Trusts Page3

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a. Unity of Interest and Ownership

In determining whether to "pierce the corporate veil," courts consider the following factors: (1) substantial ownership of a corporation and dominance over its management; (2) inadequacy of the corporation's capitalization or its insolvency; (3) failure to observe corporate formalities; (4) absence of regular board meetings; (5) nonfunctioning of corporate directors; (6) commingling of corporate and noncorporate assets; (7) the diversion of assets from the corporation to the detriment of creditors; and (8) failure of an individual to maintain an arm's length relationship with the corporation. See United States v. Healthwin-Midtown Convalescent Hospital and Rehabilitation Center, Inc., 511 F. Supp. 416, 418-419 (C.D. Cal. 1981), aff'd 685 F.2d 448 (9th Cir. 1982).

b. Inequitable Result

"The essence of the alter ego doctrine is that justice be done." Mesler, 39 Cal.3d 290 at 301. The corporate form is disregarded in narrowly defined situations when the ends of justice so require. Id.

2. Application

There is a dearth of case law addressing a similar factual situation as that presented by this case. The reported cases applying alter ego liability typically involve a settlor who created a trust for the purpose of avoiding tax liability, not a trust beneficiary who misused a legitimate testamentary trust to avoid creditors. See, e.g., Don Gastineau Equity Trust v. United States [88-1 USTC ¶9314], 687 F. Supp. 1422 (C.D. Cal. 1987); Wood v. Elling Corp., 20 Cal.3d 353, 365 (1975); Nelson v. California Trust Co., 33 Cal.2d 501 (1949).

a. Unity of Interest

(1) substantial ownership and dominance over management

An ownership of an interest in the corporation must be shown to prove alter ego liability. Brownfield [92-2 USTC ¶50,453], 1992 WL 345665 at *5. Though Mr. Cohen improperly acted as sole trustee of the Trust from 1989 up until Marshall Siskin's appointment in 1997, Mr. Cohen did not have sufficient control over the principal of the Trust to constitute a unity of interest. As noted above, only the independent co-trustee could distribute the principal assets of the Trust for Stanley Cohen's benefit and significantly, the Trust could not transfer the principal assets without the approval of the Superior Court because any transfer required the signature of both trustees. Despite Mr. Cohen's use of the Trust bank account as his personal account--depositing and withdrawing funds for his personal use--and the use of Trust funds for his personal needs, such actions do not rise to the required level of "substantial ownership and dominance" over the Trust. The bank account is not a major Trust asset and Stanley Cohen could not act alone in buying or selling the properties that make up the Trust principal.

(2) inadequacy of capitalization or insolvency

The Court recognizes that the Trust has several million dollars worth of assets while Stanley Cohen is insolvent and that these assets could fully satisfy the Cohens' debt to the IRS. However, this factor supports plaintiff's contention that the Trust is a legitimate testamentary spendthrift trust.

(3) failure to observe trust formalities

Stanley Cohen clearly disregarded certain formalities of the Trust. The Superior Court order establishing the Trust requires two co-trustees. After Ida Cohen's death in 1989, Stanley Cohen was the only trustee for over 4.5 years. In 1993, Wells Fargo was appointed co-trustee as the merger successor in interest to First Interstate Bank. However, the bank was trustee in name only. In a letter dated September 26, 1996, Gary Newman, a Vice President for Well Fargo, stated that Stanley Cohen refused to allow the bank to carry on its role as trustee since its appointment. See Declaration of Carolyn Hudson, Exh. J. Nonetheless, Stanley Cohen was not free to dispose of or transfer the Trust's principal assets because no transfer could be final without a second trustee signature or Superior Court approval. See Cordano Declaration ¶¶6, 10 & Exhs. A at ¶16; C at ¶6.

(4) commingling of trust and non-trust assets

Only the Trust's bank account was commingled with Mr. Cohen's personal funds. As the stipulated facts make clear, Mr. Cohen utilized the Trust bank account as his own personal account. He commingled his personal funds with the funds on deposit in the Trust's bank account. He paid his bills and expenses using Trust checks and deposited his monthly social security checks and other earnings into the Trust account.

In Don Gastineau Equity Trust v. United States [88-1 USTC ¶9314], 687 F. Supp 1422, 1425 (C.D. Cal. 1987), the taxpayers in question paid property taxes, telephone bills, monthly mortgage payments and similar bills with respect to the real property at issue. The court found the arrangement to be a "sham trust" as the creator of the trust was the same person as the trustor. The couple retained the complete, unrestricted beneficial use of the real property at issue while shielding it from the reach of the IRS. The district court concluded that the trust property belonged to the Gastineaus for purposes of §§6321 and 6331(a). Here, the Earl Cohen Trust is not alleged to be a sham trust set up only to avoid creditors but is instead being used in such a way by Mr. Cohen.

(5) the diversion of assets from the trust to the detriment of creditors

Stanley Cohen has used the Trust to avoid paying his creditors, including the IRS. In a status conference before this Court on March 24, 1997, Mr. Cohen's counsel admitted that "The formalities of the trust were not respected in that Mr. Cohen had no other income except the trust income. When he attempted to operate out of his personal bank account, those accounts were levied upon by the IRS. So, he saw no way to preserve his income and to pay his necessary living expenses . . . except use the income from the trust." While Mr. Cohen may be liable for numerous breaches of his fiduciary duties, the levies should be limited to Mr. Cohen's property interest in the Trust.

(6) failure of an individual to maintain an arm's length relationship with the trust

Mr. Cohen's treatment of the Trust as his personal bank account and his disregard of certain Trust formalities constitutes a failure to maintain an arm's length relationship, but that failure did not transfer title to the Trust's major assets to Mr. Cohen.

Mr. Cohen has disregarded the formalities of the trust and commingled his funds with the Trust's bank account. While the Court does not wish to reward Mr. Cohen for such behavior, such fiduciary breaches do not convert the principal of the Trust to Mr. Cohen's personal property. The undisputed evidence shows that Mr. Cohen has not used his own funds to alter the principal assets of the Trust and that the commingling was limited to the Trust bank account. As noted above, the Government may certainly reach all of his interest in the Trust but may not do so under an alter ego theory of liability.

b. Necessary to Prevent an Inequitable Result

Mr. Cohen's actions were reprehensible, yet other beneficiaries ⁵ are involved and they should not be punished for Mr. Cohen's misdeeds. The Court recognizes that if the Government is unable to enforce the nominee liens by a direct levy on the Trust's gross income, it may be required to initiate its own lawsuit to enforce its tax liens under §7403 and it may take longer to recover the money Mr. Cohen owes the IRS, yet basic fairness to all parties involved weighs against the application of alter ego liability. Consequently, the Court finds that neither prong of the alter ego liability test is met: there exists insufficient unity of interest between the Trust and Mr. Cohen and a finding of alter ego liability is not necessary to avoid an inequitable result. Given all the circumstances, equity considerations favor the opposite finding of no alter ego liability.

D. Relief

For the above reasons the Court finds that the levies based on the nominee liens are wrongful because Stanley Cohen does not have a property interest in the Trust's gross monthly income from its real property investments and because the Trust is not the alter ego of Mr. Cohen. Therefore the three levies--(1) December 11, 1995 Notice of Levy on the Florin Mall, (2) January 9, 1996 Notice of Levy on Vons, and (3) November 5, 1996 Notice of Levy, an amendment to the December 11, 1995 attaching all properties owned by the "Earl Cohen Trust, as Nominee, Transferee, Alter-Ego, Holder of Beneficial interest, Agent, Assignee or Successor in Interest of Stanley Cohen" are invalid.

It is ordered that the levies ⁶ in question are hereby canceled and the Government shall be permanently enjoined from enforcing those levies. The Court only prohibits the Government from enforcing the levies; the Government is free to pursue any other remedies it may have in enforcing any existing tax lien in Stanley Cohen's property interest or contingent property interest in the Trust.

The Government has collected a total of $90,066.65 pursuant to the December 11, 1995 Notice of Levy, the January 9, 1996 Notice of Levy, and the November 6, 1996 Notice of Levy. ⁷ Plaintiff shall recover this amount from the Government. Any claim for prejudgment interest under 26 U.S.C. §7426(g) or attorneys' fees shall be filed within 30 days of entry of the Revised Judgment. An appropriate judgment shall be entered forthwith.

Conclusion

Although Mr. Cohen has clearly used the Trust to shield his income from his creditors, including the IRS, the Government has not established as a matter of law that Mr. Cohen has a direct interest in the real properties or gross income from the properties that make up the bulk of the Trust's principal assets, or that he is the alter ego of the Trust. Moreover, equity counsels the Trust's survival for the sake of Earl Cohen's grandchildren.

Accordingly, the plaintiff's motion for summary judgment is GRANTED and the Government's cross motion is DENIED. Plaintiff shall have costs. Plaintiff's motion for a preliminary injunction is DENIED as moot. A Revised Judgment shall be entered forthwith.

IT IS SO ORDERED.

REVISED JUDGMENT

This action came on for hearing before the Court, Honorable Richard A. Paez, District Judge, presiding, and the issues having been duly heard and a decision having been duly rendered,

It is Ordered and Adjudged that

1. The three levies--(1) December 11, 1995 Notice of Levy on the Florin Mall, (2) January 9, 1996 Notice of Levy on Vons, and (3) November 5, 1996 Notice of Levy, an amendment to the December 11, 1995--were and are invalid under §§6321 and 6331 of the Internal Revenue Code, 26 U.S.C. §6321 and 6331, and are canceled.

2. The Defendant, United States , is hereby permanently enjoined from collecting or seeking to enforce these levies against the individual taxpayer, Stanley Cohen and/or Jill Cohen as Trustee of the Earl Cohen Testamentary Trust.

3. Plaintiff shall recover $90,066.65 from defendant with prejudgment interest as allowed by 26 U.S.C. §7426(g). The amount of prejudgment interest shall be fixed by separate motion filed within 30 days of entry of this judgment.

4. Any claim for attorneys' fees shall be sought by separate motion filed within 30 days of entry of this judgment.

5. Plaintiff shall have costs of suit.

ORDER GRANTING IN PART DEFENDANT UNITED STATES' MOTION FOR RECONSIDERATION AND GRANTING PLAINTIFF'S MOTION TO CORRECT JUDGMENT

Pending before the Court is Defendant United States ' ("the Government") Motion to Alter or Amend the Court's "Order Granting Plaintiff's Motion for Summary Judgment and Granting Permanent Injunction" (the "Order") and the Court's Judgment filed November 25, 1997 and Plaintiff's Motion to Correct Judgment. Upon consideration of defendant's motion, the Court has concluded that the Government's motion should be GRANTED in part.

The Court agrees with defendant that the Court misstated certain nondisputed facts, and that the order and judgment must be modified to reflect the limited scope of this action. The Court also agrees with plaintiff that the judgment must be modified to clarify which liens and levies are at issue in this litigation.

The Court, however, disagrees with the Government's contention that the Court should enter judgment in its favor. Accordingly, the Government's motion is GRANTED in part and DENIED in part. Plaintiff's motion is GRANTED.

The Order and Judgment filed November 25, 1997 are vacated. A Revised Order Granting Plaintiff's Motion for Summary Judgment and Denying Defendant's Motion for Summary Judgment and Revised Judgment are filed concurrently with this order.

IT IS SO ORDERED.

¹ The three levies are; (1) December 11, 1995 Notice of Levy on the Florin Mall, (2) January 9, 1996 Notice of Levy on Vons (located in the Bank of America Building), and (3) November 5, 1996 Notice of Levy, an amendment to the December 11, 1995. The four Nominee Federal Tax liens in question are two dated January 11, 1996, one dated August 26, 1996, and one dated August 27, 1996, all attaching all properties owned by the "Earl Cohen Trust, as Nominee, Transferee, Alter-Ego, Holder of Beneficial interest, Agent, Assignee or Successor in Interest of Stanley Cohen."

² See Joint Statement of Undisputed Material Facts filed on October 22, 1997.

³ Net spendable income is defined as gross receipts, less reasonable expenses for repairs, maintenance, taxes, management, payments of principal and interest on encumbrances, and other expenses attributable to rental properties.

⁴ The Trust document provides, in relevant part: "If the Trustee deems the aforesaid payments to be insufficient, the Trustee shall pay to or apply for the benefit of STANLEY COHEN such sums out of principal as the Trustee in the Trustee's sole discretion, deems necessary for his proper support, care, maintenance and education; provided, however, that only an independent trustee shall have the right to exercise such discretion and neither STANLEY COHEN nor IDA R. COHEN shall have the power or right to determine that such discretionary distributions be made."

⁵ The following individuals hold interests in the Trust: (1) plaintiff's sons, Charles and Anthony Cohen, have a property interest in the Trust of $2,400/year; (2) upon plaintiff's death, Charles Cohen has a remainder interest in one half the Trust; (3) upon plaintiff's death, Anthony Cohen has a remainder interest in one half of the Trust; (4), plaintiff's wife has a contingent remainder property interest up to the $500 distribution if she is still living with Stanley Cohen at the time of his death; (5) City of Hope has a contingent remainder property interest; and (6) American Cancer Society has a contingent remainder property interest if City of Hope does not take.

⁶ Under 26 U.S.C. §7426(b), the district court has jurisdiction to grant only certain delineated forms of relief, none of which include cancellation of the nominee liens in question. Moreover, it appears from a careful reading of the nominee liens that the Trust is a "beneficial holder" of Stanley Cohen's contingent discretionary interest. Thus, these liens, along with the statutory lien under §6321, may well be necessary for an action by the Government to foreclose on Stanley Cohen's discretionary interest and compel the distribution of the amount that could be applied to satisfy Stanley Cohen's tax indebtedness. Whether these liens are necessary for such an action should not be resolved in this action, which is limited to the relief specified in §7426(b).

⁷ See Declaration of Kevin J. Moore at 3 and Exhs. A-B. The Government agrees that the amounts received pursuant to the subject levies total $90,066.65. See id. at 4(a).

 

 

 

Joanne R. Dean and Janet A. Mossie, as Co-Trustees of that Certain Irrevocable Trust Agreement Under Trust Dated December 4, 1990, Plaintiffs v. United States of America, Defendant

U.S. District Court, West. Dist. Mo. , West. Div., 96-0652-CV-W-5, 9/26/97

[Code Secs. 6321 and 6331 ]

Lien for taxes: Summary judgment: Genuine issue of material fact: Levy: Trust property: Alter ego.--Issues of fact remained regarding whether a trust was the alter ego of married taxpayers so that an IRS levy on trust property was not unlawful. Genuine disputes existed as to whether the trust was established before or after the IRS began auditing the taxpayers, whether the taxpayers treated the trust property as their own and whether the taxpayers personally benefited from a loan made to the trust. There was also evidence that the trust income was distributed to beneficiaries in accordance with the trust agreement, that the trust filed its own tax returns and that the beneficiaries reported their trust income on their personal tax returns. Finally, material issues existed as to the core issues of the case, including the amount of taxes owed by the taxpayers and whether the taxpayers had received notice and demand from the IRS.

MEMORANDUM AND ORDER

LAUGHREY, District Judge:

Pending before the Court is Defendant's Motion for Summary Judgment [Doc. # 26] filed on May 19, 1997. Plaintiffs filed Suggestions in Opposition on June 23, 1997. No Reply Suggestions were filed. After due consideration of the above, and for the reasons set forth below, Defendant's Motion is DENIED.

I. Summary Judgment Standard

A moving 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 as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). The party who moves for summary judgment bears the burden of showing that there is no genuine issue of material fact for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). When considering a motion for summary judgment, a court must scrutinize the evidence in the light most favorable to the nonmoving party and the nonmoving party "must be given the benefit of all reasonable inferences." Mirax Chem. Prods. Corp. v. First Interstate Commercial Corp., 950 F.2d 566, 569 (8th Cir. 1991). The district court's function is "not to weigh the evidence, but to determine whether the record . . . shows no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Langley v. Allstate Ins. Co., 995 F.2d 841, 844 (8th Cir. 1993) (citations omitted).

II. Factual Background

This case arises out of the Internal Revenue Service's ("IRS") filing of Federal Tax Liens against the Plaintiffs Joanne Dean and Janet Mossie as Co-Trustees of the George and Catherine Mossie Irrevocable Trust. ¹ Plaintiffs' Complaint alleges a cause of action for unlawful levy and return of property against the United States pursuant to 26 U.S.C. §7426. ² The Complaint also alleges a quiet title action pursuant to 28 U.S.C. §2410. The central issue in dispute in this case can be summarized as follows. The Government claims that the tax lien filings were based upon the outstanding tax liabilities of George and Catherine Mossie, and that the subsequent levies on the property of the Trust were not unlawful due to the fact that the Trust is merely the nominee or alter ego of George and Catherine Mossie. The Plaintiffs, on the other hand, argue that George Mossie has had no involvement with the Trust property since the creation of the Trust, and that Catherine Mossie's only involvement with the Trust relates to her capacity as a bookkeeper. Plaintiffs conclude that for these reasons, the nominee liens filed against the Plaintiffs are invalid and that the subsequent levies were wrongful.

The alleged unlawful levies arose out of the following circumstances. On May 29, 1990, the IRS began an audit of George and Catherine Mossie's jointly filed individual income tax return for 1988. [Def.'s Ex. 1.] The audit was expanded on July 9, 1990, to include tax year 1989; on March 18, 1991, to include tax year 1987; and on July 8, 1991, to include tax year 1990. [Def.'s Ex. 1]. On March 1, 1993, the Internal Revenue Service issued a statutory Notice of Deficiency with proposed deficiencies for the years 1987 through 1990. [Def.'s Ex. 2.] The Mossies pursued the matter through the Tax Court which ultimately held that they owed deficiencies in income tax and penalties. [Def.'s Ex. 4.] The Tax Court decision was entered and the IRS thereafter assessed taxes for the years 1987, 1988, 1989 and 1990. The amount of the deficiencies and penalties entered by the Tax Court substantially from the amount of the assessments issued by the IRS. ³ There is no explanation in the record for the differences in the amounts.

Several months after the assessments were made, on November 1, 1994, the IRS filed a Notice of Federal Tax Lien in Jackson County reflecting the outstanding federal income tax liabilities of the Mossies. [Def.'s Ex. 9.] The IRS also filed Federal Tax Liens in the names of Plaintiffs Joanne Dean and Janet Mossie as Co-Trustees of the Irrevocable Trust Agreement dated December 4, 1990, as nominees or alter egos of George and Catherine Mossie. [Def.'s Exs. 10 and 11.]

In addition to the personal income tax liabilities discussed above, the IRS assessed a tax penalty against George Mossie relating to unpaid employment taxes withheld from wages of the employees of Summit Structural Steel for the period ending June 30, 1992. George Mossie was a shareholder of the steel company. The penalty was assessed on February 8, 1993. Notices of Federal Tax Liens were filed in Jackson County on June 7, 1995, reflecting George Mossie's liability. Additionally, Notices of Federal Tax Liens were also filed on June 21 and June 23, 1995, in the names of Plaintiffs as Co-Trustees of the Trust. [Def.'s Exs. 13 and 14.]

