CAROLYN S. OSTBY, Magistrate Judge.
Plaintiff ("United States") filed this civil action to reduce to judgment outstanding federal tax assessments against Defendants Keith Thill and Gayle Thill (collectively "the Thills"), and to foreclose federal tax liens against certain real property that the Thills own. Cmplt. (ECF 1) at 2.
The following interrelated motions are now pending and listed in the order that the parties filed them:
Having considered the relevant law and the parties' submissions, the Court enters the Findings and Recommendations that follow.
Before summarizing the background facts, the Court notes that the Thills do not make entirely clear to the Court the precise bases they rely upon in seeking "court intervention" through their motion. They cite no authority beyond a reference to Local Rule 7
Affording the Thills' motion liberal construction, the Court will treat it as a motion to dismiss the United States' Complaint for failure to state a claim upon which relief can be granted under Rule 12(b)(6).
For the years 2003 through 2009, an authorized delegate of the Secretary of the Treasury made timely federal income tax assessments against the Thills, jointly. ECF 1 at 7.
For the years 1997 through 2002, an authorized delegate of the Secretary of the Treasury made timely federal income tax assessments against Keith Thill. ECF 1 at 7-9. Despite notice and demand for payment of the assessments, Keith Thill "has neglected, refused, or failed to pay the income tax assessments against [him] and there remains due and owing to the [United States] on those assessments the total sum of $92,979.71 plus accrued interest, penalties and statutory additions as provided by law, from January 31, 2014." Id. at 9-10.
For the years 1999 through 2002, an authorized delegate of the Secretary of the Treasury made timely federal income tax assessments against Gayle Thill. ECF 1 at 10-11. Despite notice and demand for payment of the assessments, Gayle Thill "has neglected, refused, or failed to pay the income tax assessments against her and there remains due and owing to the [United States] on those assessments the total sum of $19,691.75 plus accrued interest, penalties and statutory additions as provided by law, from January 31, 2014." Id. at 11.
As a result of the foregoing unpaid federal income tax assessments, statutory liens arose in favor of the United States against all property or rights to property, whether real or personal, belonging to Keith Thill and Gayle Thill, as of the dates of the assessments. Id. at 12 (citing 26 U.S.C. §§ 6321 and 6322). Also, the liens immediately attached to all after-acquired property or rights to such property. Id.
At issue in this action, there exists real property commonly referred to as 2318 Lyndale Lane, Billings, Montana 59102 ("real property at issue").
Notices of Federal Tax Lien relating to the federal tax assessments described above were filed and recorded at the Yellowstone County Recorder's Office, as follows:
Id. at 3-4, 12.
On May 29, 2007, the Montana Thirteenth Judicial District Court, Yellowstone County, issued a Warrant of Distraint as to Keith Thill's liabilities to the Montana Department of Revenue for the years 1997 through 2000. Id. at 4.
On June 13, 2011, the Montana Thirteenth Judicial District Court, Yellowstone County, issued a Warrant of Distraint as to Keith Thill's liabilities to the Montana Department of Revenue for the years 2003 through 2006. Id.
Between July 5, 2012, and December 12, 2013, the IRS recorded additional Notices of Federal Tax Lien in the Yellowstone County Recorder's Office for various liabilities of the Thills. Id. at 4-5.
The tax liens arising from the assessments described above continue to attach to the real property at issue. Id. at 12. The liens have priority over all interests in the real property at issue acquired after the attachment of the tax liens, subject to the provisions of 26 U.S.C. § 6323(a). Id. Also, under 26 U.S.C. § 7403(c), the United States is entitled to a decree of sale of the real property at issue to enforce its tax liens. Id.
On March 7, 2014, the United States filed this civil action to reduce to judgment the federal tax assessments against the Thills and to foreclose the federal tax liens against the real property at issue that the Thills own. Id. at 2.
"Dismissal under Rule 12(b)(6) is proper only when the complaint either (1) lacks a cognizable legal theory or (2) fails to allege sufficient facts to support a cognizable legal theory." Zixiang Li v. Kerry, 710 F.3d 995, 999 (9
The Court's standard of review under Rule 12(b)(6) is informed by Rule 8(a)(2), which requires that a pleading contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009) (quoting Fed. R. Civ. P 8(a)). To survive a motion to dismiss under Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to `state a claim to relief that is plausible on its face.'" Id. at 678. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. A plausibility determination is context specific, and courts must draw on judicial experience and common sense in evaluating a complaint. Levitt v. Yelp! Inc., 765 F.3d 1123, 1135 (9
Id. (citations omitted).
