Opinion
EV 99-0147-C-Y/H
February 12, 2002
ENTRY ON UNITED STATES'S MOTION FOR PARTIAL SUMMARY JUDGMENT and DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
I. Introduction
The United States of America ("United States") filed this action against James I. Hall ("Hall"), seeking the unpaid balances of federal income tax assessments against him for the years 1981 through 1985, plus interest and any statutory additions. By motion, the United States seeks determination as a matter of law that Hall is liable for the unpaid balances for the years 1981 through 1984. In addition to filing his response to the United States's motion, Hall filed his own motion for summary judgment ("cross-motion for summary judgment"), arguing that the United States is statutorily barred from filing its Complaint against him and that the United States fails to state a claim. After reviewing the motions, the parties' arguments, and the facts and law of this matter, the court finds that Hall's cross-motion for summary judgment shall be denied and the United States's motion for partial summary judgment shall be granted.
The United States does not seek judgment at this time for the year 1985 because it is still gathering evidence to support its claim for that year.
II. Jurisdiction
This court exercises jurisdiction over this matter pursuant to 28 U.S.C. § 1340 and 1345 and 26 U.S.C. § 7402.
III. Undisputed Material Facts
1. The United States filed the instant Complaint against Hall on September 24, 1999. (Plaintiff's Fact No. 1).
2. The calendar year 1981 was assessed on December 13, 1988. (Plaintiff's Fact No. 2).
3. The calendar year 1982 was assessed on December 13, 1988. (Plaintiff's Fact No. 3).
4. The calendar year 1983 was assessed on December 13, 1988. (Plaintiff's Fact No. 4).
5. The calendar year 1984 was assessed on June 26, 1989. (Plaintiff's Fact No. 5).
6. Delegates of the Secretary of the Treasury made assessments of income tax against Hall as demonstrated by the following chart.
Assessment Date Tax Year Amount December 13, 1988 1981 $ 7,732.14 December 13, 1988 1982 $ 6,902.00 December 13, 1988 1983 $ 8,257.99 June 26, 1989 1984 $ 5,428.00
(United States Fact No. 2).
7. The assessments against Hall were based on amounts of income that the Internal Revenue Service ("IRS") determined that he received during the years at issue. Hall received income from various employers, from the Indiana Department of Employment Security, and as interest income from Tell City National Bank.
8. At the time the assessments were made, the IRS had information indicating that Hall had an adjusted gross income of at least $33,370.85 for the year 1981, $31,335.18 for the year 1982, $38,591.84 for the year 1983, and $23,834.20 for the year 1984. (United States Fact No. 2) (citing United States Ex. 1, Declaration of Douglas W. Snoeyenbos, at 9).
9. Interest pursuant to 26 U.S.C. § 6601, and other statutory additions, have accrued on the unpaid balance assessment of income tax, so that as of March 15, 2001, Hall owed the sum of $113,022.11 with respect to them. (United States Fact No. 4) (citing Declaration of Cindy A. Ragains, at ¶ 3).
10. On February 5, 1993, Hall filed a Chapter 7 bankruptcy proceeding with the United States Bankruptcy Court for this district, which was assigned cause number 93-70115-BHL-7. (United States Additional Fact No. 1).
11. On May 20, 1993, the United States Bankruptcy Court entered an order of discharge in Hall's bankruptcy case. (United States Additional Fact No. 2).
IV. Discussion
A. Summary Judgment Standard
Pursuant to Trial Rule 56(c), a party is entitled to summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. Civ. P. 56(c). The record and all reasonable inferences therefrom must be viewed in the light most favorable to the nonmoving party. National Soffit Escutcheons, Inc. v. Superior Sys. Inc., 98 F.3d 262, 264 (7th Cir. 1996).
The moving party bears the burden of demonstrating the absence of a triable issue. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The burden may be met by demonstrating "that there is an absence of evidence to support the non-moving party's case." Id. at 325. If the moving party meets its burden, the adverse party "may not rest upon the mere allegations or denials of the adverse party's pleading," but must present specific facts to show that there is a genuine issue of material fact. FED. R. Civ P. 56(e); see also National Soffit, 98 F.3d at 265 (citing Hughes v. Joliet Correctional Ctr., 931 F.2d 425, 428 (7th Cir. 1991)).