Pursuant to these liens, the IRS levied upon bank accounts, cash values of insurance policies, certificates of deposit, rents due from tenants, and other property owned by the Trust. [Compl. at Ex. E.] These levies serve as the basis of this lawsuit.

II. Analysis and Discussion

Congress has given the United States the authority to levy upon a taxpayer's property in order to satisfy delinquent tax liabilities. Title 26 U.S.C. §6321 provides as follows:

If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the Untied States upon all property and rights to property, whether real or personal, belonging to such person.

28 U.S.C. §6321 (1989). The tax liability created by a tax assessment under §6321 continues until the tax liability is satisfied or the lien becomes unenforceable by reason of lapse of time. See 26 U.S.C. §6322. After notice and demand, the United States may collect unpaid taxes by means of an admin istrative levy "upon all property and rights to property . . . belonging to the taxpayer or on which there is a lien provided in this chapter for the payment of such tax." 26 U.S.C. §6331(a) (Supp. 1997). The United States may also file tax liens against property held by a third party, where that party is the nominee or alter ego of the taxpayer. See G. M. Leasing Corp. v. United States [77-1 USTC ¶9140], 429 U.S. 338, 350-351 (1977) (Assets of alter ego may be levied in satisfaction of taxpayer's income tax liability.) It is this alter ego theory that the Government contends it relied upon in levying the money in a bank account held in the name of the Trust. It is also this theory upon which the Government relies in its Motion for Summary Judgment.

In determining whether the Trust is an alter ego of George and Catherine Mossie, the Court must consider several factors, including:

(1) whether George and Catherine Mossie treated the Trust assets as their own;

(2) whether George and Catherine Mossie made payments, such as insurance or mortgage payments, on Trust property;

(3) whether there were sufficient internal controls in place with respect to the management of the Trust;

(4) whether Trust funds were used to pay George and Catherine Mossies' personal expenses;

(5) whether there was a close family relationship between the Trustees of the Trust and George and Catherine Mossier;

(6) whether property was transferred to the Trust without consideration; and

(7) whether George and Catherine Mossie personally benefitted from Trust property.

See Loving Savior Church v. United States [84-1 USTC ¶9261], 728 F.2d 1085, 1086 (8th Cir. 1984); F.P.P. Enter. v. United States [87-2 USTC ¶9536], 830 F.2d 114, 118 (8th Cir. 1987).

In the instant case, genuine issues of material fact preclude the Court from granting summary judgment on the issue of whether the Trust is the alter ego of George and Catherine Mossie. The Government argues that the Trust is a sham to shield George and Catherine Mossies' assets because the Trust was not established until December 4, 1990, after George and Catherine Mossie's tax liabilities were being examined by the IRS for the years 1988 and 1989. [Def.'s Sugg. at p. 6.] Plaintiffs argue in response that the Trust documents were originally drafted and signed on November 20, 1989, well before any IRS audit, but that all of the property transfer documents were not completed until December 4, 1990. [Pls.' Ex. 12; Pls.' Ex. 2 at p. 36.] Catherine Mossie attributes the delay, in part, to her being ill. [Pls.' Ex. 2 at p. 36.]

Additionally, the Government argues that George and Catherine Mossie treated the Trust property as if it were their own. In support of its argument, the Government alleges that, despite the fact that the Mossie's residence at 311 Lincolnwood Drive was transferred to the Trust, Catherine Mossie continues to live in the residence. [Def.'s Sugg. at p. 9.] Plaintiffs argue that Catherine Mossie lives in the residence rent free as compensation for her bookkeeping services for the Trust. [Pls.' Ex. 4 at pp. 23-24.] The Government also relies upon the fact that Catherine Mossie's managerial duties with respect to certain duplexes owned by the Trust are the same as those she performed before the properties were transferred to the Trust. [Def.'s Sugg. at pp. 10-11.] In response, Plaintiffs argue that although Catherine Mossie performs ministerial duties on behalf of the Trust, i.e., makes out checks, etc., she has no authority to sign Trust checks and there is no evidence that Catherine Mossie makes any non-ministerial decisions concerning the management of the duplexes. [Pls.' Sugg. at p. 17.] Genuine issues of material fact remain as to both of these arguments.

Additionally, in support of its Motion, the Government argues that the Trust took out a loan to pay off the federal income tax liabilities of George Mossie relating to Summit Structural Steel. [Def.'s Sugg. at pp. 12-13.] However, the citations in the record do not support the Government's assertion that the loan paid off "George Mossie's personal and corporate obligations" rather than the general obligations of the corporation. [See Def.'s Ex. 30 at pp. 26-28; Def.'s Ex. 25 at p. 28.] As argued by Plaintiffs, the loan from the Trust was made to a corporation in which a beneficiary of the Trust (Thomas Mossie) was a major stockholder. [Pls.' Ex. 3 at p. 34.] Genuine issues of material fact remain of to whether George Mossie personally benefitted from the loan taken by the Trust.

Furthermore, Plaintiffs have put forth evidence that the Trust income was distributed to the Mossie children in conformance with the Trust Agreement, the Trust filed its own tax returns and the Mossie children, as the beneficiaries of the Trust, reported the Trust income on their personal tax returns. [Pls.' Opp. at p. 12.]

And, finally, wholly apart from the alter ego theory espoused by the Government, material issues of fact exist as to the core issues in this case. The parties dispute (1) the amount of the taxes owed on George and Catherine Mossie's joint returns, and (2) whether George Mossie received notice and demand from the IRS relating to the tax liability of Structural Steel. [Def.'s Sugg. at p. 5; Pls.' Opp. at p. 11.] Without the requisite notice and demand, the Government cannot levy upon property subject to a lien. See 26 U.S.C. §1331.

Based upon the existence of genuine issues of material facts, specifically including those listed above, the Court declines to enter summary judgment in favor of the Defendant in this case.

III. Conclusion

For the foregoing reasons, it is hereby

ORDERED that Defendant's Motion for Summary Judgment [Doc. # 26] is DENIED.

¹ George and Catherine Mossie are the parents of Joanne Dean and Janet Mossie. The Mossies have two other children: Thomas Mossie and Linda Mossie. Joanne Dean and Janet Mossie serve as the Co-Trustees of an Irrevocable Trust established by their parents.

² Title 26 U.S.C. §7426 provides in relevant part, as follows:

If a levy has been made on property or property has been sold pursuant to a levy, any person (other than the person against whom is assessed the tax out of which such levy arose) who claims an interest in or lien on such property and that such property was wrongfully levied upon may bring a civil action against the United States in a district court of the United States. Such action may be brought without regard to whether such property has been surrendered to or sold by the Secretary.

³ The deficiencies and penalties entered by the U. S. Tax Court on May 4, 1994, were as follows: 1987--$49,694; 1988--$41,307; 1989--$35,752; and 1990--$47,600. [Pls.' Opp. at p. 10; Pls.' Ex. 27.] The assessments made by the IRS on June 3, 1994, and June 27, 1994, were as follows: 1987--$102,429; 1988--$65,986; 1989--$51,527; and 1990--$61,152. [Def.'s Sugg. at p. 4; Pls.' Opp. at p. 10.] As noted by the Plaintiffs, there is a discrepancy of $104,741.

 

 

 

American Trust, Plaintiff v. American Community Mutual Insurance Company, Inc., Defendant American Community Mutual Insurance Company, Inc., Plaintiff v. United States of America, et al., Defendants

U.S. District Court, So. Dist. Ohio , West. Div., Civ. C-1-95-691, 3/12/97

[Code Sec. 6321 ]

Tax liens: Property subject to lien: Commissions: Property transferred to third parties: Priority of tax lien.--The IRS was entitled to obtain funds assigned to a trust that was created by an insurance agent to hold both his commissions and other agents' commissions that were assigned to him. The tax lien against the taxpayer and one of the other agents extended to the commissions paid on their behalf and those commissions assigned to the taxpayer by the remaining agents. Further, since the commissions were earned and paid after the tax lien became effective and since the trust's interest in the commissions did not become choate until they were paid, the tax lien had priority over the trust's interest.

[Code Sec. 6332 ]

Levies: Surrender of property: Liability of payor: Third parties: Commissions.--Code Sec. 6332(e) barred a breach of contract action by insurance agents and a trust, which was created by one of the agents to hold both his commissions and other agents' commissions that were assigned to him, against the insurance company, which stopped paying the commissions into the trust upon receiving IRS notices of levy regarding the commissions. In light of those notices, the insurance company had no obligation to continue paying out the commissions. Since the other agents' commissions were first assigned to the taxpayer and then to the trust, those commissions became the taxpayer's property or right to property.

MEMORANDUM AND ORDER

BECKWITH, District Judge:

This matter comes before the Court to consider the motions for summary judgment filed by the United States and American Community Mutual Insurance Company ("ACMIC"), pursuant to Rule 56 of the Federal Rules of Civil Procedure. While other dispositive motions have also been filed in this case, the Court finds the United States ' and ACMIC's motions for summary judgment to be dispositive.

Background

This case consists of two separate actions that were filed in the Hamilton County Court of Common Pleas. The cases were consolidated by the Court of Common Pleas, and the United States removed the cases to this Federal Court. In order to establish the context within which the cases arose, the Court will first identify the parties and transactions which form the basis of the dispute.

Edgar Bradley ("Bradley"), Richard Davidson ("Davidson"), Brian Hollon and Jennifer Duytschaever (referred to collectively as "the Agents") were insurance agents who were authorized to sell insurance policies for ACMIC. Until their agency agreements with ACMIC were terminated on June 2, 1995, the Agents received commissions on premium payments which resulted from the Agents' sale of ACMIC's insurance policies. Between 1988 and early 1992, Richard Davidson, Brian Hollon and Jennifer Duytschaever each assigned their insurance sales commissions to Agent Bradley. On December 4, 1992, Bradley assigned the Agents' commissions, including his own, to a trust entitled "American AMB 06044 Irrevocable Trust" ("American Trust" or "the Trust"). ¹ Thereafter, ACMIC paid the Agents' commissions directly into the Trust, pursuant to the aforementioned assignments.

However, ACMIC received a number of Notices of Levy from the Internal Revenue Service (IRS) between October, 1993, and June 30, 1994, effective against Agents Bradley and Davidson. ² The Notices of Levy ordered ACMIC to pay over all property or rights to property belonging to Agents Bradley and Davidson. Upon receiving Final Demands regarding the levies, ACMIC stopped paying commissions into the Trust. ACMIC made its final payment into the Trust in May, 1994. Thereafter, ACMIC initially allowed the Agents' commissions to accumulate. Later, it deposited the accumulated commissions into the registry of the Hamilton County Clerk of the Court of Common Pleas.

The first suit in this case was filed by American Trust against ACMIC. The Trust alleged that ACMIC had a contractual obligation to pay the Agents' commissions into the Trust, and that it breached its contractual duty by failing to continue making payments. ACMIC filed the second action, in interpleader, to determine the true owner of the accumulated commissions. The parties to the second action include the Agents, the Trust, and the IRS. ³ The cases were consolidated in the Common Pleas Court , and United States removed the case to this Court. The sums that ACMIC deposited in the registry of the Court of Common Pleas have been transferred to the registry of this Court.

ACMIC has moved for summary judgment on the Trust's breach of contract claim, as well as the Agents' counterclaim in the interpleader action. In addition, the United States has moved for summary judgment in the interpleader action, asserting that the government has a right to the commissions which have been (and continue to be) deposited into the registry of this Court. As will be discussed below, these motions for summary judgment dispose of this case in its entirety.

Standard of Review

Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). The evidence presented on a motion for summary judgment is construed in the light most favorable to the non-moving party. United States v. Diebold, Inc., 369 U.S. 654 (1962). "The mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) (emphasis in original).

Summary judgment is clearly proper "against a party who fails to make a showing sufficient to establish the existence of an element essential to the party's case and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Significantly, the Supreme Court also instructs that the "the plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion" against a party who fails to make that showing with significantly probative evidence. Id. ; Anderson, 477 U.S. at 250. Rule 56(e) requires the non-moving party to go beyond the pleadings and designate "specific facts showing that there is a genuine issue for trial." Id.

Analysis

The Court will first address ACMIC's motion for summary judgment regarding the Trust's and the Agents' breach of contract claims. The Trust and the Agents allege that ACMIC breached a contractual duty by refusing to continue making commission payments into the Trust. However, ACMIC properly asserts that, upon receiving Notices of Levy, it had no obligation to pay the commissions to the Trust.

The statute which governs parties' rights with respect to a tax levy can be found at 26 U.S.C. §6332(e). Section 6332(e) provides:

Any person in possession of . . . property or rights to property subject to levy upon which a levy has been made who, upon demand by the Secretary, surrenders such property or rights to property . . . to the Secretary . . . shall be discharged from any obligation or liability to the delinquent taxpayer and any other person with respect to such property or rights to property arising from such surrender or payment.

Id. (emphasis added). ACMIC contends that this statute prevents the Trust and Agents from asserting a breach of contract claim, as ACMIC withheld the commissions payments pursuant to the IRS' Notices of Levy.

The Court agrees with ACMIC's conclusion that Section 6332(e) bars the Trust and the Agents from bringing a breach of contract claim. The Agents' commissions were first assigned to Agent Bradley, and then to the Trust. Upon being assigned to Bradley, the commissions became his "property or right [] to property," as governed by Section 6332(e). See generally State Bank of Frasier v. United States [88-2 USTC ¶9592], 861 F.2d 954, 967 (6th Cir. 1988) (where the court recognized that commissions could be "property or rights to property subject to levy," pursuant to 26 C.F.R. S 301.6331-1(a)(1)). Further, Section 6332(a) imposed a statutory obligation upon ACMIC to cease its payment of commissions into the Trust. See 26 U.S.C. 6332(a) ("[A]ny person in possession of . . . property or rights to property subject to levy . . . shall . . . surrender such property or rights . . . to the Secretary."). ⁴ In acting pursuant to the Notices of Levy, ACMIC was "discharged from any obligation or liability to the delinquent taxpayer and any other person." Id.; see, e.g., Thomsen v. Chevron Research Co., 1987 LEXIS 14909 (N.D. Cal. 1987) (where the court dismissed an action brought by an employee against an employer who complied with federal tax levies and withheld payment from the employee); cf. Bright v. Bechtel Petroleum, Inc., 780 F.2d 766, 770 (9th Cir. 1986) ("[A]n employer is not liable to an employee for complying with its legal duty to withhold tax."). Therefore, ACMIC is entitled to summary judgment with respect to the Agents' and the Trust's breach of contract claims.

Second, the United States moves for summary judgment in the interpleader action, alleging that the government is entitled to all of the commissions held by the Court. The United States argues that its tax liens are superior to any claims that the Trust or the Agents have regarding the commissions. For the reasons set forth below, the Court agrees that the United States is entitled to the funds.

The IRS relies upon its tax lien power in asserting first priority to the commissions. See the United States ' memorandum in support of its motion for summary judgment, at 4-5. The IRS's lien power is established in 26 U.S.C. §6321. That section provides that, "[i]f any person liable to pay any tax neglects or refuses to pay the same after demand, the amount . . . shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person." The Secretary of the Treasury made an assessment against Agent Bradley in the amount of $90,406.76, and made assessments against Agent Davidson in the amount of $28,534.05. Agents Bradley and Davidson are liable to the United States in these amounts, and Section 6321 provides that the government has a lien against all property and rights to property against them. See id. This lien extends to the commissions held in the registry of this Court that were paid on behalf of Agents Bradley and Davidson. See, e.g., Dever v. United States [81-1 USTC ¶9163], 1980 WL 1729, *5 (S.D. Oh. 1980) (unpublished opinion) (where the Court recognized that "property or rights to property" exist in sales commissions, and that the commissions can therefore be subject to federal tax liens). In addition, Agents Hollon and Duytschaever assigned their commissions to Agent Bradley. See discussion supra, at 2. Thus, the portions of the commissions held in the registry earned by them are also subject to Bradley's tax lien.

Counsel for American Trust argues that the Trust's claim to the commissions is superior to that of the government's liens. In cases involving federal tax liens, the issue of priority is governed by federal law. Aquilino v. United States [60-2 USTC ¶9538], 363 U.S. 509, 513-14 (1960). Federal tax liens arise on the date of the assessment and generally remain in force until the assessments are fully satisfied. See United States v. Big Value Supermarkets, Inc. [90-1 USTC ¶50,160], 898 F.2d 493, 496 (6th Cir. 1990). In order for a state law claim to defeat a later-arising federal tax lien, the state interest must become "choate" prior to the effectiveness of the federal lien. United States v. Pioneer American Insur. Co. [63-2 USTC ¶9532], 374 U.S. 84, 88 (1962). A state interest becomes choate "when the identity of the lienor, the property subject to the lien, and the amount of the lien are established." United States v. City of New Britain [54-1 USTC ¶9191], 347 U.S. 81, 84 (1954); accord 26 C.F.R. §301.6323(h)-1(g) ("A judgment lien is not perfected until the identity of the lienor, the property subject to the lien, and the amount of the lien are established."). American Trust asserts that the Trust instrument created a choate interest, which is superior to the federal tax lien. However, the Court concludes that the Trust's interest in the commissions did not become choate until said commissions were paid. The commissions were earned and paid after the federal tax liens became effective, and therefore the tax lien has priority over the Trust's interest in the commissions.

The assessments against Agent Davidson became effective in 1988, 1989 and 1990. The assessment against Agent Bradley became effective on August 9, 1993. The federal tax liens against Bradley and Davidson arose on the date of the assessments. Aquilino [90-1 USTC ¶50,160], 898 F.2d at 496. Meanwhile, the assignment of the Agents' commissions to the Trust became effective on December 4, 1992. The Trust asserts that the assignment became effective prior to Bradley's federal tax lien, and that, therefore, the Trust's interest in the commissions is superior to that of the tax lien. However, the commissions held in this Court's registry reflect commissions earned by the Agents from March 31, 1994, until the present time. The Trust's interest in these commissions only became choate when "the property subject to the [interest] . . . and the amount of the [interest we]re established." New Britain [54-1 USTC ¶9191], 347 U.S. at 84. The Trust's interest in commissions did not become choate until they were paid; ⁵ until that time, the commissions did not exist and the amounts of the commissions could not be determined. See id.; accord Don King Productions, Inc. v. Thomas [91-2 USTC ¶50,474], 945 F.2d 529, 534-35 (2d Cir., 1991) (where the court found the state interest to be inchoate, and therefore subordinate to the federal tax lien, because the property subject to the lien did not come into existence until after the government's lien); Denver [81-1 USTC ¶9163], 1980 WL 1729, at *5 ("the United States' federal tax lien attached to . . . commissions when they came into existence. . . ."). Therefore, the Trust's interest in the commissions only became choate after the government liens had attached, and the United States is entitled to all funds held in the registry of this Court.

