reply") Ex. 11. Between January and
September 1994, Evseroff made nine $1,600
payments to the
IRS
. Evseroff Aff. ¶12. All of the checks stated
they were for a tax settlement. Evseroff Aff.
Ex. D. The
IRS
accepted the checks, deposited them, and stamped
on the back, "FOR CREDIT TO THE U.S.
TREASURY."
Id.
At the time, the
IRS
apparently did not inform Evseroff how the funds
from the checks would be applied.
United States
Memorandum of
Oct. 18, 2001
.
IRS
documents indicate that the payments were
applied to Evseroff's tax liability for 1978.
U.S.
Reply. Ex. 12.
The
United States
contends that the
IRS
never accepted any offer-in-compromise from
Evseroff, and that the letters of December 31,
1993, July 6, 1994, and August 2, 1994 are
counterfeit.
U.S.
Reply at 2-9. According to the
United States
,
IRS
paper files and computer records in the
facilities that serviced the areas in which
Evseroff owned homes in 1993 and currently were
checked and showed no record that the
IRS
ever accepted an offer-in-compromise from
Evseroff.
U.S.
Reply Ex. 7-10.
The
United States
contends that the information contained in the
letter proves that it was not issued by the
IRS
. The letter indicates it was sent from the
IRS
Brookhaven
Service
Center
, but the
United States
contends that in 1993 and 1994 the
Brookhaven
Service
Center
had no offer-in-compromise function other than
rerouting to other
IRS
facilities offer-in-compromise materials
erroneously sent there.
U.S.
Reply Ex. 8. In addition, the
United States
claims that its correspondence records do not
contain an entry indicating that a letter was
issued.
Id.
According to the
United States
, the language of the letter does not accurately
reflect
IRS
correspondence and procedures regarding an
offer-in-compromise. The letter has a notation
that it is a "
LTR
105C," which the United States asserts is
used to indicate a letter the
IRS
sends to notify a taxpayer that his
administrative claim for a tax refund has been
denied, and that such a letter is not used in
connection with an offer-in-compromise.
Id.
The
United States
also contends that contrary to
IRS
procedures regarding an offer-in-compromise, the
letter: (1) does not contain specific payment
terms or discuss actions available to the
IRS
in case the taxpayer defaults, (2) claims to
close the case before all payments were
received, and (3) appears to contain
contradictory language about when Evseroff
should pay his 1992 taxes.
Id.
The
United States
also contends that the July 6, 1994 and August
2, 1994 letters are counterfeit. The
United States
alleges that
Graves
admitted to an
IRS
criminal investigator in April 1996 that he
counterfeited them. Evseroff Aff. Ex. F;
U.S.
Reply Ex. 11. The investigator, James Martin,
interviewed
Graves
twice in April 1996. Evseroff Aff. Ex. F.
According to an arrest warrant affidavit
prepared by Martin, in the first interview
Graves
denied any knowledge that the letters might be
fraudulent.
Id.
In the second interview, however,
Graves
stated that he had fraudulently prepared both
letters, doing a "cut and paste" job
to create the false impression that they were
issued by the
IRS
.
Id.
Furthermore, the
United States
claims that, as with the December 31, 1993
letter, the other two letters do not accurately
reflect
IRS
correspondence and procedures regarding an
offer-in-compromise. Like the December 31, 1993
letter, the other two letters indicate they were
sent from the
IRS
Brookhaven
Service
Center
, which the
United States
contends had no offer-in-compromise function in
1993 and 1994.
U.S.
Reply Ex. 8. The signature block of these two
letters indicates they were written by "D.
Lewis" in the "Special
Procedures" section, but Martin found in
his investigation that no person with that name
worked at the
Brookhaven
Service
Center
in 1994 and that there was no Special Procedures
function at the
Brookhaven
Service
Center
that year.
U.S.
Reply Ex. 11. Finally, Martin also found that
the letters contain bar codes that refer to
employment tax numbers of a taxpayer other than
Evseroff or his wife.
Id.
In the late summer of 1994, the
IRS
placed a lien on Evseroff's home in
Florida
and ordered his checking account seized.
Evseroff Aff. ¶13. Evseroff claims this was
when he learned that the
IRS
contended it had no record of accepting his
offer-in-compromise. Evseroff Aff. ¶13.
In 1997, Evseroff filed suit against the
IRS
alleging it had improperly attempted to collect
taxes from him. The action was subsequently
dismissed. Evseroff v. Internal Revenue
Service [2000-2 USTC ¶50,807], 86
A.F.T.R.2d 2000-6711 (E.D.N.Y. 2000), aff'd,
Evseroff v. Internal Revenue Service [2001-2
USTC ¶50,486], No. 00-6331, 2001 WL 668528 (2d
Cir. June 12, 2001). In that case, Evseroff
relied on the purported
IRS
letters, and the court stated that
Graves
had forged them.
Id.
at *1.
From 1992 to 1997, the
IRS
assessed Evseroff additional tax liabilities
based on his 1991, 1992, and 1996 tax returns.
U.S.
Compl. ¶10. These assessments were not part of
the Tax Court decision and apparently are not
alleged to be covered by the offer-in-compromise
Evseroff claims was accepted by the
IRS
.
Including all payments, credits, and additional interest and
penalties, the
United States
claims that Evseroff owed $1,546,682.08 as of
May 31, 2000, plus additional statutory
interest.
U.S.
Compl. ¶12.
The United States brought this action on
October 5, 2000
, to: (1) reduce the federal tax assessments
from 1978-82, 1991-92, and 1996 against Evseroff
to judgment; (2) establish the validity of liens
of the United States on all of Evseroff's
property; (3) foreclose on the lien on a piece
of real estate in Brooklyn, N.Y. and the other
assets of the 1992 trust agreement; and (4)
determine the interests and priority of the
United States and several defendants in proceeds
from a court-ordered sale or liquidation of the
Brooklyn property and the trust agreement.
Discussion
(1)
The United States now moves for entry of judgment on the pleadings
pursuant to Rule 12(c) of the FRCP, or, in the
alternative, for summary judgment under Rule 56,
to reduce to judgment the federal tax
assessments made by the United States Tax Court
and the
IRS
. 1
This court has jurisdiction to reduce to
judgment federal tax assessments under 26 U.S.C.
§7402(a). See United States v. Scherping
[99-2 USTC ¶50,758], 187 F.3d 796 (8th Cir.
1999); United States v. Kyser, 78
A.F.T.R.2d 96-6737 (W.D.N.Y. 1996).
The standard for granting a Rule 12(c) motion for judgment on the
pleadings is the same as that for a Rule
12(b)(6) motion for failure to state a claim. Patel
v. Contemporary Classics of
Beverly Hills
, 259 F.3d 123, 126 (2d Cir. 2001). For both
motions, the court must accept the non-movant's
allegations as true, viewing the facts in the
light most favorable to the non-moving party. Sheppard
v. Beerman, 18 F.3d 147, 150 (2d Cir. 1994).
A Rule 12(c) motion should be granted if the
movant is entitled to judgment as a matter of
law. Burns Int'l Sec. Servs. v. Int'l Union,
47 F.3d 14, 16 (2d Cir. 1994).
In its initial motion, the United States sought entry of judgment
on the pleadings because Evseroff's answer did
not deny the complaint's allegations that: (1)
the United States Tax Court entered a decision
against him on
November 5, 1992
; (2) the
IRS
made assessments against him in 1978, 1979,
1980, 1981, 1982, 1991, 1992, and 1996; and (3)
the total amount owed by Evseroff as of
May 31, 2000
was $1,546,682.08 plus additional statutory
interest.
United States
' Memorandum of Law in Support of Motion ("
U.S.
Mem.") at 1-4.
Clearly, however, Evseroff's answers were not intended to admit the
United States
' allegations. Instead, Evseroff only agreed
that the complaint correctly stated the Tax
Court decision and the
IRS
assessments. Evseroff Answer ("Evseroff
Ans.") ¶¶10, 12. For example, responding
to the complaint's chart of taxes owed and
subsequent penalties, fees, and interest,
Evseroff answered: "In response to the
allegations contained in paragraph 10 of the
Complaint, refers to the
IRS
transcripts for their true and complete
contents." Evseroff Ans. ¶10. Evseroff's
other answers are substantially the same, and
are far from admissions that he, in fact, owes
the amount listed above to the
IRS
. The
United States
' motion for judgment on the pleadings is
therefore denied.
(2)
In the alternative, the
United States
moves for summary judgment pursuant to Rule 56
of the FRCP. Summary judgment is granted when
"there is no genuine issue as to any
material fact and . . . the moving party is
entitled to judgment as a matter of law."
Fed.R.Civ.P. 56(c). On a motion for summary
judgment, the court must consider "whether
the evidence presents a sufficient disagreement
to require submission to a jury or whether it is
so one-sided that one party must prevail as a
matter of law."
Anderson
v. Liberty Lobby, Inc., 477
U.S.
242, 251-52, 106 S.Ct. 2505, 2512 (1986). In
making this determination, all factual
inferences must be drawn in favor of the party
against whom summary judgment is sought, viewing
the factual assertions in materials such as
affidavits, exhibits, and depositions in the
light most favorable to the party opposing the
motion.
Id.
at 255, 106 S.Ct. at 2513; Celotex Corp. v.
Catrett, 477
U.S.
317, 322, 106 S.Ct. 2548, 2552 (1986). However,
"conclusory statements, conjecture, or
speculation" by the non-moving party will
not defeat the motion. Kulak v. City of
New York
, 88 F.3d 63, 71 (2d Cir. 1996).
a. Proper Notice and Demand
Evseroff argues that judgment should not be entered because the
United States
has not proven that it took the proper steps to
issue notice and demand to assess the unpaid
taxes and penalties. Evseroff does not offer any
evidence that the proper steps were not taken.
Instead, he argues that the
United states
has the burden of proving it took those steps,
and that he is entitled to discovery on the
issue.
An
IRS
assessment is made "by recording the
liability of the taxpayer in the office of the
Secretary in accordance with rules or
regulations proscribed by the Secretary."
26 U.S.C. §6203. The
IRS
satisfies its obligations under this statute
when an assessment officer signs a summary
record of assessment describing: (1) the
taxpayer's name and address; (2) the character
of the assessed liability; (3) the taxable
period (if any); and (4) the amount of the
assessment. Treas. Reg. §301.6203-1. These
steps are reflected in Certificates of
Assessments and Payments, known as Forms 4340,
issued by the
IRS
. "Courts consistently regard such
certificates as presumptively correct and as
being sufficient proof, in the absence of
evidence to the contrary, of the adequacy and
propriety of the notices and assessments listed
therein." United States v. Kyser, 78
A.F.T.R.2d 96-6737 (W.D.N.Y. 1996) (citing Hefti
v. I.R.S. [93-2 USTC ¶50,591], 8 F.3d 1169,
1172-73 (7th Cir. 1993)).
The
United States
has submitted properly certified Forms 4340 for
all eight of the years in question.
U.S.
Reply Ex. 12. Evseroff has offered no evidence
to contradict their validity, only a conclusory
claim that the
United States
has not proven that it took the proper steps to
issue notice and demand. "Conclusory
allegations will not suffice to create a genuine
issue. There must be more than a 'scintilla of
evidence' and more than 'some metaphysical doubt
as to the material facts.' " Delaware
& Hudson Ry. Co. v. Consolidated Rail Corp.,
902 F.2d 174, 178 (2d Cir. 1990) (quoting Anderson,
477 U.S. at 252, 106 S.Ct. at 2512, and Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475
U.S. 574, 586, 106 S.Ct. 1348, 1356 (1986)).
Accordingly, the court presumes that proper
notice and demand was made for the assessments.
b. Offer-in-Compromise
Evseroff argues that the
IRS
accepted his offer-in-compromise, superseding
its right to collect any other amount now. 2
Evseroff Aff. ¶16. The
United States
responds that the
IRS
never accepted any offer-in-compromise from
Evseroff, and that letters of
December 31, 1993
,
July 6, 1994
, and
August 2, 1994
are counterfeit.
U.S.
Reply at 2-9.
Evseroff does not offer any evidence that the letters are
authentic. Instead, he argues that he needs
further discovery to demonstrate that the
IRS
accepted his offer-in-compromise. Evseroff
contends that he needs discovery of Evseroff's
accountant Graves, Martin, who conducted the
IRS
investigation into
Graves
' alleged forgery, an unnamed
IRS
employee who assisted Martin, and the
IRS
personnel who processed his 1993
offer-in-compromise to determine if someone with
IRS
did, in fact, accept the offer. Evseroff Aff.
¶¶13, 18. Evseroff seeks depositions of the
individuals and document discovery from the
IRS
.
Rule 56(f) of the FRCP governs situations in which a party may need
more discovery in order to oppose a summary
judgment motion. The rule states:
Should it appear from the affidavits of a party opposing the motion
[for summary judgment] that the party cannot for
reasons stated present by affidavit facts
essential to justify the party's opposition, the
court may refuse the application for judgment or
may order a continuance to permit affidavits to
be obtained or depositions to be taken or
discovery to be had or may make such other order
as is just.
Fed.R.Civ.P. 56(f).
