fraudulent transfU.S. v. BLACK, Cite as 106 AFTR 2d 2010-XXXX, 07/16/2010 -------------------------------------------------------------------------------- UNITED STATES of America, Plaintiff, v. Daniel R. BLACK, et al., Defendants. Case Information: Code Sec(s): Court Name: United States District Court, E.D. Washington, Docket No.: No. CV-07-355-RHW, Date Decided: 07/16/2010. Disposition: HEADNOTE . Reference(s): OPINION Michael G. Pitman, Alexis Andrews, US Department of Justice, Washington, DC, for Plaintiff. Daniel R. Black, Chelan, WA, pro se. Maire E. Black, Chelan, WA, pro se. Eowen S. Rosentrater, Law Office of Eowen Rosentrater PLLC, George Roy Guinn, George R. Guinn PS, Spokane, WA, Gary Alan Riesen, Chelan County Prosecuting Attorney, Wenatchee, WA, for Defendants. United States District Court, E.D. Washington, ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT; DENYING THE BLACK DEFENDANTS' AND DEFENDANT HOPE SPRINGS MOTIONS FOR SUMMARY JUDGMENT Judge: ROBERT H. WHALEY, District Judge. Before the Court are Plaintiff's Motion for Summary Judgment (Ct.Rec.121); Defendant Hope Springs Corporation Sole's Motion for Summary Judgment (Ct.Rec.129); and the Black Defendants' Motion for Summary Judgment (Ct.Rec.133). The motions were heard without oral argument. The United States commenced this action on November 2, 2007, in order to reduce to judgment federal income tax assessments against Defendants Daniel R. Black and Maire E. Black, and to foreclose federal tax liens against the following Subject Properties: (1) Parcel A Parcel A is a 160-acre parcel identified by Chelan County Tax # 272201-100000. The address for Parcel A is 56 Union Valley Loop Road, Chelan, Washington. The legal description of Parcel A is as follows: Lots 1 and 2 and the South half of the Northeast quarter; and the Northwest quarter of the Southeast quarter of Section 1, Township 27 North, range 22 East of the Willamette Meridian. (2) Parcel B Parcel B is a 27-acre parcel identified by Chelan County Tax # 272201-230025. A mobile home permanently affixed to the land is located on this property. The legal description of Parcel B is as follows: The Southwest quarter of the Northwest quarter and that portion of Government Lot 4 lying South of Union Valley Road # 38 right of way in Section 1, “township 27 North, Range 22, E.W.M. Chelan County, Washington; except the East 575 feet thereof. (3) Parcel C Parcel C is an 8-acre parcel identified by Chelan County Tax # 272201-200050. Parcel C is commonly known as both 56 Valley Loop Road, Chelan, Washington, and 96 Valley Loop Road, Chelan, Washington. The legal description of Parcel C is as follows: Beginning at the Southwest corner of the Northwest quarter of the Southeast quarter of Section 1, Township 27 North, range 22 East of the Willamette Meridian; thence North to the Northwest corner of the Northeast quarter of said Section 1; thence West 60 feet; thence South 980 feet; thence Southwesterly to a point 174 feet West of a point 320 feet South; thence South 50 feet; thence Southwesterly to a point of 127 feet East of a point 180 feet South; thence South to the South line of the Northeast quarter of the Southwest quarter of the above described in Section 1; thence East 60 feet to the point of beginning. Except right of way for the Union Valley Loop Road. (4) Parcel D Parcel D is a 20-acre parcel identified by Chelan County Tax # 272201-42000 and referred to as orchard property. The legal description of Parcel D is as follows: The North half of the Northwest quarter of the Southeast quarter of Section 1, Township 27 North, Range 22 East of the Willamette Meridian. Defendants Daniel and Maire Black maintain that they are not taxpayers and have no obligation to pay income taxes. From 1981 to 2000, Daniel Black did not file any income tax returns. Sometime prior to 1981, the Blacks formed Summer Hill Freedom Trust. Maire Black served as trustee for Summer Hill Freedom Trust from the time of its creation throughout its existence. Bill Shoenmaker was also a Trustee during this entire time. Sometime prior to 1981, the Blacks also formed B.C. Trust. Maire Black served as a trustee for B.C. Trust from the time of its creation throughout its existence. Bill Shoenmaker was also a Trustee during this entire time. In 1981, Summer Hill Freedom Trust entered into a contract to acquire Parcels A, C, and D. These parcels are contiguous parcels of land. The purchasing contract was signed by Daniel and Maire Black as Trustees. The Blacks reside in a home located on the real property purchased in the name of Summer Hill Freedom Trust. They have resided in this home, on this property, since 1981. The Blacks' daughter and son-in-law live on a mobile home situated on one of the parcels, for which they pay rent. In 1989, Maire Black and Bill Shoenmaker, acting as Trustees for B.C. Trust, purchased Parcel B by warranty deed. The Blacks operate an engineering business on Parcel B. This business was originally known as Techni-Systems Trust, but is now operating under the name of Techni-Systems, LLC. Technic-Systems Trust was controlled by trustee Maire Black. A caretaker lives in a mobile home on Parcel B, next to the office building. The caretaker is not compensated for his caretaker duties and does not pay rent. In March, 1999, the Internal Revenue Service filed Notices of Federal Tax Lien against the Blacks. On June 4, 1999, the Blacks created Hope Springs, Corporation Sole. At the time of Hope Springs' creation, Daniel Black was serving as overseer. He held this position until March, 2009. During this time, he had complete authority over all aspects of Hope Springs. Since its creation, Hope Springs has held office space in the Blacks' residence. On June 9, 1999, Maire Black, as Trustee for Summer Hill Freedom Trust, transferred all its assets-Parcels A, C, and D-to Hope Springs, Corporation Sole by quit claim deed, for no consideration. Bill Schoenmaker did not sign the quit claim deed. On that same day, Maire Black, as Trustee for B.C. Trust, transferred all its assets-Parcel B-to Hope Springs, Corporation Sole by quit claim deed, for no consideration. No one moved on or off the property as a result of the transfer. The engineering business-Techni-Systems Trust-was also unaffected. Summer Hill Freedom Trust made no payments toward the purchase price of Parcels A, C, and D since 1981, but had made payments toward interest. In 2000, the Blacks created Summerhill Supply, LLC. Summerhill Supply, LLC began leasing Parcels A, B, C, and D from Hope Springs in 2001. Summerhill Supply is completely controlled by Daniel and Maire Black, who serve as managers. They receive $500 annually as compensation for the duties they perform as managers. Also in 2000, the Blacks created Techni-Systems, LLC to replace Techni-Systems Trust. Shortly after its formation, Techni-Systems, LLC began leasing property from Summerhill Supply, LLC. Techni-Systems, LLC is controlled by manager Daniel Black. He receives $500 annually as compensation for his role as manager. Technic-Systems, LLC is virtually identical to Technical-Systems Trust. Summary of Transfers and Leases for Parcel A, C, and D Date Action --------------------------------------------------------------------------- 1981 Summerhill Freedom Trust entered into contract to purchase --------------------------------------------------------------------------- March, 1999 Notice of Federal Tax Lien filed --------------------------------------------------------------------------- June 9, 1999 Summerhill Freedom Trust transferred parcels to Hope Springs, Corporation Sole --------------------------------------------------------------------------- 2001 Summerhill Supply, LLC leased parcels from Hope Springs Summary of Transfers and Leases for Parcel B Date Action --------------------------------------------------------------------------- 1999 B.C. Trust purchased parcel by warranty deed --------------------------------------------------------------------------- March, 1999 Notice of Federal Tax Lien filed --------------------------------------------------------------------------- June 9, 1999 B.C. Trust transferred parcels to Hope Springs, Corporation Sole --------------------------------------------------------------------------- 2001 Summerhill Supply, LLC leased parcels from Hope Springs --------------------------------------------------------------------------- 2001 Techni-Systems leased parcels from Summerhill Supply, LLC Throughout all these property transfers, leases, and sub-leases, the Blacks continue to live on the property. They run their engineering business out of the property and also operate an orchard on part of the land. They pay no rent. In March 2009, Daniel Black transferred the title of overseer of Hope Springs to Greg Hanks. Mr. Hanks was given no ledger or bank records for Hope Springs when he assumed the title of overseer, and had no knowledge of Hope Springs' affairs prior to his appointment as overseer. There is no evidence that Hope Springs has ever interfered with the Blacks' use of the property. The Blacks own no assets whatsoever. They have not held property in their own names since 1981. Summary of Tax Assessments against Defendant Daniel R. Black Beginning in 1998, a delegate of the Secretary of the Treasury made assessments of federal income taxes, penalties and interest, and other statutory additions against Defendant Daniel R. Black on the dates, in the amounts, and for the taxable periods set forth below: Tax Year Assessment Date Amount Assessed Total, including assessed penalties & interest, as of 6/1/2010 -------------------------------------------------------------------------- 1987 1/12/98 $944.22 $1,137.58 -------------------------------------------------------------------------- 1993 1/12/98 $23,946.40 $332,046.75 -------------------------------------------------------------------------- 1994 1/12/98 $198,133.00 $611,126.50 -------------------------------------------------------------------------- 1995 1/12/98 $153,623.00 $437,054.16 8/12/02 -------------------------------------------------------------------------- Total $1,381,364.99 Summary of Tax Assessments against Defendant Maire E. Black Beginning in 1998, a delegate of the Secretary of the Treasury made assessments of federal income taxes, penalties and interest, and other statutory additions against Defendant Maire E. Black on the dates, in the amounts, and for the taxable periods set forth below: Tax Year Assessment Date Amount Assessed Total, including assessed penalties & interest, as of 6/1/2010 -------------------------------------------------------------------------- 1989 1/5/98 $1,075.00 $1,502.31 -------------------------------------------------------------------------- 1993 1/5/98 $81,331.15 $351,702.86 -------------------------------------------------------------------------- 1994 1/5/98 $169,969.00 $522,796.42 -------------------------------------------------------------------------- 1995 1/5/98 $129,770.50 $368,021.81 8/12/02 -------------------------------------------------------------------------- Total $1,244,023.40 Summary of Tax Assessments against Defendants Daniel R. Black and Maire E. Black Beginning in 2001, a delegate of the Secretary of the Treasury made assessments of federal income taxes, penalties and interest, and other statutory additions against Defendants Daniel R. Black and Maire E. Black on the dates, in the amounts, and for the taxable periods set forth below: Tax Year Assessment Date Amount Assessed Total, including assessed penalties & interest, as of 6/1/2010 -------------------------------------------------------------------------- 1996 3/19/01 $392,402.17 $1,030,587.11 8/12/02 -------------------------------------------------------------------------- 1997 3/26/01 $264,508.07 $639,274.67 8/12/02 -------------------------------------------------------------------------- 1998 4/2/01 $407,488.77 $919,291.86 8/12/02 -------------------------------------------------------------------------- 1999 3/05/01 $224,353.90 $459,004.15 8/12/02 -------------------------------------------------------------------------- Total $3,048,157.79 These assessments have resulted in the creation of federal tax liens upon all property and rights to property belonging to the Blacks. The Chelan County Auditor recorded a Notice of Federal Tax Lien with respect to the assessments in Chelan County, as follows: Date Notice Filed Against Tax Years -------------------------------------------------------------------------- 3/17/1999 Daniel R. Black 1987, 1993, 1994, and 1995 -------------------------------------------------------------------------- 3/17/1999 Maire E. Black 1989, 1993, 1994, and 1995 -------------------------------------------------------------------------- 8/22/2002 Daniel R. Black and Maire E. Black 1996, 1997, 1998, and 1999 -------------------------------------------------------------------------- 10/24/2000 B.C. Trust Summer Hill Freedom 1987, 1993, 1994, and 1995 Trust, and Hope Springs Corporation Sole, as nominees of Daniel R. Black -------------------------------------------------------------------------- 10/24/2000 B.C. Trust Summer Hill Freedom 1989, 1993, 1994, and 1995 Trust, and Hope Springs Corporation Sole, as nominees of Maire E. Black -------------------------------------------------------------------------- 8/22/2002 Hope Springs Corporation Sole 1996, 1997, 1998, and 1999 as nominee of Daniel R. Black and Maire E. Black On June 12, 2009, the Court entered an Order whereby it determined that by default B.C. Trust and Summer Hill Freedom Trust were the nominees and/or alter egos of Daniel and Maire Black (Ct.Rec.63). It specifically ruled that to the extent that B.C. Trust and Summer Hill Freedom Trust purported to hold title to the subject property, it did so as the nominee and/or alter ego of Daniel and Maire Black. Id. STANDARD OF REVIEW Plaintiff, Defendant Hope Springs, Corporation Sole, and the Black Defendants all move for summary judgment. Summary judgment is appropriate 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 that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). There is no genuine issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict in that party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The moving party has the initial burden of showing the absence of a genuine issue of fact for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the moving party meets it initial burden, the non-moving party must go beyond the pleadings and “set forth specific facts showing that there is a genuine issue for trial.” Id. at 325; Anderson, 477 U.S. at 248. In addition to showing that there are no questions of material fact, the moving party must also show that it is entitled to judgment as a matter of law. Smith v. University of Washington Law School, 233 F.3d 1188, 1193 (9th Cir.2000). The moving party is entitled to judgment as a matter of law when the nonmoving party fails to make a sufficient showing on an essential element of a claim on which the nonmoving party has the burden of proof. Celotex, 477 U.S. at 323. When considering a motion for summary judgment, a court may neither weigh the evidence nor assess credibility; instead, “the evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor.”Anderson , 477 U.S. at 255. MOTIONS FOR SUMMARY JUDGMENT Each party has filed a motion and has asserted various arguments in support of their positions. The positions are somewhat inter-related. At the crux of the issue is whether the Hope Springs Corporation Sole is the nominee or alter ego of the Black Defendants. Defendants also challenge the Court's jurisdiction to hear this matter. Below is a summary of the positions of the respective parties' with regard to their motions for summary judgment. 