In moving to dismiss, the Thills advance multiple arguments, some of which are redundant and many of which are repetitive of other arguments related to the pending summary judgment motions. They argue that: (1) the United States did not need to bring this action but instead could have accepted their offer of compromise, id. at 2; (2) they possess "lawful proof" of "possible misconduct or worse by the IRS and Sandra Welch[,]"
The Thills attached to their motion six unauthenticated exhibits. See ECF 20-1 - 20-7. Because the exhibits are not properly authenticated, the Court has not considered them in addressing the pending motions. See Fed. R. Evid. 901(a) (setting forth authentication requirement); U-Haul Int'l, Inc., 576 F.3d 1040, 1043 (9
Turning to the Thills' motion, the Court concludes that it is without merit. As is evident from the foregoing recitation of the Thills' arguments, they do not properly challenge the sufficiency of the United States' Complaint because they fail to cite to any controlling or persuasive legal or factual basis for the relief they seek.
Specifically, to the extent that their above-listed arguments, or any of their other arguments in the record of this case, suggest that the federal income tax is legally invalid or that the IRS is not a government agency, the Thills are wrong. The Ninth Circuit Court of Appeals, in In re Becraft, 885 F.3d 547, 548-49 (9
In re Becraft, 885 F.2d at 548-49 (emphasis added); see also Wilcox v. Commissioner, 848 F.2d 1007, 1008 (9
Also, to the extent that the Thills maintain that the Court has the authority to order the United States to accept the Thills' settlement offer, they again are wrong. They fail to cite to any legal authority for this proposition, and the Court is not aware of any.
And, to the extent that the Thills claim reliance on Montana's Homestead Act to somehow preclude foreclosure of federal tax liens against their real property, the Court is not persuaded.
Commencing a civil action under 26 U.S.C. § 7403 "is one method in a formidable arsenal of collection tools available to the government to collect taxes." United States v. Gibson, 817 F.2d 1406, 1407 (9
Where, as in this case, all persons "having liens upon or claiming any interest in the property involved" have been named as defendants, the Court may "proceed to adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property...." 26 U.S.C. § 7403(b) and (c). In addition, "in all cases where a claim or interest of the United States therein is established," the Court "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." 26 U.S.C. § 7403(c).
Under these federal statutes, the federal government's tax liens reach all property interests of the delinquent taxpayer and "the Supremacy Clause
Finally, respecting the Thills' remaining arguments, the Court concludes that they fail to support the Thills' Rule 12(b)(6) motion. Nothing in their arguments demonstrates that the United States' Complaint lacks cognizable legal theories or fails to allege sufficient facts to support cognizable legal theories. Zixiang, 710 F.3d at 999.
For all of the foregoing reasons, and because the Thills have failed to raise a substantive challenge to either the factual or legal sufficiency of the United States' Complaint, their motion to dismiss should be denied.
The parties have filed cross motions for summary judgment. See United States' Summary Judgment Mtn. (ECF 21)
Keith Thill and Gayle Thill are residents of Billings, Montana. They own real property at 2318 Lyndale Lane, which is the subject of this action. United States' Stmt. of Undisputed Facts (ECF 21-1) at ¶ 1.
Keith Thill held various jobs over the past 18 years, mostly working as a painter. Id. at ¶ 2. Gayle Thill worked in the retail grocery business for a number of years and also performed odd jobs. Id. at ¶ 3.
In 2001, the IRS began an examination to determine the Thills' income tax liabilities because the Thills failed to file tax returns for the tax periods 1997 through 2002, a pattern that continued through 2009. Id. at ¶¶ 4, 5. The examination culminated with federal income tax assessments, made by an authorized delegate of the Secretary of the Treasury, for the years 1997 through 2009. Id. at ¶¶ 4, 11, 14, 17.