In the Second Circuit, a party opposing summary judgment on the
ground that it needs more discovery under Rule
56(f) must present his contention by affidavit. Paddington
Partners v. Bouchard, 34 F.3d 1132, 1137 (2d
Cir. 1994). "A reference to Rule 56(f) and
to the need for additional discovery in a
memorandum of law in opposition to a motion for
summary judgment is not an adequate substitute
for a Rule 56(f) affidavit."
Id.
The failure to file a Rule 56(f) affidavit alone
is sufficient grounds to reject a claim that the
opportunity for discovery was inadequate.
Id.
Evseroff's request for further discovery does not mention Rule
56(f) and is not styled as a Rule 56(f)
affidavit. His only reply to the
United States
' motion was an "affidavit" in which
he made both factual assertions and legal
arguments. In some cases, courts have denied a
request for additional discovery because the
party's affidavit did not reference Rule 56(f). See,
e.g.,
AAI
Recoveries, Inc. v. Pijuan, 13 F.Supp.2d
448, 452 (S.D.N.Y. 1998). Other courts have
construed an affidavit to "function"
as a Rule 56(f) affidavit. See Lukas v.
Triborough
Bridge
and Tunnel Auth., No. CV-92-3680, 1993 WL
597132, at *8, 11 and n.3 (E.D.N.Y.
Aug. 18, 1993
). Again, Evseroff's request for further
discovery could be denied on this basis alone.
Even if Evseroff's "affidavit" is liberally construed to
allow it to be treated as a Rule 56(f)
affidavit, the Second Circuit requires such an
affidavit to include: "(1) what facts are
sought and how they are to be obtained, (2) how
those facts are reasonably expected to create a
genuine issue of material fact, (3) what effort
affiant has made to obtain them, and (4) why the
affiant was unsuccessful in those efforts."
Meloff v. New York Life Ins. Co., 51 F.3d
372, 375 (2d Cir. 1995).
Evseroff's affidavit only partially satisfies these requirements.
He does specify that he seeks to determine
whether anyone at the
IRS
accepted his offer-in-compromise and that this
will be obtained through "discovery"
of
Graves
, Martin, and unnamed
IRS
employees. Evseroff also states that he hopes to
obtain documents from the
IRS
establishing that it accepted his offer in
December 1993. However, he does not fully state
how this discovery would reasonably be expected
to generate a genuine issue of material fact.
Regarding Graves, Evseroff argues that since
Graves
at first denied to Martin any knowledge that the
letters were fraudulent, a deposition is needed
to clear up this inconsistency. In theory,
Graves
could recant his admission that he forged the
letters and direct Evseroff to the
IRS
personnel that accepted the offer-in-compromise.
Considering that it is unchallenged that
Graves
subsequently admitted to Martin that he forged
the
July 6, 1994
and
August 2, 1994
letters, this is, at best, a highly speculative
theory about what could be discovered. Taking
Graves
' deposition therefore cannot reasonably be
expected to generate a genuine issue of material
fact.
Likewise, deposing Martin or the unnamed
IRS
employee who assisted him cannot reasonably be
expected to uncover evidence of the material
issue of whether the
IRS
accepted Evseroff's offer-in-compromise.
According to his affidavit, Martin only
investigated whether the letters were forged.
There is no evidence that he conducted an
investigation within the
IRS
to determine if the
IRS
did, in fact, accept Evseroff's
offer-in-compromise. Therefore, deposing him or
his unnamed assistant cannot reasonably be
expected to generate a genuine issue of material
fact.
Evseroff did correctly specify that discovery of other, unnamed
IRS
personnel and document requests could possibly
lead to evidence that the
IRS
accepted the offer-in-compromise. However, aside
from the fact that the
United States
has already searched its records and failed to
find any evidence that it accepted Evseroff's
offer-in-compromise, Evseroff has not explained
what efforts, if any, he has made to obtain
these facts, and why he was unsuccessful in
those efforts. This failure is magnified by the
opportunities for discovery previously available
to Evseroff which he did not utilize. From the
outset of this action, Eversoff [Evseroff] knew
that his defense would be that the
IRS
accepted his offer-in-compromise. The complaint
against Evseroff was filed
October 5, 2000
and Evseroff filed his answer on
January 2, 2001
, but the docket sheet does not show any steps
he took to obtain discovery. It was only in his
May 30, 2001
response to the
United States
' motion for judgment on the pleadings or
summary judgment that he raised the need for
discovery.
Moreover, Evseroff either was or should have been aware from even
before the beginning of this case that he would
likely need discovery regarding the authenticity
of the purported
IRS
letters because the issue was raised in his
previous suit against the
IRS
. See Evseroff v. Internal Revenue Service
[2000-2 USTC ¶50,807], 86 A.F.T.R.2d 2000-6711,
at *1 (E.D.N.Y. 2000). In that case, Evseroff
relied on the purported
IRS
letters, and
Graves
' forgery was reported.
Id.
While the failure to comply with the third and
fourth requirements is not automatically fatal
to a Rule 56(f) affidavit, the total absence of
reference to efforts to obtain the needed facts
can result in defeat of the request for
additional discovery. See Paddington Partners,
34 F.3d at 1139; Bonnie & Co. Fashions,
Inc. v. Bankers Trust Co., 945 F.Supp. 693,
706-07 (S.D.N.Y. 1996). Evseroff thus had a
fully adequate opportunity for discovery and did
not take it.
As the party opposing the motion for summary judgment, Evseroff is
usually entitled to "the opportunity to
discover information that is essential to his
opposition." Berqer v. United State,
87 F.3d 60, 65 (2d Cir. 1996) (internal
quotation marks omitted). "But the trial
court may properly deny further discovery if the
nonmoving party has had a fully adequate
opportunity for discovery." Trebor
Sportswear Co. v. The Limited Stores, Inc.,
865 F.2d 506, 511 (2d Cir. 1989). Moreover, a
court may deny a request for further discovery
"if it deems the request to be based on
speculation as to what potentially could be
discovered." Paddington Partners, 34
F.3d at 1138. The "bare assertion"
that the evidence supporting a party's
allegation is in the hands of his opponent is
"insufficient to justify a denial of a
motion for summary judgment under Rule
56(f)."
Id.
(quoting Contemporary Mission, Inc. v. U.S.
Postal Serv., 648 F.2d 97, 107 (2d Cir.
1981)) (internal quotation marks omitted).
As noted, Evseroff had an opportunity to discover the information
he seeks. In addition, Evseroff's request is
only slightly more than a bare assertion that
the
IRS
has evidence to support his claim. Indeed,
Evseroff states in his affidavit that "[e]vidence
may exist to indicate that the
IRS
accepted my Offer in Compromise in December
1993." Evseroff Aff. ¶18. The existence of
the purported
IRS
letters makes Evseroff's argument more than
speculation about what potentially might be
discovered, but not much more. As noted above,
depositions of Martin,
Graves
, and the unnamed
IRS
employee who assisted Martin's investigation
will not uncover evidence that the
IRS
accepted Evseroff's offer-in-compromise.
Evseroff's vague request for discovery of
unnamed
IRS
personnel is based on speculation about what
might be discovered. Nor will document discovery
of the
IRS
aid Evseroff. The
United States
has already searched its records and failed to
find any evidence that it accepted Evseroff's
offer-in-compromise. Additional discovery is
therefore futile.
For these reasons, Evseroff's request for further discovery is
denied.
(3)
In his opposition to the
United States
' motion, Evseroff contends that judgment should
not be entered because he has asserted several
affirmative defenses. However, none of these
defenses are a bar to entry of judgment.
a. Failure to state a claim
First, Evseroff asserts as an affirmative defense that the
United States
has failed to state a claim as to which relief
can be granted. This argument is without merit.
The
United States
merely asks for the Tax Court decision and the
federal tax assessments to be reduced to
judgment. The
United States
has the authority under 26 U.S.C. §§7401, 7403
to request that the assessments be reduced to
judgment, and the Court has subject matter
jurisdiction to reduce the assessments to
judgment under 26 U.S.C. §7402(a). Accepting
all of the
United States
' factual allegations as true, the
United States
has not failed to state a claim.
b. Statute of Limitations
Second, Evseroff claims that the
United States
' action is barred by applicable statues of
limitation. Evseroff raised this contention in
his suit against the
IRS
regarding his tax assessments for 1978-82, and
the court conclusively rejected it. Evseroff
v. Internal Revenue Service [2000-2 USTC
¶50,807], 86 A.F.T.R.2d 2000-6711, at *4 (E.D.N.Y.
2000), aff'd [2001-2 USTC ¶50,486], No.
00-6331, 2001 WL 668528 (2d Cir.
June 12, 2001
). Under 26 U.S.C. §6502(a), the
IRS
has 10 years from the date of assessment for the
collection of taxes. The court determined that
the first assessment on
March 10, 1993
was timely under 26 U.S.C. §§6501(a),
6501(c)(4), 6503(a)(1), and 7481(a)(1), and thus
concluded that the
IRS
has until
March 10, 2003
to begin collection of the taxes from these
years.
Nor has the statute of limitations run on Evseroff's additional tax
assessments for 1991, 1992, and 1996. According
to the Form 4340 for Evseroff's 1991 tax
liability, he was assessed on
November 9, 1992
, giving the
IRS
until
November 8, 2002
to begin collection.
U.S.
Reply Ex. 12. Similarly, the assessment for 1992
was made on
October 10, 1993
, giving the
IRS
until
October 9, 2003
to begin collection, and the 1996 assessment was
made on
November 24, 1997
, giving the
IRS
until
November 23, 2007
to start.
Evseroff makes no additional allegations in his affidavit, so his
argument is to no avail.
c. Laches
Similarly, Evseroff argues as an affirmative defense that the
United States
' claim is barred by the doctrine of laches.
This argument is also without merit. "It is
well settled that the United States is not . . .
subject to the defense of laches in enforcing
its rights." United States v. Summerlin
[40-2 USTC ¶9633], 310 U.S. 414, 416, 60 S.Ct.
1019, 1020 (1940). In fact, laches is especially
inappropriate in the area of tax collection. See
United States v. De Beradinis [75-2 USTC
¶9530], 395 F.Supp. 944, 953-54 (D.
Conn.
1975).
d. Estoppel
The final affirmative defense asserted by Evseroff is estoppel. The
traditional elements of an estoppel claim are:
"(1) the defendant made a definite
misrepresentation of fact, and had reason to
believe that the plaintiff would rely on it; and
(2) the plaintiff reasonably relied on that
misrepresentation to his detriment." Wall
v. Construction & General Laborers'
Union
, Local 230, 224 F.3d 168, 176 (2d Cir.
2000). Furthermore, the doctrine of estoppel
does not generally lie against the federal
government. See Office of Personnel Mgmt. v.
Richmond
, 496
U.S.
414, 422-24, 110 S.Ct. 2465, 2470-71 (1990). In
the Second Circuit, estoppel against the
government is limited to those cases in which
the party can establish both the traditional
elements of estoppel, and that the government
engaged in affirmative misconduct. City of
New York v. Shalala, 34 F.3d 1161, 1168 (2d
Cir. 1994); Estate of Carberry v. C.I.R.
[91-1 USTC ¶50,280], 933 F.2d 1124, 1127 (2d
Cir. 1991).
Evseroff does not elaborate on why the
United States
should be estopped from having judgment entered
against him. The best reading of this defense is
that the
IRS
misrepresented that it had accepted an
offer-in-compromise through the three purported
letters and by depositing the nine checks.
Neither of these alleged misrepresentations,
however, can sustain an estoppel defense as a
matter of law.
Depositing the checks is not a misrepresentation by the government
nor does it constitute affirmative misconduct.
Compromise offers can only be accepted by the
provisions of 26 U.S.C. §§7121, 7122, and the
acceptance and cashing of checks from a taxpayer
cannot be used to impute a compromise
settlement. Brooks v. United States [87-2
USTC ¶9626], 833 F.2d 1136, 1146 (4th Cir.
1987); Bowling v. United States [75-1
USTC ¶9333], 510 F.2d 112, 113 (5th Cir. 1975);
Mayer v. United States, 78 A.F.T.R.2d
96-7422 (Bankr. D.
Kan.
1996).
Nor can the letters rise to the level of affirmative misconduct. As
discussed above, Evseroff has offered no
evidence that the letters are authentic. Any
allegation of affirmative misconduct by the
IRS
is thus speculation inadequate to defeat the
motion for summary judgment.
(4)
The
United States
also moves under Rule 54(b) of the FRCP to enter
final judgment on the issue of whether to reduce
the federal tax assessments to judgment. Rule
54(b) generally provides that when one or more
claims is presented in an action, the court may
direct the entry of a final judgment as to one
of the claims on an express determination that
there is no just reason for delay and on an
express direction for entry of judgment. See
Fed.R.Civ.P. 54(b). Accordingly, to permit entry
of a final judgment under Rule 54(b), there must
be: (1) multiple claims; (2) at least one claim
finally decided within the meaning of 28
U.S.C. §1291; and (3) the district court
must make an express determination that there is
no just reason for delay and expressly direct
the clerk to enter judgment. See Advanced
Magnetics, Inc. v. Bayfront Partners, Inc.,
106 F.3d 11, 16 (2d Cir. 1997); Ginett v.
Computer Task Group, Inc., 962 F.2d 1085,
1091 (2d Cir. 1992).