1. Plaintiff's Motion for Summary Judgment Plaintiff argues that it has satisfied its initial burden of proving the valid tax assessments. It also asserts that Hope Springs is merely the Blacks' nominee or alter ego and the Blacks are the true beneficial owners of the properties. As such, the tax liens can be enforced against the properties owned by Hope Springs just as though the Blacks were the record title holders. Plaintiff asks the Court to set aside the purported conveyances of the property between Summerhill Freedom Trust and Hope Springs Corporation based on the fact that those transfers were fraudulent. Finally, Plaintiff asks the Court to foreclose the federal tax liens as to Parcels A, B, C, and D (Subject Properties). 2. The Black Defendants' Motion for Summary Judgment The Black Defendants assert that any Internal Revenue debts were discharged in their 2001 Chapter 7 bankruptcy proceedings, due to the fact that at no time during the proceedings did the Internal Revenue Service file an appearance as a creditor or make any appearance at any creditor's meetings, made no attempt to oppose their petition, and made no effort to set aside the final judgment. Defendants maintain that at no time during the tax years alleged did they voluntarily elect to operate through any legal form of organization that would have vested the Internal Revenue Service with lawful jurisdiction to impose and assess any federal income tax. Specifically, Defendants maintain that the Internal Revenue Service reliance on 26 U.S.C. § 7401 is misplaced because the implementing regulation to that section relates to Alcohol, Tobacco, and Firearms related activities and they never were engaged in such activities. Defendants assert that the Notice of Assessment and Demand were defective as they were not prepared on Form 17, as required by Treasury Decision 1995. Defendants also assert that the tax assessments are merely “naked assessments” which are void as a matter of law and constitute only self-serving declarations. Defendants allege that the Internal Revenue Service knowingly prepared false entries on Defendants' Individual Master File for the purpose of creating a legal fiction to facilitate the preparation of false assessments, and false Federal Tax liens. Defendants maintain that they have never purchased an interest in or conveyed an interest in the parcels. Specifically, they argue that they have never appeared as owners in the chain-of-title to the parcels. Also, they assert that the court is without subject matter jurisdiction to attribute ownership to the Defendants when the public record, which is conclusive evidence, clearly establishes the Defendants have never enjoyed an ownership interest in the parcels. 3. Defendant Hope Springs Corporation Sole's Motion for Summary Judgment Defendant Hope Springs Corporation Sole asserts that it acquired the parcels by purchase for value. It is the bona fide purchaser for value of Parcels A, C, and D, by assuming the debt of the previous property owner. It argues that the public record in Chelan County is conclusive evidence of title ownership and because the Black Defendants never appear in the chain-of-title, Plaintiff is without legal authority to lien the real property owned by Defendant Hope Springs. Defendant asserts that it is not a mere nominee of Daniel R. Black and Maire E. Black, and it is entitled to equitable subrogation and is the first-position lien holder for parcels A, C, and D. Defendant seeks attorneys' fees against Plaintiff, asserting that Plaintiff's claim against Defendant Hope Springs is unreasonable and without foundation. Additionally, Defendant Hope Springs challenges the failure of the Internal Revenue Service to prepare and serve written notice notifying Defendant Hope Springs Corporation Sole of the existence of any federal tax liens and notice of collections due process hearing. Defendant Hope Springs also asserts that the tax lien against the parcels are void because it is a tax-exempt entity and asserts that Plaintiff's action is time-barred. Finally, Defendant argues that because Plaintiff has failed to adequately plead supplemental jurisdiction, allegations referencing Washington law is a nullity. CHALLENGES TO THE COURT'S JURISDICTION Defendants have asserted various challenges to the Court's jurisdiction over this action. Each of these arguments will be addressed. The Black Defendants argue that the Court lacks jurisdiction because the taxes at issue are “direct taxes without apportionment.” This argument is frivolous. See In re Becraft, 885 F.2d 547, 548 [64 AFTR 2d 89-5656] (9th Cir.1989) (“We hardly need comment on the patent absurdity and frivolity of such a proposition [that direct nonapportioned income taxes are unconstitutional].”). They argue that the Court lacks jurisdiction because the taxes at issue are “not indirect taxes in the nature of an excise.” This argument is also frivolous. See Philips v. C.I.R., 1996 WL 593497 [78 AFTR 2d 96-6997] (9th Cir.1996). Their argument that they are immune from taxation because they did not engage in “alcohol, tobacco and firearms activities” during the years in question is frivolous. See Walter v. I.R.S., 1994 WL 760812 [74 AFTR 2d 94-6936] (E.D.Cal.1994). It is not necessary that the notice of demand letters be sent on Form 17. See Hanson v. United States, 7 F.3d 137, 138 [72 AFTR 2d 93-5922] (9th Cir.1993) (per curiam). An IRS Form 5340 is admissible evidence and sufficient proof that notice of deficiency was properly served and assessment of deficiency properly made.Id. The Black Defendants allegation that the Internal Revenue Service knowingly prepared false entries on the Blacks' Individual Master File is a conclusory argument that is not supported by the record. Notably, the Black Defendants have failed to identify any specific alleged inaccuracy. Naked Assessments Defendants argue that the United States is relying upon “naked assessments” to support its claims. The Court disagrees. Rather, the Government has introduced substantive evidence that the Blacks received unreported income. According to the Declaration of Alfred Ramos, the IRS determined the Blacks' income for the 1987, 1993, 1994, and 1995 tax years by analyzing bank deposits for the various trusts Daniel Black controlled, as well as a evaluation of real estate transactions entered into by one of those trusts. The income determined by the IRS for the years 1993, 1994, and 1995 tax years was very similar to, or lower than, the income reported by the Blacks in joint tax returns they submitted for 1993, 1994, and 1995, in 2000. A Notice of Deficiency was prepared and issued to the Blacks, and no petition was filed with the Tax Court within the 90-day statutory period for challenging the IRS's determination prior to assessment. The Government has established that the Blacks' individual assessments were based on well-founded determinations, many of which were subsequently confirmed by tax returns submitted by the Blacks, and the Blacks' joint assessments were based on information provided in tax returns submitted by the Blacks. Discharge in Bankruptcy The Black Defendants argue that their tax liabilities were discharged in their 2001 Chapter 7 bankruptcy. Pursuant to 11 U.S.C. § 523(a)(1) provides that taxes are non-dischargeable where a return, if required was either (i) not filed, or (ii) filed late and “after two years before the date of the filing of the bankruptcy petition.” All of the taxes at issue in this case fall under one of these two exceptions. Summary of Tax Returns for Daniel R. Black Year Filed by Black Dischargeable ---------------------------------------------------------------- 1987 no no § 523(a)(1)(B)(i) ---------------------------------------------------------------- 1993 11/2000 no § 523(a)(1)(B)(ii) ---------------------------------------------------------------- 1994 11/2000 no § 523(a)(1)(B)(ii) ---------------------------------------------------------------- 1995 11/2000 no § 523(a)(1)(B)(ii) Summary of Tax Returns for Maire E. Black Year Filed by Black Dischargeable ---------------------------------------------------------------- 1989 no no § 523(a)(1)(B)(i) ---------------------------------------------------------------- 1993 11/2000 no § 523(a)(1)(B)(ii) ---------------------------------------------------------------- 1994 11/2000 no § 523(a)(1)(B)(ii) ---------------------------------------------------------------- 1995 11/2000 no § 523(a)(1)(B)(ii) Summary of Tax Returns for Daniel R. Black and Maire E. Black Year Filed by Blacks Dischargeable ---------------------------------------------------------------- 1996 2001 no § 523(a)(1)(B)(ii) ---------------------------------------------------------------- 1997 2001 no § 523(a)(1)(B)(ii) ---------------------------------------------------------------- 1998 2001 no § 523(a)(1)(B)(ii) ---------------------------------------------------------------- 1999 2001 no § 523(a)(1)(B)(ii) ---------------------------------------------------------------- Pursuant to 11 U.S.C. § 523(a)(7)(b), penalties assessed with respect to a transaction or event that occurred three years before the date of the filing of the bankruptcy petition are dischargeable, even if the underlying tax is not. The United States concedes that the Estimated Tax Penalities, Late Filing Penalities, and Failure to Pay Tax Penalties assessed against the Blacks for each of the tax years at issue except 1998 and 1999 were discharged in their bankruptcy because there were triggered by events occurring prior to July 1998, three years before the date of the filing of the Blacks' bankruptcy petition in 2001. 1. Accuracy penalties were assessed against the Blacks jointly in response to returns they submitted in 2001 for tax years 1996, 1997, 1998, and 1999. The IRS determined that these returns substantially understated the tax they owed. Because the Blacks' inaccurate returns were filed after July 1998, three years before the date of the filing of the Blacks' bankruptcy petition in July 2001, the Accuracy Penalties for 1996, 1997, 1998, and 1999 are not discharged. This relief affects the personal liability of the Blacks only. A discharge in bankruptcy prevents the I.R.S. from taking any action to collect the debt as a personal liability of the debtor. In re Isom, 901 F.2d 744, 745 [67 AFTR 2d 91-314] (9th Cir.1990). The debtor's property, however, remains liable for a debt secured by a valid lien, including a tax lien. Id. The bottom line, then, is that while the bankruptcy discharge may have relieved the Blacks of personal liability for certain penalties, it does not invalidate the tax liens securing those penalties, and those liens can still be enforced against the Blacks' prepetition property, such as the Subject Property. Defendant Hope Springs Arguments Defendant Hope Spring asserts that the United States has violated 26 U.S.C. § 6320 by failing to notify Hope Springs of the federal tax liens. Section 6320 requires only that notice of federal tax liens be given to the individual who is liable for the tax at issue. The United States is not required to provide notice to third parties, such as Hope Springs. See 26 U.S.C. §§ 6320(a)(1), 6321. Defendant's argument that the claim is time-barred because Hope Springs did not receive proper notice of the assessments fails as well because Hope Springs is not personally liable for the taxes at issue. Likewise, regardless of whether Hope Springs is a tax exempt entity, the United States is not seeking to impose any tax against Hope Springs. Plaintiff is not asserting a state law claim, notwithstanding the fact that state law may be relevant to the ultimate determination of the United States' claim seeking to foreclose federal tax liens on certain real property. Even so, Plaintiffs are not required to explicitly plead and invoke supplemental jurisdiction. NOMINEE / ALTER EGO The United States maintains that Hope Springs is the nominee of the Blacks. It also maintains that Hope Springs is the alter ego of the Blacks. There is no direct statutory authority for nominee lien. Sections 6321 and 6322 support the creation of federal tax liens; however, they do not refer to nominee liens or the alter ego doctrines. Nevertheless, it is well-established that the United States may collect a taxpayer's unpaid taxes from the assets of its nominee, instrumentality, or alter ego. G.M. Leasing Corp. v. United States, 429 U.S. 338, 350–351 [39 AFTR 2d 77-475], 97 S.Ct. 619, 50 L.Ed.2d 530 (1977). If the Court finds that Hope Springs is the Blacks' nominee or alter ego, the IRS can properly regard Hope Springs' assess as the Blacks' property subject to the lien under 26 U.S.C. § 6321 and the IRS would be empowered, under § 6331, to levy upon assets held by Hope Springs in satisfaction of the Blacks' income tax liability.Id. Case law instructs that the court consider the following factors in determining whether a particular entity is a nominee of a taxpayer: ((1)) Whether the nominee paid no or inadequate consideration; ((2)) Whether the property was placed in the name of the nominee in anticipation of litigation or liabilities; ((3)) Whether there is a close relationship between the transferor and the nominee; ((4)) Whether the parties to the transfer failed to record the conveyance; ((5)) Whether the transferor retained possession; and ((6)) Whether the transferor continues to enjoy the benefits of the transferred property. See Towe Antique Ford Foundation v. I.R.S., 791 F.Supp. 1450, 1454, aff'd, 999 F.2d 1387 [72 AFTR 2d 93-5495] (9th Cir.1993); United States v. Secapure, 2008 WL 820719 [101 AFTR 2d 2008-1495] (N.D.Cal.2008) (noting that courts throughout the Ninth Circuit rely on the Towe factors to determine nominee status). Washington law determines whether an alter ego exists from whom the Government can satisfy the tax obligation of the tax payer. Aquilino v. United States, 363 U.S. 509, 512–23 [5 AFTR 2d 1698] (1960); Wolfe v. United States, 806 F.2d 1410, 1411 (9th Cir.1986). Under this theory, a corporate entity is disregarded when the corporation has been intentionally used to violate or evade a duty owed to another. Morgan v. Burks, 93 Wash.2d 580, 585, 611 P.2d 751 (1980). This may occur where the liable party has been “gutted” and left without funds by those controlling it in order to avoid actual or potential liability. Id. Under either theory, it is clear from the facts in this case that the Blacks used the artificial legal entity of the trust to insulate themselves from their tax liabilities. 