Wednesday, November 12, 2008

Actions to enforce a tax lein

In an action under Sec. 7403, a taxpayer may attack the merits of the assessment as well as other irregularities.

R.A. O'Connor, CA-2 61-2 USTC ¶9495, 291 F2d 520, overruling Pipola v. Chicco, CA-2 60-1 USTC ¶15,276, 274 F2d 909.

E.B. Sonitz, DC, 63-2 USTC ¶9715, 221 FSupp 762.

State court which has under its control a fund upon which the U.S. claims a tax lien does not have jurisdiction to go behind the assessment and determine the existence or amount of tax liability.

P.C. Monday Tea Co., Wis. SCt, 66-1 USTC ¶9306.

In an action to foreclose liens for income tax, interest and penalties, the Commissioner's assessment of payments on contracts as profits and their inclusion in arriving at taxpayer's deficiency were erroneous where taxpayer sustained substantial losses on the contracts.

F.B. Rexach, DC, 71-1 USTC ¶9340, 331 FSupp 524. Vacated and rem'd on another issue, CA-1, 73-2 USTC ¶9527, 482 F2d 10.

Tax liens on a delinquent taxpayer's one-half interest in two real property lots were valid because the taxpayer failed to show that the tax assessments represented on the government's Form 4340, Certificates of Assessments and Payments, were incorrect. The taxpayer's arguments concerning the constitutionality of the federal income tax laws did not provide a basis for denying the validity of the government's liens.

J.F. McKeown, DC Ind., 94-1 USTC ¶50,217. Appeal dism'd, CA-7 (unpublished opinion), 97-1 USTC ¶50,291.

The prima facie validity of assessments was established by evidence that married taxpayers earned income during the years at issue and by prior findings that they had attempted to avoid their tax liabilities. Their claim that the assessments were inadequate because they were merely interpretations of computer codes was rejected, and they failed to show that additional discovery would produce relevant evidence.

T.J. Lodi, DC Calif., 98-2 USTC ¶50,711.

Certificates of Assessments and Payments produced by the government constituted presumptive proof of valid assessments against a delinquent taxpayer who failed to produce any evidence that would permit a factfinder to determine that the assessments were inaccurate. Thus, the government's motion for summary judgment as to his liability for the assessed income taxes was granted. However, the court refused to accept the declaration of an IRS technical support advisor regarding the total amounts due for the tax years at issue because it did not explain how he reached those totals or what the amounts represented.

L. Darland, DC Md., 2003-1 USTC ¶50,437.

An individual's tax liability was determined and, subject to his wife's homestead interest, tax liens attached to his interest in a property. The IRS's certificates of assessments and payments were presumptive proof of a valid tax assessment. Moreover, an IRS employee submitted a declaration showing the balance due on the individual's tax liability and the individual presented no evidence to contradict that evidence.

A.R. Harrison, DC Tex., 2007-1 USTC ¶50,259.

The IRS was entitled to summary judgment reducing a married couple's unpaid tax liability to judgment because the taxpayers failed to produce sufficient evidence to overcome the tax assessments' presumption of correctness.

J.G. Bahrs, CA-11, 2007-2 USTC ¶50,557.

The IRS was entitled to summary judgment reducing an individual's unpaid tax liability to judgment. The individual produced only tax protestor arguments, which were insufficient evidence to overcome the presumption of correctness of the IRS certificates of assessment. IRS Forms 1040 prepared by him on the eve of trial and an affidavit arguing that his wages were not taxable were meritless.

A.A. Tolbert, DC Ark., 2007-2USTC ¶50,717.

Federal income tax assessments against a married couple and liens on their real property were upheld. The Forms 4340 submitted by the government established that the tax assessments were properly made and the couple failed to produce any evidence to undermine the assessed amounts.

G.G. Collins, CA-9, 2007-2 USTC ¶50,815.