The IRS computed the Thills' federal income tax liability because the Thills failed to report income and failed to cooperate in the examination process. Id. at ¶ 6. The IRS used a variety of methods, including bank deposit analysis and Information Reporting Program Transcripts ("IRP Transcripts"). These are retrievable computer records maintained by the IRS that reflect data reported by third parties on various IRS forms, including Forms W-2 (employee wages), 1099 (non-employee compensation), and 1098 (home mortgage interest). IRP Transcripts are obtained for individuals by running searches under the individual's Social Security number in the computer file system maintained by the IRS. Id. at ¶ 6.
The IRS also issued statutory notices of deficiency to the Thills about their liabilities. The notices included information regarding the basis for the findings of deficiency. Id. at ¶ 7. In response to the notices and other correspondence from the IRS, the Thills sent various letters and other documents to the IRS. Among other things, these documents stated that the IRS is not a valid federal entity and otherwise purported to show that the Thills were exempt from federal taxation. Id. at ¶ 8.
In 2013, the Thills provided the IRS with Forms 1040 for the periods 2003 through 2009. The liabilities for these periods were adjusted to reflect the information contained in the Forms 1040 to the extent they were consistent with the third-party-sourced information already collected. Id. at ¶ 9. Although there was no substantial deviation between the initial assessments and the information provided by the Thills, the adjustments resulted in a lowering of the total liabilities. Id. at ¶ 10.
Despite notice and demand for payment of the assessments, the Thills have neglected, refused, or failed to pay the income tax assessments against them. The following sums remain due and owing to the United States on those assessments:
The Thills do not dispute that they were paid wages and earned income during the periods described above. Id. at ¶ 20. But they do dispute the IRS' authority to assess and collect taxes on their earnings. Id.
The real property at issue in this action is commonly referred to as 2318 Lyndale Lane, Billings, Montana 59102. Id. at ¶ 21. On August 4, 1986, the Thills acquired title to it via warranty deed recorded with the Yellowstone County Clerk and Recorder's Office. Id. at ¶ 22. Between April 21, 2003, and December 12, 2013, the United States recorded a number of Notices of Federal Tax Lien in the Yellowstone County Clerk and Recorder's Office for the Thills' liabilities set forth above. Id. at ¶ 23.
On March 7, 2014, the United States filed this action. ECF 1. On January 23, 2015, the United States filed its summary judgment motion. ECF 21. On March 3, 2015, the Thills filed their summary judgment motion. ECF 32.
"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 party seeking summary judgment always bears the initial responsibility of informing the court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Material facts are those which may affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is genuine if there is sufficient evidence for a reasonable fact-finder to return a verdict for the nonmoving party. Id.
Entry of summary judgment is appropriate "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp., 477 U.S. at 322. If the moving party meets its initial responsibility, the burden then shifts to the opposing party to establish that a genuine issue of fact exists. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986).
"In an action to collect tax, the government bears the burden of proof. The government can usually carry its initial burden, however, merely by introducing its assessment of tax due." United States v. Stonehill, 702 F.2d 1288, 1293 (9
Certain official forms, such as Certificates of Assessments and Payments (Form 4340), "can constitute proof of the fact that . . . assessments were actually made." Hughes v. United States, 953 F.2d 531, 535 (9
In the case at hand, the United States has produced the Certificates of Assessments and Payments as proof of the Thills' tax liabilities for 1997 through 2009. Decl. of Revenue Officer Sandra Welch (ECF 21-6) (exhibits 4-6 (ECF 21-10 through 21-12)) (attesting that exhibits 4-6 are "[t]rue and correct copies of Certificates of Assessments, Payments and other Specified Matters (Form 4340) for [the Thills'] liabilities, which reflect the assessments and abatements for all periods, including the joint liabilities and individual liabilities for Keith Thill and Gayle Thill[.]"). Each certificate reflects the accrued taxes in a given year and are "proof . . . that . . . [the] assessments were actually made." Hughes, 953 F.2d at 535. As noted, they constitute "`probative evidence in and of themselves and, in the absence of contrary evidence, are sufficient to establish that . . . assessments were properly made.'" Koff v. United States, 3 F.3d 1297, 1298 (9
Also, the United States has provided the "minimal evidentiary foundation" necessary to establish that its assessments are entitled to a "presumption of correctness." Stonehill, 702 F.2d at 1293. It has produced: (1) the Thills' tax returns (Forms 1040), ECF 21-9 at 2-45; (2) examples of third-party reports used to determine the Thills' tax liabilities from the IRP Transcripts, ECF 21-7 at 1-50; and (3) the Thills' deposition testimony, ECF 21-4 (Gayle Thill's deposition) at 2-23 and ECF 21-5 (Keith Thill's deposition) at 2-23.