The
United States
seeks to reduce to judgment all the federal tax
assessments. 3
The
United States
separately seeks to establish the validity of
liens on Evseroff's property, foreclose on those
liens, and determine the interests of various
parties in some of that property. Therefore,
there are multiple claims here.
A claim is finally decided "if the decision 'ends the
litigation [of that claim] on the merits and
leaves nothing for the court to do but execute
the judgment' entered on that claim," Ginett,
962 F.2d at 1092 (quoting Coopers &
Lybrand v. Livesay, 437
U.S.
463, 467, 98 S.Ct. 2454, 2457, 57 L.Ed.2d 351
(1978)). As there is nothing left for the court
to do here but execute its judgment, the first
claim is finally decided within the meaning of
§1291.
In general, there is no just reason to delay entry of judgment when
"there exists some danger of hardship or
injustice through delay which would be
alleviated by immediate appeal." American
Magnetics, Inc., 106 F.3d at 16 (quotations
omitted). This danger exists when "a
plaintiff might be prejudiced by a delay in
recovering a monetary award." Id.
(citing Curtiss-Wright v. General Elec. Co.,
446 U.S. 1, 11-12, 100 S.Ct. 1460, 1466-67
(1980). Specifically, the concern that the
government could be prejudiced by a delay in
enforcing its judgment against a taxpayer
pending adjudication of a lien foreclosure on
the property of that taxpayer has been held to
constitute no just reason to delay entry of
judgment. See United States v. Julius Nasso
Concrete Corp. [2000-1 USTC ¶50,454], 85
A.F.T.R.2d 2000-2157 (E.D.N.Y. 2000).
The
United States
argues that it will be prejudiced by delaying
entry of judgment because a delay will give
Evseroff an opportunity to hide his assets. In
response, Evseroff argues that no urgency exists
to reduce the assessments to judgment because
the tax liabilities go back 23 years and nine
years has passed since the Tax Court decision,
and because a few more months to permit
discovery on this count while discovery
continues on the other counts will not prejudice
the United States. Evseroff Aff. ¶4.
The
United States
has established that there is at least some
danger of hardship or injustice from delay that
can be alleviated by entry of judgment. It is
undisputed that soon after the Tax Court
proceedings began Evseroff transferred assets to
a trust for the benefit of his children and
grandchildren. In addition, the lengthy delay in
collecting owed taxes has already caused
prejudice. Therefore, there is no just reason to
further delay entry of judgment, and the
United States
' Rule 54(b) motion for entry of judgment is
granted.
Conclusion
Evseroff has failed to demonstrate that a genuine issue of material
facts exists regarding the
United States
' notice and demand to collect its tax
assessments against him, has failed to fulfill
the requirements for additional discovery, and
has not offered any affirmative defenses that
preclude entry of summary judgment. Accordingly,
the
United States
' motion to reduce to judgment the United States
Tax Court judgment and the federal tax
assessments against Evseroff is granted, and the
clerk of the court is directed to enter final
judgment pursuant to Rule 54(b).
1
The
United States
seeks to reduce the assessments to judgment to
take advantage of judicial collection remedies.
United States
' Letter of
April 16, 2001
at 3.
2
This argument only applies to the tax
liabilities related to the years 1978 through
1982. The purported offer-in-compromise did not
cover tax liabilities from 1991, 1992, and 1996.
3
This includes both the assessments from 1978-82
that were entered as a decision of the United
States Tax Court in November 1992, and the
subsequently
IRS
assessments of additional tax liabilities for
1991-92 and 1996.
2000-2 USTC ¶50,724] Gerald J. Buesing, Plaintiff v.
United States
, Defendant
U.S.
Court of Federal Claims, 96-70T, 9/7/2000, 2000
U.S.
Claims LEXIS 179. Prior decision by the Court of
Federal Claims in this same case, 99-1
USTC ¶50,246
[Code
Secs. 6325 and 7122
]
Settlement agreements: Release of lien:
Existence of contract: Acceptance of offer:
Bankruptcy: Authority: Material
misrepresentation: Unilateral mistake.--An
individual failed to prove that he entered into
a contract with the
IRS
to release a federal tax lien on his real
property. Since an
IRS
agent lacked statutory authority to release the
lien prior to the taxpayer's discharge in
bankruptcy, he could not accept the taxpayer's
offer to release the lien for payment and, thus,
there was no mutual assent to a settlement
agreement. Moreover, even if a contract had been
formed, the existence of a material
misrepresentation on the part of the taxpayer
would have made the contract voidable. The
taxpayer's communicated intention not to sell
the property affected the method by which the
IRS
agent valued it and the circumstances under
which the
IRS
would release the lien; thus, the
misrepresentation was deemed material.
[Code
Sec. 7122 ]
Settlement agreements: Release of lien:
Existence of contract: Collateral estoppel.--The
doctrine of equitable estoppel did not prevent
the government from denying the existence of a
contract to purportedly release a lien on an
individual's real property in exchange for
payment of his tax liability. Due to the
taxpayer's misrepresentation regarding his
intention not to sell the property, the
IRS
used the property's estimated value rather than
its true sale value to calculate its worth.
Moreover, the taxpayer suffered no detriment as
a result of the alleged agreement since he
failed to show that it affected the terms of his
divorce settlement, and there was no evidence of
misconduct on the part of any
IRS
agent. BACK REFERENCES: ¶41,605.016
and 41,130.0254
Jeffrey A. McKee,
Davis
, McKee & Forshey, P.C.,
Phoenix
,
Ariz.
, for plaintiff. Mildred L. Seidman, Chief,
Steven I. Frahm, Assistant Chief, Elizabeth
Diane Seward, Department of Justice, Washington,
D.C. 20530, for defendant.
OPINION
HORN, Judge:
The above-captioned case is before the court after a trial on the
merits. Plaintiff, Gerald J. Buesing, alleges
that he entered into a contract with the
defendant, the United States, under which a
federal tax lien on his home would be released
if (1) he converted his bankruptcy to a Chapter
7 proceeding, (2) he received a discharge from
his bankruptcy, and (3) he paid $30,000.00 to
the Internal Revenue Service. The
United States
argues that no contract was ever formed, and, if
a contract had been formed, it would be voidable
because of a material misrepresentation by the
plaintiff and/or a unilateral mistake on the
part of the defendant. Defendant's allegations
of a material misrepresentation and a unilateral
mistake both stem from plaintiff's conduct in
leading defendant to believe that plaintiff
would keep his home, which purportedly caused
defendant to underestimate the value of
plaintiff's home, and, hence, the value of
plaintiff's equity interest in the home.
Plaintiff, in turn, counters that defendant
would be equitably estopped from denying the
existence of a contract.
After the trial on these issues and the submittal of post-trial
briefs, the court concludes that no contract was
formed. Had a contract been formed, the court
agrees with defendant that any agreement would
have been voidable due to both a material
misrepresentation on the plaintiff's part and a
unilateral mistake on the defendant's part. In
addition, the court holds that the government
would not be estopped by its actions from
denying the existence of the contract.
FINDINGS OF
FACT
Plaintiff, Gerald J. Buesing, founded a trucking company with his
brother in 1965. The trucking company evolved
into a construction company called Buesing
Corporation, of which plaintiff is the sole
owner and president. In 1986, plaintiff decided
to move the company to
Phoenix
,
Arizona
, from its previous place of business in
Minnesota
.
On
March 10, 1990
, Gerald Buesing married Laura Michael. 1
At the time of their marriage, the market value
of plaintiff's assets exceeded $4.3 million,
while Ms. Michael's assets were worth about
$30,000.00. On the day before the marriage,
plaintiff and Ms. Michael entered into an
Antenuptial Agreement. Paragraph 3 of the
Antenuptial Agreement stated:
Termination of Marriage by Dissolution. . . . In consideration of
the sum of $25,000 to be paid by Mr. Buesing to
Ms. Michael at the time either party would
initiate an action for divorce or separate
maintenance, Ms. Michael hereby waives and
relinquishes all statutory rights to temporary
or permanent alimony, support, or maintenance,
allowance for costs of an action for divorce or
separate maintenance, property settlement and
all other allowances from one another's assets
in any such action.
Initially, the Buesings lived in
Ahwatukee
,
Arizona
, in a house which plaintiff had purchased in
1989 with his own funds, and which was titled
solely in his name. In March 1993, plaintiff and
Ms. Michael purchased, as husband and wife, a
residence at
1917 East Clubhouse Drive
in
Phoenix
,
Arizona
(the
Clubhouse Drive
property) for $321,562.00. The parties agree
that the couple took title to the property as
joint tenants with right of survivorship and not
as a community property estate or as tenants in
common. Plaintiff made the down payment with
$100,000.00 of the net proceeds from the sale of
the Ahwatukee home, and he also made the monthly
mortgage payments.
In May of 1993, soon after purchasing the
Clubhouse Drive
property, the Buesings' marriage began to
dissolve. They separated on or about
July 17, 1993
, when Laura Michael moved to
Chicago
,
Illinois
. On that same day, plaintiff wrote to Ms.
Michael and asked that she sign and have
notarized three documents: (1) a quit claim deed
relinquishing to plaintiff all of her right,
title and interest in and to the Clubhouse Drive
residence, (2) a power of attorney, and (3) a
waiver of any conflict that might arise from the
representation of plaintiff in any divorce
proceedings by the law firm of Mariscal, Weeks. 2
On
July 26, 1993
, Ms. Michael signed the power of attorney and
the waiver, but she did not sign the quit claim
deed.
On
August 24, 1993
, using the power of attorney which his wife had
executed, plaintiff signed and recorded in
Maricopa County, Arizona, a quit claim deed for
himself and on behalf of Ms. Michael, which was
identical in substance to the quit claim deed
which she had declined to sign. 3
Plaintiff did not inform Laura of the purported
conveyance. Later, Plaintiff was advised by
counsel that the quit claim deed was probably
not enforceable, and that Laura held an
undivided one-half community property interest
in the
Clubhouse Drive
residence.
Ms. Michael filed a divorce petition in
Maricopa County
,
Arizona
on
September 21, 1993
. In a letter of the same date to plaintiff's
attorney, Ms. Michael demanded immediate payment
of the $25,000.00 provided for in the
Antenuptial Agreement, or at least a portion of
that sum along with monthly payments to enable
Ms. Michael to meet her living expenses.
Meanwhile, on
October 19, 1993
, the Internal Revenue Service (
IRS
) recorded a Notice of Federal Tax Lien in
Maricopa County
,
Arizona
respecting assessed and unpaid income taxes,
penalties and interest totaling $105,369.00 that
plaintiff owed for taxable years 1987 through
1989. The federal tax lien attached to all of
plaintiff's real and personal property. The
taxes had originally been assessed on
July 21, 1992
following an
IRS
audit, and notice and demand for payment had
been made by the
IRS
a total of five times over the course of the
following year.
During the following months, the Buesings continued to exchange
correspondence through their attorneys as they
attempted to reach a divorce settlement. Each of
plaintiff's proposals, among other terms, would
have resulted in plaintiff receiving the
Clubhouse Drive
property as his separate property. During the
negotiations, Mr. Buesing consistently
maintained to his divorce attorney, Cindra
White, that Ms. Michael had no interest in the
residence, and that it was his separate
property.
During the course of the divorce negotiations, on
January 18, 1994
, plaintiff filed a petition under Chapter 11 of
the United States Bankruptcy Code seeking
protection from his creditors. In March 1994,
plaintiff's bankruptcy case was assigned to
Revenue Officer William Unger of the
IRS
for resolution of plaintiff's unpaid income
taxes for 1987 through 1989. Mr. Unger met with
plaintiff and his attorney on
March 22, 1994
to discuss the unpaid taxes and plaintiff's
options for repayment, which depended on whether
the income tax liability was dischargeable. 4
Mr. Unger explained that, if the liability was
determined to be dischargeable, the federal tax
lien then would be satisfied by the equity in
plaintiff's real and personal property after his
discharge from bankruptcy. Unger explained that
plaintiff could make an offer in settlement of
his tax liabilities under a Chapter 11
bankruptcy or, alternatively, he could convert
to a Chapter 7 bankruptcy liquidation
proceeding, obtain a discharge, and then satisfy
the still-attached tax lien.
With respect to the divorce, plaintiff contacted his divorce
attorney, Cindra White, on
August 3, 1994
, and informed her that his wife wanted to
finalize the divorce. He instructed the attorney
to draft a decree of dissolution under which the
Clubhouse Drive
residence would have been listed as his separate
property, Ms. Michael would have received the
Antenuptial Agreement payment of $25,000.00, and
various items of community property would have
been identified as the separate property of
either plaintiff or of his wife. The next day,
Ms. White prepared a draft Consent Judgment with
these terms, but the settlement was not resolved
at that time because Mr. Buesing did not have
$25,000.00 available to make the payment to Ms.
Michael. He told Ms. Michael that he would be
able to pay her when the house was sold.