The Court notes that the Trust and the Agents have made a number of frivolous arguments based on the alleged unconstitutionality of the Federal Tax Code, as well as the government's alleged failure to comply with statutory and regulatory provisions set forth in the Code and Regulations. However, the Agents and counsel for the Trust fail to cite legal or factual support for their arguments. The Court finds these arguments, as well as the numerous dispositive motions filed on behalf of the Trust and the Agents, to be wholly lacking in merit. This Court can only conclude that the Trust and the Agents have abused the judicial process in litigating this lawsuit, and have caused two years of needless legal wrangling. The Court calls the parties' attention to the Sixth Circuit Court of Appeals' precedent which allows the imposition of attorneys' fees and other sanctions in suits which are frivolous or brought in bad faith. See e.g., Val-Land Farms, Inc. v. Third Nat'l Bank in Knoxville, 937 F.2d 1110, 1117 (6th Cir. 1991); Abrahamsen v. Trans-State Express, Inc., 92 F.3d 425, 430 (6th Cir. 1996). For the foregoing reasons, the United States ' motion for summary judgment in the interpleader action shall be granted.

Conclusion

For the foregoing reasons, ACMIC's motion for summary judgment (Doc. 59) is hereby GRANTED; the Trust's claim for breach of contract, as well as the Agents' counter-claim in the interpleader suit, are DISMISSED WITH PREJUDICE. In addition, the United States ' motion for summary judgment (Doc. 64) is GRANTED, and the Court orders the Clerk of Courts to pay all monies deposited in this case to the United States , pursuant to the government's liens against Agents Bradley and Davidson. Finally, the Court hereby orders ACMIC to pay all future commissions earned on behalf of Agents Bradley and Davidson to the Secretary of the Treasury, until the tax liens against them are satisfied in full. ⁶. All other motions pending before this Court are hereby deemed MOOT, and this case is DISMISSED WITH PREJUDICE.

IT IS SO ORDERED.

¹ The IRS asserts that Bradley created the Trust in an attempt to unlawfully evade federal income taxation. This assertion is supported by the record. Specifically, the instrument purports to be an irrevocable inter-vivos trust; yet, Mr. Bradley's assignment of commissions to the Trust can be revoked at will.

The parties stipulate that the Agents purport to be named beneficiaries of the Trust.

² Edgar Bradley and Richard Davidson are noted tax protestors. The Notices of Levy were issued against them pursuant to assessments made by the Secretary of the Treasury for unpaid federal income taxes; Bradley and Davidson have neglected, failed or refused to pay the assessed liabilities. Notices of Federal Tax Liens have been filed in the Hamilton County Recorder's Office with respect to Bradley and Davidson.

³ The Agents filed a counterclaim against ACMIC in the interpleader action, alleging breach of contract.

⁴ Indeed, ACMIC had not only a duty to cease making commission payments to the Trust, but also an obligation to make the payments to the Secretary. See 26 U.S.C. 6332(a). However, the Agents persuaded ACMIC not to pay the Secretary, claiming that the underlying tax liens were invalid. ACMIC gave the Agents the benefit of the doubt, and accumulated the commissions rather than turning them over to the Secretary; it later deposited the commissions with the registry of the Court.

In any event, the Trust and the Agents cannot now argue that the exculpatory provision in 26 U.S.C. 6332(e) does not apply to ACMIC because it failed to transfer the commissions to the Secretary. The Agents and the Trust cannot enjoy the benefits of ACMIC's circumspection, and later use it as a sword to establish liability.

⁵ Indeed, Ohio law also dictates that, when money is assigned pursuant to an existing contract, the assignment of the future payments becomes effective only when the money "becomes due and payable to the assignor." See General Excavator Co. v. Judkins, 190 N.E. 389, 391 (Oh. 1934).

⁶ Under their contracts with ACMIC, the Agents were entitled to commissions on insurance premiums paid within the first year of the sale of ACMIC policies, provided that the agency agreements remained in effect. As stated above, the Agents' contracts with ACMIC were terminated as of June 2, 1995 . Therefore, the Agents' "first year" commissions related to sales of ACMIC policies are no longer accruing. However, the agency agreements also entitle the agents to "renewal commissions" on insurance premiums paid by policyholders, even after the agency agreements are terminated. Indeed, these renewal commissions account for a small portion of the money which has accumulated in the registry of this Court.

Agents Hollon and Duytschaevers' assignment of commissions to Agent Bradley were revocable upon their giving 30 days notice of revocation to ACMIC. Agents Hollon and Duytschaever gave notice to ACMIC on February 18, 1997 . Therefore, any commissions which accrues on their behalf after March 20, 1997 (i.e., 30 days after their giving notice), shall be paid directly to them. However, Agents Davidson and Bradleys' future commissions shall continue to be paid to the Secretary of the Treasury, as they are directly liable to the United States pursuant to the tax liens against them.

The Court further orders the IRS to subtract commissions earned by Mr. Davidson (to date, and in the future) from those of the other Agents', and use Mr. Davidson's commissions to first satisfy the liens against him. Mr. Davidson's federal tax liens attached to his commissions prior to his assignment of the commissions to Mr. Bradley; in other words, Agent Bradley's interest in Davidson's commissions (pursuant to the assignment between Davidson and Bradley) in inferior to the federal tax liens against Davidson. See Discussion supra, at 8-9. Therefore, Mr. Davidson's commissions should first be used to satisfy his federal tax liens. In the event that Mr. Davidson's commissions exceed his tax liability, then the remainder of his commissions can be applied to Mr. Bradley's tax liability. However, on February 18. 1997, Mr. Davidson also gave notice of revocation to ACMIC regarding his assignment to Bradley. Therefore, any commissions which accrue on his behalf after March 20, 1997 , shall be paid directly to him, provided that his liability pursuant to the tax lien against him has bee satisfied in full.

As a final matter, ACMIC has indicated that one final commission payment may be in process to the Clerk of the Court. ACMIC is hereby permitted to make any final deposits to the Clerk of the Court within twenty-one (21) days of the date of this Order, and the Court hereby orders the Clerk to forward any final payments made by ACMIC to the United States . In addition, ACMIC has no duty to provide accounting information concerning such final payments to any party other than the United States .

 

 

 

United States of America, Plaintiff v. Harold E. Wilfley, et ux., et al., Defendants Harold E. Wilfley and Ellen J. Wilfley, Debtors/Plaintiffs v. United States of America, Department of Treasury, I.R.S., Oregon Department of Revenue, and Oregon Department of Human Resources, Defendants

U.S. District Court, Dist. Ore., Civ. 92-909-HA, 93-96-HA, 5/1/97

[Code Secs. 6203 and 6303 ]

Assessments: Form 4340: Notice and demand.--The Forms 4340, Certificate of Assessments and Payments, submitted by the IRS for married taxpayers provided presumptive evidence that they were given all the documentation of tax assessments they were entitled to receive. Furthermore, the IRS properly issued notices of assessment and demand for payment. Thus, their tax liability was properly assessed. Their tax protestor arguments and their unsupported contentions that they never received notices of assessment were rejected.

[Code Sec. 6321 ]

Liens and levies: Sham transfers to avoid taxes.--Married taxpayers' contentions that assessments were based upon an erroneous determination concerning trust income were rejected. The trust was invalid under state ( Oregon ) law because it had no identifiable beneficiaries. A deed by which the taxpayers purported to convey real property to the trust was void as a sham transfer because it failed to identify a valid grantee. Therefore, title remained with the taxpayers.

Kristine Olson, United States Attorney, Portland, Ore. 97204-2024, Sanford W. Stark, Department of Justice, Washington, D.C. 20530, for plaintiff. Harold E. Wilfley, Ellen J. Wilfley, 16532 S. Mills Rd., Mulino, Ore. 97402, pro se. John Stuart Salter, Northwest Farm Management, P.O. Box 1111, Mulino, Ore. 97042, pro se. Lowell Becraft, 209 Lincoln St., Huntsville, Ala. 35801, Micaela R. Dutson, 12900 S.W. Pacific Hwy., Tigard, Ore. 97223, for Northwest Farm Management Co. Theodore R. Kulongoski, Attorney General, Mary Lou Haas, Assistant Attorney General, Department of Justice, Portland, Ore. 97201, for State of Oregon.

OPINION AND ORDER

HAGGERTY, District Judge:

The United States filed this action pursuant to 26 U.S.C. §§7401 and 7403 seeking judgment on an outstanding federal tax assessment against defendants Harold and Ellen Wilfley for the tax years 1976-81 and 1983. In relation to the assessment, the government also seeks to foreclose tax liens on property located in Mulino , Oregon by setting aside an alleged sham transfer of that property by the Wilfleys to the Wilfleys' Health Food Trust Organization ("Wilfley Trust"), an entity the government claims is the alter ego of the Wilfleys. The government also seeks to set aside two subsequent transfers of that property from the Wilfley Trust to First National Trust Unincorporated ("First National") and then from First National to Northwest Farm Management Company, Unincorporated ("Northwest Farm Management").

The government's complaint alleges that the trustees of First National are defendants Merlin Harris, Allen Hardy (dba Pacific North West Trust Company), James Carlson and Fred Ortiz, and that the trustees of Northwest Farm Management are defendants Harris and Hardy (dba Pacific North West Trust Company). John Stuart Salter filed a notice of appearance claiming that he is the trustee for Northwest Farm Management.

Subsequently, the government dismissed Carlson from the action due to his death. By opinion dated August 4, 1993 , the government's motion to strike the appearance of Hardy was granted on the basis that a trustee with no beneficial interest in the trust could not appear pro se. By order dated October 4, 1993 , the government's motion to strike the appearances of Harris and Ortiz was granted with respect to Harris on the ground that he had improperly appeared pro se. With respect to Ortiz, the motion was moot because he had resigned as trustee. Thus, Salter is the only remaining trustee defendant. He is represented by counsel in his capacity as trustee of Northwest Farm Management and he is appearing pro se in his individual capacity.

This civil action was consolidated with an adversary proceeding the Wilfleys initiated in the United States Bankruptcy Court for the District of Oregon. In that adversary proceeding, the Wilfleys sought a determination that the tax liabilities at issue were discharged in bankruptcy and the tax assessments themselves were made after the expiration of the applicable statute of limitations.

The government filed a Renewed Motion For Partial Summary Judgment. Oral argument was heard on these matters. For the reasons that follow the government's Renewed Motion For Partial Summary Judgment is granted.

PROCEDURAL BACKGROUND

By the instant motion, the United States renews its previously-filed Motion For Partial Summary Judgment and Amended Motion For Partial Summary Judgment, filed on March 19, 1993, and April 22, 1993, respectively. Briefly, the procedural history is as follows: On April 27, 1993, Judge Marsh denied the original and amended summary judgment motions as "premature" due to defendant Hardy's pending motion to set aside the default entered against him. Specifically, the April 27, 1993, order issued by Judge Marsh stated as follows:

In light of deft Hardy's pending motion to set aside default and the expressed desire of the successor trustee of Northwest Farm Management to appear in this action, pltf's motion for partial summary judgment and amended motion for partial summary judgment are premature and are DENIED with the right to reraise. Pltf may "reraise" its motion for partial summary judgment and amended motion for partial summary judgment after the resolution of deft Hardy's motion to set aside default.

On May 19, 1993, Judge Marsh issued an order granting defendant Hardy's motion to set aside the default entered against him. The resolution of defendant Hardy's motion allowed the United States to reassert its request for summary judgment. Accordingly, on August 6, 1993, the government filed its Renewed Motion For Partial Summary Judgment, which simply incorporated the original and amended summary judgment motions.

On November 3, 1993, the court entered an order staying the entire action due to the medical condition of Mrs. Wilfley. Based on the stay of proceedings, the court struck the renewed summary judgment motion from the pending motions inventory and indicated that the motion would be "recalendared" when the stay was lifted.

On March 28, 1994, the court lifted the stay of the proceedings. Simultaneously, the court recalendared the government's renewed summary judgment motion by establishing a briefing schedule and setting oral argument on May 23, 1994, along with defendant Salter's cross-motion for summary judgment. The case was transferred to this court in late March 1994. On May 23, 1994, the court heard oral argument on the government's Renewed Motion For Partial Summary Judgment and defendant Salter's Motion For Partial Summary Judgment.

After the hearing, the parties submitted written responses to written questions that the court had propounded at oral argument. Upon receipt of the responses on June 28, 1994, the court issued an order stating that the United States ' Renewed Motion For Summary Judgment was under advisement as of the date of oral argument, May 23, 1994. Approximately one year later, on May 24, 1995, the government filed a Motion For Entry Of Order requesting that the court rule on the renewed summary judgment motion that was pending. Approximately 10 months later, the court entered an order denying defendant Salter's partial summary judgment motion pending since May 23, 1994. The court concluded that the government was not time-barred from its right to seek recovery of the Mulino property in satisfaction of the outstanding tax liabilities. In addition, the court determined the Wilfleys' bankruptcy discharge was not a bar to the government's right to recovery.

With respect to the government's renewed summary judgment motion the court stated:

An examination of the court's internal docketing system reveals that the Renewed Motion is not currently pending; rather, it appears to have been resolved. Thus, the government's motion for entry of order is DENIED. However, to the extent that the government believes the issues presented in its Renewed Motion have not been adjudicated, it is hereby granted leave to reassert such issues.

The government accurately submits that the issues presented in its original and amended summary judgment motions, as reasserted in its renewed summary judgment motion, have never been adjudicated by the court.

STANDARD

Summary judgment is appropriate if the court finds that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). There is no genuine issue of material fact where the nonmoving party fails "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. v. Catrett, 477 U.S. 317, 323 (1986); Harper v. Wallingford , 877 F.2d 728, 731 (9th Cir. 1989).

All reasonable doubts as to the existence of genuine issues of fact must be resolved against the moving party. Hector v. Wiens, 533 F.2d 429, 432 (9th Cir. 1976). The inferences drawn from underlying facts must be viewed in the light most favorable to the party opposing the motion. Valandingham v. Bojorquez, 866 F.2d 1135, 1137 (9th Cir. 1989). Where different ultimate inferences can be drawn, summary judgment is inappropriate. Sankovich v. Life Ins. Co., 638 F.2d 136, 140 (9th Cir. 1981).

In responding to a motion for summary judgment, the nonmoving party must set forth specific facts showing that there is a genuine issue for trial. Fed. R. Civ. P. 56(c). "If he does not so respond, summary judgment, if appropriate, shall be entered against him." Oltarzewski v. Ruggiero, 830 F.2d 136, 138-139 (9th Cir. 1987).

DISCUSSION

I. Whether the United States ' complaint correctly identifies the amount of taxes, penalties and interest for which the Wilfleys are liable and for which the United States will be entitled to judgment if it prevails in this litigation?

The government seeks a determination that the Wilfleys are liable for the assessments of income tax, interest and penalties for the tax years 1976-1981 and 1983 as set forth in its complaint. In support of its motion for partial summary judgment, the United States submitted exhibits that establish that the taxes at issue, in fact, have been assessed. Specifically, the government has presented a copy of Form 4340, Certificate of Assessments and Payments, for Harold E. & Ellen J. Wilfley, for United States Individual Income Tax Return for tax periods December 31, 1976 through December 31, 1981, and December 31, 1983.

Certificates of Assessments and Payments are an accepted method of establishing the fact that assessments were made and that notices and demand for payment were sent. Koff v. United States [93-2 USTC ¶50,520], 3 F.3d 1297, 1298 (9th Cir. 1993), cert. denied, 511 U.S. 1537 (1994); Hughes v. United States [92-1 USTC ¶50,086], 953 F.2d 531, 535 (9th Cir. 1992). A properly certified assessment for unpaid federal taxes is presumptively correct evidence of a taxpayer's liability. United States v. Janis [76-2 USTC ¶16,229], 428 U.S. 433, 440-41 (1976); Koff [93-2 USTC ¶50,520], 3 F.3d at 1298; Hughes [92-1 USTC ¶50,086], 953 F.2d at 540. If the taxpayer fails to meet his burden of showing the assessments to be incorrect, summary judgment in favor of the Government is appropriate upon submission of the Certificates of Assessments and Payments. Adams v. United States , 358 F.2d 986, 994 (Ct.Cl. 1966). The government's submission of these documents adequately evidences the Wilfleys' tax liability. Accordingly, the government has satisfied its initial burden for summary judgment.

To defeat summary judgment, the Wilfleys must present specific facts that show there is a genuine issue for trial related to whether the assessments are correct. See Fed. R. Civ. P. 56(e). Although the Wilfleys' are pro se defendants in this matter, it is clear from their pleadings filed in opposition to the government's motion for partial summary judgment that they understand their burden on summary judgment. Indeed, the Wilfley's set forth a detailed explanation of the mechanics for summary judgment, including appropriate legal citations, the form of evidence that must be submitted, the proper view of the evidence, the inferences to be drawn and the shifting burdens. The court is satisfied that the Wilfleys' understand their burden on summary judgment.

As a threshold matter, the court will not consider the discredited arguments frequently used by tax protestors and consistently rejected by the Ninth Circuit. All of the Wilfleys challenges to this action based on constitutional grounds and subject matter jurisdiction grounds are wholly without merit.

The Wilfleys vigorously challenged the correctness of the assessments set forth in the government's complaint. Although it is not entirely clear from their pleadings, it appears the Wilfleys oppose summary judgment on this issue for the following reasons: 1) the "Assessment Certificate" they requested and received under the Freedom of Information Act ("FOIA") does not include their name, social security number, the assessment amount, a proper signature, and is three years earlier than the date of assessment relied on by the government; 2) they have not received the mandated "Notice of Assessment and Demand" for the taxes summary of assessments as required by 26 U.S.C. §6303; and 3) the underlying computations supporting the government's assessments are based upon an admin istrative, rather than judicial, determination to disallow the Wilfley Trust.

The first contention of the Wilfleys concerning the discrepancies in the documents they received pursuant to their FOIA request is irrelevant. Here, the government submitted a Form 4340, Certificate of Assessments and Payments, for both of the Wilfleys. These forms set forth, for each of the taxable years: their names and a social security number; the amounts of tax, penalties, and interest assessed; the type of tax assessed; the period for which the tax was assessed; the date on which the tax was assessed (the "23C date"); and the dates various notices were issued. Thus, the government submitted presumptive evidence that it properly assessed the Wilfleys' taxes for the years in question.

Furthermore, because the Forms set forth all the information that section 6203 requires, the government submitted presumptive evidence that the Wilfleys were given all the documentation they were entitled to under section 6203. See Koff [93-2 USTC ¶50,520], 3 F.3d at 1298 (citing James v. United States [92-2 USTC ¶50,389], 970 F.2d 750, 755 (10th Cir. 1992) ("notices [of assessment] also satisfy 26 U.S.C. §6203, the requirement that the IRS provide a copy of the record of assessment")). The Wilfleys do not present sufficient evidence to rebut the presumption that the assessments were valid. Apart from their own conclusions, the Wilfleys fail to come forward with either evidence or legal authority to challenge the validity of the Form 4340 certificates submitted by the government. Accordingly, the Wilfleys cannot avoid summary judgment solely on the ground that the Certificates submitted by the government are not valid.

The Wilfleys next contend that the Internal Revenue Service ("IRS") failed to properly issue the notices of assessment and demand for payment pursuant to section 6303. This contention also lacks merit. Section 6303 requires that a notice of assessment must be sent to the taxpayer within 60 days after making an assessment pursuant to section 6203. 26 U.S.C. §6303. "Form 4340 is probative evidence in and of itself and, in the absence of contrary evidence, [is] sufficient to establish that notices and assessments were properly made." Hansen v. United States , 7 F.3d 137, 138 (9th Cir. 1993).