Tax assessments against a married couple were valid because the government submitted evidence and testimony that established the couple's tax liability. The taxpayers failed to produce any evidence with respect to the IRS's method of computation of the taxes assessed. Accordingly, the assessments could be reduced to judgment.

E. Lena, DC Fla., 2008-1 USTC ¶50,403.

The government was entitled to reduce an individual's unpaid tax liability to judgment because the individual failed to prove that the IRS's assessments were erroneous and that he had made payments not reflected in the assessments. The tax assessments were presumptively correct, and the individual's vague and unsubstantiated claims regarding payments made to satisfy his unpaid taxes were insufficient to overcome the presumption of correctness.

E.A. Walton, Jr., DC Mo., 2008-2 USTC ¶50,440.

The government was entitled to reduce tax assessments to judgment against an individual in his personal capacity and as personal representative of an estate because documents produced by the government, including Certificates of Assessments and Payments, showed that the individual owed the taxes, penalties and assessments identified by the IRS. The individual's exhibits failed to undermine the accuracy, reliability and trustworthiness of the certificates, which were admissible under hearsay exceptions as business or public records.

K. Lang, DC Calif., 2008-2 USTC ¶50,473.

Assessments made against the shareholder of a wholly owned corporation that was the shareholder's alter ego were timely; therefore, tax liens against two properties formerly held by that corporation could be foreclosed. The government's Certificates of Assessments and Payments constituted presumptive evidence that the assessments were valid and made within the 10-year limitations period. The shareholder failed to present any evidence to refute that presumption.

L.R. Bretthauer, DC Nev., 2008-2 USTC ¶50,572.

Summary judgment, reducing an individual's unpaid tax liability to judgment and foreclosing tax liens on the individual's real property, was properly granted. The individual raised only frivolous tax protestor arguments, which were insufficient to overcome the presumption of correctness of the IRS certificates of assessment.

L.R. Reid, CA-5, 2008-2 USTC ¶50,588.

United States of America, Plaintiff, v. Kathy J. Fenning, a/k/a Kathy Burton, Defendant.

U.S. District Court, Dist. Minn.; Civil 07-1196 (JRT/RLE), October 20, 2008.

[ Code Sec. 7403]


TUNHEIM, United States District Judge: Based upon the Findings of Fact, Conclusions of Law, and Recommendation by United States Magistrate Judge Raymond L. Erickson dated September 24, 2008, all the files and records, and no objections having been filed to said Report and Recommendation,

IT IS HEREBY ORDERED that: the Government's motion for summary judgment [Docket No. 18] is GRANTED.

Dated: October 17, 2008 at Minneapolis, Minnesota


I. Introduction

ERICKSON, Chief U.S. Magistrate Judge: This matter came before the undersigned United States Magistrate Judge pursuant to a special assignment, made in accordance with the provisions of Title 28 U.S.C. §636(b)(1)(B), upon the Government's Motion for Summary Judgment. A Hearing on the Motion was conducted on May 29, 2008, at which time, the Government appeared by John R. Monroe, Assistant United States Attorney; and no appearance was made by, or on behalf of, the Defendant Kathy J. Fenning ("Fenning"). For reasons which follow, we recommend that the Government's Motion for Summary Judgment be granted.

II. Factual and Procedural Background

On May 29, 2007, the Government filed an Amended Complaint against Fenning, as a responsible corporate officer of Snake River Construction, for the recovery of Federal employment taxes, interest, and statutory additions, pursuant to Title 26 U.S.C. §§7402 and 7403. See, Amended Complaint, Docket No. 4. 1 By this action, the Government seeks only to reduce its Federal tax assessments to Judgment. Id. at ¶1. In its Amended Complaint, the Government asserts that Fenning owes Federal employment taxes from 2001, 2002, and 2003, in the total amount of $19,030.55, as of May 29, 2007. 2 Id. at ¶6. The Government assessed those unpaid taxes in June of 2004, and the Government alleges that Fenning has failed to pay the assessed liabilities, despite timely notice and demand for payment. Id. at ¶ ¶6-8. Accordingly, the Government contends that Federal tax liens arose, on the date of each assessment, pursuant to Title 26 U.S.C. §§6321 and 6322. Id. at ¶9. The Government further contends that notices of those Federal tax liens have been properly filed with the Pine County Recorder. Id.