Although the United States filed its motion for summary judgment prior to Hall filing his cross-motion for summary judgment, the court will examine Hall's cross-motion for summary judgment first.
B. Hall's Cross-Motion for Summary Judgment
Hall moves for summary judgment on two bases: (1) that the United States is statutorily barred from seeking judgment for an assessment for calendar years 1981, 1982, 1983, and 1984 because the time period set forth by 26 U.S.C. § 6502(a) lapsed and (2) the Complaint fails to state a claim as it fails to allege what statute makes Hall liable for payment of the assessment. The court notes that Hall did not file a reply brief to the United States's response to Hall's cross-motion for summary judgment.
1. Statuary Period of 26 U.S.C. § 6502(a)
The Internal Revenue Code ("IRC") provides that collection of a tax by levy or proceeding in court must commence within ten years after the assessment of the tax. 26 U.S.C. § 6502(a). This period of limitations, however, may be suspended "for the period the assets of the taxpayer are in control or custody of the court in any proceeding before any court of the United States . . . and for 6 months thereafter." 26 U.S.C. § 6503(b).
The court has taken judicial notice of the fact that Hall filed a Chapter 7 bankruptcy proceeding in this district on February 5, 1993. The proceeding was closed, and Hall's debts discharged, on March 20, 1993. Therefore, pursuant to section 6503(b) of the Internal Revenue Code, the statute of limitations was suspended from the date of the filing, February 5, 1993, to six months after the May 20, 1993 discharge, or November 20, 1993. Thus, the period for filing an action against Hall was suspended 288 days, and this 288 day period must be added to the ten-year limitation set forth in section 6502(a).
In this matter, the federal assessments against Hall were made on December 13, 1988, and June 26, 1989. Taking the earlier assessment of December 13, 1988, and adding 288 days means that the United States had until September 27, 1999 to initiate its action against Hall. Since this matter was filed prior to that date, on September 24, 1999, the United States filed its action timely. Accordingly, Hall's cross-motion for summary judgment based upon the United States's failure to file the instant Complaint within the statutory time period is denied.
2. Failure to State a Claim
Hall also argues that the Complaint does not specify the statute that makes him liable for the payment of the assessments; specifically, Hall states that the Complaint does not allege any reason why he is a "taxpayer" under the relevant IRS provisions.
The term "taxpayer" is defined under the IRC as "person subject to any internal revenue tax." 26 U.S.C. § 7701(a)(14); see also 26 U.S.C. § 1313(b) ("Notwithstanding section 7701(a)(14), the term 'taxpayer' means any person subject to a tax under the applicable revenue law.").
Hall alleges that the two definitions set forth at 26 U.S.C. § 7701(a)(14) and 26 U.S.C. § 1313(b) negate one another, and that the IRC is "loaded with terms of art." (Defendant's Brief in Support of Motion for Summary Judgment, at 3-4). After reviewing Hall's argument, the court finds that it lacks merit and notes that courts have consistently rejected claims where a defendant asserts that he is not a taxpayer. See, e.g., United States v. Studley, 783 F.2d 934, 937 n. 3 (9th Cir. 1986) ("We note that this argument [argument that defendant is an individual but not a taxpayer] has been consistently and thoroughly rejected by every branch of the government for decades. Indeed advancement of such utterly meritless arguments is now the basis for serious sanctions imposed on civil litigants who raise them."); Lonsdale v. United States, 919 F.2d 1440, 1448 (10th Cir. 1990) (finding that the argument that "individuals . . . are not 'persons' subject to taxation under the Internal Revenue Code" is "completely lacking in legal merit and patently frivolous."). Accordingly, Hall's cross-motion for summary judgment based upon the United States's failure to state a claim is denied.
The court notes that when citing to these cases in its brief, the United States stated that it was not seeking an award of sanctions at this time; however, it intends to seek sanctions if Hall raises the argument again in the future. (United States's Response in Opposition to Defendant's Motion for Summary Judgment, at 3).