Here, Form 4340 supports the government's contention that timely notices and demands were sent to the Wilfleys for the tax years in question. The Wilfleys contend that they never received the notices of assessment. They failed, however, to present any specific facts showing that the IRS did not send the notices and demands. Accordingly, the Wilfleys cannot avoid summary judgment solely on the ground that they did not receive the notice of assessments.

Finally, the Wilfleys insist that the underlying computations supporting the government's assessments are based upon an erroneous determination to disallow the Wilfley Trust. Specifically, the Wilfleys contend that the amounts of the tax assessments are incorrect because the trust is a valid trust and so trust income was improperly imputed to them. The Wilfleys fail to support this defense to the tax assessments with competent evidence.

The government acknowledges that the tax assessments against the Wilfleys are based, in part, upon the IRS's finding that certain income allegedly earned by the Wilfley Trust should be included in the Wilfleys' personal gross income on the theory, inter alia, that such trust is invalid. In support of its theory, the United States has supplemented the record with complete copies of two Declarations of Trust, Exhibits T and U to Amendment to Declaration of Mark E. Nebergall. Exhibit T is dated March 17, 1976 , and was recorded with the Sacramento , County, California recorder's office on September 30, 1976 . Exhibit U is dated May 15, 1976, approximately four and one-half months prior to the recording of the March 17, 1976 Declaration, and is not recorded.

The parties dispute which Declaration of Trust actually governs the Wilfley Trust. The court need not resolve that issue because, regardless of which Declaration actually governs, the Wilfley Trust is invalid as a matter of law. Various treatises on the law of trusts define a trust as "a fiduciary relationship with respect to property subjecting the person to whom the title to property is held to equitable duties to deal with the property for the benefit of another person, which arises as a result of a manifestation of an intention to create it." See, e.g., Restatement 2d, Trusts §2; W. Fratcher, Scott on Trusts §2.3 (4th ed. 1987). See also Templeton v. Bockler, 73 Or. 494, 506, 144 P. 405, 409 (1914); accord Shipe v. Hillman, 206 Or. 556, 562, 292 P.2d 123, 126 (1955).

In Oregon , four elements are necessary to create a valid trust: 1) property, 2) a trustee, 3) identifiable beneficiaries, and 4) some manifestation of intent by the grantor to create the relationship. See United States National Bank of Portland v. Krautwashl, 221 Or. 609, 611, 351 P.2d 947, 948 (1960). The burden is on the Wilfleys to establish that each of the requirements were satisfied with respect to the Wilfley Trust. The Wilfleys simply do not meet that burden on summary judgment.

Relevant to this case is the requirement that there exist identifiable beneficiaries before a trust can be created. See, e.g., United States v. Spurgeon [88-2 USTC ¶9583], 861 F.2d 181, 183 (8th Cir. 1988); see generally Agan v. United States Nat'l Bank, 227 Or. 619, 626, 363 P.2d 765, 769 (1961); Endicott v. Bratzel, 145 Or. 654, 658, 27 P.2d 883, 885 (1933); In re Johnson's Estate, 100 Or. 142, 156, 196 P. 385, 389 (1921). Neither of the Declarations of Trust for the Wilfley Trust provides a means for identifying the Wilfley Trust's beneficiaries. Although the Declarations of Trust provide the trustees with authority to issue 100 interim certificates of beneficial interest, there is no means for identifying the Trust's intended beneficiaries. The Wilfleys point out that Exhibit U references an "Attachment C" that lists the certificate holders. The Wilfleys, however, failed to submit this document in opposition to the government's motion for summary judgment.

On the record before the court, it is impossible to determine the persons to whom the certificates may be issued. Indeed, there is no description of the class of persons to whom the trustees may issue the certificates, and there is no method by which the certificates will be issued to the class. Thus, there are no identifiable beneficiaries and the Wilfley Trust is invalid under Oregon law. See Agan, 227 Or. at 626, 363 P.2d at 769; Endicott, 145 Or. at 658, 27 P.2d at 885; In re Johnson's Estate, 100 Or. at 156, 196 P. at 389. The court notes that the result would be the same under California law. See Chang v. Redding Bank of Commerce, 29 Cal.App.4th 673, 684, 35 Cal.Rptr.2d 64, 70 (1994) ("A trust is created by a manifestation of intention of the settlor to create a trust, trust property, a lawful trust purpose, and an identifiable beneficiary.").

As stated above, the government presented presumptive evidence that the amount of the tax assessments set forth in its complaint were correct. The burden shifted to the Wilfleys to prove that the challenged assessments are improper. They have not been able to carry their burden of rebutting the presumption of correctness by presenting competent and relevant evidence to establish that there is a material question concerning whether the assessments were arbitrary or erroneous. See United States v. Stonehill [83-1 USTC ¶9285], 702 F.2d 1288, 1293-94 (9th Cir. 1983), cert. denied, 465 U.S. 1079 (1984). Thus, summary judgment is granted in favor of the government on the question of whether the United States ' complaint correctly identifies the amount of taxes, penalties and interest for which the Wilfleys are liable and for which the United States will be entitled to judgment if it prevails in this litigation.

II. Whether the deeds by which the Wilfleys purported to convey the real property at issue are void, such that title to the property remains with the Wilfleys.

The government contends that the deed by which the Wilfleys purported to convey the property at issue is void because it fails to identify a valid grantee. The government argues alternative theories for its contention that the deed at issue in this case is void: 1) the deed purports to convey the property to a trust, but a trust is legally incapable of holding title to property; or 2) even if a trust were legally capable of holding title to property, the trust to which the Wilfleys purported to transfer the subject property is invalid. Because the court has determined that the Wilfley Trust is invalid, it need not determine whether the Wilfley Trust was legally capable of holding title to the property.

The deed by which the Wilfleys purported to convey their property to the Wilfley Trust is void because the Trust was invalid. As such, any subsequent conveyances of the property by the Wilfley Trust must be declared void as well. Thus, summary judgment is granted in favor of the government on the question of whether the deeds by which the Wilfleys purported to convey the real property at issue are void, such that title to the property remains with the Wilfleys.

CONCLUSION

Based on the foregoing, the government's Renewed Motion For Partial Summary Judgment (doc. #428) is GRANTED. The remaining issue for trial is whether the Wilfleys' tax liabilities at issue are excepted from discharge pursuant to certain provisions of the United States Bankruptcy Code. The 10-day trial is set to begin at 9:00 am on August 5, 1997 , in Portland , Oregon .

IT IS SO ORDERED.

 

 

 

United States of America , Plaintiff-Appellee v. Gerald J. Landsberger, Betty A. Landsberger, John Wilde, Eileen Lipari, Defendants-Appellants

(CA-9), U.S. Court of Appeals, 9th Circuit, 98-15176, 98-15299, 98-15573, 2/12/99, Affirming a District Court decision, 97-2 USTC ¶50,822

[Code Sec. 6321 ]

Property subject to lien: Trusts: Nominee or alter ego.--The IRS was entitled to foreclose on residential property held by a trust that qualified as delinquent taxpayers' alter ego. Tax liens on the property were properly ordered enforced because the trust and the alleged transfers of ownership to it were invalid.

[Code Sec. 7402 ]

Property subject to lien: Trusts: Nominee or alter ego: Appeal: Extension of time: Amended judgment: Jurisdiction.--A trial court did not err in denying married taxpayers' motions to extend the period of time in which they could appeal a foreclosure order on residential property held by their alter ego trust or amend the judgment. Its determination that it lacked subject matter jurisdiction over the taxpayers was sustained.

Before: CANBY, O'SCANNLAIN and WARDLAW, Circuit Judges. ¹

è Caution: This court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.ç

MEMORANDUM ²

Gerald and Betty Landsberger, John P. Wilde and Eileen Lipari (collectively "Landsbergers") appeal pro se three orders of the district court. We affirm the district court's decree of foreclosure allowing enforcement of federal tax liens on the Landsbergers' property and finding the tax liens valid, because the district court properly concluded the subject trust and alleged transfers of ownership were invalid since the trusts were alter egos for the Landsbergers. See G.M. Leasing Corp. v. United States [77-1 USTC ¶9140], 429 U.S. 338 (1977); Towe Antique Ford Foundation v. I.R.S. [93-2 USTC ¶50,430], 999 F.2d 1387, 1391 (9th Cir. 1993); Hughes v. United States [92-1 USTC ¶50,086], 953 F.2d 531, 537 (9th Cir. 1992).

The district court did not err by denying the Landsbergers' motion to extend time to appeal the district court's January 5, 1996 Order, and the district court did not err by denying the Landsbergers' Fed. R. Civ. P. (60(b) motion to alter or amend judgment for lack of subject matter jurisdiction over them.

Accordingly, the district court's orders are

AFFIRMED.

¹ The panel unanimously finds this case suitable for decision without oral argument. See Fed. R. App. P. 34(a).

² This disposition is riot appropriate for publication and may not be cited to or by the courts of this circuit except as may be provided by 9th Cir. R. 36-3.

 

 

 

United States of America , Plaintiff v. Gerald J. Landsberger, et al., Defendants

U.S. District Court, Dist. Ariz. , CIV 94-0883-PHX-SMM, 9/30/97

[Code Sec. 6321 ]

Property subject to lien: Trusts: Nominee or alter ego: Economic realty: Sham transactions.--The IRS was entitled to foreclose on residential property that was held in a married couple's nominee or alter ego trust. The nominee or alter ego theory applied because the creation of the trust did not coincide with economic realty and the trust was, in effect, a sham. The husband admitted that the trust was set up as a shell for the purpose of keeping his property at arm's length from potential creditors, including the IRS, and the undisputed facts established that he maintained active and substantial control over the trust. Since the trust was the nominee or alter ego of the couple, the timing of its creation was irrelevant.

[Code Sec. 6323 ]

Validity of lien: Priority over third-party interests: Bona fide purchaser.--Pursuant to both federal and state ( Arizona ) law, federal tax liens on residential property took priority over any interest held by alleged bona fide purchasers who took title with full knowledge of the tax liens.

ORDER

I. INTRODUCTION

MCNAMEE, District Judge:

On September 29, 1995 , this Court entered an Order holding that the United States ' tax assessments against Defendants Gerald and Betty Landsberger for the years of 1979, 1980, 1981 and 1982 could be reduced to judgment. Additionally, the Court held that the United States could foreclose its tax liens on the Landsberger's residential property related to the assessments made against them for the years of 1979 and 1980. However, subsequent to the entry of judgment, the United States moved to enter default judgment against Defendants Nancy Fieldman and Jeffrey Fadden as trustees of the trust that held the residential property. The Court denied the motion for default judgment and order and decree of foreclosure with respect to the property, and set discovery deadlines for this action to proceed forward on the issue of foreclosure of the property.

Currently pending before this Court is Plaintiff's Renewed Motion for Summary Judgment on a different theory again seeking an Order that would allow the United States to foreclose on the tax liens arising from the 1979 and 1980 income tax assessments. ¹

II. RELEVANT FACTS

The following facts are undisputed. In October of 1961, Defendants Gerald and Betty Landsberger took title to property at 1677 West County Road F in St. Paul , Minnesota ("St. Paul Property"), and lived in the property until March of 1982. In January of 1981, the Landsbergers transferred the St. Paul property to the G. J. Landsberger Family Trust 2-372 ("Trust #2-372") for "$1.00 and other good and valuable consideration"). See Deposition Transcripts Filed in Support of the United States Renewed Motion for Summary Judgment, Deposition of Gerald J. Landsberger ("Depo. G. Landsberger"), at p. 19 at ll. 2-4, p. 23 at ll. 6-23, and Exh. 2. The St. Paul property was worth in excess of $100,000 at the time of the transfer. See id. at p. 25, ll. 4-7. Gerald Landsberger was the trustee of Trust #2-372 and directed the activities of the trust. See id. at p. 24, ll. 2-4, and p. 3, ll. 6-20.

Mr. Landsberger has maintained and espoused tax protester-type beliefs since the late 1970's. See id. at p. 20, ll. 1-15, p. 21, ll. 7-21, p. 22, ll. 8-17, p. 52, ll. 1-7, p. 53, ll. 7-23, and Exhs. 13-15; see also United States v. Gerald Landsberger [82-1 USTC ¶9171], 534 F.Supp. 142 (D. Minn. 1981). Mr. Landsberger had many trusts set up in 1977, the purpose of which was to keep himself an "arms length" from any transaction related to the subjects of the trust, in order to protect the properties from potential creditors including the IRS. See Depo. of G. Landsberger, at p. 49, l. 9-p. 51, l. 25. Mr. Landsberger did not at that time have any tax deficiency assessments against him. See id. at p. 51, ll. 1-2.

Shortly after the transfer of the St. Paul property to Trust #2-372, the trust sold the property to an unrelated third party for a cash down payment of approximately $37,000, plus monthly payments and assumption of the mortgage. See id. at p. 29, ll. 23-25, p.30, ll. 1-20, and Exh. 3. After the sale of the property, the proceeds and all future payments for the property were transferred to Gerald Landsberger Investments, a Trust under Trust #2-988 (Trust #2-988), with the beneficiary being Constitutional Trust #1-988. Second Declaration of Gerald J. Landsberger ("Sec. Decl. G. Landsberger"), at ¶4; see also, Depo. G. Landsberger, at p. 30, ll.21-25, p. 31, ll. 1-25, p. 32 ll. 1-25, and p. 34, ll. 6-18. Mr. Landsberger was also the trustee of Trust #2-988, and directed the trust's activities. See id. at p. 32, ll. 12-14, p. 33, ll. 21-25, p. 34, ll. 1-2 and 19-25, and p. 35, ll. 1-4.

Sometime in 1981 or 1982, Trust #2-988 used the proceeds of the sale of the St. Paul property to purchase the residential real property at 4502 Cortez in Phoenix Arizona , also referred to as Lot No. 127, Village Fairways ("Cortez property"). See id. at p. 34, ll. 6-18, and Exh. 4. The Landsbergers resided at the Cortez property. See id. at p. 6, ll. 10-21; Deposition Transcripts Filed in Support of the United States Renewed Motion for Summary Judgment, Deposition of Nancy (Landsberger) Fieldman ("Depo. N. Fieldman"), at p. 6, ll. 11-24.

On or around November 21, 1984, Mr. Landsberger received a Notice of Deficiency from the IRS pertaining to the tax years of 1979 and 1980. See Depo. G. Landsberger, at p. 16, ll. 13-25, p. 17, ll. 1-17, and Exhs. 14 & 15. On January 4, 1985, Trust #2-988 transferred the Cortez property to Esther, a Trust under Trust #2-1703 (the "Esther trust"). See id. at p. 37, ll. 1-10, and Exh. 17; Sec. Decl. of G. Landsberger, at ¶5.

Nancy Fieldman, the Landsberger's daughter, and Jeffrey Fadden were co-trustees of the Esther trust. Depo. G. Landsberger, at p. 38, ll. 5-7. Fieldman never had a communication with Fadden, and knew of him only by her father's mention of him. See Depo. N. Fieldman, at p. 12, ll. 1-10. Fieldman became a co-trustee of the Esther trust at the behest of her father. See id. at p. 10, ll. 10-25.

In July of 1985, Fieldman signed a "Joint Tenancy Deed" as trustee of the Esther trust conveying the Cortez property to an unrelated third party. In June of 1986, the Esther trust used the proceeds of the Cortez property sale to purchase the residential real property located at 11815 North 91st Place , Scottsdale , Arizona (" 91st Place "). Sec. Decl. G. Landsberger, at ¶6; see also, Depo. N. Fieldman, at p. 17, ll. 23-25, p. 18, ll. 1-11, and Exh. 5. The Landsbergers then moved into the 91st Place property where they continue to reside today. See Sec. Decl. G. Landsberger, at ¶5; Depo. G. Landsberger, at p. 5, ll. 18-25, p. 6, ll. 1-2.

The Landsbergers do not pay rent to live on the 91st Place property. See Depo. G. Landsberger, at p. 56, ll. 21-23; Depo. J. Wilde, at p. 55, ll. 2-25, and p. 56, ll. 18-24. The Landsbergers pay all the utilities and maintenance costs of the property as they did with the Cortez property. See Depo. G. Landsberger, at p. 56, ll. 24-25, and p. 57, ll. 1-10; Deposition Transcripts Filed in Support of the United States Renewed Motion for Summary Judgment, Deposition of John Wilde ("Depo. J. Wilde"), at p. 56, ll. 1-20.

On June 16, 1988, Nancy Fieldman signed her resignation as trustee of the Esther trust. See Depo. N. Fieldman, at p. 29, ll. 2-10, and Exh. 27. She was replaced by Jimmy C. Chisum. Sec. Decl. G. Landsberger, at ¶9.

On September 29, 1988, the Arizona Tax Court upheld the deficiency determination for the tax years of 1979 and 1980, and found Betty and Gerald Landsberger liable for deficiencies of $13,554.00 for the taxable year of 1979 and $55,631.00 for the taxable year of 1980, with a fraud addition of $34,593.00. See Court's Order of Sept. 29, 1995, at p. 3. On February 13, 1989, the IRS assessed Gerald and Betty Landsberger's deficiency for 1979 and 1980, plus interest, and sent a demand for payment to the Landsbergers. Id.

In November of 1995, the title to the 91st Place property was transferred to John Wilde and Eileen Lipari for "ten dollars and other valuable considerations." See Depo. J. Wilde, at p. 10, ll. 3-9, p. 59, ll. 9-25, p. 62, ll. 17-21, and Exhs. 10 & 11. John Wilde is a "very good friend" of Mr. Landsberger who also assists Mr. Landsberger in this litigation although he is not a lawyer. See Depo. J. Wilde, at p. 13, ll. 17-25, and p. 14, ll. 1-13. Mr. Wilde decided that the property should be transferred to him, and his friend Eileen Lipari, as a litigation tactic to so that they could join in this action as defendants and proceed pro se as the owners of the property. See id. at p. 59, l. 9-p. 60, l. 18. At the time of the transfer the property was worth in excess of $100,000. See id. J. Wilde, at p. 65, ll. 12-18.

Around October of 1995, the Arizona Tax Court ordered Mr. Landsberger incarcerated for failure to comply with the court's order compelling him to comply with a subpoena for tax records. Declaration of James A. Susa ("Susa Decl."), at ¶3. In an attempt to comply with the subpoena and to have him released from jail, in December of 1995, Mr. Landsberger's attorney submitted a document to James M. Susa, an Assistant Attorney General for the State of Arizona . Id. at ¶4. The document, signed under penalty of perjury on, lists the 91st Place property under Real Estate assets of Mr. Landsberger, and states that he is the one half owner of the property. See id., Exh. A. ²

III. STANDARD OF REVIEW

A court must construe a pro se litigant's pleadings and papers liberally. McGuckin v. Smith, 974 F.2d 1050, 1055 (9th Cir. 1992). Nevertheless, a pro se litigant is held to the same legal standard in determining whether summary judgment should be granted. See King v. Atiyeh, 814 F.2d 565, 567 (9th Cir. 1987). Where a motion to dismiss contains matters outside the pleadings, a court must construe the motion as a motion for summary judgment and give the parties "reasonable opportunity" to present all material pertinent to a motion for summary judgment. Fed. R. Civ. P. 12(b) (1995).

