Deeds of Trust

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[2002-2 USTC ¶50,560] United States of America , Plaintiff v. Stephen C. Burdine, et al., Defendants

U.S. District Court, West. Dist. Wash. , Tacoma Div., C01-5286RJB, 4/3/2002 , 2002 U.S. Dist. LEXIS 12058.

[Code Sec. 6203 ]

Assessments, validity of: Evidence: Form 4340: Presumption of correctness.--The government was entitled to foreclose on a married couple's property because Forms 4340 were presumptive proof that the taxes at issue were duly assessed and recorded, and that adequate notice and demand had been made. The taxpayers' contention that the forms were unreliable and could not be verified by an audit trail of supporting documents was rejected. Documents they submitted did not show errors in their accounts. In addition, they failed to show any existing or potential problems with the master file system used to record the assessments, or how the absence of such a system rebutted the presumption of correctness of the Forms 4340.

[Code Secs. 6212 and 6321 ]

Liens and levies: Creation of lien: Notice of deficiency: Necessity of notice: Self-reported liability: Employment taxes.--Liens against a married couple who failed or refused to pay income and employment taxes properly arose on the date of assessment and attached to the taxpayers' residence. The taxpayers' contention that the liens were invalid because the IRS failed to issue a notice of deficiency prior to filing them was rejected. The IRS was not required to issue a notice of deficiency because the income taxes at issue were based on amounts voluntarily reported and because employment taxes are not subject to the Code Sec. 6212 deficiency procedures.

[Code Sec. 6323 ]

Priority of liens: Deed of trust.--Valid federal tax liens that attached to a married couple's residence were junior in priority to a deed of trust in favor of the taxpayers' mortgage company because the deed was recorded before the government recorded its notices of lien.

[Code Sec. 6323 ]

Priority of liens: Judgment creditors.--Valid federal tax liens that attached to a married couple's residence were superior in priority to judgment liens against the property that were held by two entities because the tax liens were recorded prior to those judgments. BACK

[Code Sec. 6323 ]

Priority of liens: State property taxes.--Valid federal tax liens that attached to a married couple's residence were junior in priority to any lien in favor of the taxpayers' county of residence for unpaid property taxes and special assessments.

[Code Sec. 7403 ]

Liens and levies: Action to enforce lien: Foreclosure: Priority of liens.--The government was entitled to foreclose on property belonging to a married couple who failed or refused to pay income and employment taxes that they voluntarily reported for three tax years. Valid federal tax liens attached to the property were junior in priority to any lien in favor of the taxpayers' county of residence for unpaid property taxes and special assessments. The liens were also junior to a deed of trust in favor of their mortgage company because the deed was recorded before the government recorded its notices of lien. However, the federal tax liens were superior to judgment liens against the property because the tax liens were recorded prior to those judgments.

W. Carl Hankla, Jeremy N. Hendon, Department of Justice, Washington, D.C. 20530, for plaintiff. Stephen C. Burdine, Michelle S. Burdine, Tacoma , Wash. , pro se.

ORDER GRANTING UNITED STATES' MOTION FOR SUMMARY JUDGMENT

BRYAN, District Judge:

This matter comes before the court on the United States ' Motion for Summary Judgment. Dkt. 31. The court has considered the pleadings filed in support of and in opposition to the motion and the file herein.

A. SUMMARY JUDGMENT STANDARD

Summary judgment is proper only 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 the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The moving party is entitled to judgment as a matter of law when the nonmoving party fails to make a sufficient showing on an essential element of a claim in the case on which the nonmoving party has the burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L.Ed.2d 265, 106 S.Ct. 2548 (1985). There is no genuine issue of fact for trial where the record, taken as a whole, could not lead a rational trier of fact to find for the non moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 89 L.Ed.2d 538, 106 S.Ct. 1348 (1986) (nonmoving party must present specific, significant probative evidence, not simply "some metaphysical doubt."). See also Fed.R.Civ.P. 56(e). Conversely, a genuine dispute over a material fact exists if there is sufficient evidence supporting the claimed factual dispute, requiring a judge or jury to resolve the differing versions of the truth. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 253, 91 L.Ed.2d 202, 106 S.Ct. 2505 (1986); T.W. Elec. Service Inc. v. Pacific Electrical Contractors Association, 809 F.2d 626, 630 (9th Cir. 1987).

The determination of the existence of a material fact is often a close question. The court must consider the substantive evidentiary burden that the nonmoving party must meet at trial--e.g., a preponderance of the evidence in most civil cases. Anderson, 477 U.S. at 254, T.W. Elect. Service Inc., 809 F.2d at 630. The court must resolve any factual issues of controversy in favor of the nonmoving party only when the facts specifically attested by that party contradict facts specifically attested by the moving party. The nonmoving party may not merely state that it will discredit the moving party's evidence at trial, in the hopes that evidence can be developed at trial to support the claim. T.W. Elect. Service Inc., 809 F.2d at 630 (relying on Anderson , supra). Conclusory, non specific statements in affidavits are not sufficient, and "missing facts" will not be "presumed." Lujan v. National Wildlife Federation, 497 U.S. 871, 888-89, 111 L.Ed.2d 695, 110 S.Ct. 3177 (1990).

