Opinion
Case No. 6:17-cv-02010-TMC-JDA
10-11-2018
United States, Plaintiff, v. Dennis D. Brooks, Barbara D. Brooks, Greenville County Tax Collector, Coach Hills Homeowner's Association Inc., South Carolina Department of Revenue, Defendants.
REPORT AND RECOMMENDATION OF MAGISTRATE JUDGE
This matter is before the Court on motion for summary judgment and for default judgment filed by Plaintiff in this civil action. [Doc. 111.] Pursuant to the provisions of 28 U.S.C. § 636(b)(1)(B) and Local Civil Rule 73.02(B)(2)(e), D.S.C., this magistrate judge is authorized to review all pretrial matters in cases involving litigation by individuals proceeding pro se—which Dennis D. Brooks ("Brooks") and Barbara D. Brooks (collectively, "the Brookses") are—and to submit findings and recommendations to the District Court.
Plaintiff filed this action on July 28, 2017, seeking to reduce to judgment Brooks' outstanding tax liabilities and enforce and foreclose the corresponding federal tax liens on real property located at 10 Twin Oaks Court, Greenville, South Carolina ("the Subject Property"). [Doc. 1.] The Complaint named Coach Hills Homeowner's Association, Inc. [sic] ("Coach Hills"), Greenville County Tax Collector, and South Carolina Department of Revenue ("SCDOR") as Defendants "pursuant to 26 U.S.C. § 7403(b) by virtue of liens [they might] claim against" the Subject Property. [Doc. 1 ¶ 7-9.] On October 13, 2017, with Coach Hills not having filed a pleading or otherwise participated in the case, Plaintiff filed a request for entry of default against Coach Hills [Doc. 23], and the Clerk entered default against Coach Hills the same day [Doc. 24].
The legal description of the Subject Property is as follows:
All that certain piece, parcel, or lot of land, situate, lying and being in the County of Greenville, State of South Carolina being shown and designated as Lot 110 on a plat of Coach Hills Subdivision recorded in Plat Book 4X, Page 86 and refiled in Plat Book 4X, Page 94 in the Greenville County RMC Office and having, according to said plat, the following metes and bounds, to-wit:[Doc. 111-2 at 58.]
BEGINNING at a point on the southern side of Twin Oaks Court at the joint front corner lots 109 and 110 and running thence with the side of said Twin Oaks Court N. 56-17 E. 23.29 feet to a point and N. 43-07 E. 26.56 feet to a point at the joint front corner of Lots 110 and 111; thence with the common line of said lots, S. 46-58 E. 153.26 feet to a point in the line of Lot 112; thence with the line of said lot S. 32-12 W. 112 feet to a point in the line of property now or formerly of Mary Louise Tierney; thence with the line of said property N. 81-57 W. 100.18 feet to a point at the joint rear corner of Lots 109 and 110; thence with the common line of said lots, N. 3-23 E. 153.29 feet to the point of beginning and being the same property conveyed to the grantor herein by deed of Mary Elizabeth Briggs dated and recorded December 15, 1978 in the RMC Office for Greenville County in Deed Book 1093, Page 830.
Barbara Brooks was named as a Defendant "because she may claim an interest in" the Subject Property. [Doc. 1 ¶ 6.]
On August 16, 2018, Plaintiff filed a motion for summary judgment against Brooks and for default judgment as to Coach Hills. [Doc. 111.] The following day, the Court issued an Order in accordance with Roseboro v. Garrison, 528 F.2d 309 (4th Cir. 1975), advising Brooks of the summary judgment/dismissal procedure and of the possible consequences if he failed to adequately respond to the motion. [Doc. 112.] Brooks did not respond to the motion, nor did Coach Hills, and the motion is now ripe for review.
BACKGROUND
Summary Judgment against Brooks
Because Brooks did not respond to Plaintiff's summary judgment motion, the following facts are uncontroverted.
