Opinion
Case No. 1:99cv488.
October 27, 2000
OPINION
This action was filed by the United States to reduce to judgment certain unpaid federal tax assessments against David C. Grooters and Sandra K. Grooters. Defendants Grooters have filed a motion (docket #55) to dismiss the complaint on jurisdictional grounds. The United States opposes defendants' motion and has filed a cross motion for summary judgment (docket #59). For the reasons that follow, defendants' motion to dismiss is DENIED and the motion of the United States is GRANTED.
I.
On February 24, 1994, David and Sandra Grooters submitted their Form 1040 individual tax return for tax year 1992. That form showed a total tax of $41,223, of which $13,483 had been paid, leaving a tax due of $27,740. On August 17, 1994, David and Sandra Grooters submitted their Form 1040 for tax year 1993.
The Secretary of the Treasury made assessments against David and Sandra Grooters for their income tax obligations, including penalties and interest, for the 1992 and 1993 years on April 4, 1994 and October 3, 1994, respectively. On those same dates, the Secretary issued a Notice and Demand for payment of the respective tax liabilities.
The United States has submitted documentation supporting total outstanding tax liabilities for 1992 and 1993 in the amount of $61,899.71, including penalties and interest through August 1, 2000. The government also has attached copies of the Grooters' income tax returns for the two years.
In addition, the government has submitted a series of documents relating to the interest of various parties in a certain parcel of real property. On September 5. 1986, a land contract was signed between defendants John and Gezina Entingh, as sellers, and defendants Grooters, as buyers, for the purchase of real property known as 7063 Martin, SE, Grand Rapids, Gaines Township, Kent County, Michigan, more fully described as:
Lot 69 of Berkshire Park No. 3, Section 7, Town 5 North, Range 11 West, Gaines Township, Kent County, Michigan.
The described property was the residence address listed by the Grooters at the time the 1992 and 1993 tax returns were filed and continuing until today. After issuing assessments for the 1992 and 1993 tax years, the United States filed notices of liens against the described property with the Kent County Register of Deeds for the assessed tax years on June 17 and December 15, 1994, respectively.
An amount (estimated at $11,000) remains due and owing on the land contract. Because they have an interest in the Martin Street property, the United States named the Entinghs as defendants in the instant action, which seeks to foreclose on liens filed against the property.
On December 11, 1991, the Grooters signed an assignment of purchasers interest in the land contract to the Byron Center State Bank as security and mortgage. An amount also remains due and owing on the mortgage. The bank was named as a defendant due to its security interest in the property.
Further, the United States named as defendant the Kent County Treasurer, because of the county's interest in the property for unpaid property taxes. Finally, the United States named as defendant an entity known as the Hope Trust, to whom, in consideration for one dollar, the Grooters granted a quit claim deed on May 9, 1995.
The United States now seeks to reduce the Grooters 1992 and 1993 tax assessments to judgment. The United States also seeks an order determining that the government's tax liens attach to the described property and allowing for sale of the property, with proceeds of the sale (after sale expenses and higher priority creditors have been paid), to be applied to the Grooters' unpaid tax liabilities.
II.
A. Motion to Dismiss for Lack of Jurisdiction
The Grooters move to dismiss for lack of personal jurisdiction. Their jurisdictional argument is convoluted, conflating a series of legal principles. They describe their argument as a challenge to personal jurisdiction, but they support their argument with cases addressing the subject matter jurisdiction of the federal courts. Simultaneously, they deny that they challenge the jurisdiction of this court at all. Instead, they contend that in order for the government to assess taxes, it must have jurisdiction over them, and that the government has the burden of proving the existence of jurisdiction to tax. At bottom, the Grooters' argument is a challenge to the authority of the government to tax. On the undisputed facts, this court unquestionably has personal jurisdiction over the Grooters.
Both of the Grooters have admitted that they are residents of Grand Rapids, which lies within this federal district. (Complaint ¶ 2, Answer ¶ 2. See also Decl. of Thomas Cole, Ex. A, B (tax returns signed by plaintiffs and declaring address within City of Grand Rapids).) As a consequence, the Grooters clearly have sufficient minimum contacts with the forum to warrant the exercise of personal jurisdiction. Handley v. Indiana Michigan Elec. Co., 732 F.2d 1265, 1272 (6th Cir. 1984). Moreover, inasmuch as defendants Grooters failed to object to personal jurisdiction in their answer, the defense is waived. See FED. R. Civ. P. 12(h); Preferred RX Inc. v. American Prescription Plan, Inc., 46 F.3d 535, 550 (6th Cir. 1995).
In addition, this court unquestionably has jurisdiction over the subject matter, as provided in sections 7402 and 7403 of Title 26, United States Code. See also 28 U.S.C. §§ 1340, 1345.