2. Here, it is undisputed that the Blacks have retained complete control of the property held by Hope Springs. Hope Springs paid no consideration to anyone for the parcels of land it received. Hope Springs was created and purportedly acquired title to the properties shortly after the filing of Notices of Federal Tax Lien regarding the properties. Both the transferors-B.C. Trust and Summer Hill Freedom Trust-and Hope Springs are wholly controlled by the Blacks. Hope Springs' office is located in the Blacks' home. The Blacks controlled the entities that own (Hope Springs), lease, (Summer Hill) and sublease (Techni-Systems) the properties. While the Blacks did record the transfers to Hope Springs, they have retained actual possession. They live and work on the properties since 1981. They continue to enjoy the benefits of the properties in the same way regardless of who holds purported title. The Court also notes that the Blacks are vocal advocates of tax avoidance. The transfer to the trusts, and ultimately to Hope Springs, occurred at a time when the Blacks evinced clear intent to stop paying their taxes and avoid IRS collection efforts. The Court finds that there are no material questions of fact and that a reasonable jury could only come to one conclusion-that the Blacks are the true beneficial owners of the properties as a matter of law. Defendant Hope Springs Corporation Sole is the nominee and/or alter ego of Defendants Daniel R. Black and Maire E. Black, and therefore, to the extent that Defendant Hope Springs Corporation Sole purports to hold title to the Subject Property, it does so as the nominee and/or alter ego of Defendants Daniel R. Black and Maire E. Black. FRAUDULENT TRANSFERS The United States alleges that the transfers to Hope Springs were fraudulent. Under Washington law, transfers of property made with actual intent to hinder, delay, or defraud any creditor is prohibited. Wash. Rev.Code § 19.40.041(a)(1). To establish fraud, the United States must show actual intent by clear and satisfactory evidence. Creditors can establish that a transfer was fraudulent if the transfer was made: (1) with actual intent to hinder, delay, or defraud, or (2) without receiving a reasonably equivalent value in exchange for the transfer and the debtor (i) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or (ii) intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due. A future creditor-creditors whose claims rose after the transfer-must show actual intent to defraud. § 19.40.051. Actual intent may be established either by direct or circumstantial evidence. Circumstantial evidence can be used to establish the existence of “badges of fraud.” Washington law sets forth the nonexclusive badges or factors the Court may consider in determining the existence of actual intent to hinder, delay, or defraud: ((1)) The transfer or obligation was to an insider; ((2)) The debtor retained possession or control of the property transferred after the transfer; ((3)) The transfer or obligation was disclosed or concealed; ((4)) Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit; ((5)) The transfer was of substantially all the debtor's assets; ((6)) The debtor absconded; ((7)) The debtor removed or concealed assets; ((8)) The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; ((9)) The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred; ((10)) The transfer occurred shortly before or shortly after a substantial debt was incurred; and ((11)) The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor. Wash. Rev.Code § 19.40.041(b). Here, the facts reveal that Daniel Black stopped filing income tax returns in 1980. This coincided with the creation of the Summer Hill Freedom Trust, which was under the control of the Blacks and which took nominal title to much of the Subject Property. 3. The Blacks also created B.C. Trust, another entity under their control, which took nominal title to the remainder of the Subject Property. The Blacks retained full control and possession of the Subject Property during the time it was purportedly owned by Summer Hill Freedom Trust and B.C. Trust. The Court finds that the transfers of the subject properties were to an insider. Specifically, the transfers were from the Blacks' nominees/alter egos to another of the Blacks' nominee/alter ego. The Court finds that the Blacks transferred the Subject Property in anticipation of a collection action and future debts. In 1999, after the IRS filed Notices of Federal Tax Lien against the Subject Property, the Blacks created Hope Springs, and transferred all their property from their nominee/alter ego trusts (B.C. Trust and Summer Hill Freedom Trust) into its name. The only reasonable explanation is that each quit-claim transfer took place with the express purpose of shielding assets from tax collection. According to the Blacks, they own no assets whatsoever. They have not held property in their own names since 1981. They received only nominal payments as compensation for the duties they performed for the entities they control. The record supports the inference that the Blacks attempted to strip any evidence of their ownership of anything of value-by acquiring the Subject Property in the name of nominee/alter ego trusts-at the same time they ceased filing tax returns and were incurring tax liabilities. When the IRS filed Notices of Federal Tax Lien as to the Subject Property, the Blacks took further efforts to avoid ownership and shield their assets from the IRS by transferring those assets to Hope Springs. Moreover, no consideration was ever provided for the transfers to Hope Springs. The Court finds that there is sufficient evidence in the record for a reasonable jury to conclude that the Blacks actually intended to defraud and the transfers of substantially all of the Blacks' assets to Hope Springs in exchange for no consideration rendered the Blacks insolvent. As such, the Court finds that there are no genuine issues of material fact and a reasonable jury could find one conclusion-that is, the transfers of the Subject Property to Hope Springs was fraudulent. As such, the transfers are voidable pursuant to Wash. Rev.Code § 19.40.041(1) and § 19.40.051(a). FORECLOSURE OF FEDERAL TAX LIENS 26 U.S.C. § 6321 provides: 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 ma 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. This statute does not create a property right, “but merely attaches consequences, federally defined, to rights created under state law.” United States v. Craft, 535 U.S. 274, 278 [89 AFTR 2d 2002-2005], 122 S.Ct. 1414, 152 L.Ed.2d 437 (2002). Courts “look initially to state law to determine what rights the taxpayer has in the property the Government seeks to reach, then to federal law to determine whether the taxpayer's state-delineated rights qualify as “property” or “rights to property” within the compass of the federal tax lien legislation.”Id. , (quoting Drye v. United States, 528 U.S. 49, 58 [84 AFTR 2d 99-7160], 120 S.Ct. 474, 145 L.Ed.2d 466 (1999). As set forth above, the Court finds the Blacks hold a cognizable property right to the Subject Property, and therefore, the federal tax liens attached to the Subject Property are proper and valid. 26 U.S.C. § 7403 provides: (a) In any case where there has been a refusal or neglect to pay any tax, or to discharge any liability in respect thereof, whether or not levy has been made, the Attorney General or his delegate, at the request of the Secretary, may direct a civil action to be filed in a district court of the United States to enforce the lien of the United States under this title with respect to such tax or liability or to subject any property, of whatever nature, of the delinquent, or in which he has any right, title, or interest, to the payment of such tax or liability. *** (c) The court shall, after the parties have been duly notified of the action, proceed to adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property, and, in all cases where a claim or interest of the United States therein is established, may decree a sale of such property, by the proper officer of the court, and a distribution of the proceeds of such sale according to the findings of the court in respect to the interests of the parties and of the-United States. If the property is sold to satisfy a first lien held by the United States, the United States may bid at the sale such sum, not exceeding the amount of such lien with expenses of sale, as the Secretary directs. For the reasons set forth above, foreclosure on the Subject Property is proper. Accordingly, IT IS HEREBY ORDERED: (1.) The United States' Motion for Summary Judgment (Ct.Rec.121) is GRANTED. (2.) The Black Defendants' Motion for Summary Judgment (Ct.Rec.133) is DENIED. (3.) Hope Springs Motion for Summary Judgment (Ct.Rec.129) is DENIED. (4.) Within ten days from the date of this Order, the United States is directed to file a Proposed Judgment that accurately reflects the amount of judgment that should be entered against Defendant Daniel R. Black and Maire E. Black consistent with this Order (less the Estimated Tax Penalties, Late Filing Penalties, and Failure to Pay Tax Penalties for each of the tax years at issue except 1998 and 1999 discharged in bankruptcy). (5.) The United States has valid and subsisting liens in the amount of $4,429,522.78, plus interest accruing after June 1, 2010, pursuant to 26 U.S.C. §§ 6601, 6621 & 6622, and 28 U.S.C. § 1961(c) until paid, on all property and rights to property belonging to Defendant Daniel R. Black including, without limitation, the Subject Property. (6.) The United States has valid and subsisting liens in the amount of $4,292,181.19, plus interest accruing after June 1, 2010, pursuant to 26 U.S.C. §§ 6601, 6621 & 6622, and 28 U.S.C. § 1961(c) until paid, on all property and rights to property belonging to Defendant Maire E. Black including, without limitation, the Subject Property. (7.) The federal tax liens against Defendant Daniel R. Black and Maire E. Black are foreclosed upon their interest in the Subject Property. The Subject Property is ordered to be sold and the proceeds from such sale be applied to the United States' liens on all property and rights to property belonging to Defendants Daniel R. Black and Maire E. Black. IT IS SO ORDERED. The District Court Executive is directed to enter this Order and forward copies to counsel. -------------------------------------------------------------------------------- 1. The Estimated Tax Penalties, Late Filing Penalties, and Failure to Pay Tax Penalties for tax years 1998 and 1999 accrued after July 1998, and are consequently non-dischargeable. -------------------------------------------------------------------------------- 2. InUnited States v. Bryce W. Townley, et al (CV-020384-RHW), the Court applied the Washington doctrine of “corporate disregard” or the “alter ego” theory in the context of a trust being used to avoid creditors. The Court concluded the doctrine is applicable where the parties was using the artificial legal entity of a trust to insulate themselves from debt because in that regard, it closely mirrors situations where the Washington courts have imposed the doctrine to hold corporations accountable for an individual's liabilities where the facts of the case suggest the individual and the corporation are one and the same. -------------------------------------------------------------------------------- 3. In a previous order, the Court ruled that Summer Hill Freedom Trust and B.C. trust are the nominee and/or alter ego of Daniel and Maire Black (Ct.Rec.63). er case