Brooks failed to file tax returns for the years 2000, 2005, 2006, 2007, and 2011. [Doc. 111-2 at 3 ¶ 3.] As a result, the Internal Revenue Service determined the income tax Brooks owed for those years and sent deficiency notices to his last known address. [Id.] See 26 U.S.C. § 6212. Brooks did not petition the United States Tax Court to challenge those deficiency determinations within the time period allowed for such challenges. [Doc. 1 at ¶ 11.] See 26 U.S.C. § 6213.
As of August 6, 2018, Brooks owed the United States $622,849.14 on the assessments, penalties, and interest. [Doc. 111-2 at 52.] In light of Brooks' failure to satisfy the assessments after notice and demand for payment, federal tax liens arose on the dates of the assessment and attached to all of Brooks' property and rights to property, including the Subject Property. See 26 U.S.C. §§ 6321, 6322; United States v. Carter, No. 3:16-cv-674, 2018 WL 4356773, at *11 (E.D. Va. Sept. 12, 2018). The Brookses acquired title to the Subject Property by a deed dated December 17, 1979, and the deed was recorded on January 24, 1980, in the public records of Greenville County, South Carolina. [Doc. 111-2 at 58.] On the following dates, a delegate of the United States Secretary of the Treasury caused notices of federal tax lien to be recorded in the public records of Greenville County, South Carolina: July 20, 2010 for assessments relating to tax years 2000, 2005, and 2006; September 29, 2015 for assessments relating to tax years 2007 and 2011; and December 7, 2016 for another assessment relating to tax year 2006. [Doc. 111-2 at 54-56.]
Plaintiff and the SCDOR have stipulated regarding the priority of their respective tax liens. [Doc. 52 ¶ 6.] They, along with Greenville County, agree that Plaintiff's liens with assessment date July 30, 2007 for the year 2000 tax period and with assessment date May 11, 2009 for the year 2005 and 2006 tax periods occupy first position; followed by an SCDOR lien from November 25, 2009 assessments for the tax years 2005 and 2006; then followed by Plaintiff's liens from assessment date April 26, 2010 for tax year 2007 and assessment date December 29, 2014 for tax year 2011. [Id.]
Default Judgment against Coach Hills
Coach Hills was served with the summons and complaint in this action by delivery to its registered agent for service of process on August 16, 2017. [Doc. 8-1 at 2.] Coach Hills was required to answer or otherwise respond on or before September 6, 2017. [Doc. Id. at 1.] However, it has not filed a responsive pleading or otherwise appeared in this case, and the Clerk has entered its default. [Doc. 24.]
APPLICABLE LAW
Summary Judgment Standard
Rule 56 of the Federal Rules of Civil Procedure states, as to a party who has moved for summary judgment:
The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.Fed. R. Civ. P. 56(a). A fact is "material" if proof of its existence or non-existence would affect disposition of the case under applicable law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue of material fact is "genuine" if the evidence offered is such that a reasonable jury might return a verdict for the non-movant. Id. at 257. When determining whether a genuine issue has been raised, the court must construe all inferences and ambiguities against the movant and in favor of the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).
The party seeking summary judgment shoulders the initial burden of demonstrating to the court that there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant has made this threshold demonstration, the non-moving party, to survive the motion for summary judgment, may not rest on the allegations averred in his pleadings. Id. at 324. Rather, the non-moving party must demonstrate specific, material facts exist that give rise to a genuine issue. Id. Under this standard, the existence of a mere scintilla of evidence in support of the non-movant's position is insufficient to withstand the summary judgment motion. Anderson, 477 U.S. at 252. Likewise, conclusory allegations or denials, without more, are insufficient to preclude granting the summary judgment motion. Ross v. Commc'ns Satellite Corp., 759 F.2d 355, 365 (4th Cir. 1985), overruled on other grounds, 490 U.S. 228 (1989). "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted." Anderson, 477 U.S. at 248. Further, Rule 56 provides in pertinent part:
A party asserting that a fact cannot be or is genuinely disputed must support the assertion by:
(A) citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only),
Fed. R. Civ. P. 56(c)(1). Accordingly, when Rule 56(c) has shifted the burden of proof to the non-movant, he must produce existence of a factual dispute on every element essential to his action that he bears the burden of adducing at a trial on the merits.admissions, interrogatory answers, or other materials; or
(B) showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.