C. United States's Motion for Partial Summary Judgment
The court now addresses the United States's motion for partial summary judgment. The United States seeks a determination as a matter of law that Hall is liable for the unpaid balance of assessments of income tax for the years 1981 through 1984, plus interest and other statutory additions; however, it does not seek judgment as a matter of law for the year 1985 at this time because it is still gathering evidence in support of its claim for that year.
In support of its motion, the United States points to the fact that assessments are deemed presumptively correct, unless arbitrary or erroneous, and that Hall will not be able to show by a preponderance of the evidence that he does not owe the assessments made against him. Hall, however, responds that the assessments should not be afforded the presumption of correctness because the United States seeks judgment on the absence of any admissible evidence, and there is no substantive evidence that the taxpayer received unreported income. (Defendant's Response, at 3-5) (citing three 9th Circuit opinions: United States v. Stonehill, 702 F.2d 1288, 1293 (9th Cir. 1983); Rapp v. C.I.R., 774 F.2d 932, 935 (9th Cir. 1985); Weimerskirch v. C.I.R., 596 F.2d 358, 360-61 (9th Cir. 1979)). In addition, Hall argues that his tax debts were discharged in his bankruptcy proceeding.
To survive summary judgment, a nonmovant must set forth "specific facts showing that there is a genuine issue for trial." FED. R. Civ. P. 56(f). The court notes that Hall failed to file a response to the United States's statement of facts nor did he file a statement of additional facts, setting forth in any genuine issues of material fact, pursuant to Local Rule 56.1. L.R. S.D. IND. 56.1(f). Thus, the United States's statement of facts is deemed admitted. See, e.g., Corder v. Lucent Techs., Inc., 162 F.3d 924, 927 (7th Cir. 1998); Flaherty v. Gas Research Inst., 31 F.3d 451, 453 (7th Cir. 1994)
1. Whether the Assessment is Afforded a Presumption of Correctness
IRS assessments are presumed to be correct and the burden then shifts to the taxpayer to show by a preponderance of the evidence that the determination is incorrect. See, e.g., Estate of Starkey v. United States, 223 F.3d 694, 698 (7th Cir. 2000) (citing United States v. Janis, 428 U.S. 433, 440 (1976)).
"In certain quite limited circumstances, however, courts recognize that an assessment should not be accorded even a rebuttable presumption of correctness. For example, when the assessment is shown to be 'without rational foundation' or 'arbitrary and erroneous,' the presumption should not be recognized . . . As long as the procedures used and the evidence relied upon by the government to determine the assessment had a rational foundation, the inquiry focuses on the merits of the tax liability, not on IRS procedures." ZuHone v. C.I.R., 883 F.2d 1317, 1325 (7th Cir. 1989) (citations omitted).
"All that is required to support the presumption [of correctness] is that the Commissioner's determination have some minimal factual predicate." Pittman v. C.I.R., 100 F.3d 1308, 1317 (7th Cir. 1996). The presumption of correctness attaches to the Commissioner's determination virtually regardless of the information, procedures or policies used because the presumption recognizes the structural inequality of information in the possession of the Commissioner relative to the taxpayer. ZuHone, 883 F.2d at 1325-26.
Contrary to Hall's assertions, the court finds that the Commissioner's assessment bears a rational foundation and is not arbitrary or erroneous. Hall's argument that the assessment is arbitrary rests on his presumption that the report prepared by IRS Special Agent Marilyn A. Evers ("Agent Evers"), which was relied upon by the Commissioner, is hearsay and, therefore, inadmissible. The court points out, however, that "[t]he Commissioner's determination may often rest upon hearsay or other inadmissible evidence, and we know of no rule of law calling for a review of the materials that were before the Commissioner in order to ascertain whether he relied upon improper evidence.'" ZuHone, 883 F.2d at 1325 (quoting Jackson, 73 T.C., at 400); see also Portillo v. C.I.R., 932 F.2d 1128, 1133 (5th Cir. 1991) ("The presumption of correctness generally prohibits a court from looking behind the Commissioner's determination even though it may be based on hearsay or other evidence inadmissible at trial.") (citations omitted); Anastasato v. C.I.R., 794 F.2d 884, 886-87 (3rd Cir. 1986) ("A court usually will not look behind the Commissioner's determination, even though it may be based on hearsay or other evidence inadmissible at trial") (citing Dellacroce v. Commissioner, 83 T.C. 269, 280 (1984)). Thus, the Commissioner's assessment is not deemed arbitrary simply because it relied on hearsay such as IRS Special Agent reports.