As to whether the United States has jurisdiction to impose income taxes on the Grooters, 26 U.S.C. § 1 "imposes an income tax on the income of every individual who is a citizen or resident of the United States and, to the extent provided by section 871(b)or 877(b), on the income of a nonresident alien individual." 26 C.F.R. § 1.1-1(a). The Grooters, by admitting they reside in Grand Rapids, Michigan, admit that they reside in the United States. Further, the Grooters do not challenge their signatures on the tax returns attached to the government's motion, which contain their United States social security numbers, providing further evidence of their legal residency and/or citizenship. Those tax returns also show taxable income earned in Grand Rapids, Michigan, for the relevant years. In light of these undisputed facts, residency is established for purposes of federal income tax assessment under 26 U.S.C. § 1.
Defendants argue, however, that the government must prove both that they are citizens and that they are otherwise subject to the jurisdiction of the United States under some unstated and limiting principle of sovereignty. In support of this vague theory, the Grooters refer to the definition of "citizen" contained at 26 C.F.R. § 1.1-1(c), which provides that "[e]very person born or naturalized in the United States and subject to its jurisdiction is a citizen." The Grooters argue that this regulation purports to limit federal taxing authority to only those United States citizens who also are subject to an undefined and specialized jurisdiction of the United States. Moreover, they contend that the government has the burden of proving this special jurisdiction.
The authorities cited by defendants regarding the government's burden of proof relate solely to proof of this court's jurisdiction to decide the dispute. The cited cases do not support defendants' argument that before assessing taxes, the government must prove the citizenship of the taxpayer. Indeed, the proposition is at odds with the presumption of correctness ordinarily afforded the government's deficiency assessment. See United States v. Janis, 428 U.S. 433, 441 (1976).
Moreover, 26 C.F.R. § 1.1-1(c) in no way suggests that only those citizens subject to a particularized jurisdictional analysis are subject to federal income tax. Indeed, 26 C.F.R. § 1.1-1(b) expressly provides that "[i]n general, all citizens of the United States, wherever resident, and all resident alien individuals are liable to the income taxes imposed by the Code whether the income is received from sources within or without the United States." Id. (emphasis added). No particularized proof of special citizenship is necessary to subject resident individuals to tax liability.
In their reply brief, the Grooters assert that the United States "consists of Federal Washington D.C., Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands and all of its insular possessions ceded to the government by the Fifty Sovereign States." (Docket #63 at 3.) In other words, the Grooters imply that the United States does not include the fifty states. The Grooters also cite case authority to the effect that determination of the citizenship of a state is distinct from determination of the citizenship of the United States. See Slaughter-House Cases, 83 U.S. 36 (1872). By this series of arguments, the Grooters suggest that because they acknowledge their citizenship in the State of Michigan, citizenship in the United States is foreclosed.
The Grooters' argument consists of frivolous constructs from unrelated principles. It is undisputed that the Grooters lived in, worked in and earned income in Michigan. Their residency in Michigan subjects them to the taxing authority of the United States. Even were the burden upon the government to demonstrate its authority, in the absence of a factual challenge by the Grooters, that burden has been met. Pursuant to 26 U.S.C. § 1 and 26 C.F.R. § 1.1-1(a), regardless of the Grooters' citizenship, the Grooters are residents of the United States for purposes of the income tax code.
Accordingly, defendants' motion to dismiss for lack of personal jurisdiction is denied.
B. Cross-Motion for Summary Judgment
The United States moves for summary judgment pursuant to FED. R. Civ. P. 56(c). In its motion, the government seeks an order granting summary judgment, reducing the 1992 and 1993 tax assessments to judgment, determining that the government's tax liens attach to the property described in the complaint, and allowing for a sale of the described property, with the proceeds of such sale (after sale expenses and higher priority creditors have been paid) to be applied to the Grooters' unpaid tax liabilities.
The Grooters have filed a response to the motion, resting entirely on their meritless claim that the government lacks jurisdiction to impose taxes. The Kent County Treasurer has responded that it takes no position on the motion except to assert its position of superior interest in the property to recover the real estate taxes owed on the property. Neither Gezina Entingh nor the Byron Center State Bank have responded to the government's motion.
On a motion for summary judgment, the court must consider all pleadings, depositions, affidavits and admissions and draw all justifiable inferences in favor of the party opposing the motion. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). The party moving for summary judgment has the burden of pointing the court to the absence of evidence in support of some essential element of the opponent's case. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Street v. J.C. Bradford Co., 886 F.2d 1472, 1479 (6th Cir. 1989). Once the moving party has made such a showing, the burden is on the nonmoving party to demonstrate the existence of a genuine issue for trial. Id.
In order to prove that a triable issue exists, the nonmoving party must do more than rely upon allegations, but must come forward with specific facts in support of his or her claim. Id. After reviewing the whole record, the court must determine "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." Booker v. Brown Williamson Tobacco Co., Inc., 879 F.2d 1304, 1310 (6th Cir. 1989) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 25 1-52 (1986)). "`[D]iscredited testimony is not [normally] considered a sufficient basis'" for defeating the motion. Anderson, 477 U.S. at 256-57 (quoting Bose Corp. v. Consumers Union of United States, Inc., 466 U.S. 485, 512 (1984)). In addition, where the factual context makes a party's claim implausible, that party must come forward with more persuasive evidence demonstrating a genuine issue for trial. Celotex, 477 U.S. at 323-24; Matsushita, 475 U.S. at 586-87; Street, 886 F.2d at 1480.