In response to the Amended Complaint, Fenning filed an Answer, in which she admits that she received timely notice of the assessments, that the Government properly filed those notices with the Pine County Recorder, and that she has not paid the assessments identified by the Government. See, Answer, Docket No. 11. 3 However, Fenning contends that the Government has assessed more taxes than are actually due. Id. at ¶6. She also contends that her business closed on October 25, 2002, that she so informed the Internal Revenue Service ("IRS"), and that she cannot be held liable for any taxes imposed after that date. Id. Accordingly, in her Answer, Fenning asks that we deny any assessments for the year 2003, and that we "reevaluate" the assessments for 2001 and 2002. Id. at p. 2.

The Government now brings a Motion for Summary Judgment. See, Docket No. 18. The Government seeks a Judgment in the amount of the unpaid taxes, as alleged in their Amended Complaint, plus interest and statutory additions. See, Government's Memorandum in Support, Docket No. 20, at 9.

Fenning has not filed any written response to the Government's Motion, nor has she submitted any pleadings, other than her Answer and, as we have noted, she did not make any appearance at the Hearing.

III. Discussion

The Government's Motion for Summary Judgment.

A. Standard of Review. Summary Judgment is not an acceptable means of resolving triable issues, nor is it a disfavored procedural shortcut when there are no issues which require the unique proficiencies of a Jury in weighing the evidence, and in rendering credibility determinations. See, Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986); Midwest Oilseeds, Inc. v. Limagrain Genetics Corp., 387 F.3d 705, 711 (8 th Cir. 2004), cert. denied, 544 U.S. 977 (2005). Summary Judgment is appropriate when we have viewed the facts, and the inferences drawn from those facts, in a light most favorable to the nonmoving party, and we have found no triable issue. See, Eide v. Grey Fox Technical Servs. Corp., 329 F.3d 600, 604 (8 th Cir. 2003); Philip v. Ford Motor Co., 328 F.3d 1020, 1023 (8 th Cir. 2003); United Fire & Casualty Co. v. Garvey, 328 F.3d 411, 413 (8 th Cir. 2003). For these purposes, a disputed fact is "material" if it must inevitably be resolved and the resolution will determine the outcome of the case, while a dispute is "genuine" if the evidence is such that a reasonable Jury could return a Verdict for the nonmoving party. See, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); Planned Parenthood of Minnesota/South Dakota v. Rounds, 372 F.3d 969, 972 (8 th Cir. 1004); Fenney v. Dakota, Minnesota & Eastern R.R. Co., 327 F.3d 707, 711 (8 th Cir. 2003).

As Rule 56(e) makes clear, once the moving party files a properly supported Motion, the burden shifts to the nonmoving party to demonstrate the existence of a genuine dispute. In sustaining that burden, "an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response, by affidavit or as otherwise provided in this Rule, must set forth specific facts showing that there is a genuine issue for trial." Rule 56(e), Federal Rules of Civil Procedure; see also, Anderson v. Liberty Lobby, Inc., supra at 256; Eddings v. City of Hot Springs, Ark., 323 F.3d 596, 602 (8 th Cir. 2003).

Moreover, the movant is entitled to Summary Judgment where the nonmoving party has failed "to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, supra at 322; see also, Forest Park II v. Hadley, 408 F.3d 1052, 1057 (8 th Cir. 2005); Mercer v. City of Cedar Rapids, 308 F.3d 840, 843 (8 th Cir. 2002); Hammond v. Northland Counseling Center, Inc., 218 F.3d 886, 891 (8 th Cir. 2000). No genuine issue of fact exists in such a case because "a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Celotex Corp. v. Catrett, supra at 323; see also, Sallis v. University of Minnesota, 408 F.3d 470, 474 (8 th Cir. 2005); Davis v. U.S. Bancorp, 383 F.3d 761, 768 (8 th Cir. 2004); Bell Lumber and Pole Co. v. United States Fire Ins. Co., 60 F.3d 437, 441 (8 th Cir. 1995).