Meanwhile, for several months, Revenue Officer Unger had focused
his work with respect to plaintiff's case on the
question of whether the income tax liability was
dischargeable. Revenue Officer Unger notified
plaintiff's counsel, Jeff McKee, by letter dated
January 23, 1995
, that plaintiff's income taxable years 1987
through 1989 met the requirements for discharge
from personal liability in his Chapter 11
proceeding. Revenue Officer Unger stated that
after the Bankruptcy Court issued an order
discharging the taxes, and collection was made
from plaintiff's equity in his real and personal
property to which the federal tax lien attached,
any remaining tax debt would be abated.
Plaintiff initiated discussions with the
IRS
to determine the extent and value of the real
and personal property to which the federal tax
lien respecting his 1987 through 1989 tax
liabilities could attach. Upon Revenue Officer
Unger's request, plaintiff provided to the
IRS
information and documentation regarding the
value of his business, automobile, and
residence. With regard to the value of the
Clubhouse Drive
residence, plaintiff provided comparable sales
information to the
IRS
showing that similarly situated residential
property had a market value of $300,000.00.
During the negotiations, plaintiff represented
to the
IRS
that his wife had a one-half interest in the
Clubhouse Drive
property, pursuant to
Arizona
community property law. Plaintiff also
represented to Revenue Officer Unger that he
wanted to keep his home. Based on the comparable
sales figures and plaintiff's representation
that Ms. Michael held a one-half interest in the
Clubhouse Drive
property, Revenue Officer Unger believed that
the value of plaintiff's real and personal
property to which the federal tax lien could
attach was $30,000.00. Mr. Unger assigned no
value to plaintiff's household furnishings,
based on a bankruptcy schedule on which
plaintiff had listed the fair market value of
the furnishings at the exemption amount of
$2500.00.
Plaintiff, by letter dated
March 8, 1995
, made alternative offers to the
IRS
to secure the release of the federal tax lien in
dispute. The offer at issue in the instant case
provided that plaintiff would pay the
IRS
$30,000.00 within 90 days of
IRS
acceptance of plaintiff's offer to buy out the
federal tax lien on his property. The letter,
written by plaintiff's counsel, Mr. McKee,
states:
This correspondence is to confirm that the Internal Revenue Service
has determined and agreed that Mr. Buesing is
entitled to a discharge regarding, and is
relieved of personal liability for, personal
income tax liabilities for the tax years 1987,
1988 and 1989, subject to obtaining an Order
Granting Discharge from the Bankruptcy Court.
For ease of reference and your acknowledgment
and understanding, I have enclosed your letter
dated
January 23, 1995
stating and acknowledging that the
IRS
will not contest the dischargeability of Mr.
Buesing's Form 1040 tax liabilities for the
years 1987, 1988 and 1989.
This shall also constitute an offer in compromise of all Federal
Tax Levies and Liens on Mr. Buesing's real and
personal property, including (but limited to)
his equity in his personal residence and the
value of his stock in Buesing Corporation. As
you know, these Federal Tax Levies and Liens
encumber Mr. Buesing's real and personal
property to the extent of the above-referenced
1987, 1988 and 1989 tax liabilities.
In full satisfaction, extinguishment, and release of these Federal
Tax Levies and Liens, Mr. Buesing makes the
following alternative offer:
1. At Mr. Buesing's behest, Buesing Corporation will immediately
relinquish to the
IRS
$100,000.00 of Net Operating Losses (NOLs) which
it presently retains, and cooperate in
reasonable measures to insure that Buesing
Corporation does not attempt to utilize said
NOLs; or (if, and only if, Option One is
not accepted by the
IRS
)
2. $30,000.00 in cash within 90 days of
IRS
acceptance, which amount is comprised of
$28,600.00 for Mr. Buesing's equity in his home
and $1,400.00 representing Mr. Buesing's
ownership interest in Buesing Corporation.
We respectfully request an expeditious response to this alternative
offer by the
IRS
. Thank you for your professional courtesies and
manner in this proceeding.
On
March 15, 1995
, prior to receiving any response to his offer
and without notice to the
IRS
, plaintiff signed an agreement with a real
estate agent to list the
Clubhouse Drive
property for sale at $339,900.00. The residence
was listed for sale in a Century 21
advertisement run by plaintiff's friends, Alan
and Barbara Levanson, which appeared in the
Ahwatukee Foothills News on
March 22, 1995
, and every two weeks thereafter through
June 14, 1995
.
Two days later, on
March 17, 1995
, plaintiff informed his divorce attorney, Ms.
White, that he and Ms. Michael had reached a
basis for settlement. Mr. Buesing asked Ms.
White to prepare two different draft Consent
Judgments, with both versions increasing the
cash payment to his wife to $30,000.00, with
$5,000.00 payable on or before
March 31, 1995
. In both versions, the
Clubhouse Drive
residence was confirmed as plaintiff's sole and
separate property. Plaintiff also told Ms. White
that he had reached an agreement with the
IRS
concerning his unpaid taxes, and he advised her
that he would need to sell the
Clubhouse Drive
property. For the rest of that month, while
agreeing in principal on the sum to be paid to
Ms. Michael, plaintiff and his wife continued to
negotiate the payment's timing.
While plaintiff was finalizing his divorce settlement, plaintiff's
attorney McKee continued to discuss plaintiff's
outstanding tax debt with Revenue Office Unger.
The two held discussions several times between
March 8, 1995
and
March 28, 1995
. Mr. Unger restated that, in order to secure a
release of the federal tax liens, plaintiff
first had to obtain a discharge from his Chapter
7 bankruptcy, and then pay the $30,000.00 amount
estimated as the value of the
IRS
's lien interest. On
March 15, 1995
, Mr. Unger discussed plaintiff's case with his
Section Chief, Ed Perry. Based on the
information then available to Mr. Unger,
including plaintiff's intent to keep his
residence, Mr. Perry approved Mr. Unger's
recommendation that plaintiff be allowed to buy
out the tax lien for $30,000.00.
As of
March 28, 1995
, Mr. Unger was unaware that Ms. Michael had
tentatively agreed to the divorce settlement
amount, and he was also unaware that plaintiff
had listed the
Clubhouse Drive
residence for sale. On that day, Revenue Officer
Unger formally responded to plaintiff's tax
settlement offer by letter, wherein Mr. Unger
agreed that the value of the real and personal
property to which the federal tax lien attached
was $30,000.00. He stated that following
plaintiff's discharge from a Chapter 7
proceeding and plaintiff's payment of
$30,000.00, plaintiff's remaining tax
liabilities for 1987 through 1989 would be
abated and the lien released. The letter from
the
IRS
, signed by Revenue Officer Unger, stated:
The Internal Revenue Service agrees that the value of the real and
personal property to which our Notice of Federal
Tax Liens attach is $30,000.00. Following
Chapter 7 discharge by the court and receipt of
$30,000.00, the 1987, 1988, and 1989 income tax
liabilities of the debtor will be discharged and
the Notice of Federal Tax Liens will be
released.
This is a procedure that has several steps involving several
people, so the actual release will not appear at
the county recorders office for about 4 weeks
after the discharge and money are received.
Payment should be made directly to this office
to minimize delay.
The letter did not refer to plaintiff's
March 8, 1995
letter, nor did it refer to the 90-day period in
which plaintiff offered to make a lump sum
payment of $30,000.00 to satisfy the lien
interest of the
IRS
in his real and personal property.
On
April 12, 1995
, the Maricopa County Superior Court entered a
consent judgment and decree of dissolution of
the marriage of Gerald Buesing and Laura
Michael. The consent judgment stated that the
Clubhouse Drive
property was plaintiff's sole and separate
property and was confirmed to him. The consent
judgment provided further that plaintiff was to
pay Ms. Michael $5,000 on or before
March 31, 1995
, and $25,000.00 upon the sale of the
Clubhouse Drive
property. In March 1995, at the time of the
exchange of letters between plaintiff and the
IRS
respecting the buy-out of the
IRS
lien on plaintiff's property, plaintiff's
bankruptcy proceeding was still in Chapter 11.
Plaintiff interpreted Revenue Officer Unger's
March 28, 1995
letter as an acceptance of plaintiff's offer
contained in his
March 8, 1995
letter, with the additional requirement,
developed in interim conversations between Mr.
Unger and Mr. McKee, that plaintiff first had to
obtain a Chapter 7 discharge. Revenue Officer
Unger, however, considered his
March 28, 1995
letter to be a separate proposal or counteroffer
which stated an additional, material term.
On
April 26, 1995
, the bankruptcy court entered an order
converting plaintiff's case to a Chapter 7
proceeding. The reason stated for the conversion
was that the plaintiff had failed to file a
disclosure statement and plan of reorganization
by
January 31, 1995
, the date stipulated to by the plaintiff and
the United States Trustee. On
May 17, 1995
, plaintiff received an offer of $340,000.00 for
the
Clubhouse Drive
property, including its furnishings. Mr. Buesing
accepted the offer on
May 20, 1995
; closing was scheduled for
June 16, 1995
.
Mr. Unger first learned of the property's sale on
June 13, 1995
. On
June 15, 1995
, one day before plaintiff was to close on the
sale, plaintiff's attorney McKee called the
IRS
to inform them. In order for the sale to close,
plaintiff asked the
IRS
to release its lien on the property and to
accept $30,000.00 cash from the sale proceeds. 5
On
June 16, 1995
, plaintiff attempted to tender to the
IRS
a cashier's check for $30,000.00 to secure a
release of the lien on the
Clubhouse Drive
property. The
IRS
refused to accept the check. Revenue Officer
Unger, by letter dated
June 19, 1995
, notified plaintiff's counsel that he was
withdrawing his
March 28, 1995
proposal to release the lien on plaintiff's
property if plaintiff obtained a discharge from
his Chapter 7 bankruptcy proceeding and paid
$30,000.00. Revenue Officer Unger stated:
Some of the information provided during our discussions is now
known to be incorrect. Mr. Buesing indicated
that his wife held a 50% interest in the real
property. The recent review of sale documents
shows that her interest is limited to $25,000.
This significantly increases your client[']s
interest and our lien interest in the property.
The estimated value was based on comparables you
provided. This recent offer to purchase at
$330,000 indicates that those values were too
low. The net effect of these two factors changes
our lien interest from $30,000.00 to $83,000.00.
There are two entirely different actions being discussed here. They
cannot be combined. In the event Mr. Buesing
receives a discharge one set of laws apply. If
he still [owns] his home, then a negotiated
value is a reasonable means to determine our
secured interest in the exempt property without
forcing its sale. That discharge is key. Without
it, the actual sale of the home determines the
value of our lien . . . .
The sale of plaintiff's home closed on
June 30, 1995
.
Sale
proceeds of $25,000.00 were paid to Laura
pursuant to the Antenuptial Agreement and
Consent Judgment. Net sale proceeds of
$77,943.05 were deposited in escrow with United
Title Company pursuant to 26 U.S.C. §6325(b)(3)
(1994). 6
On
October 16, 1995
, United Title remitted to the
IRS
a check in the amount of $78.543.91, including
$600.86 in accrued interest. On the same day,
plaintiff's income tax liabilities for 1987
through 1989 were credited as follows:
$11,124.06 for 1987; $46,215.50 for 1988; and
$21,204.35 for 1989. The credits to 1987 and
1989 satisfied plaintiff's tax liability for
those years, but about $31,000.00 of plaintiff's
tax liability for 1988 remained unpaid. On
October 27, 1995
, the
IRS
issued a Certificate of Discharge, discharging
the
Clubhouse Drive
residence from the federal tax lien.
On
January 10, 1996
, the bankruptcy court released plaintiff from
all dischargeable debts, including his remaining
unpaid income tax liability for 1988, and
discharged him from his Chapter 7 proceeding. On
September 16, 1996
, plaintiff's remaining liability for 1988
income taxes was abated.
The complaint in the instant action was filed in the United States
Court of Federal Claims on
February 7, 1996
. Plaintiff contends that he had a contractual
agreement with the
IRS
by which the federal tax lien on his real and
personal property would be removed upon his
payment to the
IRS
of $30,000.00. Mr. Buesing is seeking to recover
the net proceeds in excess of $30,000.00 from
the sale of the
Clubhouse Drive
property. Alternatively, plaintiff seeks damages
of $30,000.00, which is the alleged value of his
exempt furniture and furnishings which were sold
with the
Clubhouse Drive
residence, plus interest. 7
After the case was filed, the defendant filed a motion to dismiss
arguing that a contract had not been formed
between Buesing and the
IRS
regarding the tax lien, and alleging that
plaintiff improperly sought a remedy not
available in this court, specifically,
declaratory relief or specific performance. In
the alternative, the defendant filed a motion
for summary judgment, arguing that any contract
entered into by the parties was voidable on the
grounds that material misrepresentation or
unilateral mistake occurred.
The plaintiff responded to the motion to dismiss, and filed a
cross-motion for summary judgment asserting that
the parties had entered into a contract arising
out of a settlement agreement and contending
that the plaintiff sought money damages stemming
from a failure to perform that contract.