In a tax case, the taxpayer has the burden of showing that an assessment is incorrect. See Janis, 428 U.S. at 441; Helvering v. Taylor, 293 U.S. 507, 515 (1935); United States v. Walton, 909 F.2d 915, 918 (6th Cir. 1990). In order to demonstrate that an assessment is incorrect, the taxpayer must do more than generally deny liability. See Anastasato v. Commissioner, 794 F.2d 884, 888 (3d Cir. 1986). Proof that federal taxes have been assessed and that balances remain due on those assessments is sufficient proof of tax liability. Helvering, 293 F.2d at 515.
In support of its motion for summary judgment, the United States has filed the Declaration of Attorney Thomas P. Cole, verifying exhibits A through O to be true and correct copies of the following: defendants' income tax returns, various IRS documents, various real estate documents, pleadings, answers to interrogatories, and deposition testimony. Those exhibits demonstrate that tax assessments were made against the Grooters for the years 1992 and 1993 based on the Grooters' own tax returns. The documents further demonstrate that the Grooters have outstanding balances of $61,899.71 on those tax assessments, including principal, penalties and interest through August 1, 2000.
The Grooters have failed entirely to challenge the information contained in the IRS records. They also have refused to answer multiple discovery requests, including both interrogatories and deposition questions, responding that the questions were either irrelevant or would be self incriminating. They have introduced not a shred of evidence that the tax assessments made against them are incorrect. Accordingly, the United States is entitled to judgment in the amount of $61,899.71, plus interest from August 1, 2000.
The United States also seeks an order determining that its liens attach to the Grooters' vendee interest in the real property located at their residence address, 7063 Martin, SE, as more fully described earlier in this opinion. The United States has demonstrated the Grooters' vendee interest in the described property by copy of the land contract signed September 5, 1986 between John and Gezina Entingh, sellers, and David and Sandra Grooters, buyers. (Cole Aff. Ex. C.) The United States also has proved an assignment dated December 11, 1991 of the Grooters' purchasers' interest to the Byron Center State Bank as security and mortgage. (Cole Aft Ex. D.) In its brief in support of the motion, the United States concedes that interests of both the Entinghs and the Byron Center State Bank are superior to that of the United States. Neither defendant has filed a responsive brief nor expressed opposition to an order determining that the government's liens attach to the property or to sale of the property and application of proceeds to the federal tax assessments, after payment of the priority liens of other defendants.
On June 17, 1994, the United States recorded with the Register of Deeds for Kent County its tax lien for 1992. (Cole Aff. Ex. M.) It recorded its tax lien for 1993 on December 15, 1994. (Cole Aff. Ex. N.) The United States is silent as to the superiority of the property tax liens of the Kent County Treasurer. The Kent County Treasurer has filed a brief stating that it has no opposition to the requested foreclosure, but asserts the county's lien priority.
The United States also provides a copy of a quit claim deed from the Grooters to an entity known as the Hope Trust, executed June 5, 1995, months after the dates of filing of the government's tax liens. (Cole Aff. Ex. E.) Although the Hope Trust was named in the complaint, it never was served because the Grooters refused to identify the trustee. In any event, the interest of the Hope Trust, if any, would be inferior to the interest of the United States, and therefore would not bar sale of the property to satisfy the lien.
The circumstances strongly suggest that the transfer to the Hope Trust was fraudulent and designed to avoid the Grooters' tax obligations. The Grooters quit-claimed to the Hope Trust their interest in 7063 Martin SE for $1.00, and they continue to reside at the Martin Street address. The Grooters repeatedly have refused to answer written interrogatories and deposition questions related to the Hope Trust. However, because the United States in any case has a superior interest to the Hope Trust, the validity of the transfer is not before the court at this time.
As I previously have concluded, the United States is entitled to judgment in the amount of $61,899.71 plus interest from August 1, 2000 on the outstanding tax assessments for 1992 and 1993. Based on the undisputed evidence submitted by the United States, the government's liens properly attach to the described property. In the absence of opposition by priority lien-holders, the court will issue an order allowing sale of the described property, with the proceeds of such sale (after sale expenses and higher priority creditors have been paid) to be applied to the Grooters' unpaid tax liabilities.
III.
For the foregoing reasons, the motion by defendants Grooters to dismiss (docket #55) is DENIED. The motion of the United States for summary judgment (docket #59) is GRANTED. Judgment is entered in favor of the United States and against David C. Grooters and Sandra K. Grooters in the amount of $61,899.71, together with statutory interest to accrue from August 1, 2000. Further I find that the government's tax liens properly attach to the property described in the complaint as 7063 Martin SE, Grand Rapids, Michigan 49508, and that sale of said property be allowed, with the proceeds of such sale (after sale expenses and higher priority creditors have been paid) to be applied to the Grooters' adjudged tax liabilities.
Douglas W. Hillman Senior District Judge
OCT 27 2000