Opinion
Civil No. 09-cv-332-JL, Opinion No. 2011 DNH 113.
July 15, 2011
MEMORANDUM ORDER
This is a civil enforcement action brought by the United States of America, which is seeking (1) to reduce to judgment certain unpaid tax liabilities assessed by the Internal Revenue Service ("IRS") against defendants Kenneth and Hazel Isaacson; (2) to establish the validity of federal tax liens upon all of their "property and rights to property," 26 U.S.C. § 6321; (3) to declare that the defendant Kenneth R. Bassett Trust ("Trust"), of which Kenneth Isaacson (formerly Bassett) is the alleged founder and sole beneficiary, is merely his "nominee" and therefore subject to such liens; and (4) to enforce a federal tax lien upon real property in Rye, New Hampshire, which is held by the Trust but allegedly occupied and controlled by the Isaacsons. This court has subject-matter jurisdiction under 28 U.S.C. § 1331 (federal question) and 26 U.S.C. §§ 7402- 7403 (federal tax enforcement).
The Trust has moved to dismiss any claims against it, see Fed.R.Civ.P. 12(b)(6), arguing that the United States has not alleged sufficient facts to state a claim for recovery on a "nominee" theory. After hearing oral argument, this court denies the motion. While the complaint is not especially detailed, the United States has alleged sufficient facts to survive a motion to dismiss and proceed with discovery on that theory.
I. Applicable legal standard
II. Background
Ashcroft v. Iqbal129 S. Ct. 19371949Bell Atl. Corp. v. Twombly550 U.S. 544570Id. See e.g. Tasker v. DHL Ret. Sav. Plan621 F.3d 3438
The United States alleges that the Isaacsons "exercise dominion and control" over the Rye property, "retain possession" of it, and "continue to enjoy the benefits of ownership." The United States further alleges that Kenneth has a "close relationship" with the trust. Based on those allegations, the United States claims that the Trust holds title to the Rye property "as the mere nominee of [Kenneth], the true and equitable owner" of the property."
While not relevant for purposes of analyzing the present motion, the defendants allege that Kenneth "has suffered from mental illness at all relevant times" and that the Trust is a valid "special needs trust" for his benefit.
III. Analysis
Under the Internal Revenue Code, the United States may impose a tax lien "upon all property and rights to property, whether real or personal, belonging to [a] person" who fails or refuses to pay federal taxes. 26 U.S.C. § 6321; see also, e.g., Drye v. United States, 528 U.S. 49, 55 (1999); United States v. Murray, 217 F.3d 59, 60 (1st Cir. 2000); Markham v. Fay, 74 F.3d 1347, 1355 (1st Cir. 1996). "The tax code 'creates no property rights but merely attaches consequences, federally defined, to rights created under state law.'" Markham, 74 F.3d at 1355-56 (quoting United States v. Bess, 357 U.S. 51, 55 (1958)); see also, e.g., Murray, 217 F.3d at 63. The statutory language is "broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have." Drye, 528 U.S. at 56 (quotation omitted).
It is well established that a federal tax lien may be imposed on "not only the property and rights to property owned by the delinquent taxpayer, but also property held by a third party if it is determined that the third party is holding the property as a nominee or alter ego of the delinquent taxpayer." Spotts v. United States, 429 F.3d 248, 251 (6th Cir. 2005) (citing G.M. Leasing Corp. v. United States, 429 U.S. 338, 35051 (1977)); see also, e.g., Holman v. United States, 505 F.3d 1060, 1065 (10th Cir. 2007); Oxford Capital Corp. v. United States, 211 F.3d 280, 284 (5th Cir. 2000); Dalton v. Comm'r, 135 T.C. 393, 404 (U.S. Tax Ct. 2010); United States v. Kattar, 81 F. Supp. 2d 262, 273-75 (D.N.H. 1999) (DiClerico, D.J.).
The United States initially alleged that the Trust was both Isaacson's nominee and his alter ego. To fall within the latter category, "the trust[] at issue" must be "not just [the taxpayer's] nominee[] with respect to [a particular property] but his alter ego for all purposes," under a reverse corporate veilpiercing analysis. In re Krause, 637 F.3d 1160, 1165 (10th Cir. 2011). At oral argument, however, the United States withdrew its alter ego theory, relying solely on the nominee theory.