DISCUSSION
Summary Judgment against Brooks
Even when a summary judgment motion is unopposed, a district court must review the motion "and determine from what it has before it whether the moving party is entitled to summary judgment as a matter of law." Maryland v. Univ. Elections, Inc., 729 F.3d 370, 380 (4th Cir. 2013) (internal quotation marks omitted).
The Court has jurisdiction to enforce a lien and subject property to payment of tax where, as here, the United States has brought suit at the request of the Secretary of the Treasury to enforce a tax liability. See 26 U.S.C. § 7403(a). This Court is authorized to resolve all claims upon or liens to subject property, to order the property's sale if appropriate, and to determine how the sale proceeds will be distributed. 26 U.S.C. § 7403(c).
An assessment by the IRS of federal tax liability is presumed valid. Balkissoon v. Comm'r, 995 F.2d 525, 529 (4th Cir. 1993). A "Certificate of Assessments and Payments" is "presumptive proof of a valid assessment." United States v. Dixon, 672 F. Supp. 503, 506 (M.D. Ala. 1987) (cited with approval in Audio Invs. v. Robertson, 203 F. Supp. 2d 555, 561 (D.S.C. 2002)). Thus, "[a] district court may properly rely on [such] forms to conclude that valid assessments were made unless a taxpayer presents evidence to the contrary." United States v. Taylor, No. 6:99-9247-24, 2000 WL 1683007, at *4 (D.S.C. Sept. 27, 2000). In this case, the United States has provided such forms demonstrating that the assessments were made and that they remain unpaid. [Doc. 111-2 at 9-50.]
The Brookses assert in their Answer that the assessments against him in this case are incorrect. For example, their Answer states that "the [assessed] amounts . . . are erroneous as they did not take into account the cost basis for the years mentioned." [Doc. 14 ¶ 12.] Brooks explained in his deposition that the assessments are based on erroneous computations of capital gains from stock and/or mutual fund sales to which the IRS attributed a zero basis. [Doc. 111-3 at 6.]
The Internal Revenue Code provides that gain from the sale of property is the amount realized from the sale less the property's adjusted basis, as defined in section 1011. 26 U.S.C. § 1011(a). Here, the basis of the stock or mutual funds on which Brooks' gain is to be computed was its cost. 26 U.S.C. §§ 1011, 1012(a); see also Brannen v. Comm'r, 722 F.2d 695, 701 (11th Cir. 1984). It is the taxpayer that bears the burden of establishing the basis for each transaction, see, e.g., Gen. Ins. Agency, Inc. v. Comm'r, 401 F.2d 324, 329 (4th Cir. 1968) (holding that the burden is on the taxpayer to substantiate deductions); O'Neill v. Comm'r, 271 F.2d 44, 50 (9th Cir. 1959) ("Proof of basis is a specific fact which the taxpayer has the burden of proving."), and when a taxpayer fails to meet this burden, it is proper to assume that the asset's basis is zero, see O'Boyle v. Comm'r, T.C.M. 2010-149, at *3 (T.C. 2010), aff'd, 464 F. App'x 4 (D.C. Cir. 2012); Karara v. Comm'r, T.C.M. 1999-253, at *3 (T.C. 1999) ("The documents submitted by petitioner in no way established the amount or amounts petitioner paid for the shares or the amounts he originally deposited for such shares."), aff'd, 214 F.3d 1358 (11th Cir. 2000).