7206 preparing false tax returns U.S. v. MORSE, Cite as 106 AFTR 2d 2010-XXXX, 07/23/2010 -------------------------------------------------------------------------------- UNITED STATES of America, Plaintiff - Appellee, v. Kevin J. Morse, Defendant - Appellant. Case Information: Code Sec(s): Court Name: United States Court of Appeals FOR THE EIGHTH CIRCUIT, Docket No.: No. 08-3425, Date Decided: 07/23/2010Submitted: June 10, 2009. Disposition: HEADNOTE . Reference(s): OPINION United States Court of Appeals FOR THE EIGHTH CIRCUIT, Appeal from the United States District Court for the District of Minnesota. Before COLLOTON, JOHN R. GIBSON, and BEAM, Circuit Judges. Judge: JOHN R. GIBSON, Circuit Judge. Kevin J. Morse was indicted on five counts of filing false tax documents pursuant to 26 U.S.C. § 7206(1), and a jury returned guilty verdicts on each count. Morse appeals his convictions on several grounds. He first argues that the district court 1 erred by failing to dismiss the indictment based on theories of estoppel and a due process violation. He also alleges that the court violated his constitutional rights by refusing to provide him with a copy of the signed indictment. In addition, he argues that insufficient evidence was introduced at trial to convict him and that the court abused its discretion by improperly excluding evidence. Finally, he asserts that the district court did not use the correct loss calculations in sentencing him under the Guidelines. We affirm. I. Kevin J. Morse is a farmer. In 1999, he was convicted of four counts of filing false tax returns for the years 1991 through 1994 and sentenced to eighteen months' imprisonment and a year of supervised release. Despite these convictions, Morse did not timely file the tax returns for the years 1996 through 2000, the years at issue in this case. In 2001, Morse hired Ron Urbanski, a former Internal Revenue Service (IRS) criminal investigator and revenue agent, to prepare his tax returns for the years 1996 through 2000. Morse's income consisted of profit on grain sales, the proceeds from renting land to other farmers, rental income from a house, and government agriculture subsidies. Urbanski listed Morse's income on lines 17 and 18 of each year's federal form to show net real estate rental and farming income, respectively. On the return for 2000, Urbanski also listed interest and dividend income. He did not list wages on any of the 1040 forms because Morse did not identify having received any. Urbanski's analysis concluded that Morse's taxable income during this period was $448,039 and that Morse owed $142,827 in taxes. During the time he was working on his tax forms with Urbanski, Morse tried to discuss some theories with Urbanski about reducing or avoiding tax liability, but Urbanksi “didn't want to hear about it.” Morse did not file the returns that Urbanksi prepared. Morse next contacted Joseph Saladino, the head of an organization called the Freedom and Privacy Committee, to “assist him with his tax liability.” The Freedom and Privacy Committee performed the calculations and prepared income tax returns for the years 1996 through 2000, and Morse signed and mailed them to the IRS. Unlike on the returns that Urbanski prepared, Morse did not report his farming and rental income on lines 17 and 18 as his principal sources of income on these returns. Morse instead reported his income on line 7, as “wages, salaries, tips, etc.” Morse then deducted all the “wages” as “AN UNRESTRICTED CLAIM OF CLAIM FOR COMPENSATION FOR PERSONAL LABOR FOUNDED ON 26 USC SECTION 1341.” In affidavits attached to each return, Morse stated that “[t]he amount being claimed [as a deduction] is compensation for personal labor that was received as repayment of a debt that was owed to Affiant.” Morse reported no income tax due for four of the five years and only $968 for tax year 2000. Morse also claimed he was entitled to an aggregate net refund of $6410. On January 24, 2003, after Morse filed his 1996–2000 tax returns, he filed a prose petition for a writ of habeas corpus in federal district court, seeking a declaration that his wages were not taxable. Saladino prepared the petition as part of the services for which Morse paid him. The government opposed the petition and filed a declaration of Susan Gudde, a paralegal at the IRS. She indicated that, according to IRS records, Morse had not filed income tax returns for the years at issue. The case was dismissed without prejudice for lack of subject matter jurisdiction. The district court sustained the government's objection to Morse's attempts to introduce any of the filings or orders from that civil action during Morse's criminal jury trial. In September 2003, IRS Agent Bosshart sent a letter to notify Morse that she was going to conduct an examination of his returns. She also tried to schedule an appointment with him. In response, Morse sent Agent Bosshart a fax requesting an extension until November because, as Morse testified, it was harvest time. Morse also granted Saladino a power of attorney so that Saladino could speak with Agent Bosshart, but he was denied. Agent Bosshart explained at trial that the IRS does not typically grant extensions to begin an audit for the length of time that Morse had requested. Agent Bosshart attempted to contact Morse by telephone and by letter to schedule a mutually agreed upon time. She never heard from Morse again. Ultimately, Agent Bosshart conducted an investigation without Morse's assistance, by contacting Morse's bank and individuals who had paid him. Following its investigation, the IRS calculated that Morse owed a total of $205,237. On June 27, 2007, a grand jury issued a five-count indictment against Morse. The indictment charged that Morse willfully made and subscribed to federal income tax returns that he did not believe to be true and correct as to every material matter for five years. On September 24, 2007, Morse filed various pretrial motions, including a Motion to Dismiss Based on Estoppel and Due Process, and a Motion to Dismiss Due to an Unsigned Indictment. After a hearing, Magistrate Judge Jeanne J. Graham filed an order denying Morse's motion for disclosure of the signed indictment and ruling on the remaining pretrial matters. She concommitantly filed a Report and Recommendation recommending denial of all of Morse's dispositive motions. On appeal, Judge Paul A. Magnuson affirmed the Magistrate Judge's order and adopted her recommendations. On December 18, 2007, a superceding five-count indictment was handed up. On February 6, 2008, Morse filed another motion requesting disclosure of the signed superceding indictment, which the district court denied. At trial, Morse argued that he held a good faith belief that he properly filed his tax documents. In essence, he argued that the government failed to prove that he acted willfully in making false statements to the IRS. The jury convicted him on all five counts. The district court then found that the applicable amount of potential tax loss attributable to Morse's conduct was less than $200,000 but more than $80,000. The district court sentenced him to concurrent thirty month sentences on each count, one year of supervised release on each count to run concurrently, and a special assessment of $500. Morse appeals. II. A. Morse first challenges the district court's ruling to deny his motion to dismiss the indictment based on the doctrine of estoppel. He argues that in his 2003 civil action prepared by Saladino, the government claimed that Morse had not filed tax returns and therefore should not be allowed to change its position in this case to allege that Morse filed false tax returns. “We have not previously articulated the proper standard of review when reviewing a district court's application of the judicial estoppel doctrine. A majority of our sister circuits that have addressed the issue apply the abuse of discretion standard.” Stallings v. Hussmann Corp., 447 F.3d 1041, 1046 (8th Cir. 2006) (citations omitted). The doctrine of judicial estoppel “prohibits a party from taking inconsistent positions in the same or related litigation.” United States v. Grap, 368 F.3d 824, 830 (8th Cir. 2004) (internal quotations and citations omitted). The Supreme Court has recognized three considerations that “typically inform the decision whether to apply the doctrine in a particular case”: 1) “a party's later position must be clearly inconsistent with its earlier position”; 2) whether the party “succeeded in persuading a court to accept that party's earlier position, so that judicial acceptance of an inconsistent position in a later proceeding would create the perception that either the first or the second court was misled”; and 3) “whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.” New Hampshire v. Maine, 532 U.S. 742, 750–51 (2001) (internal quotations and citations omitted). While we have recognized that estoppel defenses may, at times, be asserted against the government, we have not used estoppel to bar a criminal prosecution. See Grap, 368 F.3d at 830. The Supreme Court has recognized that “the Government may not be estopped on the same terms as any other litigant” because “[w]hen the Government is unable to enforce the law because the conduct of its agents has given rise to an estoppel, the interest of the citizenry as a whole in obedience to the rule of law is undermined.” Id. at 830–31 (quoting Heckler v. Cmty. Health Servs. of Crawford County, Inc., 467 U.S. 51, 60 (1984)). The Supreme Court has “repeatedly indicated that an estoppel will rarely work against the government ..., and we recently stated that a private party trying to estop the government has a heavy burden to carry.” Id. at 831 (internal citations omitted). Morse has not met this heavy burden. Recognizing the traditional reluctance to allow criminal defendants to estop the government based on the conduct of its agents, we are convinced that the district court did not err in denying Morse's motion to dismiss the indictment based on the doctrine of judicial estoppel. See id. at 830–31. It is true that in response to Morse's 2003 civil action prepared by Saladino, the government claimed that Morse had not filed tax returns, and the government is now alleging instead that Morse filed false tax returns. However, we do not believe that the government's statement in the 2003 litigation was an effort to manipulate the court. The government provided a reasonable explanation for its position: Morse's tax returns were filed at the end of 2002 and had not been entered into the IRS computer system at the time the jurisdictional issue was litigated. This is not a case in which the difference is in the position a party takes in a lawsuit; the difference is the result of changing facts. Accordingly, the district court did not err in denying Morse's motion to dismiss the indictment based on the doctrine of judicial estoppel. B. Morse next recasts the above judicial estoppel argument as a violation of due process. He argues that submitting Susan Gudde's declaration of the unfiled tax returns and then indicting him for filing false tax returns for those same years is “outrageous and contrary to basic principles of fairness and governmental integrity.” “Outrageous government conduct that shocks the conscience can require dismissal of a criminal charge, but only if it falls within the narrow band of the most intolerable government conduct.” United States v. Boone, 437 F.3d 829, 841 (8th Cir. 2006) (internal quotations omitted). “Whether particular government conduct was sufficiently outrageous to meet this standard is a question of law which we review de novo.” Id. (citations omitted). Morse cites Smith v. Groose, 205 F.3d 1045 (8th Cir. 2000), to support his argument. In Smith, we granted habeas relief to a petitioner because the prosecutor had relied upon factually inconsistent theories to obtain murder convictions in separate trials to convict two different people for the same murder. Id. at 1052–53. The appellate court found that the contradictory prosecution violated the criminal defendants' due process rights. Smith, 205 F.3d at 1052. Morse's reliance on Smith misses the mark. Unlike Smith, this case does not involve two or more defendants being prosecuted for the same offense. See Smith, 205 F.3d at 1052. Next, Susan Gudde's declaration can be reasonably explained. Morse filed his tax returns in late 2002. Gudde's March 2003 declaration stated that the IRS database did not show that Morse had filed his returns. His returns indicate that they were routed to the agency's “Accounts Management,” “Frivolous Returns” or “Exam” departments based on correspondence or controversial arguments. The government submitted an affidavit of an IRS special agent who testified that, unlike most returns, returns routed in this manner may not be processed completely. The inconsistent positions of which Morse complains can be reasonably explained and are not “outrageous” or “contrary to basic principles of fairness.” See id. Accordingly, Morse's due process rights were not violated because he was not subject to contradictory prosecution. C. Morse next contends that the court erred in denying his motion to dismiss the indictment, arguing that the failure to give him a signed copy of the indictment violated his due process rights. Morse had asked the government to produce a duly executed copy of the indictment for his inspection so that he could “see and personally confirm the existence of the actual charging instrument against him.” The Fifth Amendment provides that “[n]o person shall be held to answer for a capital, or otherwise infamous crime, unless on a presentment or indictment of a Grand Jury ....” U.S. Const. amend. V. Morse argues that this clause would be rendered meaningless if an accused cannot see and personally confirm the existence of the actual charging instrument against him. The Federal Rules of Criminal Procedure state that indictments are to be signed by both the foreperson of the grand jury and by an attorney for the government. See Fed. R. Crim. P. 6(c) (“The foreperson ... will sign all indictments.”); Fed. R. Crim. P. 7(c)(1) (“The indictment ... must be signed by an attorney for the government.”). When considering a district court's ruling regarding a rule of criminal procedure, “we review the district court's legal conclusions de novo.” United States v. Shepard, 462 F.3d 847, 861 (8th Cir. 2006) (citation omitted). The signatures on the indictment, however, are a