B. Legal Analysis. "The Internal Revenue Code requires employers to withhold from their employees' wages federal income and social security taxes." Anderson v. United States, 561 F.2d 162, 165 (8 th Cir. 1977), citing Title 26 U.S.C. §§3102(a), 3402(a); see also, United States v. Bisbee, 245 F.3d 1001, 1005 (8 th Cir. 2001); Honey v. United States, 963 F.2d 1083, 1087 (8 th Cir. 1992), cert. denied, 506 U.S. 1028 (1992). "If a corporate employer fails to pay these withheld amounts over to the government, then section 6672 permits the government to look for payment to the person responsible for collecting, truthfully accounting for, and paying over the tax." Id., citing Title 26 U.S.C. §6672; see also, United States v. Bisbee, supra at 1005; Honey v. United States, supra at 1087.

With respect to the statutory additions requested by the Government, "[w]here an employer fails to file timely employment or unemployment tax returns or fails to make deposits of taxes, the Code provides for additions to the tax in the way of penalties." Boles Trucking, Inc. v. United States, 77 F.3d 236, 241 (8 th Cir. 1996), citing Title 26 U.S.C. §§6651(a)(1), 6656(a); see also, Mason Motors Co. v. United States, 8 F.Supp.2d 1177, 1179 (D. Minn. 1998).

"We start with the well-established principle that the Commissioner's determination of tax liability is entitled to a presumption of correctness and that the burden is on the taxpayer to prove that the determination is erroneous." Boles Trucking, Inc. v. United States, 77 F.3d 236, 239 (8 th Cir. 1996), citing Helvering v. Taylor, 293 U.S. 507 (1935), and Day v. Commissioner, 975 F.2d 534, 537 (8 th Cir. 1992). When the Government submits Certificates of Assessments and Payments, that showing is "sufficient to establish the validity of the assessments." United States v. Gerads, 999 F.2d 1255, 1256 (8 th Cir. 1993), cert. denied, 510 U.S. 1193 (1994), citing Geiselman v. United States, 961 F.2d 1, 5-6 (1 st Cir. 1992), cert. denied, 506 U.S. 891 (1992); see also, United States v. Schiefen, 926 F.Supp. 877, 885-86 (D.S.D. 1995), aff'd, 81 F.3d 166 (8 th Cir. 1996)[Table disposition]. Once the Certificates of Assessments and Payments are submitted, "the burden shifts to the taxpayer to prove that the assessments are erroneous." United States v. Dieter, 2003 WL 1903395, at *9 (D. Minn., April 11, 2003), citing Kiesel v. United States, 545 F.2d 1144, 1146 (8 th Cir. 1976); see also, Mattingly v. United States, 924 F.2d 785, 787 (8 th Cir. 1991). Alternatively, "[t]o survive summary judgment, the [taxpayers] must [then] prove they made the payments." United States v. Hanson, 2005 WL 3116099 at *2 (D. Minn., April 21, 2005), citing United States v. Gerads, supra at 1256.

Here, to prove the amount of Fenning's tax liability, the Government has provided copies of Certificates of Assessments and Payments from the IRS, for the tax years in question. See, Declaration of Susan Miller ("Miller Decl."), Docket No. 21, Exhibits 1-7. As noted in her Answer, Fenning challenged the amount of the Government's assessments for the tax years 2001 and 2002, and further challenged the Government's assertion that she owed any amount for the tax year 2003, given the termination of her business. See, Answer, supra at ¶6. However, Fenning admits that she has not paid the amounts assessed, despite timely notice and demand. Id. at ¶ ¶7-8. Moreover, Fenning has not provided any evidence, nor any testimony or sworn statement, in support of her challenge to the amounts of those assessments.