B. PROCEDURAL AND FACTUAL BACKGROUND

Stephen C. Burdine and Michelle S. Burdine (The Burdines) have been married continuously since at least January 1, 1990 . The Burdines currently reside at 4506 Country Club Dr. N.E. , Tacoma Washington 98422 (The Property). The Burdines acquired the property on or about July 30, 1999 . They gave a deed of trust on the property to WMC Mortgage Corporation to finance the purchase, which WMC subsequently assigned to Nations Credit Home Equity Services Corporation. Bishop, Lynch & White, P.S. is the trustee under that deed of trust.

During 1990, Mr. Burdine operated a sole proprietorship business under the name "Burdine & Associates." He filed Form 941 federal employment tax returns for the second, third and fourth quarters of 1990, but did not pay the tax due on those returns. The United States contends that, as of March 1, 2002, the outstanding balance of self reported employment tax liabilities assessed against the Burdines was $15,954.69, including statutory interest under 26 U.S.C. §6651 and penalties under 26 U.S.C. §6656.

The Burdines filed federal Form 1040 income tax returns for their 1992 and 1993 tax years. They did not pay the tax reported on those returns. The United States contends that, as of March 1, 2002, the outstanding balance of self-reported income tax liabilities assessed against the Burdines was $33,910.16, including statutory interest under 26 U.S.C. §6651 and penalties under 26 U.S.C. §6656.

The United States contends that the total outstanding balance of both employment and income tax liabilities due as of March 1, 2002 , including statutory accruals through that date, was $48,864.85.

C. MOTION FOR SUMMARY JUDGMENT

The United States filed this action to (1) reduce federal tax assessments against the Burdines to judgment; and (2) foreclose tax liens against their residence property. The United States contends that the assessments are presumptively correct, and the priority of the federal tax liens against the Property is undisputed.

The Burdines oppose the motion for summary judgment, contending that (1) they did not receive a statutory notice of deficiency; (2) the absence of a Non-Master File account in their transcripts raises an issue for trial; (3) the Forms 4340 are unreliable; and (4) the Forms 4340 cannot be verified by an audit trail of supporting documents. Dkt. 36.

D. ISSUES

1. Are the Burdines indebted to the United States for unpaid assessed balances of federal employment taxes and individual income taxes, plus accrued interest and penalties?

2. Does the United States have valid and subsisting liens on all property and rights to property of the Burdines, including the Property?

3. Should the United States ' liens be enforced and foreclosed against the Property through a judicial sale?

E. DISCUSSION

1. Are the Burdines indebted to the United States for unpaid assessed balances of federal employment taxes and individual income taxes, plus accrued interest and penalties?

Included in the record are Form 4340 Certificates of Assessments and Payments, which substantiate the Burdines' tax liabilities. Dkt. 32, Exh. G, H, I, L, and M. Generated under seal and signed by an authorized delegate of the Secretary of the Treasury, Forms 4340 are admissible into evidence as self-authenticating official records of the United States, and these documents carry a presumption of correctness. Rossi v. United States , 755 F.Supp. 314, 318 (D.Or. 1990); Fed.R.Civ.P. 803(8) and 902(1). The "23-c" entries on the Form 4340 show that the taxes at issue were duly assessed and recorded. United States v. Chila [89-1 USTC ¶9299 ], 871 F.2d 1015, 1017 (11th Cir. 1989); Rossi, 755 F.Supp. at 318. The "Notice" entries on the Form constitute proof that adequate notice and demand was made. United States v. Lorson Electric Co., Inc. [73-1 USTC ¶9449 ], 480 F.2d 554, 555-56 (2d Cir. 1973).

The Forms 4340 show that the total unpaid assessed balance, as of March 1, 2002 , of Form 941 employment tax liabilities due from Stephen C. Burdine and the marital community of Stephen C. Burdine and Michelle S. Burdine was $14,954.69. Dkt. 32 and 33.

The Forms 4340 show that the total unpaid assessed balance, as of March 1, 2002 , of Form 1040 income tax liabilities due from Stephen C. Burdine and Michelle S. Burdine was $33,910.16. Dkt. 32 and 33.

The total outstanding balance of both employment and income tax liabilities due as of March 1, 2002 , including statutory accruals through that date, was $48,864.85.