Moreover, the plaintiff argued that in the event
the court determined there was a contract, but
found the government's argument regarding
material misrepresentation and unilateral
mistake worthy of consideration, that summary
judgment was not appropriate as facts material
to the formation of a contract were genuinely in
dispute.
In a decision issued on
January 13, 1999
, the court granted in part and denied in part
defendant's motion to dismiss. Buesing v.
United States [99-1 USTC ¶50,246], 42
Fed.Cl. 679, 698 (1999). The court granted the
motion to dismiss Mr. Buesing's claims for
specific performance and declaratory judgment,
because those claims fell outside of the court's
jurisdiction.
Id.
at 692. The court, however, denied
defendant's motion to dismiss plaintiff's other
claims.
Id.
at 691. The court also denied the
parties' motions for summary judgment because
they were premature due to an underdeveloped
record with material issues of fact in dispute.
The court stated:
A number of issues of fact have been raised by the parties in
papers presented to the court that weigh against
resolution of the instant case upon summary
judgment pleadings. It appears that there are
questions of fact surrounding the impact upon
Revenue Agent Unger's understanding of the
equity value of the property owned by the
plaintiff, Unger's interpretation of plaintiff's
intent to retain or sell the house, and how
these issues impacted Unger's determinations for
settlement negotiation purposes. In addition,
there is an issue as to the plaintiff's intent,
or stated intent, to reside in or sell the
Clubhouse Drive
property.
The issues of materiality, mistake and "reason to know"
need further examination by a trier of fact.
Moreover, insufficient information is available
to the court at this time to resolve the issues
raised regarding the authority of Revenue Agent
Unger to enter into a settlement agreement and
the doctrine of equitable estoppel raised by the
plaintiff.
Id.
at
697. Plaintiff's case subsequently went to trial
in December, 1999.
DISCUSSION
The court must address several issues raised by the parties both at
trial and in their post-trial briefs. The court
must examine whether a contract was formed
between the parties through their exchange of
letters regarding a possible settlement, or
through defendant's letter and the plaintiff's
subsequent conduct taken allegedly in reliance
on that letter. If a contract was formed, the
court also must decide whether the contract is
voidable by the government because of alleged
material misrepresentations by the plaintiff, or
because of unilateral mistake on the part of the
government. Last, the court must decide if the
defendant is equitably estopped from denying the
existence of a contract.
I. The existence of a contract
The court first examines the question of whether a settlement
contract was formed between Mr. Buesing and the
IRS
. Plaintiff argues that "this is a breach
of contract case. A contract was formed when
Gerald Buesing offered to settle the value of
the tax liens on his property for $30,000 and
the
IRS
accepted that offer." As the basis of an
agreement, plaintiff points to (1) the
combination of his
March 8, 1995
offer letter and the
March 28, 1995
letter response from the
IRS
, and/or (2) the combination of that
March 28, 1995
IRS
response and subsequent actions which plaintiff
allegedly performed, such as converting his
bankruptcy proceeding to Chapter 7 and settling
his divorce, in reliance on the
IRS
response. According to defendant, however, no
contract was ever formed:
There never was a meeting of the minds between plaintiff and Unger
regarding the material terms of a contract to
compromise plaintiff's tax liability. Mr. Unger
did not agree to release the lien upon a payment
of $30,000 within 90 days, and plaintiff never
agreed to Unger's counterproposal to release the
lien upon a payment of $30,000 after plaintiff
converted to a Chapter 7 bankruptcy and received
a discharge. Indeed, no one at the
IRS
had authority to release the lien before a
discharge in bankruptcy. There was no contract
between plaintiff and the
IRS
.
As the court noted in its prior opinion in this
case, although not addressed directly by this
circuit, the law regarding tax settlement
agreements has been clearly articulated:
A settlement agreement is a contract; mutual forbearance supplies
the consideration. As such, we interpret its
terms using general contract law principles. Treaty
Pines Invs. Partnership v. Commissioner
[92-2 USTC ¶50,418], 967 F.2d 206, 211 (5th
Cir. 1992). If the language of the agreement is
unambiguous, we will not consider any extrinsic
evidence: the meaning will be determined from
the terms encompassed within the proverbial four
corners of the agreement. Goldman [94-2
USTC ¶50,577], 39 F.3d at 406. Where the
language is not so clear, however, we will
examine the language within the context of the
circumstances surrounding the execution of the
agreement. Robbins Tire & Rubber Co. v.
Commissioner [
CCH
Dec. 29,612], 52 T.C. 420, 435-436, 1969 WL 1677
(1969).
Estate of Kokernot v. Commissioner
[97-1 USTC ¶60,276], 112 F.3d 1290, 1294 (5th
Cir. 1997); see also Goldman v. Commissioner
[94-2 USTC ¶50,577], 39 F.3d 402, 405-06 (2d
Cir. 1994) ("As the settlement agreement
constituted a contract, general principles of
contract law must govern its
interpretation."); Slovacek v. United
States [96-2 USTC ¶50,467], 36 Fed.Cl. 250,
256 (1996) (citing Goldman v. Commissioner
[94-2 USTC ¶50,577], 39 F.3d at 405). This same
legal framework has also been applied in the
United States Tax Court:
The settlement of tax cases is governed by general principles of
contract law. A settlement agreement is in
essence a contract. Each party agrees to concede
some rights which he or she may assert against
his or her adversary as consideration for those
secured in the settlement agreement. Saigh v.
Commissioner [
CCH
Dec. 21,694], 26 T.C. 171, 177 (1956). In
determining the proper meaning of the terms of
the agreement, we look to the language of the
agreement and the circumstances surrounding its
execution. Robbins Tire Co. v. Commissioner
[
CCH
Dec. 29,612], 52 T.C. 420, 435-436 (1969).
Generally, extrinsic evidence will not be
admitted to expand, vary, or explain the terms
of a written agreement unless the agreement is
ambiguous. Rink v. Commissioner [
CCH
Dec. 48,969], 100 T.C. 319, (1993), aff'd
[95-1 USTC ¶50,092], 47 F.3d 168 (6th Cir.
1995); Woods v. Commissioner [
CCH
Dec. 45,602], 92 T.C. 776, 780-781 (1989).
Petitioner bears the burden of proving that his
interpretation of any ambiguous contract
language is correct. Rule 142(a); Rink v.
Commissioner [
CCH
Dec. 48,969], supra at 326.
Washoe Ranches #1, Ltd. v. Commissioner
[
CCH
Dec. 51,634(M)], 1996 Tax Ct. Memo LEXIS 511, 72
T.C.M. (
CCH
) 1176, T.C. Memo. 1996-495 (1996). This court
is persuaded of the rectitude of this approach
and will analyze the above-captioned case using
the principles of contract law.
A valid express contract requires that the following criteria have
been met: "a mutual intent to contract
including offer, acceptance, and consideration;
and authority on the part of the government
representative who entered or ratified the
agreement to bind the
United States
in contract." Total Med. Management,
Inc. v.
United States
, 104 F.3d 1314, 1319 (Fed. Cir. 1997), cert.
denied, 522 U.S. 857, 118 S.Ct. 156, 139
L.Ed.2d 101 (1997) (citing Thermalon Indus.,
Ltd. v. United States, 34 Fed.Cl. 411, 414
(1995) (citing City of El Centro v. United
States, 922 F.2d 816, 820 (Fed. Cir. 1990), cert.
denied, 501
U.S.
1230, 115 L.Ed.2d 1019, 111 S.Ct. 2851 (1991);
Fincke v. United States, 230 Ct. Cl. 233,
244, 675 F.2d 289, 295 (1982))). Even without an
express contract, there may still be an
implied-in-fact contract if there is a meeting
of the minds which can be inferred from parties'
conduct showing, in light of the surrounding
circumstances, a tacit understanding between
them. City of
Cincinnati
v.
United States
, 153 F.3d 1375, 1377 (Fed. Cir. 1998)
(citing Baltimore & Ohio R.R. Co. v.
United States, 261
U.S.
592, 597, 67 L.Ed. 816, 43 S.Ct. 425 (1923)).
"Like an express contract, an
implied-in-fact contract requires '(1) mutuality
of intent to contract; (2) consideration; and,
(3) lack of ambiguity in offer and acceptance.'
"
Id.
(quoting City of El Centro v. United States,
922 F.2d at 820). An express offer and
acceptance are not necessary, but the parties'
conduct must indicate mutual assent.
Id.
In addition, if the
United States
is a party, the government representative whose
conduct is relied upon must have actual
authority to bind the government in contract.
Id.
The government, however, is not bound by the
acts of its agents beyond the scope of their
actual authority. Harbert/Lummus Agrifuels
Projects v.
United States
, 142 F.3d 1429, 1432 (Fed. Cir. 1998), cert.
denied, 525
U.S.
1177 (1999). "Anyone entering into an
agreement with the Government takes the risk of
accurately ascertaining the authority of the
agents who purport to act for the Government,
and this risk remains with the contractor even
when the Government agents themselves may have
been unaware of the limitation on their
authority." Trauma Servs. Group v.
United States
, 104 F.3d 1321, 1325 (Fed. Cir. 1997). 8
The defendant argues that the exchanged correspondences between
plaintiff and the
IRS
cannot constitute a binding agreement because
there was no meeting of the minds with respect
to the date when payment could be made in return
for release of the federal tax lien. The
March 8, 1995
offer letter from plaintiff's counsel stated, in
relevant part:
This correspondence is to confirm that the Internal Revenue Service
has determined and agreed that Mr. Buesing is
entitled to a discharge regarding, and is
relieved of personal liability for, personal
income tax liabilities for the tax years 1987,
1988 and 1989, subject to obtaining an Order
Granting Discharge from the Bankruptcy Court.
For ease of reference and your acknowledgment
and understanding, I have enclosed your letter
dated
January 23, 1995
stating and acknowledging that the
IRS
will not contest the dischargeability of Mr.
Buesing's Form 1040 tax liabilities for the
years 1987, 1988 and 1989.
This shall also constitute an offer in compromise of all Federal
Tax Levies and Liens on Mr. Buesing's real and
personal property, including (but limited to)
his equity in his personal residence and the
value of his stock in Buesing Corporation. As
you know, these Federal Tax Levies and Liens
encumber Mr. Buesing's real and personal
property to the extent of the above-referenced
1987, 1988 and 1989 tax liabilities.
In full satisfaction, extinguishment, and release of these Federal
Tax Levies and Liens, Mr. Buesing makes the
following . . . offer:
* * *
2. $30,000.00 in cash within 90 days of
IRS
acceptance . . .
The purported acceptance from Revenue Agent
Unger, dated
March 28, 1998
, states:
The Internal Revenue Service agrees that the value of the real and
personal property to which our Notice of Federal
Tax Liens attach is $30,000.00. Following
Chapter 7 discharge by the court and receipt of
$30,000.00, the 1987, 1988, and 1989 income tax
liabilities of the debtor will be discharged and
the Notice of Federal Tax Liens will be
released.
This is a procedure that has several steps involving several
people, so the actual release will not appear at
the county recorders office for about 4 weeks
after the discharge and money are received.
Payment should be made directly to this office
to minimize delay.
Defendant argues that the "within 90 days of
IRS
acceptance" language in plaintiff's offer
letter was a material term to which no one at
the
IRS
ever agreed. After listening to the testimony at
trial and evaluating the parties' arguments on
this issue, the court agrees that plaintiff's
ninety-day limit was a material term and that
the combination of the March 8 and March 28
letters cannot be seen as an offer and
acceptance because that material term
intentionally was removed from the purported
March 28 "acceptance." Edwin Perry,
Revenue Officer Unger's supervisor, noted at
trial that the "within ninety days"
term of plaintiff's offer was unacceptable to
the
IRS
"because [the release of the lien is]
dependent on the discharge not on 90 days. There
was no time frame. Neither party had any control
over the time frame . . . for the issuing of the
discharge by the [bankruptcy] court." Mr.
Unger later corroborated this notion and stated
that he also had deemed the ninety-day time
period as an "unacceptable" term
because it was uncertain when plaintiff's
discharge from bankruptcy would occur, and the
discharge was a necessary precursor to release
of the federal tax lien. Mr. Unger gave the
following testimony at trial:
Q. All right. And can you extinguish a lien in a Chapter 11
under--within a fixed time period such as 90
days?
A. No. Because you still have the issue of the discharge.
Q. And that is the Plaintiff's discharge from bankruptcy?
A. The discharge of his total tax liability. It is not just the
lien equity.
Q. And that occurs when the Bankruptcy Court discharges the debtor
from bankruptcy?
A. That is correct.
Q. And that had not happened at this point? [when plaintiff had
offered to pay $30,000.00 within ninety days of
IRS
acceptance]
A. That had not happened in [plaintiff's case.]
Q. And did you know on
March 8, 1995
, when Plaintiff's discharge from bankruptcy was
going to take place?
A. I had no knowledge whatsoever.
The position taken by Mr. Perry and Mr. Unger has
statutory support under 26 U.S.C. §6325(a)
(1994), which makes no distinction between
Chapters 7 and 11. The statute states in
relevant part:
(a) Release of lien.--Subject to such regulations as the Secretary
may prescribe, the Secretary shall issue a
certificate of release of any lien imposed with
respect to any internal revenue tax not later
than 30 days after the day on which-
(1) Liability satisfied or unenforceable.--The
Secretary finds that the liability for the
amount assessed, together with all interest in
respect thereof, has been fully satisfied or has
become legally unenforceable; . . .