formality, and even the lack of signatures would not render an indictment invalid. United States v. Willaman, 437 F.3d 354, 360 (3d Cir. 2006) (terming lack of signature as a technical deficiency); United States v. Irorere, 228 F.3d 816, 830–31 (7th Cir. 2000) (same). Here, the Magistrate Judge inspected the superseding indictment filed under seal and was satisfied that it was properly signed by the foreperson and by the prosecuting attorney. The Magistrate Judge found that there was “good cause to keep the original, signed indictment sealed.” The court had received documents threatening judicial officials and law enforcement personnel involved in the case. The documents referred to the judges as “BAR TERRORIST[S]” and also suggested “eye for an eye” punishment. In another communication in September 2007, Morse reiterated the threats, confirmed his involvement in the earlier filing, and identified judicial officers in his case as guilty of sedition and treason. Thus, good cause existed to keep the indictment sealed, and the district court did not err in denying Morse's motion. D. Morse next contends that the government did not prove that his conduct was willful because there was evidence of his good faith belief that he was not violating the tax laws. We review the sufficiency of the evidence to sustain a conviction de novo. United States v. Grimaldo, 214 F.3d 967, 975 (8th Cir. 2000). The standard of review concerning sufficiency of the evidence “is very strict, and a jury verdict will not be overturned lightly.” United States v. Ellefson, 419 F.3d 859, 862 (8th Cir. 2005). We view the evidence in the light most favorable to the verdict, “giving the government the benefit of all reasonable inferences that may logically be drawn from the evidence.” United States v. Suppenbach, 1 F.3d 679, 681–82 (8th Cir. 1993). Evidence is sufficient “if any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.” United States v. Boesen, 491 F.3d 852, 856 (8th Cir. 2007) (citation omitted). Morse was charged with filing false tax returns under 26 U.S.C. § 7206(1), which provides that any person who “[w]illfully makes and subscribes any return, statement, or other document, which contains or is verified by a written declaration that is made under the penalties of perjury, and which he does not believe to be true and correct as to every material matter” is guilty of a felony. Willfulness requires proof of a voluntary, intentional violation of a known legal duty. Cheek v. United States, 498 U.S. 192, 201 [67 AFTR 2d 91-344] (1991). “The issue is whether, based on all the evidence, the [g]overnment has proved that [Morse] was aware of the duty at issue, which cannot be true if the jury credits a good-faith misunderstanding and belief submission, whether or not the claimed belief or misunderstanding is objectively reasonable.” Id. at 202. Testimony from IRS agents, a banker, farmers who rented farmland from Morse, others in the farming industry, and Morse himself, combined with the tax returns and Morse's 1999 conviction of filing false tax returns, established that Morse knowingly and significantly underreported his income on his tax returns. Importantly, the jury heard evidence that Morse knew from his 1999 conviction that he had to be truthful when he filed these five tax returns. See id. at 202. Viewing the evidence in the light most favorable to the government, the evidence shows that Morse voluntarily and intentionally violated this duty. Specifically, the jury learned that Morse was a farmer with farm income who rented out some of his land for rental income. The testimony of Morse and Urbanski provided sufficient evidence that Morse knew that he received farm and rental income and that the returns he filed did not reflect this income. The evidence showed that Urbanski prepared returns based on accurate information and that these returns showed that Morse owed substantial taxes. Morse, however, did not file these returns. Instead, he claimed to have been compensated “for personal labor” in “repayment of a debt” owed to him when he had no wages, did not work for anyone, and even was in prison in 2000 and could not have been performing labor for compensation in that year. Further, Morse also agreed that the consequence of his claim on our society would be that virtually everyone would be free of taxes. Accordingly, any rational trier of fact could have found beyond a reasonable doubt that Morse voluntarily and intentionally filed false tax returns. E. Morse next challenges a number of the district court's evidentiary rulings. He argues that the district court improperly excluded the following evidence that he asserts is probative because it showed his good faith that he was not violating the tax laws: (1) documents relating to Morse's civil declaratory judgment; (2) a note to Agent Bosshart, which he asserts explained that he could not meet with her because he was busy with the harvest; (3) an explanation by Patrick Lynch, a former tool and die worker who worked for the Freedom and Privacy Committee, of the IRS individual master file system; and (4) documentation of Saladino's and the Freedom Privacy Committee's operations. 2 The district court excluded these documents as either not relevant or lacking foundation. “We review evidentiary rulings for abuse of discretion. Even when an evidentiary ruling is improper, we will reverse a conviction on this basis only when the ruling affected substantial rights or had more than a slight influence on the verdict.” United States v. Gustafson, 528 F.3d 587, 590–91 [101 AFTR 2d 2008-2613] (8th Cir. 2008) (citations omitted). It was proper for the district court “to exclude evidence having no relevance or probative value with respect to willfulness.” Cheek v. United States, 498 U.S. 192, 203 [67 AFTR 2d 91-344] (1991). To the extent that any of the excluded documents may have been relevant, they were cumulative, and the district court did not abuse its discretion by denying their admission. See Fed. R. Evid. 403; United States v. Willis, 277 F.3d 1026, 1033 [89 AFTR 2d 2002-627] (8th Cir. 2002). Morse “had been permitted to explain the source of his beliefs and to introduce other exhibits on which he relied.” Id. Specifically, Morse presented evidence that he corresponded with Saladino to assist him with his tax liability. Morse testified that Saladino had filed the federal habeas action seeking “a determination if the tax returns were acceptable or not.” He testified that the litigation concluded without receiving a decision and that Saladino filed a second federal lawsuit in an effort to get a ruling on his returns. Next, contrary to Morse's assertion, the district court did not exclude from evidence the letter he sent to Agent Bosshart about a potential meeting. The exhibit was offered and received. The district court also acted within its discretion when it refused to permit Lynch, a tool and diemaker, to interpret internal IRS records based on a lack of foundation. The district court allowed Lynch to testify about conversations he had with Saladino, Morse, and other members of the Freedom and Privacy Committee. Further, Morse testified and explained how he learned about the Freedom and Privacy Committee. He testified about phone calls with those associated with the Freedom and Privacy Committee and about documents he obtained, describing their theories and services. In describing one conversation he had with people at the Freedom and Privacy Committee concerning his tax situation, Morse said: Yeah, I told them where I got my income from. I told them I didn't want any problems, because I had a problem before, and I was kind of assured that there wouldn't be a problem. And if there was, they could handle the litigation, if there was any. And that was that. Morse also described Saladino as the source of his “claim of right” tax returns, although Saladino himself did not testify because he exercised his Fifth Amendment right against self-incrimination. Lastly, as discussed above, the evidence of Morse's guilt was substantial, and we do not believe that the verdict would have been different had the documents been admitted. Accordingly, the district court did not err in its evidentiary rulings. F. Lastly, Morse argues that the district court erred by failing to reduce tax loss calculations to exclude tax losses already assessed against him in the sentence he received in his earlier conviction. Morse argues that including the tax losses from 1996 and 1997 “punish[ed] Morse twice for the same conduct, thereby violating the Fifth Amendment constitutional prohibition against double punishment.” 3 We review the application of the Guidelines to the facts de novo and factual findings underlying the calculation of the Guidelines for clear error. United States v. Gomez, 271 F.3d 779, 781 (8th Cir. 2001). The ultimate sentence is reviewed for abuse of discretion. United States v. Hayes, 518 F.3d 989, 995 (8th Cir. 2008). “Relevant conduct which has been considered in a prior sentencing can be a basis for subsequent prosecution without violating the double jeopardy clause so long as the earlier sentence was within the statutory or legislatively authorized punishment range.” United States v. Abboud, 273 F.3d 763, 766 (8th Cir. 2001). As long as the sentence previously imposed was within the authorized statutory limits for that earlier crime, enhancing a sentence for a separate crime with the same conduct does not constitute punishment for that conduct within the meaning of the Double Jeopardy Clause. Witte v. United States, 515 U.S. 389, 398–99 (1995). Here, the district court did not err. First, in Morse's 1999 conviction, the district court added to the 1991 through 1994 tax loss approximately $83,000 in estimated unpaid taxes for the years 1996 and 1997, putting Morse at offense level 15 under the Guidelines then in effect. Morse's 1999 sentence of eighteen months was well within this range. IRS Agent Bosshart then computed a total tax loss of $205,237 for the years pertaining to this case. Using this figure, under § 2T4.1, the government argued for offense level 18 and a range of 30 to 37 months given Morse's previous criminal history. U.S. Sentencing Guidelines Manual § 2T4.1 (2009). Urbanski prepared a tax loss analysis that Morse submitted at his sentencing. Urbanski calculated the tax loss to be $179,840. Consistent with Urbanski's analysis, the district court found the tax loss to be less than $200,000 but greater than $80,000, putting Morse at offense level 16 with a Guidelines range of 24 to 30 months. The court sentenced Morse within this range. Punishment in this case for conduct that was taken into account in Morse's 1999 sentence cannot be a violation of the Fifth Amendment because the earlier sentence was within the statutorily authorized punishment range. See Witte, 515 U.S. at 398–99. Accordingly, the district court did not err in failing to reduce tax loss calculations to exclude tax losses already assessed against Morse. III. For the reasons set forth, we affirm the judgment of the district court. -------------------------------------------------------------------------------- 1 The Honorable Paul A. Magnuson, United States District Judge for the District of Minnesota. -------------------------------------------------------------------------------- 2 Morse mentions in his brief that it was also error to exclude evidence of a letter written to the U.S. Department of Justice by a lawyer on Morse's behalf. But, Morse does not cite to the transcript, and our review of the record does not reveal that the letter was either offered into or excluded from evidence. -------------------------------------------------------------------------------- 3 Morse also argues that the district court did not deduct all legal expenses at sentencing. This argument is without merit. The district court agreed that “the loss amount attributable to [Morse] should be less than $200,000, to reflect the legitimate legal fees [Morse] paid. The Court lowered [Morse's] offense level to a level 16 as a result of this determination.” This determination is consistent with the loss calculation that Urbanski prepared on Morse's behalf to give Morse full credit for those expenses.