The Burdines contend that the Forms 4340 are unreliable, and that these forms cannot be verified by an audit trail of supporting documents. These arguments are without merit. The FOIA documents submitted by the Burdines do not show any errors in their accounts; and the Burdines have not shown any existing or potential problems with the Master File system used to record assessments of income or employment taxes against taxpayers such as the Burdines. The Burdines also argue that the absence of a "Non-Master File" account raises an issue of fact for trial. A Non-Master File is a manual accounting system controlling certain types of returns that are not processed through the general IRS computer system to the Master File. Non-Master File assessments are relatively uncommon. IRM 35.13.10.3. The Burdines have not shown how the absence of a Non-Master File rebuts the presumption of correctness of the Forms 4340.

The Burdines are indebted to the United States for unpaid assessed balances of federal employment taxes and individual income taxes, plus accrued interest and penalties.

2. Does the United States have valid and subsisting liens on all property and rights to property of the Burdines, including the Property?

Under IRC §6321, the United States obtains a lien "upon all property and rights to property, whether real or personal, belonging to" any taxpayer who neglects or refuses to pay taxes after notice and demand. This lien arises as of the date of assessment and continues until the tax liability is extinguished. 26 U.S.C. §6322. It thus attaches to property acquired after the date of assessment but before the tax liability is extinguished. Glass City Bank v. United States [45-2 USTC ¶9449 ], 326 U.S. 265, 267, 90 L.Ed. 56, 66 S.Ct. 108 (1945) (tax lien effective as against after-acquired property). It is effective as against the taxpayer without the filing of a notice of lien. See 26 U.S.C. §6323(a). It is effective as against third parties entitled to notice upon the filing of a notice of lien. 26 U.S.C. §6323(a), (f).

Federal tax assessments have been made against the Burdines, and they have failed to pay them after notice and demand. Statutory tax liens arose as of the dates of the assessments and attached to all of their property and rights to property then owned or after-acquired, including community property such as the Property. See Hyde v. United States [93-2 USTC ¶50,605] , 1993-2 U.S.T.C. P 50,605 (D.Ariz. 1993) (federal tax assessment against husband was community debt).

The United States has valid and subsisting liens on all property and rights to property of the Burdines, including the Property.

3. Should the United States ' liens be enforced and foreclosed against the Property through a judicial sale?

IRC §7403 provides authority for the court to order a judicial sale to satisfy unpaid tax liabilities, as follows:

In any case where there has been a refusal or neglect to pay any tax, or to discharge any liability in respect thereof, whether or not levy has been made, the Attorney General or his delegate, at the request of the Secretary, may direct a civil action to be filed in a district court of the United States to enforce the lien of the United States under this title with respect to such tax or liability or to subject any property, of whatever nature, of the delinquent, or in which he has any right, title, or interest, to the payment of such tax or liability.

All parties having liens upon or claiming any interest in the property involved in this action have been named as defendants to this action, as is required by 26 U.S.C. §7403(b), including the beneficiary of the purchase money deed of trust, the trustee under that deed of trust, the local taxing authority, and several judgment creditors. Nations Credit Home Equity Services Corporation and Bishop, Lynch & White were named as defendants solely because they have interests of record in the Property. They and defendant Pierce County were dismissed without prejudice pursuant to stipulations with the United States approved by the court on January 25, 2002 . Dkt. 30. The other defendants to this action, R.J. Coyer, Southern Washington Collection Bureau, Inc. and Lease & Industrial Collectors, Inc. were named as parties because their judgments against the Burdines may constitute liens on the Property; the court entered an order of default against these defendants on January 18, 2002 . Dkt. 29. The Burdines appear to have discharged their debt to Lease & Industrial Collectors, Inc. in a Chapter 7 bankruptcy case filed in August 1992. Dkt. 32, Exh. 20-22.

Under 26 U.S.C. §7403(c),

The court shall, after the parties have been duly notified of the action, proceed to adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property, and, in all cases where a claim or interest of the United States therein is established, may decree a sale of such property, by the proper officer of the court, and a distribution of the proceeds of such sale according to the findings of a court in respect to the interests of the parties and of the United States.

See United States v. Rodgers [83-1 USTC ¶9374 ], 461 U.S. 677, 76 L.Ed.2d 236, 103 S.Ct. 2132 (1983) (family home sold under section 7403 to satisfy tax liens arising from husband's tax liability).

The Burdines contend that they did not receive proper notice because they did not receive a statutory notice of a deficiency. This argument is without merit. The income taxes at issue were based on amounts voluntarily reported by the Burdines on Forms 1040. The employment taxes at issue are not subject to the deficiency procedures of 26 U.S.C. §6212(a).