In their deposition testimony, the Thills admit that they were employed during the relevant periods. ECF 21-4 at 5 (depo. p. 5, ll. 5-15; p. 10, ll. 24-25; p. 11, ll. 1-3); ECF 21-5 at 5 (depo. p. 11, ll. 3-21). They also admit that they stopped filing federal income tax returns in 1997. ECF 21-5 at 8 (depo. p. 21, ll. 8-25; p. 23, ll. 1-19). The Thills continued their refusal to file federal income tax returns until 2013, when they submitted returns for 2003 through 2009. Welch Decl. (ECF 21-6) at ¶ 9. But they continued to refuse to pay over the tax, penalties, and interest due.
Based on the foregoing, the Court concludes that the United States has satisfied, with sufficient evidence, its burden regarding the Thills' tax liability. See Koff, 3 F.3d at 1298. The burden now shifts to the Thills to set forth "specific facts showing that there is a genuine issue" of fact respecting their tax liability. Liberty Lobby, 477 U.S. at 250.
Taxpayers may rebut the presumption of correctness by demonstrating that the assessments are "arbitrary and capricious." Stonehill, 702 F.2d at 1294 (citing Helvering v. Taylor, 293 U.S. 507, 515 (1935)). If the assessment is based upon multiple items, then the presumption of correctness attaches to every item. Id. Proof of error as to one item destroys its individual presumption, but the presumption of correctness that attached to the other items remains. Id.
Here, the Thills have not rebutted the presumption of correctness. They have neither argued nor shown with competent, relevant evidence that they did not earn the income reflected in the Certificates of Assessment or that the amounts, as represented by the United States, are incorrect. Simply put, they have failed to rebut any of the United States' evidence with any evidence of their own. Rather, they advance various arguments, both in their responses to the United States' summary judgment motion, and in support of their own motions to dismiss and for summary judgment, asserting that they are not subject to the federal income tax laws. The Court already has rejected several of these arguments in the above discussion addressing the Thills' motion to dismiss. And, in reviewing their remaining arguments, the Court concludes that they lack merit.
Federal courts have uniformly and consistently rejected the arguments and types of arguments that the Thills advance here. Lonsdale v. United States, 919 F.2d 1440, 1448 (10
Lonsdale, 919 F.2d at 1448.
Although the Thills have not asserted all of these arguments, they have asserted some of them and versions of some of them. None of the Thills' arguments supporting their position that they are not subject to federal income tax have merit. Also, the Thills have failed to present evidence creating a genuine issue of material fact that would preclude summary judgment in favor of the United States. And they have failed to demonstrate that they are entitled to summary judgment in their favor. Thus, the United States is entitled to summary judgment on its claim that the Thills are indebted to the United States for income tax liabilities for the years 1997 through 2009.
The Court next turns to the issue of whether the United States should be permitted to collect the Thills' tax liabilities by foreclosing its federal tax liens on the real property at issue. The United States is specifically empowered to enforce liens against real property in satisfaction of unpaid tax liabilities. 26 U.S.C. § 6321. Such liens arise at the time the assessment is made and continue to exist until the tax liability is extinguished. 26 U.S.C. § 6322.
Here, as noted, federal tax assessments have been made against the Thills for the years 1997 through 2009. Statutory tax liens arose as of the dates of the assessments and attached to all of the Thills' property and their rights to property, including the real property at issue. Because the Thills continue to have outstanding tax liabilities, the liens remain in full force and effect at the present time. Also, the United States issued Notices of Federal Tax Lien for each liability at issue. ECF 21-6 at ¶ 25 (citing exhibit 10 thereto). The liens, therefore, may be properly foreclosed upon by the United States. 26 U.S.C. § 7403(a). Thus, the United States is entitled to summary judgment allowing it to enforce tax liens on the property of Keith and Gayle Thill.
Based on the foregoing,