Chairman Levin Announces a Hearing on Tax Proposals Related to Legislation to Legalize Internet Gambling May 12, 2010 Ways and Means Chairman Sander M. Levin today announced a full Committee hearing on tax proposals related to legislation to legalize Internet gambling. The hearing will take place on Wednesday, May 19, 2010, in the main Committee hearing room, beginning at 9:30 a.m. in 1100 Longworth House Office Building. CHANGE IN TIME: Originally scheduled for 10:00 a.m., the hearing is now at 9:30 a.m. In view of the limited time available to hear witnesses, oral testimony at this hearing will be from invited witnesses only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing. FOCUS OF THE HEARING: The Committee will discuss the current tax laws and reporting requirements applicable to wagering in the United States. The Committee will consider tax and other proposals in the Committee’s jurisdiction related to legislation pending in the Congress to license and regulate Internet gambling activities. BACKGROUND: The Department of the Treasury (Treasury) has jurisdiction over various statutory provisions related to wagering and gambling. The Internal Revenue Service ensures compliance with the Federal excise and occupational taxes applicable to legal and illegal gambling activities. The taxes are 0.25 percent of the wager and $50 per year, if the wager is authorized under the State law where it is accepted, and 2 percent of the wager and $500 per year, if unauthorized under the State law. Parimutuel wagering, coin-operated devices, and state-conducted lotteries are exempt from taxation. In addition, individual and corporate income taxes, and third-party information reporting requirements, are applicable to income from gambling. Treasury’s Financial Crimes Enforcement Network (FinCEN) monitors compliance with the Bank Secrecy Act and certain other anti-money laundering laws. Under these laws, financial institutions, including casinos and money services businesses must file currency transaction reports and suspicious activity reports to assist the government in detecting and preventing money laundering, tax evasion, or other criminal activities. FinCEN has analyzed the potential regulatory and law-enforcement implications of electronic commerce, including Internet gambling. The Unlawful Internet Gambling Enforcement Act (UIGEA) prohibits any person from knowingly accepting payments in connection with the participation of another person in unlawful Internet gambling. The regulations implementing the UIGEA were issued by Treasury and the Board of Governors of the Federal Reserve System last year and are scheduled to take effect on June 1, 2010. In this and prior sessions of Congress, legislation has been introduced to license and regulate online gambling. Companion legislation, within the jurisdiction of the Committee, would impose gambling licensing fees and certain information reporting and other requirements. DETAILS FOR SUBMISSION OF WRITTEN COMMENTS Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee website and complete the informational forms. From the Committee homepage, http://waysandmeans.house.gov, select “Hearings.” Select the hearing for which you would like to submit, and click on the link entitled, “Click here to provide a submission for the record.” Once you have followed the online instructions, complete all informational forms and click “submit” on the final page. ATTACH your submission in compliance with the formatting requirements listed below, by close of business Wednesday, June 2, 2010. Finally, please note that due to the change in House mail policy, the U.S. Capitol Police will refuse sealed-package deliveries to all House Office Buildings. For questions, or if you encounter technical problems, please call (202) 225-1721 or (202) 225-3625. FORMATTING REQUIREMENTS: The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. The Committee will not alter the content of your submission, but we reserve the right to format it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response to a request for written comments must conform to the guidelines listed below. 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HENDRIX, ET AL. v. U.S., Cite as 106 AFTR 2d 2010-XXXX, 07/21/2010 -------------------------------------------------------------------------------- JAMES HENDRIX, et al., Plaintiffs, v. UNITED STATES OF AMERICA, Defendant. Case Information: Code Sec(s): Court Name: UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF OHIO EASTERN DIVISION, Docket No.: Case No. 2:09-cv-132, Date Decided: 07/21/2010. Disposition: HEADNOTE . Reference(s): OPINION UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF OHIO EASTERN DIVISION, OPINION AND ORDER Judge: JUDGE GREGORY L. FROST Judge: Magistrate Judge E.A. Preston Deavers This matter is before the Court for consideration of the following filings: ((1)) Plaintiffs' motion for summary judgment (Doc. # 22), Defendant's memorandum in opposition (Doc. # 26), and Plaintiff's reply memorandum (Doc. # 29); ((2)) Defendant's motion for summary judgment (Doc. # 23), Plaintiffs' memorandum in opposition (Doc. # 27), and Defendant's reply memorandum (Doc. # 28); and ((3)) a joint motion to amend the scheduling order (Doc. # 31). For the reasons that follows, the Court DENIES Plaintiffs' motion (Doc. # 22), GRANTS Defendant's motion (Doc. # 23), and DENIES AS MOOT the joint motion to amend (Doc. # 31). I. Background Since 2000, Plaintiffs, James and Lori Hendrix, have owned the lot located at 2580 Sherwin road in Upper Arlington, Ohio. After a number of years, Plaintiffs decided to demolish the house that existed on that lot and to construct a new house. They obtained two estimates for conducting the demolition, each of which was approximately $10,000.00. Plaintiffs declined to accept either bid and instead contacted Lyndon Nofziger of the Upper Arlington Fire Division to discuss the city using their house for training and then demolishing the house. Plaintiffs had retained the accounting firm of Deloitte & Touche regarding a possible donation of the house to the city that would result in the city demolishing the structure and then returning the real estate back to Plaintiffs. In a March 2004 report, a Deloitte & Touche advisor analyzed the possible transaction and concluded, among other things, that “[d]onation of property to a fire department is aggressive and not explicitly sanctioned by the Internal Revenue Code.” (Doc. # 23-6, at 6.) Plaintiffs obtained an appraisal of the Sherwin Road property and the house on that real estate. Ann Ciardelli prepared the appraisal, which she signed on June 11, 2004. Her appraisal indicated a value of $520,000.00 and included a provision that “[t]he intended use of this appraisal is to assist the owner in estimating the fair market value of the subject property.” (Doc. # 23-4, at 2–3.) On June 29, 2004, Plaintiffs then entered into a contract with Upper Arlington. This agreement provided that Plaintiffs granted the city permission “to use” the Sherwin Road property and the house for purposes of Fire Division training. The contract also provided that “[t]he structure is to be burned and/or demolished as seen fit by the Fire Division for said training.” (Doc. # 23-1, at 1.) Another provision provided that “[t]he City of Upper Arlington does not express any opinion regarding the tax consequences of this transaction” and advised Plaintiffs to consult with a tax advisor “regarding the availability of and requirements for taking any tax deduction.” (Doc. # 23-1, at 2.) The city used the house from June 29, 2004, until October 29, 2004, at which time the house was demolished. Plaintiffs then proceeded to construct a new, larger house on their lot. Plaintiffs also reported a charitable contribution on their 2004 income tax return, claiming a deduction for the house in the amount of $287,400.00. The Internal Revenue Service disallowed the deduction and proceeded to assess a tax deficiency of $100,590.00. Plaintiffs unsuccessfully filed for a refund and then filed this 26 U.S.C. § 7422 action for a tax refund against Defendant, the United States of America, on February 24, 2009. (Doc. # 2.) Both sides have moved for summary judgment. (Docs. # 22, 23.) After the parties resolved a mutual failure to submit proper summary judgment evidence, the motions are now ripe for disposition. The parties have also jointly filed a contingent motion to amend the case scheduling order, noting that should the Court conclude that Plaintiffs can take the claimed deduction, then a period of discovery on the value of the deduction is necessary. (Doc. # 31.) II. Discussion A. Standard Involved Summary judgment is appropriate “if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c)(2). The Court may therefore grant a motion for summary judgment if the nonmoving party who has the burden of proof at trial fails to make a showing sufficient to establish the existence of an element that is essential to that party's case. See Muncie Power Prods., Inc. v. United Tech. Auto., Inc., 328 F.3d 870, 873 (6th Cir. 2003) (citingCelotex Corp. v. Catrett , 477 U.S. 317, 322 (1986)). In viewing the evidence, the Court must draw all reasonable inferences in favor of the nonmoving party, which must set forth specific facts showing that there is a genuine issue of material fact for trial. Id. (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)); Hamad v. Woodcrest Condo. Ass'n, 328 F.3d 224, 234 (6th Cir. 2003). A genuine issue of material fact exists “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Muncie Power Prods., Inc., 328 F.3d at 873 (quotingAnderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248 (1986)). Consequently, the central issue is “ “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.”” Hamad, 328 F.3d at 234–35 (quoting Anderson, 477 U.S. at 251–52). B. Analysis The parties' dispute presents four core issues, each of which is arguably potentially dispositive of this litigation. The first issue is whether Plaintiffs have met the requirement of submitting a sufficient qualified appraisal. The second issue is whether Plaintiffs filed a sufficient contemporaneous acknowledgment of the purported donation. The third issue is whether the Internal Revenue Code precludes a deduction for the conduct involved here. The fourth issue is whether Plaintiffs have otherwise established that they are entitled to a deduction. Because the first two of these issues prove dispositive, this Court need not and does not reach the remaining issues. Defendant argues that it is entitled to summary judgment because Plaintiffs failed to obtain a qualified appraisal by the due date of their 2004 income tax return. To support this argument, Defendant relies upon 26 U.S.C. § 170, which provides that “no deduction shall be allowed under subsection (a) for any contribution of property for which a deduction of more than $500 is claimed unless such person meets the requirements of subparagraphs (B), (C), and (D), as the case may be, with respect to such contribution.” 26 U.S.C. § 170(f)(11)(A)(I). The referenced subparagraph (C) in turn provides: In the case of contributions of property for which a deduction of more than $5,000 is claimed, the requirements of this subparagraph are met if the individual, partnership, or corporation obtains a qualified appraisal of such property and attaches to the return for the taxable year in which such contribution is made such information regarding such property and such appraisal as the Secretary may require. 26 U.S.C. § 170(f)(11)(C). Defendant is therefore correct in its threshold assertion that Plaintiffs were required to obtain a qualified appraisal and attach it to the 2004 tax return. The statutory scheme addresses what constitutes the required “qualified appraisal” as follows: The term “qualified appraisal” means, with respect to any property, an appraisal of such property which-- ((I)) is treated for purposes of this paragraph as a qualified appraisal under regulations or other guidance prescribed by the Secretary, and ((II)) is conducted by a qualified appraiser in accordance with generally accepted appraisal standards and any regulations or other guidance prescribed under subclause (I). 26 U.S.C. § 170(f)(11)(E)(I). This definition features two components. First, the appraisal must be treated as a qualified appraisal by incorporated-by-reference Secretary of the Treasury regulations or guidance. Second, a qualified appraiser must have conducted the appraisal using generally employed standards and in compliance with incorporated-by-reference Secretary regulations or guidance. Section 170 also defines “qualified appraiser,” providing: [T]he term “qualified appraiser” means an individual who– ((I)) has earned an appraisal designation from a recognized professional appraiser organization or has otherwise met minimum education and experience requirements set forth in regulations prescribed by the Secretary, ((II)) regularly performs appraisals for which the individual receives compensation, and ((III)) meets such other requirements as may be prescribed by the Secretary in regulations or other guidance. 26 U.S.C. § 170(f)(11)(E)(ii). This definition similarly incorporates by reference regulations and requirements set forth by the Secretary. The Code of Federal Regulations contains the relevant regulations. For example, 26 C.F.R. § 1.170A-13(c)(3)(i)(C) provides that in order to constitute a qualified appraisal, an appraisal document must include information required by 26 C.F.R. § 1.170A-13(c)(3)(ii). Among this required information is “[t]he date (or expected date) of contribution to the donee.” 26 C.F.R. § 1.170A-13(c)(3)(ii)(C). Also required are [t]he terms of any agreement or understanding entered into (or expected to be entered into) by or on behalf of the donor or donee that relates to the use, sale, or other disposition of the property contributed, including, for example, the terms of any agreement or understanding that-- ((1)) Restricts temporarily or permanently a donee's right to use or dispose of the donated property, ((2)) Reserves to, or confers upon, anyone (other than a donee organization or an organization participating with a donee organization in cooperative fundraising) any right to the income from the contributed property or to the possession of the property, including the right to vote donated securities, to acquire the property by purchase or otherwise, or to designate the person having such income, possession, or right to acquire, or ((3)) Earmarks donated property for a particular use[.] 26 C.F.R. § 1.170A-13(c)(3)(ii)(D). Additional information mandated for inclusion is “[t]he qualifications of the qualified appraiser who signs the appraisal, including the appraiser's background, experience, education, and membership, if any, in professional appraisal associations,” 26 C.F.R. § 1.170A-13(c)(3)(ii)(F), as well as “[a] statement that the appraisal was prepared for income tax purposes,” 26 C.F.R. § 1.170A-13(c)(3)(ii)(G). These and other components constitute the qualified appraisal, which “must be received by the donor before the due date (including extensions) of the return on which a deduction is first claimed ... under section 170 with respect to the donated property ....” 