As Mr. Perry noted at trial, the bankruptcy
discharge makes the lien legally unenforceable.
He stated, while discussing a Chapter 7
discharge, "Prior to the discharge, [the
lien] is not unenforceable, we have a stay but
it is not unenforceable. And nobody really has
the authority to release that lien until the
court issues the discharge. That's the legal
requirement to make it unenforceable." The
IRS
had no control over the timing of plaintiff's
discharge from bankruptcy, so it could not agree
to the ninety-day time period which plaintiff
proposed. 9
Instead, Mr. Unger altered the terms of
plaintiff's offer and responded with what is
seen most reasonably as a counteroffer. Thus,
defendant's
March 28, 1995
letter was not an acceptance.
The above analysis finds support in the treatise Corbin on
Contracts, which states that "[a]
communicated offer creates a power to accept the
offer that is made and only that offer. Any
expression of assent that changes the terms of
the offer in any material respect may be
operative as a counter-offer; but it is not an
acceptance and consummates no contract." 1
Corbin on Contracts §3.28 (1993) (footnote
omitted). The terms of the March 28, 1995
IRS
letter differed materially from plaintiff's
offer by placing no limitation on the time
period for release of the lien on the
Clubhouse Drive
property. Moreover, Mr. Unger's letter
explicitly added another condition to the
agreement, namely, that Mr. Buesing first had to
obtain a discharge of a Chapter 7 bankruptcy
proceeding before the lien would be released. 10
Mr. Unger's letter stated that the tax lien
would be released "following Chapter 7
discharge by the [bankruptcy] court and receipt
of $30,000.00." For these reasons, Mr.
Unger's March 28, 1995 letter is seen most
appropriately as a counteroffer to Mr. Buesing. 11
It is well established that a counter-offer may be accepted by
conduct. See Union Realty
Co.
, Ltd. v. Moses, 984 F.2d 715, 722 n.6 (6th
Cir. 1993); see also Ismert & Assocs. v.
New England
Mut. Life Ins. Co., 801 F.2d 536, 541 (1st
Cir. 1986) ("an offer may be accepted by
overt acts."); Kurio v. United States
[71-1 USTC ¶9112], 429 F.Supp. 42, 64 (S.D.
Tex. 1970) ("a contract will arise if
conduct by the original offeror following
receipt of the late acceptance amounts to an
acceptance of the counteroffer").
"Such acceptance does no violence to the
'mirror image' rule . . . ." Union
Realty Co., Ltd. v. Moses, 984 F.2d at 722
n.6 (citing horn-book "mirror image"
rule articulated in Canton Cotton Mills v.
Bowman Overall Co., 149 Tenn. 18, 257 S.W.
398 (1924)).
Plaintiff argues that, if Mr. Unger's
March 28, 1995
letter is seen as a counteroffer, a contract
still was formed as a result of plaintiff's
subsequent actions. Mr. Unger's counteroffer
required three things: (1) that plaintiff
convert his bankruptcy to a Chapter 7
proceeding, (2) that he pay the
IRS
$30,000.00, and (3) that he obtain a discharge
of his bankruptcy. With respect to the first
requirement, plaintiff's bankruptcy was
converted from Chapter 11 to Chapter 7, and the
conversion was made official by an Order of the
bankruptcy court on
April 26, 1995
. 12
For the payment to the
IRS
, plaintiff attempted to accomplish this by
presenting a certified check for $30,000.00 on
June 16, 1995
. The
IRS
, however, refused acceptance. According to
plaintiff, "By tendering the $30,000.00
before the
IRS
withdrew its self-styled counter-offer or
proposal, Mr. Buesing substantially performed,
and thereby accepted, the offer/proposal."
By presenting payment after the bankruptcy conversion, plaintiff
argues that he performed the portion of Mr.
Unger's requirements which were within
plaintiff's power to effectuate. However, a
close examination of plaintiff's conduct
indicates that he was not accepting the
counter-offer. Instead, plaintiff still was
attempting to implement the terms of his
original
March 8, 1995
offer which had not been accepted by the
IRS
.
When plaintiff and his attorney attempted to present the $30,000.00
certified check to the
IRS
on
June 16, 1995
, they requested that an
IRS
official sign a document which accompanied the
check. The document, titled "Satisfaction
and Receipt of Payment under Agreement,"
read as follows:
The Internal Revenue Service, by its authorized undersigned agent,
acknowledges and accepts payment from Gerald
Buesing (Taxpayer I.D. # 469-50-8084) in the
amount of $30,000.00 paid this date in certified
funds. Mr. Buesing's payment of $30,000.00
satisfies the payment required of him in the
attached agreement between Mr. Buesing and the
Internal Revenue Service, which payment must be
made on or before the expiration of 90 days
following
March 28, 1995
.
This "payment satisfaction document"
was provided to the court at trial as an
exhibit. Unfortunately, the exhibit did not
include the referenced "attached
agreement," so it is at first unclear under
what agreement plaintiff purported to be
operating. However, the document's denotation of
"before the expiration of 90 days following
March 28, 1995
" recites a limitation--ninety days --which
was only contained in plaintiff's original
March 8, 1995
offer. Because plaintiff's
March 8, 1995
letter had anticipated payment within ninety
days of
IRS
acceptance, and because plaintiff's payment
satisfaction document alleged that the
ninety-day period had begun on
March 28, 1995
, it is apparent that plaintiff believed his
March 8, 1995
offer had been accepted by the
IRS
through Mr. Unger's
March 28, 1995
letter. Thus, the "attached agreement"
only could have been the plaintiff's
March 8, 1995
offer or a summation of that offer's terms and
conditions, and the court has noted above that
the
March 8, 1995
offer never was accepted by the
IRS
.
As plaintiff was attempting to perform the requirements of his
March 8, 1995
letter, the court must agree with defendant that
Mr. Buesing's actions could not have been an
acceptance of Mr. Unger's March 28 counteroffer.
The Restatement (Second) of Contracts §50(1)
(1981) notes that "acceptance of an offer
is a manifestation of assent to the terms
thereof . . . ." With his belief that the
ninety-day limitation was still valid, plaintiff
was not assenting to the terms of defendant's
counteroffer.
Furthermore, plaintiff's conduct in attempting payment provides
additional evidence that there was no meeting of
the minds. Defendant's counteroffer allowed for
the release of the lien only "following
Chapter 7 discharge by the court and receipt of
$30,000.00." (Emphasis added.) When Mr.
Buesing presented the certified check, he asked
for an immediate release of the tax lien in
exchange. This would have been appropriate under
the terms of plaintiff's
March 8, 1995
offer, but was unacceptable to the
IRS
because no discharge from bankruptcy had been
granted yet. For the above reasons, the court
holds that a contract never was formed between
plaintiff and the
IRS
to achieve the release of the federal tax lien
on the
Clubhouse Drive
property.
II. Material misrepresentation and
unilateral mistake
Even were the court to hold that a contract existed between
plaintiff and the
IRS
, defendant argues that it would be voidable due
to a material misrepresentation on the part of
plaintiff, or due to a unilateral mistake on the
part of the
IRS
. In either instance, defendant's arguments
center on the circumstances surrounding the sale
of the
Clubhouse Drive
property.
With respect to the material misrepresentation contention,
defendant states:
Plaintiff's misrepresentations regarding his wife's interest in the
property, his intention to sell, the value of
the property, and the actual listing and
contract for sale at a higher price all induced
Unger to believe that the property would not be
sold and that the
IRS
would not receive more than $30,000 upon a
forced sale. Had plaintiff not concealed the
facts of the pending sale, Unger would have
simply waited for the sale to occur and to
receive the proceeds according to the
IRS
's interest. Those proceeds were still
insufficient to satisfy plaintiff's tax
liability, and plaintiff certainly would have
received nothing. Plaintiff had insufficient
equity in his house to receive any funds from
its sale after payment of the mortgage, the
IRS
, and his wife; he should not now receive such
funds, and be enriched, as a result of his
misrepresentations.
Defendant argues that plaintiff's intention to
keep his home induced Mr. Unger to agree to an
estimated value of the house rather than the
most accurate value determined by the actual
sale of the property. Plaintiff, in turn,
counters that defendant should have known that
keeping the house was not a certainty for
plaintiff. Plaintiff's post-trial brief states:
Mr. Buesing has continually maintained that he certainly wanted to
keep the house but that he stated that he might
have to sell the house; that despite his
fondness for the house, his financial situation,
his failing business and his ongoing
divorce--all of which the
IRS
was well aware--might prevent him from keeping
the house.
As the court noted in its prior opinion in this
case, the United States Court of Appeals for the
Federal Circuit has quoted approvingly the
Restatement (Second) of Contracts §162 (1979)
defining material misrepresentation. See T.
Brown Constructors, Inc. v. Pena, 132 F.3d
724, 729 (Fed. Cir. 1998) ("A
misrepresentation is material if it would be
likely to induce a reasonable person to manifest
his assent, or if the maker knows that it would
be likely to induce the recipient to do
so."). The Restatement (Second) of
Contracts §164(1) provides that a contract is
voidable when (1) a party made a
misrepresentation, (2) the misrepresentation was
material, (3) the misrepresentation induced the
other party to enter into the contract, and (4)
the other party was justified in relying on the
misrepresentation. See Morris v.
United States
, 33 Fed.Cl. 733, 745 (1995) (adopting the
Restatement (Second) of Contracts test for
misrepresentation); National Rural Util.
Coop. Fin. Corp. v. United States, 14 Cl.Ct.
130, 142 (1988) (adopting the Restatement
(Second) of Contracts test for
misrepresentation), aff'd, 867 F.2d 1393
(Fed. Cir. 1989); Lehner v. United States,
1 Cl.Ct. 408, 415 (1983) (adopting the
Restatement (Second) of Contracts test for
misrepresentation). The United States Court of
Appeals for the Federal Circuit has applied the
same concept of material misrepresentation
against both the government and a plaintiff in
this court. See, e.g., Roseburg Lumber Co. v.
Madigan, 978 F.2d 660, 667 (Fed. Cir. 1992);
Summit Timber Co. v. United States, 230
Ct.Cl. 434, 441, 677 F.2d 852, 857 (1982); Morrison-Knudsen
Co. v. United States, 170 Ct.Cl. 712, 719,
345 F.2d 535, 539 (1965); Morris v. United
States, 33 Fed.Cl. 733, 744-47 (1995).
The evidence presented at trial indicates that, even had the court
concluded that there was a contract, the
contract would have been voidable due to
plaintiff's misrepresentation about whether the
Clubhouse Drive
property would be sold. It is apparent that
plaintiff made a misrepresentation by failing to
inform Mr. Unger that the sale of the house
would potentially go forward shortly. When
plaintiff and Mr. Unger initially met to discuss
plaintiff's bankruptcy and the tax lien on his
house, plaintiff did disclose his financial and
divorce problems, and he and Mr. Unger did
discuss the possibility that plaintiff might
have to sell his house. Mr. Unger confirmed this
with his trial testimony. However, while the
possibility of sale was raised, plaintiff's
statements to Mr. Unger, as described by
plaintiff at trial, would have left a reasonable
person with the impression that plaintiff was
going to keep the
Clubhouse Drive
property. Mr. Buesing testified as follows:
Q. Did you have a discussion or did you make, did you tell Mr.
Unger what your intentions were with respect to
the
Clubhouse Drive
home?
A. I was always quite clear in reference to settlement and payment
and/or terms that I really only had two avenues
because my business was not doing well enough
for me to envision that paying off any kind of
debt, is that even though I'd like to maintain
the residence on Clubhouse Drive that it was
either sell that or borrow the money, that those
were the two options that I saw.
Q. Did you tell Mr. Unger that you wanted to keep the house?
A. Yes.
Q. Did you want to keep the house?
A. Definitely.
Thus, while plaintiff indicated that sale of the
house was a possibility, he indicated to Mr.
Unger that he did not want to choose that
option. Furthermore, when asked whether he told
Mr. Unger that he might not be able to keep the
house, plaintiff's answer was evasive. He
stated:
Because of everything that was going on in and around that time,
Jeff [McKee, the questioning attorney], between
working with the business and trying to get that
back on its feet and working with the creditors,
the accountants in reference to the
dischargeability just prior to that, and all the
other things that were going on financially, the
divorce and so forth, I was just really pretty
much upside-down.
In addition, plaintiff's testimony indicated that
he, himself, did not see sale of the house as a
realistic option. Plaintiff testified that
"with the bankruptcy I was advised that the
odds that I could get a mortgage if I could sell
the house were nil, slim to none. And so my
intentions were to keep the house. And I liked
the house."