A court must grant summary judgment if the pleadings and supporting documents, viewed in the light most favorable to the nonmoving party, "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c) (1995); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Jesinger v. Nevada Federal Credit Union, 24 F.3d 1127, 1130 (9th Cir. 1994). Substantive law determines which facts are material. Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986); see also Jesinger, 24 F.3d at 1130. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248. The dispute must also be genuine, that is, "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id.; see also Jesinger, 24 F.3d at 1130.

A principal purpose of summary judgment is "to isolate and dispose of factually unsupported claims." Celotex, 477 U.S. at 323-24. 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." Id. at 322; see also Citadel Holding Corp. v. Roven, 26 F.3d 960, 964 (9th Cir. 1994). The moving party need not disprove matters on which the opponent has the burden of proof at trial. Celotex, 477 U.S. at 317. The party opposing summary judgment "may not rest upon the mere allegations or denials of [the party's] pleadings, but . . . must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e); see also Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 585-88 (1986); Brinson v. Linda Rose Joint Venture, 53 F.3d 1044, 1049 (9th Cir. 1995).

IV. DISCUSSION

Plaintiffs are attempting to foreclose on the tax lien on the 91st Place property for the tax assessments made on Defendants for the tax years of 1979 and 1980 reduced to judgment on February 13, 1989. Section 6321 of Title 26 of the United States Code reads:

If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real of personal, belonging to such person.

26 U.S.C. §6321. Defendants in this action allege that the 91st Place property belonged to another since before the time of the assessment through today, and that accordingly, the government cannot foreclose on the lien on the property.

The United States seeks to foreclose on the tax lien on the 91st Place property under three alternative theories. The government first argues that the Esther Trust was the nominee of the Landsbergers who held equitable title to the property on the date that the tax assessments were made. Accordingly, under 26 U.S.C. §6321, the government may foreclose on the property. Alternatively, Plaintiff argues that the transfer of the Cortez property from Trust #2-998 was fraudulent, and should be set aside under the Arizona Uniform Fraudulent Transfer Act, A.R.S. §44-1001, et seq. Finally, Plaintiff argues that any interest held in the property by John Wilde and Eileen Lipari is inferior to the Federal tax liens under 26 U.S.C. §6323(a) and Arizona property law.

Defendant makes three counter arguments. First, Defendant argues that Plaintiff impermissibly amends its Complaint in this action without leave of Court by including its claim under the Arizona Fraudulent Transfer Act. Secondly, Plaintiff argues that under Arizona law the "nominee/alter ego theory" can only arise against a corporation. In any event, the theory is not available where the transfer took place before the tax assessment. Finally, Plaintiff argues that assuming arguendo that either the nominee/alter ego theory or the fraudulent transfer theory can be raised, genuine issues of material fact exist precluding summary judgment.

A. Nominee/Alter Ego Theory

The "nominee/alter" ego theory is clearly viable in this instance even though the assets are held by a trust, and not a corporation. See e.g., F.P.P. Enterprises and D & S Trust v. United States [87-2 USTC ¶9536], 830 F.2d 114 (8th Cir. 1987); Neely v. United States [85-2 USTC ¶9791], 775 F.2d 1092 (9th Cir. 1985). The underlying principle is the "sham" nature of the arrangement. See F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.2d at 117 ("A transaction will not be given effect according to its form if that form does not coincide with the economic reality and is, in effect, a sham."); Neely [85-2 USTC ¶9791], 775 F.2d at 1094 (sham transaction will not be recognized for tax purposes).

In addition, there is no requisite that the nominee/alter ego arrangement come into existence after the assessment of the tax liability. If the Court finds that the Esther trust was the alter ego of the Defendant existing at the time of the assessment simply to avoid creditors, then the timing of its creation has no import. See G.M. Leasing Corp. v. United States [77-1 USTC ¶9140], 97 S.Ct. 619, 627 (1977) (under §6321 assets of alter ego are properly levied as assets to satisfy tax liability of tax payer) (F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.2d at 118 (property held by alter ego trusts not held by "separate persons" apart from taxpayer, and therefore, my be levied). The timing of the trust arrangement, may however, be a factor for the Court to consider in determining whether the trust is actually a nominee or alter ego.

"Property held in the name of an entity which is the alter ego of the taxpayer may be levied on to satisfy the tax liabilities of the taxpayer." F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.3d at 118; See G.M. Leasing Corp. v. United States [77-1 USTC ¶9140], 97 S.Ct. 619, 627-28 (1977); Shades Ridge Holding Co, Inc. v. United States [89-2 USTC ¶9472], 888 F.2d 725, 728 (11th Cir. 1989). The Court may find that an entity is the alter ego of the taxpayer where:

(1) the taxpayer treats the property as it belongs to him, See F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.2d at 116, Shades Ridge Holding Co., Inc. [89-2 USTC ¶9472], 888 F.2d at 729;

(2) minimal or no consideration is paid by the entity in consideration for the property, see e.g., F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.2d at 116;

(3) the taxpayer has expressed the intent to shelter the asset via the trust mechanisms, see, F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.2d at 116,

(4) the taxpayer maintains "active" or "substantial" control over the operations and decisions of the property, see Valley Finance, Inc. v. United States [80-2 USTC ¶9554], 629 F.2d 162, 172 (1980), Shades Ridge Holding Co. [89-2 USTC ¶9472], 888 F.2d at 728 (11th Cir. 1989);

(5) a family or close relationship exists between the taxpayer and the holding entity, see Shades Ridge Holding Co. [89-2 USTC ¶9472], 888 F.2d at 729.

There is substantial evidence in this action that the Esther trust, as well as the many other Landsberger trusts, existed as the alter ego or nominee of Mr. Landsberger. He specifically states that the trusts were set up as "shells" for the purpose of keeping his property at an "arms length" to shelter them from potential creditors including the IRS. Nor has he attempted to argue any other reason for the existence of his trusts. Under these facts alone it is difficult to see how any court could find a question of fact with respect to the alter ego/nominee status of the Landsbergers' trusts.

Further, the Landsbergers continued to treat the property as their own at all times. See F.P.P. Enterprises [87-2 USTC ¶9536], 830 F.2d at 117. Despite living in the 91st Place property for over 10 years, they never paid rent, and they paid all the utilities, upkeep, and maintenance costs of the property. See Depo. G. Landsberger, at p. 56.

The main issue Defendants raise as a genuine issue of material fact is in relation to the contradicting testimony of Mr. Landsberger and his daughter, Nancy Fieldman, regarding her role as a trustee. Fieldman testifies that she became trustee at the request of her father, that she felt obligated to do so because she was living in their home, that she believed he chose her because she was family which allowed him to maintain control over the trust. Mr. Landsberger does not dispute any of these facts.

However, in addition, Fieldman testified that she performed no duties as trustee other than signing her name as trustee wherever and whenever her father requested, that she never had control over the trust or made any decisions regarding the transactions of the trust, that her father made all decisions regarding the trust including the decision to sell the Cortez property and purchase the 91st Place property. See Depo. Fieldman, at p. 12, ll. 11-18, pp. 13-15, pp. 17-25. She testifies that she never had any checks for the Trust account, and that she never saw nor had control over the $100,000 used by the trust as a downpayment on the 91st Place property. Id. at 23-25. Additionally, she testifies that Mr. Landsberger signed her signature on at least two documents conducting trust business without her knowledge or permission. See Depo. p. 27, ll. 23-25; p. 28, ll. 11-17; Exhs. 24 & 25.

Mr. Landsberger admits that he signed his daughter's signature on several occasions, but testifies that he did so to help her out and with her permission. He testifies that because she was inexperienced in her knowledge and duties as trustee, that she relied heavily on his advise and guidance as she carried out her duties. He also testifies that he drafted the majority of the trust documents in the record. Ultimately, however, Mr. Landsberger states that his daughter had control over the trust and could do whatever she wanted. Depo. G. Landsberger, at p. 43.

With respect to the Cortez property, Mr. Landsberger testifies that he had nothing to do with the transfer of the property, and that Mr. Fadden and his daughter, as co-trustees handled the transfer. The deed transferring the Cortez property to the third party, however, bears only the signature of Nancy Landsberger (Fieldman). Mrs. Fieldman testifies that she never had a conversation with Mr. Fadden. Plaintiff provides no evidence to support Mr. Fadden's involvement or otherwise controvert Mrs. Fieldman's statements that she never spoke with Mr. Fadden. From the evidence, the Court must conclude the no reasonable jury could find that Mr. Fadden was involved in the transaction where the relevant trust transaction documents bear only the signature of Nancy Landsberger as co-trustee, and avers that she never had a conversation with Mr. Fadden.

Nonetheless, accepting as true Mr. Landsberger's testimony, the remaining undisputed facts show that he maintained active and substantial control over the trust through his involvement. Moreover, the degree of control Mr. Landsberger maintained is not dispositive. There are a multitude of undisputed facts in this litigation supporting the conclusion that the Esther trust, and others, were alter egos of Mr. Landsberger. Mr. Landsberger's own admission as to his purpose and intent for creating and operating the trust is the most probative of all. Nowhere does Mr. Landsberger provide controverting evidence establishing any legitimate purpose for the trust. Accordingly, Plaintiff is entitled to summary judgment in its favor on the theory that the Esther trust was a mere nominee/alter ego of the Landsbergers at the time the tax was assessed in February of 1989.

B. John Wilde and Eileen Lipari's Interest

The Internal Revenue Code provides that a federal tax lien takes priority over an interest held by an alleged bonafide purchaser when the purchaser acquired the property with notice of the lien. 26 U.S.C. §6323(a). Arizona law on judgments is consistent with this principle. See Warren v. Whithall Income Fund, 823 P.2d 689 (Ariz. App. 1991); Hatch Companies contracting Inc. v. Arizona Bank, 826 P.2d 1179 (Ariz. App. 1991).

The property was conveyed to Wilde and Lipari for "ten dollars and other valuable considerations." See Depo. J. Wilde, at p. 10, ll. 3-9, p. 59, ll. 9-25, p. 62, ll. 17-21, and Exhs. 10 & 11. It is undisputed that Mr. Wilde and Ms. Lipari took title to the 91st Place property with full knowledge that the property was subject to the federal tax liens. See Depo. J. Wilde, at p. 59, l. 9-p. 60, l. 18. Accordingly, any interest these third parties may have in the property is clearly subordinate.

V. CONCLUSION

There is no genuine issue of material fact in dispute that precludes summary judgment in Plaintiff's favor on the issue of the trust functioning as the alter ego or nominee of Gerald Landsberger. In addition, there is no dispute that any interest in the 91st Place property the current title holders may have is subordinate to the federal tax liens. ³ Accordingly, Plaintiff is entitled summary judgment as a matter of law, and may foreclose on the 91st Place property accordingly. For the foregoing reasons,

IT IS THEREFORE ORDERED Defendant's Renewed Motion for Summary Judgment filed on September 3, 1996 is GRANTED. [doc. #106].

IT IS FURTHER ORDERED the United States shall lodge and serve a copy upon all Defendants, a Proposed Order and Decree of Foreclosure pursuant to 28 U.S.C. §2001 no later than October 31, 1997.

IT IS FURTHER ORDERED the Clerk of the Court shall MAIL copies of the Order to each Defendant and to all counsel of record.

¹ This motion was stayed pending resolution of a series of motions that may ultimately have affected its resolution. See Order of August 19, 1997 . The previous issues now resolved, the Court lifts the stay as to Defendant's renewed motion for summary judgment.

² Mr. Landsberger disputes the accuracy of this document on the grounds that the information was provided by his wife, and that she does not understand how the Trusts operate. See Depo. G. Landsberger, at pp. 85-88.

³ Because it is unnecessary to the resolution of this action, the Court declines to determine the remaining issues raised by the parties pleadings.

 

 

 

Jack F. Wasenius, Barbara F. Wasenius, Plaintiffs-Appellants v. Fadia O. Shatila, Badrie Abdullah Shatila, Internal Revenue Service of the United States of America , Defendants, United States of America , Defendant-Appellee

(CA-11), U.S. Court of Appeals, 11th Circuit, 96-2666, 4/29/97, Affirming a District Court decision, 96-1 USTC ¶50,283

[Code Sec. 6321 ]

Tax liens: After-acquired property: Perfection: Equitable lien: Priority.--An IRS tax lien against real property owned by delinquent taxpayers, which was recorded after the realty was sold to third parties, had priority over the purchasers' equitable lien that arose following a state (Florida) court-ordered rescission of the sale. The tax lien was perfected when title reverted to the sellers, but the purchasers' equitable lien was not perfected until the later date when the state court's final judgment fixed the amount of their lien.

[Code Sec. 6321 ]

Tax liens: After-acquired property: Constructive trust.--An IRS tax lien against real property owned by delinquent taxpayers, which was recorded after the realty was sold to third parties, had priority over the purchasers' equitable lien that arose following a state ( Florida ) court-ordered rescission of the sale. The property was not part of a constructive trust that arose before the tax lien became choate; since the purchasers sought rescission of the deed, any constructive trust would encompass only the money paid for the property, and not the property itself.

[Code Sec. 6323 ]

Tax liens: After-acquired property: Estoppel: Tim ely filing of lien.--An IRS tax lien against real property owned by delinquent taxpayers, which was recorded after the realty was sold to third parties, had priority over the purchasers' equitable lien that arose following a state ( Florida ) court-ordered rescission of the sale. The government timely recorded its tax lien four days after assessing the unpaid taxes against the sellers. Thus, it was not estopped from asserting the priority of its lien on the basis of what the purchasers described as "tardy filing."

Before: DUBINA and BLACK, Circuit Judges, and COHILL, ^* Senior District Judge.

è Caution: This court has designated this opinion as NOT FOR PUBLICATION. Consult the Rules of the Court before citing this case.ç

Per Curiam"

EC: Appellants Jack and Barbara Wasenius challenge a district court order denying their motion for summary judgment and granting the United States ' cross-motion for summary judgment. The Waseniuses instituted this action to establish the priority of their interest in a parcel of real property over a federal tax lien claimed by the United States . As the material facts were not in dispute, the parties filed cross-motions for summary judgment. The district court awarded summary judgment to the United States after concluding that the federal tax lien took priority over the Waseniuses' inchoate equitable lien. We affirm.

I. BACKGROUND

The property at the center of this controversy was formerly owned by Osman and Fadia Shatila. On May 29, 1992, Appellants purchased the property, situated in St. Augustine , Florida , for $148,500. The Waseniuses paid the Shatilas $48,500 of the purchase price in cash and the remainder by executing a promissory note and purchase money mortgage. The Waseniuses recorded a full warranty deed to the property on June 9, 1992.

Shortly thereafter, the Waseniuses discovered that their property previously had served as an unlawful waste disposal site. On August 21, 1992, the Waseniuses filed a state court action against the Shatilas seeking to rescind the sale, cancel the mortgage, and secure reimbursement for all costs. On July 28, 1993, the state court granted partial summary judgment as to the liability of the Shatilas and ordered rescission of the deed, note, and mortgage on the property. The state court entered final judgment on March 14, 1994, at which time it fixed the amount of the Shatilas' liability at $75,889.36. The court also granted the Waseniuses an equitable lien on the property to secure payment of the award. The state court order provided that the lien would relate back to August 21, 1992, when the Waseniuses filed a lis pendens.

Meanwhile, the United States had also been pursuing legal action against the former owners of the property. On June 25, 1992, 16 days after the Waseniuses recorded their deed, the United States assessed Osman and Fadia Shatila for unpaid federal taxes for the years 1984 through 1990. By operation of law, the assessment created a lien in favor of the United States on any property owned or acquired by the Shatilas. See 26 U.S.C. §§6321-6322. The United States recorded its lien on June 29, 1992. On February 10, 1994, the Internal Revenue Service served the Waseniuses with a Notice of Seizure that purported to arrest the St. Augustine property.

II. DISCUSSION

After considering these undisputed facts, the district court determined that the federal tax lien had priority over the Waseniuses' equitable lien. The court concluded that the federal tax lien achieved priority because it had been perfected, and thus became choate, before the equitable lien. The district court indicated the federal tax lien became choate on July 28, 1993, when the Shatilas reacquired their interest in the property by virtue of the state court order rescinding the deed. By contrast, the district court determined the equitable lien did not become choate until March 14, 1994, the date when the state court fixed the amount of the Shatilas' liability and, therefore, the amount of the lien.

We concur with the district court's determination that the federal tax lien prevails over the Waseniuses' equitable lien and reject each of the arguments advanced by the Waseniuses in opposition to this conclusion. First, although the Waseniuses correctly recognize that the Shatilas had to regain some interest in the property before the federal tax lien could attach, they fail to appreciate that this is precisely what happened when the state court rescinded the deed. At that point, title reverted to the Shatilas and the lien attached, notwithstanding the continued occupation of the property by the Waseniuses or the alleged inability of the Shatilas to convey good and marketable title to any third party.

Second, although Florida law provides that equitable liens arise at the time of the transaction from which they spring, see Blumin v. Ellis, 186 So. 2d 286, 295 ( Fla. Dist. Ct. App. ), cert. denied, 189 So. 2d 634 Fla. 1966), the relevant inquiry in the present case concerns not when the equitable lien arose, but when it was perfected. Under federal law, a state lien comes into existence for "first in time" purposes only when it has been "perfected" in the sense that identity of the lienor, the property subject to the lien, and the amount of the lien are established. United States v. McDermott [93-1 USTC ¶50,164], 113 S. Ct. 1526, 1528 (1993). As a result, it is of no consequence that the equitable lien may have arisen on June 9, 1992, the time of the underlying transaction. The lien did not become extant for federal purposes until perfected.

As a variant of their second argument, Appellants suggest that the St. Augustine property should be considered part of a constructive trust that arose at the time of the underlying transaction, more than one year before the federal tax lien became choate. A constructive trust arises where a person who holds title to property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it. Mitsubishi Int'l Corp. v. Cardinal Textile Sales, Inc., 14 F.3d 1507, 1518 (11th Cir. 1994), cert. denied, 115 S. Ct. 1092 (1995). The constructive trust argument fails because the Shatilas were not subject to an equitable duty to reconvey the property to the Waseniuses after the state court rescinded the deed. The Waseniuses can hardly claim that equity required the Shatilas to convey the property at issue back to them when their state court action specifically sought recision of the deed. Moreover, even if a constructive trust were to be imposed, the real property would not be included within it. Any constructive trust would encompass only the money that the Waseniuses paid to the Shatilas in exchange for the property, not the property itself.

Third, Appellants' contention that their equitable lien became choate on June 9, 1992 , must be rejected. The mere fact that the purchase price of the property had been fixed by that date does not mean that the amount of the lien to be imposed had also been fixed. The amount of the lien, which included amounts for property improvements, court costs, and attorneys' fees, was not fixed until the state court issued its final judgment on March 14, 1994 .

Fourth, we find no merit to Appellants' suggestion that the United States should be estopped from asserting the priority of its federal tax lien on the basis of what the Waseniuses describe as "tardy filing." The uncontroverted evidence establishes that the IRS recorded its tax lien on June 29, 1992 , a mere four days after it assessed the unpaid taxes against the Shatilas.