26 C.F.R. § 1.170A-13(c)(3)(iv)(B). Defendant points out that the appraisal submitted by Plaintiffs does not contain the expected date of contribution, the terms of the agreement between Plaintiffs and the city, the qualification of Plaintiffs' appraiser (including Ann Ciardelli's background, experience, education, and any membership in professional appraisal associations), and the required statement that the appraisal was prepared for income tax purposes. Defendant's evaluation of the appraisal's deficiencies is accurate. See Doc. # 23-4. In fact, in addition to failing to contain any of the identified, specifically required information, one provision of the appraisal arguably disavows by omission that the appraisal was prepared for income tax purposes. The appraisal indicates its “purpose and scope” by providing that “[t]he intended use of this appraisal is to assist the owner in estimating the fair market value of the subject property.” (Doc. # 23-4, at 3.) Moreover, the argument that the inclusion of Ciardelli's license number on the appraisal implicitly represents her qualifications is simply without merit. See Bruzewicz v. United States, 604 F. Supp. 2d 1197, 1205 [103 AFTR 2d 2009-1428] (N.D. Ill. 2009). The end result of the foregoing omissions is that Ciardelli's appraisal fails to meet the regulations incorporated into the statutory scheme, which means that by both the regulation and statutory definitions, the appraisal fails to constitute a “qualified appraisal.” This, in turn, means that Plaintiffs failed to satisfy the 26 U.S.C. § 170(f)(11)(C) requirements of obtaining a qualified appraisal of their property and attaching to the 2004 return requisite information required by the Secretary. Such deficiencies result in violation of 26 U.S.C. § 170(f)(11)(A)(i), which, as noted, provides that “no deduction shall be allowed under subsection (a) for any contribution of property for which a deduction of more than $500 is claimed unless such person meets the requirements of subparagraphs (B), (C), and (D), as the case may be, with respect to such contribution.” The ends result is that Plaintiffs are not entitled to the claimed deduction. Plaintiffs contest this result, although they concede that their appraisal lacks several areas of content. They argue that they substantially complied with the regulations and statutory scheme, however, and point to components of the appraisal that did include required information. Defendant counters that it does not appear that the Sixth Circuit has recognized the substantial compliance doctrine in regard to taxpayer deductions and that, even if this Court were to assume that the doctrine could apply here, Plaintiffs have failed to demonstrate substantial compliance. This Court agrees that the substantial compliance doctrine cannot salvage Plaintiffs' case. Contemplated application of the doctrine in this Circuit to Internal Revenue Code provisions has previously arisen in the context of statutory language that specifically provides for substantial compliance. See, e.g., Grable & Sons Metal Products, Inc. v. Darure Engineering & Mfg., 377 F.3d 592, 596 [94 AFTR 2d 2004-5268] (6th Cir. 2004) (addressing a possible narrow application of the doctrine in light of 26 U.S.C. § 6339(b)(2)'s language permitting proceedings “substantially in accordance with the provisions of law”). Although the Court is reluctant to read much if anything into such limited consideration of the doctrine by the court of appeals, the Court does note that the statute and regulations involved in the instant case do not similarly provide for substantial compliance. Assuming arguendo that the doctrine indeedcould apply in such taxpayer actions, the Court finds that the appraisal at issue wholly lacks even a modicum of content in critical areas to say that it substantially complies with numerous statutory and regulation mandates. The substantial compliance doctrine is not a substitute for missing entire categories of content; rather, it is at most a means of accepting a nearly complete effort that has simply fallen short in regard to minor procedural errors or relatively unimportant clerical oversights. The required content Plaintiffs neglected does not constitute such instances of technicalities. Much of the content provides necessary context permitting the Internal Revenue Service to evaluate a claimed deduction. Without, for example, the appraiser's education and background information, it would be difficult if not impossible to gauge the reliability of an appraisal that forms the foundation of a deduction. The simple inclusion of an appraiser's license number does not suffice given that there are distinctions between appraisers that the required information targets. Another district court judge aptly summarized why the inclusion of only an appraiser's license number hardly constitutes substantial compliance: [The] contention that the license numbers of [the appraisers] suffice to establish that they were experienced and qualified appraisers misses the mark. If an appraiser's license number alone were adequate evidence of his or her qualifications, the Treasury Department's regulations would not specify, in addition to the license numbers (required by Reg. § 1.170A-B(c)(3)(ii)(E)), the need for qualitative information about the appraiser's background (separately specified in Reg. § 1.170A-13(c)(3)(ii)(F)). That qualitative requirement is hardly surprising, for it provides the IRS with some basis on which to determine whether the valuation in an appraisal report is competent and credible evidence to support what in some cases may be a very large tax saving. Bruzewicz, 604 F. Supp. 2d at 1205. An absolute dearth of information concerning substantive content is not coming “close enough” to warrant invocation of the equitable doctrine. Nor does Plaintiffs' notably belated submission as part of this litigation of Ciardelli's qualifications serve to repair her earlier appraisal. Ciardelli may well be qualified now—the document attached to Plaintiffs' memorandum in opposition includes education obtained well after 2004—and she may have been qualified in 2004. (Doc. # 27-1.) But the submitted document does not speak to the issues involved in this litigation (or, as Defendant correctly summarizes, it “does not satisfy the requirements of the statute, its regulations, or its purpose”). (Doc. # 28, at 3.) The issues are what Plaintiffs were required to do and submit as part of the deduction process and what theyactually did, not what they could have done or what wishfully reparative steps they have taken years after the fact. Plaintiffs' wholesale noncompliance in regard to select categories of mandated information thus does not evince procedural missteps. Their failure to obtain an appraisal containing required content not only goes to the substantive essence of the deduction statute involved, but in fact defeats the essential or fundamental purpose of that statute–a shortcoming that necessarily defeats Plaintiffs' successful reliance on the substantial compliance doctrine. Cf. F.E. Schumacher Co., Inc. v. United States, 308 F. Supp. 2d 819, 832 [93 AFTR 2d 2004-829] (N.D. Ohio 2004) (declining to apply substantial compliance doctrine in tax case where the plaintiff failed to comply with the substantive purpose of the Internal Revenue Code statute involved). Nowhere is it more apparent that Plaintiffs' actions negate the equitable safe haven they pursue than in recognizing that the purpose of the qualified appraisal is to present an understandable rationale for the claimed deduction, and the deduction of $287,400.00 claimed here hardly matches the $520,000.00 appraisal offered. One might reasonably be able to speculate why such a difference might exist. Plaintiffs explain that they subtracted the value of the land, which is a likely explanation even if the auditor website upon which Plaintiffs rely values the house at much less than $287,400.00. But speculation aside, the purpose of the qualified appraisal is to “show the work” so as to obviate the injection of unfounded guessing into the tax scheme. The facts sub judice are therefore closer to the Tax Court case of Friedman v. Commissioner, T.C. Memo 2010-45 [TC Memo 2010-45] (Mar. 11, 2010), than to that court's case ofBond v. Commissioner , 100 T.C. 32 (1993). Even assuming its potential application here as opposed to requiring strict compliance, the substantial compliance doctrine cannot equitably apply. Plaintiffs' appraisal is insufficient and precludes their claimed deduction. Additionally, even if this first ground did not resolve the litigation, the Court concludes that Defendant is still entitled to summary judgment under its second rationale: that Plaintiffs failed to file a contemporaneous acknowledgment as required by 26 U.S.C. § 170. That statute provides that “[n]o deduction shall be allowed under subsection (a) for any contribution of $250 or more unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgment of the contribution by the donee organization that meets the requirements of subparagraph (B).” 26 U.S.C. § 170(f)(8)(A). The referenced subparagraph (B) in turn requires that the acknowledgment include: ((i)) The amount of cash and a description (but not value) of any property other than cash contributed. ((ii)) Whether the donee organization provided any goods or services in consideration, in whole or in part, for any property described in clause (i). ((iii)) A description and good faith estimate of the value of any goods or services referred to in clause (ii) or, if such goods or services consist solely of intangible religious benefits, a statement to that effect. 26 U.S.C. § 170(f)(8)(B)(i)–(iii). Additionally, the statutory scheme explains that “an acknowledgment shall be considered to be contemporaneous if the taxpayer obtains the acknowledgment on or before the earlier of ... the date on which the taxpayer files a return for the taxable year in which the contribution was made, or ... the due date (including extensions) for filing such return.” 26 U.S.C. § 170(f)(8)(C)(i)–(ii). Plaintiffs argue that they met this requirement of a quid pro quo disclosure because there was no such exchange, while Defendant again asserts dispositive deficiencies in Plaintiffs' conduct. Defendant directs this Court to various depositions on the contemporaneous written acknowledgment issue, and Plaintiffs' depositions indeed support that they may not have been aware of this requirement despite employing Deloitte & Touche. What matters is not whether Plaintiffs understood the label assigned to the requirement, however, but whether they met the requirement. And it does not matter whether Plaintiff actually did receive any goods or services. What matters is whether, as required, they disclosed whether the city provided any goods or services in consideration. Here, again, Bruzewicz v. United States, 604 F. Supp. 2d 1197 [103 AFTR 2d 2009-1428], proves instructive. In that case, as here, the taxpayers failed to receive a contemporaneous written acknowledgment that stated whether they had received any goods or services, in whole or in part, for their contribution and, if so, that also provided a good faith estimate of the value of these goods or services. The Bruzewicz district court judge explained: Is the requirement of a written acknowledgment “either an unimportant requirement or one unclearly or confusingly stated in the regulations or the statute,” so that the [taxpayers”] purported compliance can even be considered “substantial,” let alone strict? Simply to state that question compels a “no” answer. First, the statute is neither unclear nor confusing about the need for a written acknowledgment. It explicitly defines the situations in which a contemporaneous written acknowledgment is required (for any contribution of $250 or more), and it spells out chapter and verse as to what must be included in the acknowledgment and as to when the acknowledgment must be received ( Section 170(f)(8)(A)–(C)). Nor can it be said that the statutory requirement is “unimportant.” To begin with, its very inclusion in the Code provision itself, rather than in accompanying regulations promulgated by the Treasury Department, signals a negative answer to that inquiry. And that result is underscored by the nature of the statutorily stated consequence: “No deduction shall be allowed ... unless the taxpayer substantiates the contribution” by the specified contemporaneous written acknowledgment by the donee organization. Lacking that, the IRS is faced with the absence of even a prima facie showing of the existence of a substantial charitable contribution. Even though our tax system is basically one of self-reporting, the statutory establishment of a watershed–$250–beyond which validation is required in addition to a taxpayer's self-declaration cannot be said to be unimportant. Id. at 1204–05. Similarly, because none of the documents produced in this case, including the June 29, 2004 contract between Plaintiffs and the city, satisfies 26 U.S.C. § 170(f)(8)(B), Plaintiffs in turn have failed to avoid the 26 U.S.C. § 170(f)(8)(A) bar on their claimed deduction. Either of the foregoing grounds ends this litigation. Thus, as noted, the Court declines to reach the remaining moot issues involved in the parties' dispute. The consequent result of the foregoing analysis is that, regardless of whether taxpayers may be able to claim a deduction for the type of donation involved in this case–a question this Court need not ultimately answer today—the deficient manner in which Plaintiffs pursued such a donation here proves dispositive. Defendant is therefore entitled to summary judgment, while Plaintiffs are not. III. Conclusion This Court DENIES Plaintiffs' motion for summary judgment (Doc. # 22), GRANTS Defendant's motion for summary judgment (Doc. # 23), and DENIES AS MOOT the joint motion to amend (Doc. # 31). The Clerk shall enter judgment accordingly and terminate this case upon the docket records of the United States District Court for the Southern District of Ohio, Eastern Division, at Columbus. IT IS SO ORDERED. GREGORY L. FROST UNITED STATES DISTRICT JUDGE © 2010 Thomson Reuters/RIA. All rights reserved