Plaintiff's communicated intention to keep the
Clubhouse Drive
property impacted the method by which Mr. Unger
valued plaintiff's house. Instead of waiting for
an actual sale of the home to occur to get an
actual market value, Mr. Unger estimated the
valuation of the house at $300,000.00 based on
comparable properties information which
plaintiff supplied. This was not Mr. Unger's
preferred method of establishing a value for the
house, a value which largely determined
plaintiff's total equity in his real and
personal property that was available to satisfy
the
IRS
lien. Mr. Unger explained at trial:
Q. Would you agree that there are benefits to the
IRS
to agree to the value of real property such as
the
Clubhouse Drive
home because an agreement provides certainty for
the
IRS
? You've got a number, it's a known commodity?
A. Actually, I don't agree with that. I think when I value a piece
of property unknowingly, I'm at extreme risk. If
I have a sale I know exactly what I'm getting
and I can validate the sale. But I'm, I am never
as comfortable with a valuation as I am with a
sale.
Q. I heard you say "when I value a piece of property
unknowingly." What does that mean?
A. It's a crap shoot. I mean you take some information. It's very
hard to judge the real world out there or the
marketplace. The marketplace changes. The
uniqueness of his house, the very time we spent
discussing how his house sold and what sold it,
those are things that can only be measured by
the sale.
Q. You're absolutely right. You're absolutely right. And it is a
crap shoot. And doesn't that fact make it a good
reason why the
IRS
wants to agree to a dollar figure?
A. Absolutely not. I would always take a sale over a guess.
Plaintiff's counsel further questioned Mr. Unger
as to what the
IRS
response would have been if plaintiff's property
had later sold for less than the estimated
value, instead of more, as occurred here. Mr.
Unger stated, "If you sell the property we
get the equity. It's cut and dried. There's no
guesswork, there's no decision making, it's a
simple process." Importantly, Revenue
Officer Unger concluded that "I would, we
would never have done this, any of this if Mr.
Buesing had said, I'm selling my property."
13
Plaintiff's expressed intent to keep his home is material because
it affected Mr. Unger's valuation of plaintiff's
home, and, hence, the
IRS
estimation of plaintiff's monetary interest in
the property. This, in turn, affected the
conditions under which the
IRS
was willing to release its lien, inducing
defendant to allegedly enter into an agreement
which defendant otherwise would have rejected.
The consequences of plaintiff's expressed intent
are evident in this case: the home eventually
sold for $40,000.00 more than its estimated
value, potentially leaving plaintiff with a
windfall. 14
Had the
IRS
known that plaintiff was going to sell the
property, it would have waited for the
consummation of the sale in order to precisely
determine plaintiff's monetary interest. This
procedure would have avoided the possibility of
the
IRS
shortchanging itself and collecting less from
the plaintiff than it was legally entitled to
under the lien.
Plaintiff argues that there was no misrepresentation because he
originally desired to keep his house, at the
time when he and the
IRS
allegedly reached an agreement to settle his tax
lien. The evidence, however, contradicts this
position. Plaintiff made his original offer, via
letter, on
March 8, 1995
. After ensuing discussions between Mr. Unger
and plaintiff's attorney, defendant responded by
letter on
March 28, 1995
. As noted above, had the court concluded that a
contract was formed, it could not have been
prior to
March 28, 1995
, because, based on the evidence in the record,
the
IRS
letter of that date constituted the earliest
possible acceptance. Prior to this purported
acceptance of his offer, the record indicates
that plaintiff had reversed his decision to keep
his home. First, plaintiff signed a listing
agreement with Century 21 Real Estate on
March 15, 1995
which gave Century 21 the right to sell the
Clubhouse Drive
property beginning on
March 16, 1995
. Second, he informed his divorce attorney on
March 17, 1995
that he had reached a settlement with the
IRS
and needed to sell the home. Third, the
Clubhouse Drive
property was publicly advertised for sale in a
local newspaper beginning on
March 22, 1995
.
Plaintiff argues that, while the house was listed for sale, it was
noted as being
TOM
, or "Temporarily Off the Market."
However, one of plaintiff's real estate agents,
Barbara Levanson, testified that any
TOM
restrictions are placed in the listing
agreement. No such restriction appears in
plaintiff's listing agreement. Moreover, the
same agent recalled showing the house to
potential buyers within the first week to ten
days after it was listed, and stated that she
could not recall any instance where a house was
advertised in the newspaper if it was not
available for purchase. While the testimony of
plaintiff's other real estate agent, Alan
Levanson, Barbara Levanson's husband, indicated
that the house was
TOM
or perhaps otherwise held from sale, Mr.
Levanson contradicted himself by noting other
activity regarding sale of the house at that
time, such as advertising which did not indicate
TOM
status.
It is apparent that plaintiff took affirmative steps to sell his
house and failed to inform Mr. Unger of his
change in position. Plaintiff's failure to
inform the
IRS
of this information, coupled with his original
stated desire to keep the
Clubhouse Drive
property, constituted a misrepresentation which
caused Mr. Unger to estimate the value of
plaintiff's home. Mr. Unger would not have
agreed to estimate the value had he known that
sale of plaintiff's home was imminent, and that
he, therefore, could have obtained an actual
sale value. Thus, the court concludes that, even
had a contract been formed between plaintiff and
the
IRS
, the contract would have been voidable due to a
material misrepresentation on plaintiff's part.
Defendant also argues that "even if the Court were to
determine that a binding agreement was formed
between the
IRS
and plaintiff to release the lien for $30,000
while he was still in Chapter 7, the contract is
voidable as a matter of law because of Unger's
unilateral mistake." Largely for the same
reasons that a material misrepresentation was
found, in particular that plaintiff led
defendant to believe he would keep the
Clubhouse Drive
property rather than sell it, the court believes
that, had an agreement been formed between
plaintiff and the
IRS
, it would be voidable by defendant due to a
unilateral mistake.
Unilateral mistake is defined in the Restatement (Second) of
Contracts §151 (1981), and states "[a]
mistake is a belief that is not in accord with
the facts." See National Rural Utils.
Coop. Fin. Corp. v.
United States
, 14 Cl.Ct. at 141. In order to show that
there was a unilateral mistake, a party must
demonstrate a:
(1) Mistake by one party, not bearing the risk of such mistake, as
to a basic assumption on which he made the
contract;
(2) that has a material effect on the agreed exchange of
performance; and
(a) the effect of the mistake is such that
enforcement of the contract would be
unconscionable; or
(b) the other party to the contract has reason to
know of the mistake.
Northrop Grumman Corp. v.
United States
,
47 Fed.Cl. 20, 91 (2000) (quoting National
Rural Utils. Coop. Fin. Corp. v. United States,
14 Cl.Ct. at 141); 15
Nevin v. United States, 43 Fed.Cl. 151,
154 (1999); aff'd, F.3d (Fed. Cir. 2000).
As discussed with respect to material
misrepresentation, Mr. Unger's belief that
plaintiff would keep his house was a mistake
which led Mr. Unger to estimate the value of
plaintiff's house instead of waiting for its
sale. The terms of the purported agreement
between the
IRS
and plaintiff were based on the stated desire of
plaintiff to keep the
Clubhouse Drive
property. Plaintiff retaining his residence was,
thus, a basic assumption on which the
IRS
made the alleged contract, and the assumption's
materiality has been demonstrated above in the
court's analysis of the material
misrepresentation claim.
In order to find that there was a unilateral mistake, however, the
court must still determine that the
IRS
did not bear the risk of making a mistake, and
that either (a) enforcement of the contract
would be unconscionable, or (b) plaintiff had
reason to know of the defendant's mistake. Northrop
Grumman Corp. v.
United States
, 47 Fed.Cl. at 91. The Restatement (Second)
of Contracts addresses "When a Party Bears
the Risk of a Mistake" in section 154:
A party bears the risk of a mistake when
(a) the risk is allocated to him by agreement of the parties, or
(b) he is aware, at the time the contract is made, that he has only
limited knowledge with respect to the facts to
which the mistake relates but treats his limited
knowledge as sufficient, or
(c) the risk is allocated to him by the court on the ground that it
is reasonable in the circumstances to do so.
Restatement (Second) of Contracts §154 (1981).
In the present case, the risk of a mistake was not allocated to the
defendant under the alleged contract or any
other agreement. The court has noted that
defendant was unaware of plaintiff's decision,
prior to the time of plaintiff's alleged tax
settlement with
IRS
, to seek the sale of his home. Defendant had
been told by plaintiff that plaintiff desired to
keep his home, and plaintiff made no effort to
inform Mr. Unger that the
Clubhouse Drive
property had been listed for sale with realty
agents and advertised for sale in a local
newspaper. Mr. Unger could not reasonably have
been aware that he did not possess the
"whole story," and it would not be
reasonable to allocate that risk to him in a
situation in which plaintiff had an obligation
to alert Mr. Unger of the change of mind with
respect to the sale of the
Clubhouse Drive
property.
Furthermore, plaintiff had reason to know of defendant's mistake.
As noted above, plaintiff informed Mr. Unger
during their initial meetings that he desired to
keep the
Clubhouse Drive
property. Apart from Mr. Buesing himself, only
plaintiff's attorney was conversing with Mr.
Unger on a regular basis regarding possible
settlement of plaintiff's outstanding tax debt.
There is no indication in the record that
plaintiff informed his attorney of his attempts,
prior to the date of the alleged settlement
agreement, to sell his home. Consequently,
plaintiff in all likelihood was the only person
who could have informed Mr. Unger that he no
longer intended to keep the property. Plaintiff,
therefore, knew that, at the time of the
purported agreement, Mr. Unger was still
operating under the assumption that plaintiff
wished to keep his home. 16
With reason to know of the defendant's mistake
established, all of the elements for a
unilateral mistake have been satisfied, and the
court finds that, even had a contract been
formed between plaintiff and the
IRS
, it would be voidable by the government.
III
.
Equitable estoppel
Plaintiff also contends that his situation meets the requirements
to equitably estop the government from denying
the existence of a contract between himself and
the
IRS
. The doctrine of equitable estoppel is a remedy
by which a party may be precluded, by a party's
own act or omission, from asserting a right to
which it otherwise would have been entitled. See
Heckler v. Community Health Servs. of Crawford
County, Inc., 467
U.S.
51, 59, 104 S.Ct. 2218, 81 L.Ed.2d 42 (1984).
The traditional elements for asserting estoppel
against the government in the context of a
contract dispute are: "(1) the government
must know the true facts; (2) the government
must intend that its conduct be acted on or must
so act that the [party] asserting the estoppel
has a right to believe it so intended; (3) the
[party] must be ignorant of the true facts; and
(4) the [party] must rely on the government's
conduct to his injury." JANA, Inc., v.
United States
, 936 F.2d 1265, 1270 (Fed. Cir. 1991), cert.
denied, 502
U.S.
1030, 116 L.Ed.2d 775, 112 S.Ct. 869 (1992)
(citing American Elec. Lab, Inc., v.
United States
, 774 F.2d 1110, 1113 (Fed. Cir. 1985); Emeco
Indus. v.
United States
, 202 Ct.Cl. 1006, 485 F.2d 652, 657 (Ct. Cl.
1973)). To claim estoppel, a party must have
relied on an "adversary's conduct 'in such
a manner as to change his position for the
worse' and that reliance must have been
reasonable in that the party claiming the
estoppel did not know nor should it have known
that its adversary's conduct was
misleading." See Heckler v. Community
Health Servs. of Crawford County, Inc., 467
U.S.
at 59 (quoting 3 J. Pomeroy, EQUITY
JURISPRUDENCE §805, at 192 (S. Symons ed.
1941)).
Although the United States Supreme Court and other courts have left
open the narrow possibility that under limited
circumstances and in cases of affirmative
misconduct by a government agent an estoppel
claim against the government may succeed, 17
thus far, federal courts generally have done so
only while rejecting, for a variety of reasons,
each attempt at application of the estoppel
theory in the particular case then before the
court. See, e.g., Heckler v. Community Health
Servs. of Crawford County, Inc., 467 U.S. at
66 (holding that the detriment faced was not so
severe or imposed in such an unfair way as to
invoke the estoppel doctrine); Office of
Personnel Management v. Richmond, 496 U.S.
414, 434, 110 S.Ct. 2465, 110 L.Ed.2d 387
(holding that the courts cannot estop the
Constitution and, therefore, there can be no
"estoppel by a claimant seeking public
funds"), reh'g denied, 497 U.S.
1046, 111 L.Ed.2d 821, 111 S.Ct. 5 (1990); Henry
v. United States [89-1 USTC ¶9223], 870
F.2d 634, 637 (Fed. Cir. 1989) (holding that the
oral advice given by an
IRS
agent did not constitute affirmative misconduct
because the element of reasonable reliance was
absent); Hanson v. Office of Personnel
Management, 833 F.2d 1568, 1569 (Fed. Cir.
1987) (holding that misrepresentations made by
Office Personnel Management and Office of
Workers Compensation Programs officials to a
benefits recipient did not constitute
affirmative misconduct because the officials
acted in good faith on the basis of the
currently accepted reading of the statute).
Plaintiff's equitable estoppel claim fails because the factual
situation at bar does not present elements which
are required to press such a claim against the
government. Most prominently, as discussed
above, the government did not know the true
facts in plaintiff's case. Defendant incorrectly
believed that plaintiff would remain in his
house, rather than sell it. As a result,
defendant negotiated with plaintiff using an
estimated valuation of the
Clubhouse Drive
property, rather than the preferred true sale
value which defendant would have had available
upon the house's sale.