Brooks has failed to meet that burden here because he has not forecasted any evidence that would establish his basis in the stocks that were sold. Responding to discovery requests, Brooks produced documents that included Forms 1040 along with some records that he maintains relate to various stock sales that took place during the tax years at issue in this case. However, the representations made in the Forms 1040 are out-of-court statements; thus, the forms would be inadmissible to prove the truth of those representations. Fed. R. Evid. 801, 802. Accordingly, the Forms 1040 cannot be considered for purposes of summary judgment. See Fed. R. Civ. P. 56(c)(2); see Greensboro Prof'l Fire Fighters Ass'n, Local 3157 v. City of Greensboro, 64 F.3d 962, 967 (4th Cir. 1995) ("[Hearsay] is neither admissible at trial nor supportive of an opposition to a motion for summary judgment."). And Brooks' own vague, uncorroborated, and self-serving testimony that he had some basis in the stocks is also insufficient to meet his burden of establishing his basis. See Liddy v. Comm'r, 808 F.2d 312, 315 (4th Cir. 1986) (holding that uncorroborated statements were insufficient as a matter of law to meet taxpayer's burden to rebut presumption of correctness of IRS determinations). For these reasons, the Court should conclude, as a matter of law, that Brooks has not rebutted the presumption of correctness that attaches to the tax assessments made against him.
A tax lien arises by operation of law upon the assessment of an income tax deficiency. See 26 U.S.C. §§ 6321, 6322. A tax lien attaches to any interest a taxpayer holds or will hold in property, including one held by a nominee or alter ego. See G.M. Leasing v. United States, 429 U.S. 338, 350-51 (1977). Thus, as a result of Brooks' unpaid federal income tax assessments, a lien arose and attached to all of his property interests, including his interest in the Subject Property.
Plaintiff has recorded notices of federal tax lien for Brooks' unpaid federal tax liabilities. [Doc. 111-2 at 54-56.] Plaintiff, SCDOR, and Greenville County have stipulated as to the priority of their respective interests in the Subject Property. [Doc. 52.] Consequently, Plaintiff is entitled to an Order requiring that the liens be foreclosed, that the Subject Property be sold, and that the proceeds from that sale that are attributable to Brooks' interest in the Subject Property, after payment of any expenses of sale, be distributed to the United States in full, or partial, satisfaction of his outstanding federal tax liabilities and to the other interested parties in accordance with their stipulated priorities. The Court therefore recommends that Plaintiff be granted summary judgment against Brooks.
Default Judgment against Coach Hills
Rule 55(a) of the Federal Rules of Civil Procedure states that the clerk must enter a party's default "[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise." After the clerk enters default, the opposing party may seek a default judgment under Rule 55(b).
In considering a motion for default judgment, the Court accepts as true all well-pleaded factual allegations in the Complaint not relating to the amount of damages. See Fed. R. Civ. P. 8(b)(6). Thus, regarding default judgments, the "appropriate inquiry is whether or not the face of the pleadings supports the default judgment and the causes of action therein." Anderson v. Found. for Advancement Educ. & Emp't of Am. Indians, 187 F.3d 628, 1999 WL 598860, at *1 (4th Cir. 1999) (unpublished table opinion). The Fourth Circuit "has a strong policy that cases be decided on the merits," United States v. Shaffer Equip. Co., 11 F.3d 450, 453 (4th Cir. 1993), but finds that default judgment "is appropriate when the adversary process has been halted because of an essentially unresponsive party," S.E.C. v. Lawbaugh, 359 F. Supp. 2d 418, 421 (D. Md. 2005).
Coach Hills was named as a party to litigate whether it had an interest in the Subject Property. [Doc. 1 ¶ 8.] Because Coach Hills has not pled or otherwise defended or offered any response in this action, the Court concludes that Plaintiff is entitled to a default judgment establishing that Coach Hills has no interest in, and can take nothing from, any sale of the Subject Property.
RECOMMENDATION
Wherefore, based upon the foregoing, the Court recommends that Plaintiff motion for summary judgment against Brooks and for default judgment against Coach Hills [Doc. 111] be GRANTED.
IT IS SO RECOMMENDED.
s/ Jacquelyn D. Austin
United States Magistrate Judge October 11, 2018
Greenville, South Carolina