In sum, we hold that the district court properly determined that the United States ' federal tax lien has priority over the Waseniuses' equitable lien. We recognize, of course, that the governing legal principles produce a rather harsh result in the instant case. The Waseniuses are innocent parties, attempting to recover from the fraud perpetrated upon them by the Shatilas. If there were any way to find for the Waseniuses while remaining faithful to our judicial obligations, we would have done so. In the end, however, we are bound to decide cases in accordance with the law, not our sympathies.

III. CONCLUSION

For the foregoing reasons, we affirm the district court order denying the Waseniuses' motion for summary judgment and granting the United States ' cross-motion for summary judgment. ¹

AFFIRMED.

^* Honorable Maurice B. Cohill , Jr., Senior U.S. District Judge for the Western District of Pennsylvania, sitting by designation.

¹ Given this disposition, we deny the United States ' Motion to Strike Appellants' Record Excerpts and to Require Refiling of Record Excerpts as moot.

 

 

 

Virginia H. McAnulty, Plaintiff v. American National Bank and Trust Company of Chicago, as Trustee under Trust No. 107722-00, Numisco Rare Coins, Ltd., an Illinois Corporation, and the United States of America Internal Revenue Service, Defendants United States of America Internal Revenue Service, Cross-Claim Plaintiff v. American National Bank and Trust Company of Chicago, Numisco Rare Coins, Ltd., and Walter Perschke, Cross-Claim Defendants United States of America Internal Revenue Service, Counter-Claim Plaintiff v. Virginia McAnulty, Counter-Claim Defendant

U.S. District Court, No. Dist. Ill. , East. Div., 94 C 6192, 6/25/96, On motion for reconsideration of a District Court decision, 96-2 USTC ¶50,484

[Code Sec. 6323 ]

Tax liens: Land trust: Priority: Tax assessments: Creditor: Security interest: Beneficial interest in land trust: Money or money's worth: Res of land trust.--Tax liens against an individual's real property for taxes assessed before the property was transferred into a land trust had priority over the land trust's interest in the property. Since the assessments were made prior to the transfer, the tax liens attached to all of the individual's property. Thus, the real property was transferred to the land trust subject to the tax liens. Further, a creditor who executed, with the individual who was the trust's beneficiary, a collateral assignment of beneficial interest in the land trust was not a holder of a security interest in the beneficial interest of the land trust. The creditor who did not loan any additional funds when she executed the collateral assignment did not part with any "money or money's worth" under Code Sec. 6323 . Even if the creditor had a security interest, she did not hold a security interest in the res of the land trust. Under state ( Illinois ) law, a beneficial interest in a land trust is an interest in personal property, not a direct interest in the res of the trust.

MEMORANDUM OPINION AND ORDER

NORDBERG, United States District Judge:

Before the Court is Defendant/Counter-Claim Plaintiff United States of America Internal Revenue Services' ("IRS' ") Motion for Reconsideration, or in the Alternative, Renewed Motion for Summary Judgement and Plaintiff/Cross-Claim Defendant Virginia H. McAnulty's ("McAnulty's") Cross Motion for Summary Judgment.

I. BACKGROUND

The undisputed facts are as follows. During or prior to 1986, McAnulty loaned $185,000 to Numisco Rare Coins, Ltd. ("Numisco"). During 1986, Numisco executed promissory notes to McAnulty for the $185,000 in loans. The promissory notes were renewed annually until 1992. Prior to 1989, the $185,000 amount loaned by McAnulty to Numisco was not secured by any collateral. From 1983 to 1991, Numisco timely made interest payments to McAnulty on the $185,000 loans; however, Numisco did not repay any of the principal.

On January 30, 1989, Perschke, the President, sole director and sole shareholder of Numisco, executed a Trust Agreement naming Defendant American National Bank and Trust Company of Chicago as trustee ("Trustee") under Trust No. 107722-00 ("Land Trust") and Numisco as the sole beneficiary of the Land Trust. The Land Trust was established with the stated purpose of taking title to the real property located at 1421 West Fullerton, Chicago , Illinois , 60614 ("Real Property"). However, the Real Property was not transferred to the Land Trust by Perschke until June 5, 1989.

On February 6, 1989, before Perschke deeded the Real Property to the Land Trust, Plaintiff and Numisco executed a Collateral Assignment of Beneficial Interest in the Land Trust as security for the $185,000 in loans. The alleged assignment was never delivered to the Trustee, and, therefore, the Trustee had no notice of the alleged assignment.

On March 6, 1989, also before Perschke deeded the Real Property to the Land Trust, the IRS made tax assessments against Perschke for unpaid federal income taxes and interest for the years 1980 and 1982. As of March 15, 1995, these totalled $708,594.55. On June 5, 1989, Perschke transferred the Real Property by deed to the Trustee under the Land Trust. On May 24, 1991, the IRS filed notice of the federal tax liens associated with the assessments on the Real Property with the Cook County Recorder of Deeds.

On March 29, 1996, this Court entered judgment against Perachke and in favor of the IRS for the unpaid tax assessments in the amount of $708,595.55, plus interest and statutory additions from March 15, 1995. (Memorandum Opinion and Order, March 29, 1996, p. 9). In its Memorandum Opinion and Order dated March 29, 1996, the Court set out a detailed analysis regarding the determination of priorities between McAnulty's security interest in the beneficial interest in the Land Trust and the IRS' tax liens. The Court denied the IRS' Motion for Summary Judgment as to its claimed tax liens on the Real Property, and, therefore, also denied the IRS' motion to foreclose on the same.

In McAnulty's Cross Motion for Summary Judgment, McAnulty requests summary judgment declaring McAnulty sole titleholder of the beneficial interest in the Land Trust, free and clear of any and all lien rights asserted by the IRS. In support of her Motion, McAnulty adopts the findings and legal analysis as set forth in this Court's Memorandum Opinion and Order dated March 29, 1996. In addition, McAnulty offers evidence of the value given by McAnulty to Numisco as loans during and prior to 1986 for which the Collateral Assignment of Beneficial Interest was made from Numisco to McAnulty in 1989.

The IRS requests that the Court reconsider its Memorandum Opinion and Order, dated March 29, 1996, for the following reasons:

1. The IRS' tax liens on the Real Property take priority over the Land Trust's interest in the Real Property;

2. McAnulty's security interest in the Land Trust did not attach to the underlying trust res;

3. Even if McAnulty's security interest did attach to the underlying trust res, the Collateral Assignment of Beneficial Interest in the Land Trust to McAnulty did not create a valid "security interest" under 26 U.S.C. §6323 ; and

4. McAnulty did not obtain a beneficial interest in the Land Trust by virtue of the Collateral Assignment that was binding against the IRS because the assignment was not lodged with and accepted by the Trustee.

II. ANALYSIS

A motion to reconsider, more accurately called a motion to alter or amend a judgment, serves the limited purpose of allowing a court to correct manifest errors of law or fact. Publishers Resource, Inc. v. Walker-Davis Publications, Inc., 762 F.2d 557, 561 (7th Cir. 1985) (citing Keene Corp. v. International Fidelity Ins. Co., 561 F. Supp. 656, 665-66 (N.D. Ill. 1982), aff'd, 736 F.2d 388 (7th Cir. 1984)). Based on the argument and authority presented by the IRS, the Court grants the IRS' Motion to Reconsider and makes the following corrections to its Memorandum Opinion and Order, dated March 29, 1996.

1. The Tax Liens Take Priority over the Land Trust's Interest.

First, the Court finds that the IRS is correct in its assertion that the tax liens in the Real Property, which were assessed before the Real Property was transferred into the Land Trust, take priority over the Land Trust's interest in the Real Property. The priority of a federal tax lien is a matter of federal law. United States v. Pioneer American Insurance Co. [63-2 USTC ¶9532 ], 374 U.S. 84, 83 S. Ct. 1651 (1963). Sections 6321 and 6322 of the Tax Lien Act authorize the imposition by the IRS of a tax lien upon the property of the taxpayer when he is in default. ¹ 26 U.S.C. §§6321 , 6322 . In general, the Tax Lien Act follows the rule that a "lien first in time is first in rights." Pioneer American Insurance [63-2 USTC ¶9532 ], 374 U.S. at 87; J.D. Court, Inc. v. United States [83-2 USTC ¶9454 ], 712 F.2d 258, 260 (7th Cir. 1983), cert. denied, 466 U.S. 927, 104 S. Ct. 1708 (1984).

It is undisputed that on March 6, 1989, federal income tax assessments were made against Perschke for outstanding 1980 and 1982 income tax liabilities. On March 29, 1996, this Court entered a judgment against Perschke, and in favor of the IRS, for the unpaid tax assessments in the amount of $708,595.55, plus interest and statutory additions from March 15, 1995. Moreover, by virtue of the tax assessments on March 6, 1989, a federal tax lien attached to all of Perschke's property, including the Real Property. Therefore, when the Real Property was transferred to the Land Trust on June 5, 1989, the Real Property was transferred subject to the federal tax liens. Pursuant to the general rule of priority, the IRS' tax liens take priority over the Land Trust's interest in the Real Property. Accordingly, McAnulty's security interest in the beneficial interest in the Land Trust is subordinate to the IRS' tax liens.

2. McAnulty Did Not Hold a Security Interest in the Res of the Land Trust.

In its Memorandum Opinion and Order dated March 29, 1996, this Court found that McAnulty was a holder of a "security interest" in the beneficial interest of the Land Trust, and, therefore, the IRS' tax liens were deemed to attach when the IRS filed notice of the tax lien, and not when the taxes were assessed. 26 U.S.C. §6323(a) . The Court was incorrect as a matter of law for two reasons. First, McAnulty had obtained from Numisco a security interest in the Land Trust, and not a security interest in the Real Property itself. Second, McAnulty was not a holder of a "security interest" as it is defined under federal law in 26 U.S.C. 6323(h).

Because Section 6322 provides that a federal tax lien arises, or "attaches," when the tax assessment is made, "a tax lien normally takes priority over other liens arising subsequent to assessment of the delinquent tax." J.D. Court [83-2 USTC ¶9454 ], 712 F.2d at 260; 26 U.S.C. §§6321 , 6322 . However, Section 6323(a) provides an exception to the rule in Section 6322 . 26 U.S.C. §6323(a) . "Under §6323(a) , when the 'holder of a security interest' also claims an interest in property subject to a federal tax lien, the federal tax lien is deemed to have attached when the IRS files a notice of tax lien, rather than when the delinquent tax was first assessed." J.D. Court [83-2 USTC ¶9454 ], 712 F.2d at 260. Section 6323 reads in relevant part:

The lien imposed by section 6321 shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof which meets the requirements of subsection (f) has been filed by the Secretary.

26 U.S.C. §6323(a) (emphasis added). The Court was incorrect in its finding that McAnulty's interests fell within the exception to the general rule provided by Section 6323(a) because, even if McAnulty was a holder of a security interest in the beneficial interest of the Land Trust, she was not a holder of a security interest in the Real Property itself.

On February 7, 1989, McAnulty and Numisco executed a Collateral Assignment of Beneficial Interest as security for the loans extended to Perschke prior to or during 1986. Under Illinois law, "[a] beneficial interest in an Illinois land trust is an interest in personal property and not a direct interest in the real estate res of the trust." First Federal Savings and Loan Assn. of Chicago v. Pogue, 389 N.E.2d 652, 655 (Ill. App. Ct. 1979); In re Goode, 131 B.R. 835, 839 (N.D. Ill. Bankr. 1991). Therefore, according to the Collateral Assignment of Beneficial Interest, McAnulty obtained a security interest in the beneficial interest of the Land Trust, and not a security interest in the Real Property itself. The Real Property in the Land Trust was transferred into the Land Trust on June 5, 1989, subject to the tax liens, which attached on March 6, 1989. Therefore, McAnulty's beneficial interest is in a land trust which holds property that is subject to tax liens.

3. McAnulty Did Not Hold a "Security Interest" Under 26 U.S.C. §6323 in the Beneficial Interest of the Land Trust.

In its Memorandum Opinion and Order dated March 29, 1996, this Court found that McAnulty was the holder of a security interest in the beneficial interest of the Land Trust, and, therefore, fell within the exception provided by Section 6323(a) . Even if holding a security interest in the beneficial interest of the Land Trust, rather than a security interest in the Real Property itself, was sufficient to meet the Section 6323(a) exception, this Court was incorrect in finding that McAnulty held a security interest in the beneficial interest of the Land Trust.

In analyzing whether McAnulty held a security interest, this Court applied Illinois law in finding that McAnulty had given value to Numisco for the assignment of beneficial interest in the form of an antecedent debt. (Memorandum Opinion and Order, March 29, 1996, p. 18). In the instant case, however, whether a creditor has been given a "security interest" is to be determined by federal law. Cipriano v. Tocco [91-1 USTC ¶50,132 ], 757 F. Supp. 1484, 1493 (E.D. Mich. 1991); see also United States v. Rotherman, 836 F.2d 359, 362 (7th Cir. 1988). Under federal law, a "security interest" is defined as follows:

The term 'security interest' means any interest in property acquired by contract for the purpose of securing payment or performance of an obligation or indemnifying against loss or liability. A security interest exists at any time (A) if, at such time the property is in existence and the interest has become protected under local law against a subsequent judgment lien arising out of an unsecured obligation; and (B) to the extent that, at such time, the holder has parted with money or money's worth.

26 U.S.C. §6323(h)(1) . At issue is whether McAnulty "parted with money or money's worth" at the time the Collateral Assignment of Beneficial Interest was executed. Under federal law, the Section 6323(h)(1)(B) "money or money's worth" requirement is not met when a creditor receives a collateral assignment solely in exchange for an antecedent debt. Cipriano [91-1 USTC ¶50,132 ], 757 F. Supp. at 1493. ²

In the instant case, it is undisputed that Plaintiff loaned $185,000 to Numisco prior to or during 1986, and that Numisco made timely payments of interest to McAnulty on the loans until 1991. In addition, prior to the February 6, 1989 Collateral Assignment of Beneficial Interest, the $185,000 was not secured by any collateral. It is also undisputed that at the time of the Collateral Assignment, McAnulty did not loan Numisco any additional money or provide any other consideration. Therefore, under federal law, at the time of the February 6, 1989 Collateral Assignment, McAnulty did not part with any "money or money's worth." Accordingly, McAnulty was not the holder of a security interest as defined by Section 6323(h) and as provided for in Section 6323(a) . McAnulty's interest in the Land Trust, therefore, is not free and clear of the tax liens because the tax liens attached on March 6, 1989 when they were assessed, which is before the Real Property was deeded into the Land Trust, and not at the time that notice of the tax liens was filed at the Cook County Recorder of Deeds.

4. Lodging with the Trustee is not Required to Perfect an Assignment of Beneficial Interest.

Finally, the IRS claims that McAnulty did not obtain a beneficial interest in the Land Trust by executing the Collateral Assignment of Beneficial Interest because the assignment was not lodged with or accepted by the Trustee. The IRS does not dispute the Court's holding that:

At least three courts have rejected the argument that Illinois law requires endorsement or any form of lodging on the part of the land trustee for perfection of an assignment of a beneficial interest in a land trust. See [In re Goode, 131 B.R. 835, 839-41 (N.D. Ill. Bankr. 1991); FDIC v. Wooten, 80 B.R. 917, 919-20 (N.D. Ill. 1987]; In re Loop Hospital Partnership, 50 B.R. 565, 569 (Bankr. N.D.Ill. 1985). While a failure to lodge the assignment with the Trustee, and acquire the Trustee's signature indicating its acceptance of the assignment, may mean that the assignment is not effective with respect to the Trustee or a subsequent assignee or purchaser without notice, it does not mean that the assignment is not binding as between the assignor and the assignee. In re Goode, 131 B.R. at 839.

(Memorandum Opinion and Order, March 29, 1996, pp. 20-21). The IRS does, however, contend that the cases relied on by the Court should not be extended to disputes which are not between the assignor and assignee. The IRS does not offer any authority which directly stands for this proposition. In addition, the court in Wooten recognized that, "[a]lthough a lodgement requirement might be worthwhile so as to give notice to third parties, it cannot be said that one currently exists under the Illinois Commercial Code." Wooten, 80 B.R. at 920.

In light of the uncertain nature of Illinois law on this issue, and in light of the fact that the Court has already determined that any interest McAnulty has in the Land Trust is subject to the tax liens, the Court finds the issue moot so that it is unnecessary to rule on this position.

III. CONCLUSION

For the foregoing reasons, the IRS' Motion to Reconsider is GRANTED. In addition, the IRS' Renewed Motion for Summary Judgment is GRANTED and McAnulty's Cross Motion for Summary Judgment is DENIED. The Court hereby enters judgment in favor of the IRS and against McAnulty, and orders the foreclosure and sale of the Real Property located at 1421 West Fullerton Avenue, Chicago, Illinois 60614, with the net proceeds after sale expenses to be distributed first to the United States for payment of the judgment against Walter R. Perschke plus interest, with any surplus to be paid to the Trustee of the Land Trust for distribution to its beneficiaries. The IRS is directed to file its motion for foreclosure and sale within 60 days herein.

¹ Section 6321 of the Internal Revenue Code reads as follows:

If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property whether real or personal, belonging to such person.

26 U.S.C. §6321 .

Section 6322 of the Internal Revenue Code reads as follows:

Unless another date is specifically fixed by law, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed (or a judgment against the taxpayer arising out of such liability) is satisfied or becomes unenforceable by reason of lapse of time.

26 U.S.C. §6322 .

² This finding supports Congress' intent in enacting the tax laws. The Court agrees with the IRS' observation that a contrary definition of a security interest would allow a taxpayer, facing federal tax assessments, to arbitrarily provide collateral assignments to favored unsecured creditors. Such a policy would arbitrarily give the favored creditors an enhanced position vis a vis the IRS.

 

 

 

Virginia H. McAnulty, Plaintiff v. American National Bank and Trust Company of Chicago, as Trustee under Trust No. 107722-00, Numisco Rare Coins, Ltd., an Illinois Corporation and the United States of America Internal Revenue Service, Defendants United States of America Internal Revenue Service, Cross-Claim Plaintiff v. American National Bank and Trust Company of Chicago, Numisco Rare Coins, Ltd., and Walter Perschke, Cross-Claim Defendants United States of America Internal Revenue Service, Counter-Claim Plaintiff v. Virginia McAnulty, Counter-Claim Defendant

U.S. District Court, No. Dist. Ill. , East. Div., 94 C 6192, 4/1/96

[Code Sec. 6323 ]

Tax liens: Land trust: Priority: Creditor: Security interest: Beneficial interest in land trust: Attachment: Choate.--The IRS failed to prove that tax liens against an individual's real property for taxes assessed before the property was transferred into a land trust had priority over a creditor who held a security interest in the property in the form of a collateral assignment of beneficial interest in the land trust. Since the creditor claimed an interest in the property subject to the tax liens, the liens were deemed to have attached when the IRS filed the notice of tax liens, which occurred after the property was transferred to the land trust. The creditor's security interest attached when it became choate. The creditor showed that she was the lienor and that her interest was definite as to the collateral's identity. However, she did not substantiate her claims regarding her loans to the land trust's beneficiary and the amount due. The collateral assignment, under state ( Illinois ) law, did not have to be filed with the secretary of state to be perfected. Her failure to lodge the collateral assignment with the land trust's trustee did not mean that the interest was not perfected or that the assignment was not binding.