"The nominee theory focuses upon the taxpayer's relationship to a particular piece of property," asking "whether the taxpayer has engaged in a legal fiction by placing legal title to property in the hands of a third party while actually retaining some or all of the benefits of true ownership." Holman, 505 F.3d at 1065 (citing Oxford Capital, 211 F.3d at 284). Factors that may be relevant to that analysis include:
• "No consideration or inadequate consideration is paid by the nominee; • Property is placed in the name of the nominee in anticipation of a suit or occurrence of liabilities while the transferor continues to exercise control over the property; • A close relationship between the transferor or the nominee exists; • Conveyances were not recorded; • The transferor retained possession of the property; • The transferor continued to enjoy the benefits of the transferred property." Kattar, 81 F. Supp. 2d at 274 (formatting altered); see also Holman, 505 F.3d at 1065 n. 1 (citing Spotts, 429 F.3d at 253 n. 2); Oxford Capital, 211 F.3d at 284 n. 1.
The Trust argues that it cannot be considered Kenneth Isaacson's nominee with respect to the Rye property because — as the complaint acknowledges — the Trust purchased that property from a third party, not from Kenneth himself, meaning that Kenneth was not the "transferor" (for purposes of any of the factors just set forth). But, as the Tenth Circuit Court of Appeals recently explained in rejecting a similar argument:
[A]n actual transfer of legal title [from the taxpayer to the alleged nominee] is not essential to the imposition of a nominee lien. A delinquent taxpayer who has never held legal title to a piece of property but who transfers money to a third party and directs the third party to purchase property and place legal title in the third party's name may well enjoy the same benefits of ownership of the property as a taxpayer who has held legal title. In both instances, the third party may be the taxpayer's nominee.Holman, 505 F.3d at 1065 (citing Scoville v. United States, 250 F.3d 1198, 1202-03 (8th Cir. 2001)).
That is essentially what the United States alleges here: that Kenneth transferred funds to the Trust after the IRS had assessed federal tax liabilities against him, and "in anticipation of future federal tax liabilities," which funds were used to purchase the Rye property shortly thereafter. It is reasonable to infer that Kenneth — who allegedly founded the Trust, is its sole beneficiary, and has a "close relationship" with it — directed the Trust to make that purchase. The United States has further alleged that, while the Trust holds legal title to the Rye property, Kenneth and Hazel "retain possession" of it, "exercise dominion and control" over it, and "enjoy the benefits of ownership." So nearly all of the nominee factors have been expressly alleged.
The Trust argues that the complaint's allegations are "nonspecific and conclusory" and therefore insufficient to state a claim for relief. It is true that "a plaintiff's obligation to provide the 'grounds' of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (quoting Fed.R.Civ.P. 8(a)(2)) (formatting altered). But it is also true that "a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations."Id. (citing Sanjuan v. Am. Bd. of Psychiatry Neurology, Inc., 40 F.3d 247, 251 (7th Cir. 1994), which stated that complaints "are supposed to be succinct" and "need not contain elaborate factual recitations").
Many of the nominee factors that the United States has alleged — e.g., that Kenneth and Hazel control, possess, and enjoy the Rye property, and that Kenneth transferred funds to the Trust in anticipation of federal tax liabilities — need no further elaboration. They have a clear, commonsense meaning. See Iqbal, 129 S. Ct. at 1950 (noting that the Rule 12(b)(6) analysis is "a context-specific task that requires the reviewing court to draw on . . . common sense"). The only factor for which further explanation might have been helpful is the alleged "close relationship" between Kenneth and the Trust. Even as to that factor, however, the complaint provides at least some detail, alleging that Kenneth formed the Trust in 1996 and is its sole beneficiary. So the allegation is not entirely "unadorned." Id. at 1949 (citing Twombly, 550 U.S. at 555).
The bottom line is that it would be reasonable to infer, from the facts alleged in the complaint, that the Trust is holding legal title to the Rye property merely as nominee for Kenneth Isaacson, who (together with Hazel) still enjoys some or all of the benefits of true ownership. That theory of recovery is "plausible on its face." Id. at 1949 (quoting Twombly, 550 U.S. at 570). The United States is therefore entitled to proceed with discovery on the nominee theory.
IV. Conclusion
For the reasons set forth above, the Trust's motion to dismiss is DENIED.
Document no. 62 (as renewed by document no. 103).