EMPLOYEE VS. SUBCONTRACTOR RULES - RECENT CASE Daniel Feaster v. Commissioner, TC Memo 2010-157 , Code Sec(s) 3121. ________________________________________ DANIEL FEASTER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent . Case Information: Code Sec(s): 3121 Docket: Docket No. 2296-09. Date Issued: 07/22/2010 Judge: Opinion by COHEN Accountant was employee, not independent contractor Feaster, TC Memo 2010-157 The Tax Court has determined that an accountant was an employee, not an independent contractor. As a result, he could not deduct business expenses on Schedule C. Background. An individual performing services as an employee may deduct expenses incurred in the performance of services as an employee as miscellaneous itemized deductions on Schedule A, Itemized Deductions, to the extent the expenses exceed 2% of the taxpayer's adjusted gross income. ( Code Sec. 62(a)(2) , Code Sec. 63(a) , Code Sec. 63(d) , Code Sec. 67(a) , and Code Sec. 67(b) ) Itemized deductions may result in alternative minimum tax because miscellaneous itemized deductions aren't taken into account in computing alternative minimum taxable income under Code Sec. 56(b)(1)(A)(i) . On the other hand, an individual who performs services as an independent contractor is entitled to deduct expenses incurred in the performance of services on Schedule C and is not subject to limitations imposed on miscellaneous itemized deductions. Income and deductions attributable to the trade or business are shown on a Schedule C, and the resultant net profit or loss is taken into account in computing adjusted gross income. ( Code Sec. 62(a)(1) ) Under the common law rules (so-called because they originate from court cases rather than from the Code), an individual generally is an employee if the enterprise he works for has the right to control and direct him regarding the job he is to do and how he is to do it. In general, the factors used to determine if an individual is a common law employee are: (1) The degree of control exercised by the principal; (2) which party invests in work facilities used by the individual; (3) the opportunity of the individual for profit or loss; (4) whether the principal can discharge the individual; (5) whether the work is part of the principal's regular business; (6) the permanency of the relationship; (7) the relationship the parties believed they were creating; and (8) the provision of employee benefits. Facts. From 2002 to 2009, Daniel Feaster was an accountant performing field auditing services for Wm. Langer & Associates, Inc., of the Carolinas (Langer), a company engaged in the business of insurance premium audits and inspections. On Dec. 18, 2002, he provided to Langer a completed Form W-4, Employee's Withholding Allowance Certificate. On Dec. 20, 2002, he signed an acknowledgment statement that was part of a Langer employee job description. The signed statement indicated that Feaster had read the employee job description and understood the company's expectations in regard to the job. During 2006, Langer paid Feaster $29,615 in wages and withheld $1,915 for Federal income tax, $1,836.13 for Social Security tax, and $429.42 for Medicare tax. Langer reimbursed Feaster $6,764 for expenses. On his 2006 Form 1040, Feaster reported $30,155 of gross receipts and $19,739.01 of net profits on Schedule C, Profit or Loss From Business. The gross receipts included the wages received from Langer. Feaster deducted car and truck expenses, office expenses, travel and meals expenses, and expenses for business use of his home in arriving at net profit. He reported $76.30 in self-employment tax and attached an explanatory statement that only part of his self-employment income was subject to self-employment tax because one of his clients “deducted fully-matched social security and Medicare tax, from the payments for my services” as shown on the W-2 attached to his return. IRS determined a deficiency of $1,387 in Feaster's 2006 income tax on the ground that he was an employee. IRS said that he had to include the income as wages and claim any allowable related expenses on Form 2106, Employee Business Expenses, as an itemized deduction on Schedule A. Accountant was an employee. Before the Tax Court, Feaster argued that in 2006 he was entitled to deduct business expenses on Schedule C because he was an independent contractor. IRS contended that Feaster was a common law employee in 2006. Applying the common law rules, the Tax Court sided with IRS. The Court noted that Feaster signed his job description, acknowledging his agreement to follow guidelines established by Langer with respect to time limits for cases to be completed, frequency of submissions of completed work to the office, quality of work, charges to the customer, communication with Langer, status or progress reports, submission of itineraries, and closing cases. Feaster testified that he was not very good about complying with his obligations under the agreement to communicate with Langer. Nonetheless, the Tax Court concluded that Langer exercised, or had the right to exercise, control over Feaster in the performance of his services for it. Feaster testified that he had to provide his own Internet service and that he worked out of his home, incurring office expenses. He acknowledged that he was offered hotel, meal, and vehicle mileage reimbursement and that he was reimbursed for some trip expenses during 2006. He was paid on an hourly basis, and his pay was subject to increase or decrease depending on Langer's assessment of his performance. The Court said that there was nothing to indicate that he had an opportunity for profit or risk of loss from his activities. On balance, none of these factors supported a conclusion that Feaster was an independent contractor. The Court also stressed that Langer considered Feaster a common law employee, as evidenced by the job description that he signed and the tax reporting by Langer. Based on that evidence and the other factors present in the case, the Court concluded that Feaster was an employee. EXP ¶34,014.37 Employee and employment relationship in general. Withholding may be required by an employer as to wages paid to an employee. The term wages for withholding purposes is explained at ¶34,014.01 et seq. and categories of wages excluded from withholding requirements are covered at ¶34,014.13 et seq. ¶34,014.16 et seq. The question of whether payments for services are made to an employee in the scope of an employment relationship is dealt with in the paragraphs that follow, categorized by type of services involved. The term “employee” in general covers a person who performs services within the scope of a common-law employee. Reg §31.3401(c)-1 . It normally doesn't include persons who offer services as part of their own business, independent contractors (see below), or professional persons who offer services to the public. The most important factor that indicates an employment relationship is the right of the employer to control or supervise the employee's manner of performing the job, rather than to merely require a particular result or work product. Also see Federal Payroll Comparison chart at ¶35,014.07 . Employers in doubt as to whether a particular class of workers are employees can get a ruling by filing Form SS-8 . Federal judges are treated as employees for purposes of income taxes. Sec. 10103, PL 100-203, 12/22/87 reproduced in Footnote to Code Sec. 219 . Employee or independent contractor? The answer makes a lot of difference tax wise. Here is why: If a worker is an “employee,” the employer has to withhold taxes on the wages, and there is liability for Social Security and Federal Unemployment taxes placed on both the employer and employee. But an independent contractor has to pick up the self-employment tax tab on his or her own—and it's a healthy bite (almost twice the amount that would have been withheld if he were an employee). See ¶14,014 . The following is a list of discussions regarding this issue: • Directors, partners, and corporate officers. ¶34,014.39 . • Managerial and supervisory personnel. ¶34,014.40 . • Clerical and office workers. ¶34,014.41 . • Workers in industry, construction, and other fields. ¶34,014.42 . • Janitorial and security work. ¶34,014.43 . • Sales reps, distributors, and vendors. ¶34,014.44 . • Drivers, pilots, and trucking personnel. ¶34,014.45 . • Barbers and beauticians. ¶34,014.46 . • Attorneys and other legal services. ¶34,014.47 . • Medical and scientific services. ¶34,014.48 . • Architects and designers. ¶34,014.49 . • Accountants and bookkeepers. ¶34,014.50 . • Entertainers, artists, and writers. ¶34,014.51 . • Athletes and athletic officials. ¶34,014.52 . • Fiduciaries. ¶34,014.53 . • Teachers and students. ¶34,014.54 . • Domestics and baby sitters. ¶34,014.55 . • Individuals involved in the farming, fishing, and logging industries. ¶34,014.56 . • Services performed for unions. ¶34,014.57 . • Governmental services. ¶34,014.58 . For classification of workers as independent contractors under Section 530 of the Revenue Act of 1978, see ¶34,014.375 . Realtors and direct sellers. The law classifies licensed real estate agents and individuals who are direct sellers as self-employed independent contractors for federal income and employment tax purposes. But, two conditions are attached. First, substantially all of their income for services as real estate agents or direct sellers must be directly related to sales or other output. Second, their services are performed under a written contract that provides they will not be treated as employees for federal tax purposes. ¶35,084 . For information reporting requirements on payments to independent contractors and direct sellers, see ¶60,41A4 . Moratorium on certain IRS reclassifications. As in the past, the employee v. independent contractors battle will generally be waged on a case-by-case basis. However, a moratorium on IRS reclassifications of individuals as employees has been extended indefinitely until Congress passes appropriate legislation. Except with respect to certain technical services workers (as explained below), Treasury and IRS are prohibited from issuing regulations or rulings with respect to the employment status of any individual for purposes of the employment taxes (i.e., income tax withholding, social security taxes, and federal unemployment taxes), until Congress enacts legislation on the classification of workers as independent contractors or employees. Sec. 530(b), PL 95-600, 11/6/78 reproduced in full at ¶34,015.38(5) . See Committee Report at ¶35,081.10 . Instructions for implementing Act Sec. 530 are in Rev. Proc. 85-18, 1985-1 CB 518 . No moratorium for certain technical service personnel. The moratorium on regulations and rulings described above does not apply with respect to individuals retained by any taxpayer to provide for other persons services as engineers, designers, drafters, computer programmers, systems analysts, and other similarly skilled personnel. Sec. 530(d), PL 95-600, 11/6/78 as added by Act Sec. 1706, PL 99-514, 10/22/86 . Act Sec. 530(d) is reproduced in full at ¶34,015.38(5) . Factors for determining employee status. Under Reg §31.3401(c)-1 , a person is an employee if the person for whom services are performed has “the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work, but also as to the details and means by which the result is accomplished.” Rev. Rul. 87-41, 1987-1 CB 296 , describes 20 factors that are used in determining whether an individual is an employee under the common-law standards and how they apply to technical service specialists in three factual situations. Computation of employer liability for mistakes. Suppose an employer makes a mistake. Say a worker has been treated as an independent contractor, and is then reclassified as an employee. Under prior law, there were problem situations. The law now provides a special formula to compute the employer's liability. ¶35,094 . COMMON LAW RULES to determine whether the taxpayer is an employee. Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 323-325 (1992); Weber v. Commissioner, 103 T.C. 378, 386 (1994), affd. 60 F.3d 1104 [76 AFTR 2d 95-5782] (4th Cir. 1995). Whether an individual is an employee must be determined on the basis of the specific facts and circumstances involved. Weber v. Commissioner, 60 F.3d at 1110; Profl. & Exec. Leasing, Inc. v. Commissioner, 89 T.C. 225, 232 (1987), affd. 862 F.2d 751 [63 AFTR 2d 89-427] (9th Cir. 1988); Simpson v. Commissioner, 64 T.C. 974, 984 (1975). Relevant factors include: (1) The degree of control exercised by the principal; (2) which party invests in the work facilities used by the worker; (3) the opportunity of the individual for profit or loss; (4) whether the principal can discharge the individual; (5) whether the work is part of the principal's regular business; (6) the permanency of the relationship; (7) the relationship the parties believed they were creating; and (8) the provision of employee benefits. See Weber v. Commissioner, 60 F.3d at 1110, 1114; Ewens & Miller, Inc. v. Commissioner, 117 T.C. 263, 270 (2001). We consider all of the facts and circumstances of each case, and no single factor is determinative. Weber v. Commissioner, 60 F.3d at 1110; Ewens & Miller, Inc. v. Commissioner, supra at 270. Although not the exclusive inquiry, the degree of control exercised by the principal over the worker is the crucial test in determining the nature of a working relationship. See Clackamas Gastroenterology Associates, P.C. v. Wells, 538 U.S. 440, 448 (2003); Leavell v. Commissioner, 104 T.C. 140, 149-150 (1995). To retain the requisite degree of control over a worker, the principal need not direct the worker's every move; it is sufficient if the right to do so exists. Weber v. Commissioner, 60 F.3d at 1110; see sec. 31.3401(c)-1(b), Employment Tax Regs. The fact that a worker provides his or her own tools, or owns a vehicle that is used for work, is indicative of independent contractor status. Ewens & Miller, Inc. v. Commissioner, supra at 271 (citing Breaux & Daigle, Inc. v. United States, 900 F.2d 49, 53 [65 AFTR 2d 90-1133] (5th Cir. 1990)). Additionally, maintenance of a home office is consistent with independent contractor status, although alone it does not constitute sufficient basis for a finding of independent contractor status. See Colvin v. Commissioner, T.C. Memo. 2007-157 [TC Memo 2007-157], affd. 285 Fed. Appx. 157 [102 AFTR 2d 2008-5301] (5th Cir. 2008). Benefits such as health insurance, life insurance, and retirement plans are typically provided to employees. Weber v. Commissioner, 103 T.C. at 393-394. The availability of the benefits suggests employee status.