Contrary to Hall's arguments, this report has been properly authenticated per Rule 901 of the Federal Rules of Evidence.
In addition, Hall argues that the assessment is arbitrary because there is no substantive evidence that he received unreported income. The court disagrees with this argument. In her report, Special Agent Evers details Hall's income-generating activity for the relevant time period and demonstrates that the IRS had a factual predicate for each dollar of unreported income on which the assessments were based. Specifically, Special Agent Evers obtained Hall's payroll records from his employers for the 1981-1984 time period as well as documentation of Hall's unemployment compensation from 1982 and 1983.
Hall has failed to demonstrate that the assessment was arbitrary and excessive or without factual foundation to remove the presumption of correctness from the Commissioner's assessment. Thus, the assessment is deemed presumptively correct. The burden thus shifts to Hall to submit evidence showing that he did not have the income on which the assessments were based. Hall, however, simply argued there was no foundation for the United States's assessments and he did not submit any evidence contradicting the United States's allegation that Hall received income during the relevant time period.
2. Whether Tax Debts Were Discharged in Bankruptcy Proceeding
Hall further claims that even if he is liable for taxes during 1981 through 1984, that liability was discharged during his Chapter 7 bankruptcy proceeding.
A claim that a debt was discharged in bankruptcy is an affirmative defense that must be proven by the party asserting it. FED. R. Civ. P. 8(c). Thus, Hall bears the burden of showing his liability was discharged. Hall has not met this burden as he simply argued that the burden of proving his debts are non-dischargeable is on the United States. However, as pointed out by the United States, pursuant to the Bankruptcy Code section 523, a debtor is not discharged from a debt for a tax with respect to which a return, if required, was not filed. 11 U.S.C. § 523(a)(1)(B)(ii).
It is undisputed that Hall did not file federal income tax returns for the periods at issue, 1981 through 1984. Thus, the exception to discharge is invoked and Hall's argument that his income tax liability was discharged fails.
3. Whether Levy Proceeds Have Been Credited
Hall states that the United States has not credited any of the proceeds from a continuous levy against his Boilermaker-Blacksmith National Pension Trust. Hall indicates that he was notified by a facsimile letter from Pension Manager Mary Pierce, dated July 2, 2001, that Hall's $11,349,45 of pension payments were mailed directly to the IRS. The United States argues that the letter is inadmissible as hearsay. In addition, the United States argues that neither Hall nor the letter suggests the dates on which the pension payments were sent to the IRS and for what tax years. If the pension payments were sent to the IRS prior to March 27, 2002, the date Cindy Ragains made her computations, then the United States asserts that the payment was considered in the computations.
The court notes that this letter, which is attached to Hall's response brief, has not been authenticated. However, if it is verified that Hall's pension payments were mailed to the IRS on his behalf, then Hall should be credited the amount. Since the United States's Statement of Material Facts has been deemed undisputed and since it states that all appropriate credits have been applied, the court shall presume that Hall was properly credited.
4. Summary
Based on the reasoning set forth in Section C.1., the court determined that the assessments made against Hall are presumptively correct. Hall, however, did not present any evidence rebutting the allegation that he received income during the relevant time period. The court, therefore, finds there is no genuine issue of material fact in this matter, and grants the United States's motion for summary judgment.
V. Conclusion
For the reasons set forth above, the court finds that the United States's motion for partial summary judgment as to tax years 1981-1984 shall be granted and Hall's cross-motion for summary judgment shall be denied.
JUDGMENT
The court, having this day made its Entry, now finds no just reason for delay and certifies that a partial final judgment shall issue pursuant to Rule 54(b) of the Federal Rules of Civil Procedure.
It is now therefore adjudged and decreed that the United States of America's ("United States") motion for partial summary judgment is hereby granted. Accordingly, James I. Hall ("Hall") is liable for the unpaid federal income tax assessments against him for the years 1981 through 1984, plus interest and statutory additions. There has been no determination as to whether Hall is liable for the unpaid federal income tax assessments against him for the year 1985 as the United States indicates that it is still gathering evidence for its claim.