Furthermore, plaintiff suffered no detriment in relying on the
alleged agreement. Plaintiff's course of action,
purportedly taken in reliance on the agreement
with Mr. Unger, was the most favorable to him at
the time. As defendant aptly notes:
When [plaintiff] converted to Chapter 7 on
April 26, 1995
, he had been in default in his Chapter 11
proceeding for several months for failure to
file a disclosure statement and plan of
reorganization by
January 31, 1995
. His only other option would have been
dismissal from bankruptcy, which would have
removed him from the protection of the
bankruptcy laws and left him in the hands of
each of his creditors to pursue their state law
remedies against him. See 11 U.S.C.
§349. Had he remained in Chapter 11, he would
have [had] to have filed a reorganization plan,
obtained the approval of his creditors, and paid
off the debt, including the tax debt, to the
extent of the allowed amount of the claims, over
the course of several years out of his future
income. The tax lien would not be released until
final payment was made. See 11 U.S.C.
§1129. By contrast, under Chapter 7,
plaintiff's bankruptcy estate assets were
liquidated, and his debts were discharged. See
11 U.S.C. §§726, 727.
Plaintiff also has not shown any detriment to his
interests as a result of settling his divorce
proceedings. The terms of the settlement were
nearly identical to the terms of the original
Antenuptial Agreement between Mr. Buesing and
Ms. Michael. Plaintiff paid Ms. Michael an
additional $5,000.00 above the original agreed
upon sum, but any detriment from that extra
payment was offset and outweighed by the fact
that, in the settlement, Ms. Michael waived her
right to claim a one-half interest in the
Clubhouse Drive
property. Moreover, plaintiff has not shown that
the supposed agreement with the
IRS
influenced the terms of this divorce settlement.
Finally, to establish estoppel against the government, a party must
show some affirmative misconduct on the part of
a government official. Such misconduct is not
present here. There is no indication in the
record that Mr. Unger, Mr. Perry and the
IRS
ever attempted to cheat or deceive plaintiff. On
the contrary, the record indicates that Mr.
Unger and Mr. Perry were at all times honest and
forthright with Mr. Buesing, and attempted to
help him resolve a debt to the
IRS
in a manner which would have allowed him to
retain his house. They did not go back on any
"deal" with plaintiff because that
"deal" simply did not exist.
CONCLUSION
After thoroughly reviewing the record and carefully examining the
arguments put forth by both parties, the court
has determined that no contract was formed in
this case between the plaintiff and the
IRS
to gain the release of the federal tax lien on
plaintiff's Clubhouse Drive property, and that
the government is not equitably estopped from
denying the existence of such a contract.
Furthermore, even if a contract had been formed,
the court holds that it would have been voidable
by the defendant due to a material
misrepresentation on plaintiff's part, and/or a
unilateral mistake on defendant's part. For
these reasons, plaintiff is not entitled to
recover any net proceeds in excess of $30,000.00
from the sale of the
Clubhouse Drive
property, which were retained by the government.
The Clerk's Office is directed to DISMISS
the case.
IT IS SO ORDERED.
1
Subsequent to the events of this case, Laura
Michael remarried and now uses the surname
Booras. For ease of reference, the court will
refer to her as Laura Michael, or Ms. Michael,
throughout this opinion.
2
William Novotny, a partner at Mariscal, Weeks,
already had been advising the Buesings with
respect to a contemplated filing for bankruptcy.
3
That same day,
August 24, 1993
, plaintiff recorded a Declaration of Homestead
for the
Clubhouse Drive
property. Under
Arizona
law, the Declaration exempted up to $100,000.00
of equity in the residence from attachment,
execution, or forced sale.
4
A discharge in bankruptcy operates to prohibit
the
IRS
from collecting a tax debt as a personal
liability of the taxpayer pursuant to 11 U.S.C.
§524(a)(2) (1994), which addresses the
"Effect of Discharge:"
(a) A discharge in a case under this title--
* * *
(2) operates as an injunction against the commencement or
continuation of an action, the employment of
process, or an act, to collect, recover or
offset any such debt as a personal liability of
the debtor, whether or not discharge of such
debt is waived; . . .
However, the debtor's property, including the plaintiff's exempt
property such as the Clubhouse Drive residence
in the instant action, remains liable for a debt
secured by a tax lien of the
IRS
pursuant to 11 U.S.C. §522(c)(2)(B) (1994)
which addresses "Exemptions:"
(c) Unless the case is dismissed, property exempted under this
section is not liable during or after the case
for any debt of the debtor that arose, or that
is determined under section 502 of this title as
if such debt had arisen, before the commencement
of the case, except--
* * *
(2) a debt secured by a lien that is--
* * *
(B) a tax lien, notice of which is property filed; . . .
5
Plaintiff understood that the
IRS
was not required to release its lien because he
had not obtained a discharge from the Chapter 7
proceeding. On
June 14, 1995
, plaintiff had filed an emergency motion with
the bankruptcy court to abandon the exempt
homestead (
Clubhouse Drive
) property from the Chapter 7 estate. On the
same date, the court had entered an order
abandoning the
Clubhouse Drive
property from plaintiff's estate.
6
The applicable statute, 26 U.S.C. §6325, titled
"Release of lien or discharge of
property," states in relevant part:
(b) Discharge of property.--
* * *
(3) Substitution of proceeds of sale.--
Subject to such regulations as the Secretary may
prescribe, the Secretary may issue a certificate
of discharge of any part of the property subject
to the lien if such part of the property is sold
and, pursuant to an agreement with the
Secretary, the proceeds of such sale are to be
held, as a fund subject to the liens and claims
of the United States, in the same manner and
with the same priority as such liens and claims
had with respect to the discharged property.
7
This relief request was not advanced in the
plaintiff's original Complaint, but has been
raised in the plaintiff's post-trial briefs.
8
In the previous opinion in this case, the court
noted the parties' dispute with respect to Mr.
Unger's settlement authority:
The facts available to the court, in the parties' papers filed with
the court, present uncertainty as to whether
Revenue Agent Unger had the authority to bind
the government in a contract to release the tax
lien that was upon the plaintiff's property. The
parties agree that Revenue Agent Unger was
delegated in the place of his supervisor Edward
Perry as Acting Chief of the Chapter 7/11
Insolvency Section of the Special Procedures
Function Collection Branch of the
IRS
Collection Division in
Phoenix
,
Arizona
, on the day that Unger wrote the
March 28, 1995
letter. In addition, there appears to be some
controversy as to whether Revenue Agent Unger
had obtained approval on the proposed settlement
agreement from his superior, Mr. Perry. These
facts are of material significance to the
outcome of this litigation. Therefore, it is
prudent for the court to deny the motion to
dismiss, pending an appropriate determination of
Revenue Agent Unger's authority.
Having heard the testimony of Mr. Unger and Mr. Perry, the court is
satisfied that they considered the contemplated
settlement terms at issue in this case, and that
they needed no further approval from others
within the
IRS
to bind the
IRS
to a settlement agreement in this case. As noted
infra, however, the parties never entered into a
settlement agreement, due in part to statutory
limitations on the power of the
IRS
to release tax liens which precluded the
IRS
representatives from agreeing to some of
plaintiff's proposed settlement terms.
9
Furthermore, plaintiff's attorney and Mr. Unger
engaged in several interim conversations between
March 8, 1995
and
March 28, 1995
. During those conversations, the parties agreed
that plaintiff would need to obtain a discharge
under a Chapter 7 bankruptcy proceeding, rather
than a Chapter 11 proceeding. As of
March 28, 1995
, plaintiff had not yet converted from Chapter
11 to Chapter 7. When plaintiff did convert, his
conversion would have begun a new sixty-day
period in which creditors could have objected to
a discharge, and the period would not have
started until the first meeting of creditors
after conversion. See Fed. R. Bankr. P.
1019(2); Fed R. Bankr. P. 4004(a). If the
meeting of creditors took place more than thirty
days from the date of conversion, the additional
sixty-day period for discharge objections would
have placed any possible discharge outside of
ninety days from the time of the
March 28, 1995
IRS
letter. This likely scenario is further evidence
that the
IRS
would not have agreed to a ninety-day
limitation.
10
Plaintiff's attorney's
March 8, 1995
offer letter had noted the parties' agreement
that release of Mr. Buesing's tax liabilities
was "subject to obtaining an Order Granting
Discharge from the Bankruptcy Court,"
however, plaintiff's attorney had not indicated
when that discharge from bankruptcy had to
occur.
11
The court notes that its prior opinion in this
case indicated that a contract perhaps had been
formed. That position, however, was a
preliminary finding based upon an incomplete
record. After conducting a trial, compiling a
fully-developed body of evidence, and re-reading
pertinent documents within the context of the
parties' testimony, the court has re-evaluated
its position and cannot conclude that a contract
was ever formed between plaintiff and the
IRS
.
12
It is unclear whether plaintiff affirmatively
decided to convert from a Chapter 11 bankruptcy
proceeding to a Chapter 7. The bankruptcy court
converted plaintiff's proceeding because
plaintiff failed to file a Chapter 11 disclosure
statement and plan of reorganization by a
January 31, 1995
deadline.
13
Later, when discussing his
March 28, 1995
letter to plaintiff, Mr. Unger explained why he
had not stated a condition in his letter that
plaintiff not sell the
Clubhouse Drive
property: "I thought we had agreed to that
two years ago, well, in our very first meeting
with the commitment I want to keep the house.
Because at that time I made the commitment I'm
willing to go the route that allows you to keep
your house."
14
Plaintiff attempts to argue that $40,000.00
difference between the sale price of the
Clubhouse Drive
property and the estimated value of the property
is due to the inclusion of furnishings with the
sale of the home. Plaintiff contends that the
furnishings were worth approximately $30,000.00.
Mr. Buesing has failed to convince the court
that this is true. No evidence was offered to
substantiate this contention apart from the
testimony of Mr. Buesing and one of his real
estate agents. It is also noteworthy that
plaintiff listed the value of these furnishings
at the exempt limit of $2,500.00 in his
bankruptcy filings. Plaintiff cannot have it
both ways: a low value to avoid his creditors in
bankruptcy and a high value to make it appear
that his home is worth less the sale price would
indicate.
15
The court in National Rural Utils. Coop. Fin.
Corp. v. United States, 14 Cl.Ct. at 141
cited the Restatement (Second) of Contracts
§153, which states:
§153. When Mistake of One Party Makes a Contract Voidable
Where a mistake of one party at the time a contract was made as to
a basic assumption on which he made the contract
has a material effect on the agreed exchange of
performances that is adverse to him, the
contract is voidable by him if he does not bear
the risk of the mistake under the rule stated in
§154, and
(a) the effect of the mistake is such that enforcement of the
contract would be unconscionable, or
(b) the other party had reason to know of the mistake or his fault
caused the mistake.
Restatement (Second) of Contracts §153 (1981). The term
"reason to know" is discussed in the
Restatement (Second) of Contracts in section 19,
comment b:
A person has reason to know a fact, present or future, if he has
information from which a person of ordinary
intelligence would infer that the fact in
question does or will exist. A person of
superior intelligence has reason to know a fact
if he has information from which a person of his
intelligence would draw the inference. There is
also reason to know if the inference would be
that there is such a substantial chance of the
existence of the fact that, if exercising
reasonable care with reference to the matter in
question, the person would predicate his action
upon the assumption of its possible existence.
Reason to know is to be distinguished from knowledge and from
"should know." Knowledge means
conscious belief in the truth of a fact; reason
to know need not be conscious. "Should
know" imports a duty to others to ascertain
facts; the words "reason to know" are
used both where the actor has a duty to another
and where he would not be acting adequately in
the protection of his own interests were he not
acting with reference to the facts which he has
reason to know.
Restatement (Second) of Contracts §19 cmt. b (1981) (footnotes
omitted).
16
In the end, Mr. Unger did not become aware of a
possible sale until plaintiff found a buyer and
had his attorney request an immediate release of
the federal tax lien on June 15, 1996 to
facilitate the sale of the home.
17
Under the Heckler test and subsequent
definitions of the elements of estoppel, without
affirmative misconduct on the part of the
government, there can be no equitable estoppel
against the government. See Westinghouse
Elec. Corp. v.
United States
, 41 Fed.Cl. 229, 240-241 (1998); see
also Hanson v. Office of Personnel
Management, 833 F.2d 1568, 1569 (Fed. Cir.
1987).
[97-2 USTC ¶50,969] Deryll Wayne Pack, et al., Plaintiffs v.
United States of America
, Defendant
U.S.
District Court, East.
Dist.
Calif.
, CV-F-92-5327 REC, 10/27/97
[Code
Secs. 7121 and 7122
]
Motion to dismiss: Meritless motions:
Procedures for entering into closing agreements:
Compromises.--Individual taxpayers' motion
to dismiss their action against the
IRS
was without merit. They had not complied with
statutes, regulations, and procedures governing
closing agreements and compromises, which
prescribe the exclusive method for settling
claims with the
IRS
. Further, they were not seeking to enforce an
agreement to compromise their tax liability but,
rather, to extinguish it..