"While we are required to make all reasonable inferences in favor of the nonmoving party in considering summary judgment, we do so without resort to speculation." Twymon v. Wells Fargo & Co., 462 F.3d 925, 934 (8 th Cir. 2006), citing Hitt v. Harsco Corp., 356 F.3d 920, 923-24 (8 th Cir. 2004). Simply put, Fenning "must substantiate [her] allegations with more than 'speculation * * * ' in order to survive summary judgment." Marquez v. Bridgestone/Firestone, Inc., 353 F.3d 1037, 1038 (8 th Cir. 2004), citing Putman v. Unity Health Sys., 348 F.3d 732, 733-34 (8 th Cir. 2003). Here, Fenning has not offered any cogent facts, by way of competent evidence, so as to support her assertion that the IRS miscalculated her tax liability. Accordingly, the Government has established the validity of the assessments, and is entitled to Judgment.

In addition, the Government has submitted its Requests for Admissions, which were served on October 17, 2007, and to which Fenning failed to respond. See, Second Declaration of John Monroe ("Second Monroe Decl."), Docket No. 22, Exhibit 15. In its Requests for Admissions, the Government asked Fenning to admit that she is "indebted to the United States for unpaid federal employment taxes * * * (plus statutory interest and penalties)," as reflected in the assessments. Id., Exhibit 15 at pp. 2-4. The Government also asked Fenning to admit that, on April 23, 2004, her company had self-reported its employment and unemployment tax liability, as reflected in the assessments, for the tax years of 2001, 2002, and 2003. Id., Exhibit 15 at pp. 4-5. Lastly, the Government asked Fenning to admit that her company's quarterly returns were not timely filed, thereby permitting the statutory additions and interest. Id., Exhibit 15 at p. 6. Fenning failed to respond to the Requests for Admissions, id. at ¶4, and accordingly, the Government argues that she has effectively admitted her liability for the assessments, statutory additions, and interest. See, Government's Memorandum in Support, supra at 8.

Requests for Admissions are governed by Rule 36(a), Federal Rules of Civil Procedure, which provides, in pertinent part, as follows:
A party may serve upon any other party a written request for the admission, for purposes of the pending action only, of the truth of any matters within the scope of Rule 26(b)(1) set forth in the request that relate to statements or opinions of fact or of the application of law to fact, including the genuineness of any documents described in the request. * * * The matter is admitted unless, within 30 days after service of the request, or within such shorter or longer time as the court may allow or as the parties may agree to in writing, subject to Rule 29, the party to whom the request is directed serves upon the party requesting the admission a written answer or objection addressed to the matter, signed by the party or by the party's attorney.

As a consequence, under Rule 36, Fenning admitted all matters in the Government's Requests for Admissions by failing to answer them within thirty (30) days after their service. See, Manatt v. Union Pacific R. Co., 122 F.3d 514, 517 (8 th Cir. 1997), cert. denied, 522 U.S. 1050 (1998); Gutting v. Falstaff Brewing Corp., 710 F.2d 1309, 1312 (8 th Cir. 1983).

Of course, the Court, "in its discretion, may permit the filing of an answer that would otherwise be untimely," Gutting v. Falstaff Brewing Corp., supra at 1312, but here, Fenning has not submitted any untimely responses for our consideration. As a result, Fenning's liability is no longer in dispute, nor is there any dispute concerning the amounts of the assessments, or the untimeliness of the tax returns. Therefore, the Government has established that it is entitled to Judgment as a matter of law, as well as to the requested statutory additions and interest.

Since no genuine and material factual dispute remains for Trial, we recommend that the Government's Motion for Summary Judgment be granted.



That the Government's Motion for Summary Judgment [Docket No. 18] be GRANTED.

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