[Code Sec. 6203 ]

Assessments: Presumption of correctness: Notice.--Since an individual failed to rebut the presumption of correctness of tax assessments that related to tax liens against the individual's real property, the IRS was entitled to judgment as a matter of law against the beneficiary of a land trust to which the property had been transferred in the amount of the assessments' unpaid balance. The IRS offered sufficient evidence that the notice of the assessments and demand for their payment were made.

[Code Sec. 6321 ]

Tax liens: Creditor: Attachment: Property ownership.--A creditor failed to present admissible evidence that a beneficiary of a land trust did not have an interest in the real property res of the trust. The beneficiary, as well as the IRS, stated that the beneficiary was the record owner of the real property at the time the IRS assessed its tax liens, which was prior to the transfer of the property to the land trust.

Edward R. White, Kusper & Raucci, 30 N. LaSalle St., Chicago, Ill. 60602, David Louis Passman, 451 W. Aldine Ave., Chicago, Ill. 60657-3607, for plaintiff. David A. Epstein, 30 N. LaSalle St., Chicago, Ill. 60602, Joel R. Nathan, Anthony J. Masciopinto, 219 S. Dearborn St., Chicago, Ill. 60604, Karen A. Smith, Douglas W. Snoeyenbos, Department of Justice, Washington, D.C. 20530, for defendant. Joel R. Nathan, Anthony J. Masciopinto, 219 S. Dearborn St., Chicago, Ill. 60604, Karen A. Smith, Douglas W. Snoeyenbos, Department of Justice, Washington, D.C. 20530, for cross-claimant. David A. Epstein, 30 N. LaSalle St. , Chicago , Ill. 60602 , for cross-defendant. Joel R. Nathan, Anthony J. Masciopinto, 219 S. Dearborn St., Chicago, Ill. 60604, Karen A. Smith, Douglas W. Snoeyenbos, Department of Justice, Washington, D.C. 20530, for counter-claimant. David L. Passman, 451 W. Aldine Ave. , Chicago , Ill. 60657-3607 , for counter-defendant.

MEMORANDUM OPINION AND ORDER

NORDBERG, District Judge:

Before the Court is Defendant United States of America Internal Revenue Service's Motion for Summary Judgment against Plaintiff Virginia McAnulty.

I. BACKGROUND

On June 1, 1982, Walter R. Perschke ("Perschke") obtained legal title to the property located at 1421 West Fullerton Avenue , Chicago , Illinois ("Real Property"). (Pl.'s 12(N) Stmt., ¶12). In her Complaint, Plaintiff Virginia McAnulty ("Plaintiff") alleges that on various dates in 1986, she lent money, totaling $185,000, to Defendant Numisco Rare Coins, Ltd. ("Numisco"). (Pl.'s Complaint, ¶1). Numisco made some payments of interest to Plaintiff, but paid no principal. Id. By June 15, 1994, the loans were in default and Numisco was indebted to Plaintiff in the aggregate amount of $234,378.28. Id.

On January 30, 1989, Perschke, the President, sole director and sole shareholder of Numisco, executed a Trust Agreement naming Defendant American National Bank and Trust Company of Chicago as trustee ("Trustee") under Trust No. 107722-00 ("Land Trust") and Numisco as the sole beneficiary of the Trust. (Def.'s 12(M) Stmt., ¶4; Pl.'s 12(N) Stmt. ¶4). The Trust was established with the stated purpose of taking title to the Real Property. (Def.'s 12(M) Stmt., ¶4; Pl.'s 12(N) Stmt. ¶4); however, the Real Property was not transferred to the Land Trust by Perschke until June 5, 1989. (Def.'s 12(M) Stmt., ¶9; Pl's 12(N) Stmt., ¶9).

On February 6, 1989, before Perschke deeded the Real Property to the Land Trust, Plaintiff and Numisco executed a Collateral Assignment of Beneficial Interest in the Land Trust. (Pl.'s Complaint, ¶4, Exhibit B). This alleged assignment was never delivered to the Trustee, and, therefore, the Trustee had no notice of the alleged assignment. (Pl.'s Complaint, Exhibit B). Plaintiff alleges that, pursuant to the Collateral Assignment of Beneficial Interest, she became the secured creditor of one hundred percent of the beneficial interest in the Land Trust. (Pl.'s Complaint, ¶4). On March 6, 1989, also before Perschke deeded the Real Property to the Land Trust, the IRS made assessments against Perschke for unpaid federal income taxes and interest for the years 1980 and 1982 totalling $708,594.55 as of March 15, 1995. (Def.'s 12(M) Stmt., ¶¶5,8). Notice of the assessments and demand for payment of the assessments were sent to Perschke, but Perschke failed to pay the assessments. (Def.'s 12(M) Stmt., ¶¶7,8). On June 5, 1989, Perschke transferred the Real Property by deed to the Trustee under the Land Trust. (Def.'s 12(M) Stmt., ¶9; Pl.'s 12(N) Stmt., ¶9). On May 24, 1991, the IRS filed notice of the federal tax liens associated with the assessments on the Real Property with the Cook County Recorder of Deeds. (Def.'s 12(M) Stmt., ¶10, Pl.'s 12(N) Stmt., ¶10).

To recover some of the money owed to her by Numisco, Plaintiff sought to liquidate her interest in the Land Trust. (Pl.'s Complaint, ¶6). Consequently, on August 2, 1994, pursuant to a Notice of Public Sale, Plaintiff attempted to sell her interest in the Trust. Id. She notified the Trustee of her interest and of her intention to sell and requested the Trustee to recognize her as the sole beneficiary of the Trust. Id. at ¶7. However, because of the IRS' lien the Trustee refused to recognize Plaintiff as the sole beneficiary of the Trust with power of direction over it. Id. Plaintiff asserts that the position taken by the Trustee is unjustifiable as a matter of law.

Plaintiff originally filed her Complaint in the Circuit Court of Cook County on September 4, 1994. The IRS removed the case to this Court on October 12, 1994. The Trustee was served with the Summons and the Complaint by the Sheriff of Cook County on September 12, 1994. Plaintiff asserted that the Trustee was obligated to file its appearance and a responsive pleading by October 12, 1994, and because the Trustee had not done so, it was in default. Accordingly, Plaintiff requested that this Court enter an Order of Default against the Trustee enjoining the Trustee from recognizing any rights of the IRS in the trust and requiring the Trustee to recognize Plaintiff as the sole beneficiary of Land Trust with power of direction over it. This Court issued a Memorandum Opinion and Order on January 6, 1995, in which it recognized that, because a beneficiary of a trust exercises all rights of ownership other than that of holding bare legal title, the Trustee could not answer Plaintiff's Complaint unless Plaintiff directed the Trustee to answer. (Memorandum Opinion and Order, January 6, 1995, pp. 6-7). This Court concluded that "to enter a default judgment in favor of Plaintiff where such a judgment might affect the claim of a third party, in this case the IRS, who has not had an opportunity to have its claim presented and decided, would not be appropriate." Id. at 7.

Numisco filed its Answer to Plaintiff's Complaint on November 4, 1994 stating that it had no objection to the relief requested by Plaintiff and no claim to an interest in the Real Property. In addition, Numisco admitted that in 1986, Plaintiff had loaned to Numisco $185,000 and that Numisco had made some payments of interest but had not paid any of the principal as of June 15, 1994 when the indebtedness totaled $234,378.28. (Numisco's Answer, ¶1).

The IRS filed its Answer to Plaintiff's Complaint on November 14, 1994. In addition to its Answer, the IRS filed a Cross-Claim against Numisco, the Trustee and Walter Perschke and a Counter-Claim against Plaintiff. In its Cross-Claim and Counter-Claim, the IRS seeks to recover Perschke's unpaid federal income tax liability for the 1980 and 1982 taxable years and to foreclose and enforce its liens on the Land Trust property in which Numisco, the Trustee, Perschke and Plaintiff have or may claim an interest. (Cross-Claim and Counter-Claim, ¶1). The IRS alleges that Perschke's tax liabilities totaled $732,272.89 as of November 30, 1994. (Cross-Claim and Counter-Claim at ¶8; Perschke's Answer to Cross-Claim, ¶8). The IRS stated in its Answer that it did not have sufficient information to form a belief, and thereby requires strict proof of, Plaintiff's claims that she made loans to Numisco and that she received an assignment of beneficial interest in the Land Trust as security for such alleged loans. (IRS' Answer, ¶1).

Perschke filed an Answer to the IRS' Cross-Claim on March 31, 1995, and Plaintiff filed an Answer to the IRS' Counter-Claim on February 10, 1996. Neither the Trustee nor Numisco has filed an answer to the IRS' Cross-Claim. In his Answer to the IRS' Cross-Claim, Perschke admits that the IRS made assessments against him on March 6, 1989 for unpaid federal income taxes, interest and additional amounts totaling $732,272.89 as of November 30, 1994. (Perschke's Answer to Cross-Claim, ¶8). Perschke does not deny that proper notice of and demand for payment of assessments were given to him, and he admits that he failed to pay the taxes. Id. at ¶¶9, 10. Perschke admits that the January 30, 1989 Trust Agreement named Numisco as the one hundred percent beneficial owner of the Trust, but that as the President of Numisco, he held the power of direction over the Trust. Id. at ¶16. Perschke states that the deed from Perschke to the Trust on June 5, 1989 was valid and effective. Id. at ¶15. In Plaintiff's Answer to the IRS' Counter-Claim, Plaintiff also admits that on June 5, 1989, Perschke transferred the deed to the Real Property to the Trustee. (Pl.'s Answer to Counter-Claim, ¶15).

On March 27, 1995, the IRS filed a Motion for Summary Judgment, including a Local Rule 12(M) Statement, seeking to reduce federal tax assessments against Perschke to judgment and seeking an order of foreclosure and sale of the Real Property. The IRS supports its assertions in its 12(M) Statement with the affidavit of Ronald A. Carr, who worked at the Special Procedures Branch at the IRS and reviewed the records with respect to Perschke. (Affidavit of Carr, ¶¶1-3). Plaintiff filed a response to the IRS' Motion for Summary Judgment on February 7, 1996, in which she does not deny the accuracy of the IRS' 12(M) Statement.

The IRS and Plaintiff agree that there is no genuine issue of material fact that on January 30, 1989, the Land Trust was established with the stated purpose of taking title to the Real Property. (Def.'s 12(M) Stmt, ¶4; Pl.'s 12(N) Stmt., ¶4). In addition, the parties agree that Perschke deeded the Real Property to the Trustee on June 5, 1989, and the IRS filed a notice of federal tax liens on May 24, 1991. (Def.'s 12(M) Stmt., ¶¶9-10; Pl.'s 12(N) Stmt., ¶¶9-10). However, in Plaintiff's Response, Plaintiff alleges that there is a genuine issue of material fact as to whether the IRS has valid liens on the Real Property because Perschke may not have been "the real party in interest" in the ownership of the Real Property. (Pl.'s 12(N) Stmt., ¶¶12-13).

II. ANALYSIS

A. Motion for Summary Judgment Standard

Summary judgment is appropriate against a party who fails to make a sufficient showing to establish the existence of an essential element to its case on which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The moving party bears the initial burden of identifying the portions of the record which it believes demonstrate the absence of a genuine issue of material fact and entitle it to judgment as a matter of law. Id. at 323; Adickes v. S.H. Kress and Co., 398 U.S. 144, 157 (1970). All the evidence submitted must be viewed in the light most favorable to the non-moving party. Adickes, 398 U.S. at 157.

Once a properly supported motion for summary judgment has been filed, the non-moving party must set forth specific facts showing there is a genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) (quoting First National Bank of Arizona v. Cities Service Co., 391 U.S. 253 (1968)). An issue of fact is genuine only if a jury could reasonably return a verdict for the non-moving party. Id. at 248. Only facts that might affect the outcome of the case are material. Id. Therefore, if the evidence provided by the non-moving party is merely colorable or is not significantly probative, summary judgment may be granted. Id. at 249-50.

B. Judgment on Federal Tax Assessments Against Perschke

The IRS claims that, because the tax assessments against Perschke are prima facie correct, and because Perschke has failed to overcome the presumption of correctness, the IRS is entitled to judgment as a matter of law against Perschke in the amount of $708,595.55, plus interest and other statutory additions accruing after March 15, 1995. Federal tax assessments made by a delegate of the Secretary of the Treasury are presumptively correct. Once the United States presents evidence of an assessment of tax due, the presumption arises that the assessment is correct and the burden is then on the taxpayer to go forward with evidence to the contrary and to show by a preponderance of the evidence that the determination is incorrect. Welch v. Helvering [3 USTC ¶1164 ], 290 U.S. 111, 115 (1933); Helvering v. Taylor [35-1 USTC ¶9044 ], 293 U.S. 507, 515 (1935); U.S. v. Running [93-2 USTC ¶50,568 ], 7 F.3d 1293, 1297 (7th Cir. 1993).

In Plaintiff's Response, Plaintiff asserts that she has "neither interest nor standing" on the issue of whether the IRS is entitled to judgment against Perschke. (Pl.'s Response, p. 2). Perschke has not filed a response to the IRS' Motion for Summary Judgment, so the IRS' factual presentation stands admitted. Moreover, Perschke filed an Answer to the IRS' Cross-Claim in which he admits that the IRS made assessments against him on March 6, 1989 for unpaid federal income taxes, interest and additional amounts totaling $732,272.89 as of November 30, 1994. (Perschke's Answer to Cross-Claim, ¶8).

In the instant case, assessments were made against Perschke for 1980 and 1982 income taxes and interest on March 6, 1989, and those assessments are still due and owing. (Affidavit of Carr, ¶3; Def.'s 12(M) Stmt., ¶7; Perschke's Answer to Cross-Claim, ¶8). Because Perschke has failed rebut the presumption of correctness of the tax assessments, the IRS is entitled to judgment as a matter of law against Perschke in the amount of the unpaid balance of the tax assessments of $708,595.55 plus interest and statutory additions from March 15, 1995.

C. Order of Foreclosure and Sale

The IRS seeks to foreclose its federal tax liens on the real property located at 1421 West Fullerton, Chicago ("Real Property") and to have the Real Property sold, with net proceeds, after sale expenses, distributed first to the IRS for Perschke's tax liabilities. The IRS asserts that pursuant to Title 26 United States Code Sections 6321 and 6322 , a federal lien attached to all of Walter Perschke's property once the United States made assessments against Walter Perschke on March 6, 1989 for unpaid federal income tax liabilities. The IRS argues further that, as the Real Property was not transferred to the Land Trust until June 5, 1989, it was transferred subject to the liens of the United States which attached on March 6, 1989. Thus, when Numisco, the beneficiary of the trust, assigned its interest to Plaintiff, it could not assign an interest greater than it held and consequently, Plaintiff's interest is subject to the United States ' liens. Plaintiff argues that, even if Perschke transferred the property subject to the liens of the United States , the IRS has failed to demonstrate a sufficient interest in the property because the IRS did not file notice of its liens with the Cook County Recorder of Deeds until May 24, 1991. To win on a motion for summary judgment, the IRS must show that there is no genuine issue of material fact as to the priority of the tax liens over Plaintiff's assignment of beneficial interest in the Land Trust.

The priority of a federal tax lien is a matter of federal law. United States v. Pioneer American Insurance Co. [63-2 USTC ¶9532 ], 374 U.S. 84, 83 S. Ct. 1651 (1963). Sections 6321 and 6322 of the Tax Lien Act authorize the imposition by the IRS of a tax lien upon the property of the taxpayer when he is in default. ¹ 26 U.S.C. §§6321 , 6322 . In general, the Tax Lien Act follows the rule that a "lien first in time is first in rights." Pioneer American Insurance [63-2 USTC ¶9532 ], 374 U.S. at 87; J.D. Court, Inc. v. United States [83-2 USTC ¶9454 ], 712 F.2d 258, 260 (7th Cir. 1983), cert. denied, 466 U.S. 927, 104 S. Ct. 1708 (1984).

Because Section 6322 provides that a federal tax arises, or "attaches," when the tax assessment is made, "a tax lien normally takes priority over other liens arising subsequent to assessment of the delinquent tax." Id. However, Section 6323(a) provides an exception to the rule in Section 6322 . 26 U.S.C. §6323(a) . "Under §6323(a) , when the 'holder of a security interest' also claims an interest in property subject to a federal tax lien, the federal tax lien is deemed to have attached when the IRS files a notice of tax lien, rather than when the delinquent tax was first assessed." J.D. Court [83-2 USTC ¶9454 ], 712 F.2d at 260. Section 6323 reads in relevant part:

The lien imposed by section 6321 shall not be valid as against any purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor until notice thereof which meets the requirements of subsection (f) has been filed by the Secretary.

26 U.S.C. §6323(a) . Section 6323(f) provides that the place of filing of a notice of tax lien is "in one office within the State (or the county, or other governmental division), as designated by the laws of such State, in which the property subject to the lien is situated." 26 U.S.C §6323(f) . Illinois law provides that "notices of liens upon real property for obligations payable to the United States ... shall be filed in the office of the recorder of the county in which the real property subject to the liens is situated." 770 ILCS 110/2(b). In the instant case, the Real Property is located at 1421 West Fullerton, Chicago , which is in Cook County , Illinois ; therefore, the IRS must have filed its notice of tax liens on the Real Property at the Cook County Recorder of Deeds.

To determine whether the tax liens have priority over Plaintiff's competing claim, the Court must determine two factors: (1) when the federal tax liens "attached" and (2) when the Plaintiff's security interest "attached". United States v. Equitable Life Assurance Society [66-1 USTC ¶9444 ], 384 U.S. 323, 327-28, 86 S. Ct. 1561, 1564 (1966); J.D. Court [83-2 USTC ¶9454 ], 712 F.2d at 261; United States v. 110-118 Riverside Tenants Corp. [90-2 USTC ¶50,493 ], 886 F.2d 514, 518 (2d Cir. 1989).

First, according to Section 6323(a) , a federal lien attaches when the notice of tax lien is filed in the Cook County Recorder of Deeds. J.D. Court [83-2 USTC ¶9454 ], 712 F.2d at 261. Second, a security interest "attaches" when it is "specific and perfected," which means it attaches only when it becomes "choate." Equitable Life Assurance [66-1 USTC ¶9444 ], 384 U.S. at 327-28; J.D. Court [83-2 USTC ¶9454 ], 712 F.2d at 261. A state law security interest is deemed to be "choate" when the following three requirements are met: (1) the identity of the lienor is established; (2) the property subject to the lien is established; and (3) the amount of the lien is certain. Pioneer American Insurance [63-2 USTC ¶9532 ], 374 U.S. at 89. A security interest will take priority over a competing tax lien if the three-part test for "choateness" is satisfied at the time the IRS files its notice of tax lien, or within 45 days thereafter. 26 U.S.C. §6323(c) ; J.D. Court [83-2 USTC ¶9454 ], 712 F.2d at 261.

Plaintiff argues that she became a holder of a security interest by virtue of the Collateral Assignment of Beneficial Interest executed on February 6, 1989 , which was prior to the time the IRS filed notice of its liens against Perschke with the Recorder of Deeds. Thus, Plaintiff argues that her beneficial ownership is not subject to the IRS' liens, and the IRS' Motion for Summary Judgment should be denied. An assignment of beneficial interests in a land trust is a security interest under the Illinois Commercial Code. Federal Deposit Insurance Co. v. Wooten, 80 B.R. 917, 919 (N.D. Ill. 1987) (citing In re Loop Hospital Partnership, 50 B.R. 565, 568 (Bankr. W.D.Ill. 1985); First Federal Savings and Loan Association of Chicago v. Pogue, 389 N.E.2d 652, 656 (Ct. App. Ill. 1979)). Therefore, the Court finds that Plaintiff holds a security interest in the real property in the form of an assignment of beneficial interest in the Land Trust as of June 5, 1989 .

As a holder of a security interest, Plaintiff can prevail against the tax liens only if her security interest "attached" before the IRS filed notice of the tax liens with the Cook County Recorder of Deeds on May 24, 1991 . See, J.D. Court [83-2 USTC ¶9454 ], 712 F.2d at 261. Accordingly, the Court will apply the test for "choateness" to Plaintiff's security interest to determine whether Plaintiff's security interest may have "attached" before the filing of the tax liens. First, to be "choate," the identity of the lienor must be established. Plaintiff allegedly loaned Numisco money in 1986. She obtained an assignment of beneficial interest in the Land Trust on February 6, 1989 , and the Land Trust obtained title to the Real Property on June 5, 1989 , all before May 24, 1991 . Therefore, the identity of the lienor is Plaintiff. The second and third elements for "choateness" require that Plaintiff's security interest be definite as to the identity of the collateral and be definite as to the amount due. Id.

Second, Plaintiff's security interest was definite as to the identity of the collateral. In the Assignment of Beneficial Interest, dated February 6, 1989 , Numisco, with Perschke signing as President, transferred to Plaintiff one hundred percent beneficial interest of the Land Trust established by the Trust Agreement. The Trust Agreement specified that the Land Trust was "about to take title to" the Real Property, and the identity of the Real Property was stated in the Trust Agreement. On June 5, 1989 , Perschke transferred the Real Property by deed to the Trustee; thereby granting Plaintiff a beneficial interest in the Land Trust containing the Real Property before the IRS filed its notice of tax liens. Accordingly, the Court finds that Plaintiff's security interest was definite as to the identity of the collateral on May 24, 1991 .

Third, Plaintiff alleged in her Complaint that she had loaned a total of $185,000 to Numisco in 1986. Plaintiff alleges that Numisco made some payments of interest to Plaintiff, but no payments of principal, so that, as of June 15, 1994, the loans were in default in the amount of $234,378.28. In its Answer, Numisco admitted that Plaintiff's allegations regarding the amounts owed to it were correct. The IRS has not offered any evidence that loans were not made by Plaintiff to Numisco. As Plaintiff has not substantiated her claims regarding the loans and the amount due with admissible evidence, the Court can not determine at this time that the sum due to Plaintiff was in the amount of $185,000 plus interest not paid by Numisco as of May 24, 1991, the date that the IRS gave notice of the tax lien. However, if the allegations in Plaintiff's Complaint are proved to be true, Plaintiff's claim would satisfy the test for "choateness" at the time the IRS filed notice of its tax liens, and Plaintiff's security interest would have attached before the tax liens attached. Because the IRS has not proven that its security interest has priority over Plaintiff's security interest, the Court denies the IRS' Motion for Summary Judgment as to the foreclosure and sale of the Real Property.

The Court recognizes that the Seventh Circuit articulated a concern in Jersey State Bank v. United States [91-1 USTC ¶50,089 ], 926 F.2d 621, 623 (7th Cir. 1991) over whether the doctrine of "choateness" survived the enactment of the Tax Lien Act of 1966. The court in Jersey State Bank noted that the Tax Lien Act was silent in regard to the issue of "choateness" and that "all that is required is that the state security interest have been obtained prior to the filing of the federal tax lien." Id. Because the requirements of "choateness" had been met in Jersey State Bank, the court did not try to resolve the question. Id. at 624. However, because some courts have rejected the reliance on "choateness" under Section 6323 in situation clearly covered by the Uniform Commercial Code, and because the Seventh Circuit has expressed doubt to its continued applicability, the Court will address whether Plaintiff may have perfected her beneficial interest in the Land Trust before the IRS filed notice of the tax lien. See Aetna Insurance Co. v. Texas Thermal Industries Inc. [79-1 USTC ¶9287 ], 591 F.2d 1035, 1038 (5th Cir. 1979); Atlantic States Construction, Inc. v. Hand et al. [90-1 USTC ¶50,065 ], 892 F.2d 1530, 1540 (11th Cir. 1990).

The IRS argued in its Response to Plaintiff's Motion for Default Judgment, citing Arcadia Upholstering, Inc. v. 165 Restaurant, Inc., 516 N.E.2d 523 (Ill.App. 1987), that, as there is no indication that Plaintiff filed the Collateral Assignment of Beneficial Interest with the Secretary of State, Plaintiff has failed to perfect her interest against subsequent creditors such as the IRS. As an initial matter, this Court notes that Arcadia Upholstering confronts a purchase money security interest, not the assignment of a beneficial interest in a land trust. More importantly, this Court finds that, under Illinois law, the assignment of a beneficial interest in a land trust does not have to be filed in order to be perfected. See In re Cutty's-Gurnee, Inc., 133 B.R. 934, 943-44 (Bankr. N.D.Ill. 1991); In re Goode, 131 B.R. 835, 839 (Bankr. N.D.Ill. 1991); Federal Deposit Insurance Co. v. Wooten, 80 B.R. 917, 919 (N.D.Ill. 1987).

Section 9-303 of the Illinois Commercial Code provides that a security interest is perfected when it has attached and when the steps outlined in §§9-302, 9-304, 9-305 and 9-306 have been followed. Wooten, 80 B.R. at 919; 810 ILCS 5/9-303. However, Section 9-302(1)(c) exempts assignments of beneficial interests in land trusts from the normal filing requirement necessary for the perfection of a security interest. Wooten, 80 B.R. at 919; 810 ILCS 5/9-302(1)(c).

Thus, according to the relevant provisions of the Illinois Commercial Code, a security interest in the assignment of a beneficial interest in a land trust is perfected as long as the requirements for attachment under Section 9-203(1) are met. A security interest attaches under Section 9-203(1) when:

(a) The collateral is in possession of the secured party pursuant to agreement, or the debtor has signed a security agreement which contains a description of the collateral ..., and

(b) value has been given; and

(c) the debtor has rights in the collateral.

810 ILCS 5/9-203(1).

The IRS has failed to show that there is no genuine issue of material fact that Plaintiff has not met all of the requirements for attachment under Section 9-203(1), and, therefore, the IRS has not shown that there is no genuine issue of material fact that the tax liens have priority over Plaintiff's security interest. First, Plaintiff possesses a signed Collateral Assignment of Beneficial Interest from Perschke, on behalf of Numisco. The Assignment of Beneficial Interest incorporates by reference the Trust Agreement which formed the Land Trust. The Trust Agreement contains a complete description of the Real Property, stating that the title to the Real Property is about to be transferred into the Land Trust. The IRS admits that the Real Property was transferred by deed to the Land Trust on June 5, 1989 . 8 Ronald A. Anderson, Anderson on the Uniform Commercial Code §9-203:36 (1985) ("A security agreement need not be a single document entitled 'security agreement'....").

Second, in 1986, Plaintiff allegedly loaned Numisco $185,000, which Numisco did not repay; however, as discussed above, neither Plaintiff nor the IRS has offered any proof of this. Because the IRS has not offered evidence that Plaintiff's allegations regarding the loans to Numisco are not true, the Court can not grant the IRS' Motion for Summary Judgment. If Plaintiff did make these loans, Plaintiff gave value to Numisco in the form of a loan. A creditor gives value by taking a security interest to secure a pre-existing claim against the debtor. 810 ILCS 5/1-201(44)(b) (A person gives "value" for rights "if he acquires them ... as security for ... a pre-existing claim."); 2 James J. White and Robert S. Summers, Uniform Commercial Code §24 -6 (1988); In re Mattress Factory Sleep Shop, Inc., 717 F.2d 1225 (8th Cir. 1983) ("antecedent debt" satisfied "value" requirement). Third, Numisco had rights in the Land Trust. The Trust Agreement dated January 30, 1989 specifies that one hundred percent beneficial interest was held by Numisco, and Numisco's name, with Perschke's signature as its President, appears in the space identifying beneficiaries. The Assignment of Beneficial Interest to Plaintiff was made by Numisco, with Perschke signing as the President of Numisco. The IRS has not offered any evidence that Numisco did not have rights in the Land Trust, and, therefore, Plaintiff's claims stand unrebutted.

Thus, this Court agrees with Plaintiff that her failure to file the Collateral Assignment of Beneficial Interest with the Secretary of State does not mean that she did not perfect her beneficial interest in the Land Trust. Accordingly, because Plaintiff became the beneficial owner of one hundred percent of the Land Trust, which included the Real Property, prior to the time the IRS filed notice of its liens against Perschke, Plaintiff's interest may not be subject to the IRS' lien. See 26 U.S.C. §6323(a) . The IRS has not carried its burden of proof in the instant case. Neither side has offered sufficient evidence to determine conclusively the priority of the parties' claims, and, therefore, this Court can not grant summary judgment to the IRS.

Additionally, the IRS asserted in its Response to Plaintiff's Motion for Default Judgment, that even if Plaintiff did not have to file a financing statement to perfect her interest in the assignment of the beneficial interest of the Land Trust, the assignment of the beneficial interest in the Land Trust is not binding because the assignment was not lodged with or signed by the Trustee. The note at the bottom of the Collateral Assignment of Beneficial Interest states, "[t]his assignment shall not be binding on the Trustee unless and until the original or a duplicate thereof is lodged with the Trustee and its acceptance indicated thereon." (Pl.'s Complaint, Exhibit B).

At least three courts have rejected the argument that Illinois law requires endorsement or any form of lodging on the part of the land trustee for perfection of an assignment of a beneficial interest in a land trust. See In re Goode, 131 B.R. at 839-41; Wooten, 80 B.R. at 919-20; In re Loop Hospital Partnership, 50 B.R. 565, 569 (Bankr. N.D.Ill. 1985). While a failure to lodge the assignment with the Trustee, and acquire the Trustee's signature indicating its acceptance of the assignment, may mean that the assignment is not effective with respect to the Trustee or a subsequent assignee or purchaser without notice, it does not mean that the assignment is not binding as between the assignor and the assignee. In re Goode, 131 B.R. at 839. The parties have not presented any legal argument, nor is the Court aware of any authority, that the IRS is in the position of a subsequent assignee or a purchaser without notice.

The IRS does not cite any cases to persuade this Court to depart from the well reasoned analysis of Goode and Wooten. Thus, this Court concludes that Plaintiff's failure or inability to lodge the Collateral Assignment of Beneficial Interest with the Trustee, and to acquire its signature thereon, does not mean that Plaintiff did not perfect her assignment of beneficial interest in the Land Trust or that the assignment is not binding as between Numisco and Plaintiff. Accordingly, the IRS is not entitled to summary judgment on the grounds that the assignment of beneficial interest was not lodged with the Trustee.

The Court notes that the IRS has made no allegations, nor has it presented any evidence, of fraud in the transactions at issue in this case. If the conveyance of the Real Property was intended to defraud the government, it is voidable as to the IRS. United States v. Denlinger [93-1 USTC ¶50,040 ], 982 F.2d 233, 236 (7th Cir. 1992). In addition, the Illinois Commercial Code provides that the parties must have acted in good faith in performing the subject transactions. 810 ILCS 5/1-203 ("Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement.").

D. Plaintiff's Additional Arguments

Although the Court has determined that the IRS has not shown that it is not entitled to priority over Plaintiff's security interest, the Court will resolve, for the sake of completeness, two other arguments set forth by Plaintiff in her Response to the IRS' Motion for Summary Judgment. First, Plaintiff claims that the IRS has failed to adequately show that proper notice of the tax assessments and demand for payment were made. In its Reply, the IRS argues that it has properly supported its Motion for Summary Judgment and the Court should disregard Plaintiff's Response because it fails to submit any affidavits or other admissible evidence to support her allegations. ²

The Court finds that the IRS has properly supported its Motion for Summary Judgment as to the issue of notice of and demand for payment of the assessments. In a sworn affidavit, Ronald R. Carr, an employee of the IRS, asserts that "proper notice of, and demand for payment of, the assessments were sent to Walter R. Perschke." (Affidavit of Carr, ¶¶3(b)-(c)). In his Answer to the IRS' Cross-Claim, Perschke does not deny that he had received notice of the tax assessments and demand for payment. (Perschke's Answer to Cross-Claim, ¶9). Without giving any credence to the word "proper," the Court finds that the IRS has offered sufficient evidence that notice of the assessments and demand for their payment were made, and Plaintiff has not offered any evidence at all to show that there is a genuine issue of material fact on this issue.

Second, in Plaintiff's Response to the IRS' Motion for Summary Judgment, Plaintiff asserts in a conclusory fashion that Numisco, not Perschke, was "the real party in interest" when Perschke took title to the subject property on June 1, 1982, and, therefore, Perschke did not have a property interest in the Real Property at the time the IRS imposed its liens. (Pl.'s 12(N) Stmt., ¶12). To support this assertion, Plaintiff offers the following documents as evidence: (1) A letter dated January 27, 1982 from the law firm Shefsky & Froelich, Ltd. to Numisco, Inc.; (2) The first page of a letter dated April 1, 1982 from the attorneys for the seller of the 1421 West Fullerton property to Numisco, Inc. (3) Three preliminary drafts, none of which are dated, of only one page of a Real Estate Sale Contract for the 1421 West Fullerton property, two of which show Numisco, Inc. as purchaser, and one of which shows Perschke as Purchaser; (4) A contract dated June 9, 1982 between Numisco, Inc. and Cleveland Wrecking Company to demolish a building on the 1421 West Fullerton property; (5) The cover of an "insurance binder" dated August 24, 1983, with "Numisco, Inc. et al" identified as the "Assured," and with a notation from the insurance broker that Perschke is the owner of the building at 1421 West Fullerton; and (6) Copies of four checks made payable to Cook County Collection from Numisco Rare Coins, Ltd. for tax bills sent to Perschke at 1423 West Fullerton. Plaintiff claims that she has examined Perschke, and he allegedly stated that there are no other documents relevant to this issue, but Plaintiff did not submit any affidavits or depositions of Perschke to substantiate her claim.

The Court finds that Plaintiff's exhibits are not admissible evidence, and even if the evidence was admissible, Plaintiff has failed to demonstrate that a genuine issue of material fact exists. To ward off a motion for summary judgment, a party must submit evidence to the Court, consisting of admissible documents or sworn testimony, such as that found in depositions or in affidavits, to demonstrate that there is a genuine issue of material fact. Winskunas v. Birnbaum, 23 F.3d 1264, 1267 (7th Cir. 1994). "On a summary judgment motion, when a party seeks to offer evidence through exhibits, they must be identified by affidavit or otherwise be admissible." Powers v. Dole, 782 F.2d 689, 696 (7th Cir. 1986) (citing Martz v. Union Labor Life Ins. Co., 757 F.2d 135, 138 (7th Cir. 1985)); Steinle v. Warren, 765 F.2d 95, 100 (7th Cir. 1985) (finding that an unauthenticated copy of a purported affidavit, which did not show where it was executed, was not part of the trial court record and did not create a genuine issue of material fact); Davis v. Frapolly, 756 F. Supp. 1065, 1070 (N.D. Ill. 1991) (determining that a dated letter standing alone was inadmissible hearsay which could not be considered in opposition to a motion for summary judgment). Plaintiff has failed to submit any affidavits or other documents identifying or authenticating the exhibits attached to her Response. As none of the documents are self-authenticating, the Court finds that the documents attached to Plaintiff's Response are inadmissible.

The imposition of a tax lien must be limited to the actual property interest of the taxpayer. United States v. Rodgers [83-1 USTC ¶9374 ], 461 U.S. 677, 690-91, 103 S. Ct. 2132, 2141 (1983). Whether Perschke had a property interest when the IRS filed its liens with the Recorder of Deeds is a question of state law. Aquilino v. United States [60-2 USTC ¶9538 ], 363 U.S. 509, 513, 80 S. Ct. 1277, 1280 (1960). Under Illinois law, record title can only be defeated by a showing of equitable ownership by reason of a constructive trust, a resulting trust, or an oral agreement to convey. Hanley v. Hanley, 14 Ill. 2d 566, 571, 152 N.E.2d 879, 882 (1958). Plaintiff has not presented any admissible evidence on this. ³ Perschke stated that he was the record owner of the Real Property at the time the IRS assessed the tax liens, and the IRS also stated that Perschke was the owner. No one else is claiming an interest in the Real Property and only Plaintiff suggests that someone else might have had some kind of equitable interest. This is mere speculation. Accordingly, because there is no admissible evidence that Perschke is not the owner and because speculation does not raise a genuine issue of material fact, Plaintiff's claim that Perschke did not hold a property interest in the Real Property at the time the IRS assessed the tax liens is without merit.

III. CONCLUSION

For the foregoing reasons, the IRS' Motion for Summary Judgment is GRANTED in part and DENIED in part. The IRS is entitled to judgment as a matter of law in its favor against Walter R. Perschke for unpaid federal income taxes and interest for the years 1980 and 1982 in the amount of $708,595.55 plus interest and statutory additions from March 15, 1995 . The Court denies the IRS' Motion for Summary Judgment as to its claimed tax liens on the Real Property at 1421 West Fullerton , Chicago , Illinois , and, therefore, denies its motion to foreclose on the same.

¹ Section 6321 of the Internal Revenue Code reads as follows:

If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property whether real or personal, belonging to such person.

26 U.S.C. §6321 .

Section 6322 of the Internal Revenue Code reads as follows:

Unless another date is specifically fixed by law, the lien imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed (or a judgment against the taxpayer arising out of such liability) is satisfied or becomes unenforceable by reason of lapse of time.

26 U.S.C. §6322 .

² Not only does the IRS allege that Plaintiff failed to submit any affidavits or other admissible material to defeat the IRS' Motion for Summary Judgment, but the IRS also asserts that Plaintiff has failed to comply with Local Rule 12(N) because she did not submit a "memorandum of law," nor did she submit a document specifically headed "Local Rule 12(N) Statement." The Court finds that Plaintiff's "Introduction" to its Response may be construed as a memorandum of law and that Plaintiff's "Response to United States ' Rule 12(M) Statement" and "Additional Facts" may be construed as Plaintiff's Local Rule 12(N) Statement.

³ Moreover, the Court notes that the insurance statement submitted as an exhibit by Plaintiff specifically identifies Perschke as the owner of the building on the Real Property.