In summary, the record shows that the Burdines have refused or neglected to pay federal tax liabilities. Liens for taxes have arisen against all of their property and rights to property, including the Property. The tax liens against the Property should be foreclosed. Those liens are junior in priority to any lien in favor of Pierce County for unpaid property taxes and special assessments. See 26 U.S.C. §6323(b)(6). They are also junior to the deed of trust in favor of Nations Credit Home Equity Services Corporation, since that deed of trust was recorded before the IRS recorded its notices of federal tax lien with the Auditor's office in Tacoma . See Dkt. 25 and 30. The government's tax liens are superior to the judgment liens against the Property held by R.J. Coyer and southern Washington Collection Bureau, d/b/a Pioneer Credit Company, because the notices of federal tax lien were recorded prior to the judgments. Dkt. 32, PP 16-18; 22-23. As between the two judgment liens, R.J. Coyer's is superior. Id. at PP 22-23.

Accordingly, the court should order a judicial sale of the Property, subject to the deed of trust in favor of Nations Credit Home Equity Services Corporation, with the proceeds to be distributed (1) to the U.S. Marshals Service for allowed costs of sale; (2) to Pierce County, for any real property taxes or special assessments constituting a lien having priority under 26 U.S.C. §6323(b)(6) as of the date of sale; (3) to the United States, to be applied toward the unpaid tax liabilities of the Burdines until those liabilities, including all accruals, are satisfied or the funds are exhausted; (4) if any excess funds remain after the subject liabilities are satisfied in full, to R.J. Coyer on account of his judgment lien; (5) if any excess funds remain after R.J. Coyer's judgment lien is satisfied, to Southern Washington Collection Bureau, d/b/a Pioneer Credit Company on account of its judgment lien; and (6) if any excess funds remain thereafter, to the Burdines.

Therefore, it is hereby

ORDERED that the United States ' Motion for Summary Judgment (Dkt. 31) is GRANTED. Judgment is entered in favor of the United States and against Stephen Curtis Burdine and Michelle S. Burdine in the amount of $48,864.85, plus statutory interest and penalty accruals from March 1, 2002 until the tax liabilities, including all accruals, are satisfied. The United States' liens shall be enforced and foreclosed against the marital community real property of Stephen C. Burdine and Michelle S. Burdine, located at 4506 Country Club Drive N.E., Tacoma, Washington 98422, Tax Parcel I.D. No. 500042-140-0, more particularly described as Lot 140 North Shore Country Club Estates Division IV-C., according to plat recorded under Auditor's No. 9109100360, in Pierce County, Washington, through a judicial sale conducted by the U.S. Marshal pursuant to 26 U.S.C. §§7402 and 7403 and 28 U.S.C. §§2001 and 2002. The United States ' tax liens on the above described property are subordinate to (i) any unpaid real property taxes or special assessments owing to Pierce County that constitute a lien, and (ii) a deed of trust in favor of Nations Credit Home Equity Services, Inc. The United States ' liens are superior to the judgment liens on the above described property in favor of R.J. Coyer and southern Washington Collection Bureau, Inc. d/b/a Pioneer Credit Company. As between these two judgment liens, Mr. Coyer's is superior. The United States is ORDERED to submit a proposed order of sale within thirty days of the entry of judgment herein.

The Clerk is directed to send uncertified copies of this Order to all counsel of record and to any party appearing pro se at said party's last known address.

JUDGMENT IN A CIVIL CASE

Decision by Court. This action came under consideration before the Court. The issues have been considered and a decision has been rendered.

IT IS ORDERED AND ADJUDGED that the United States ' Motion for Summary Judgment is GRANTED. Judgment is entered in favor of the United States and against Stephen Curtis Burdine and Michelle S. Burdine in the amount of $48,864.86, plus statutory interest and penalty accruals from March 1, 2002 until the tax liabilities, including all accruals, are satisfied. The United States' liens shall be enforced and foreclosed against the marital community real property of Stephen C. Burdine and Michelle S. Burdine, located at 4506 Country Club Drive N.E., Tacoma, Washington 98422, Tax Parcel I.D. No. 500042-140-0, more particularly described as Lot 140 North Shore Country Club Estates Division IV-C., according to plat recorded under Auditor's No. 9109100360, in Pierce County, Washington, through a judicial sale conducted by the U.S. Marshal pursuant to 26 U.S.C. §§7402 and 7403 and 28 U.S.C. §§2001 and 2002. The United States ' tax liens on the above-described property are subordinate to (i) any unpaid real property taxes or special assessments owing to Pierce County that constitute a lien, and (ii) a deed of trust in favor of Nations Credit Home Equity Services, Inc. The United States' Liens are superior to the judgment liens on the above described property in favor of R.J. Coyer and southern Washington Collection Bureau, Inc. d/b/a/ Pioneer Credit Company. As between these two judgment liens, Mr. Coyer's is superior. The United States if ORDERED to submit a proposed order of sale within thirty days of the entry of judgment herein.

 

 

[2000-1 USTC ¶50,130] United States of America , Plaintiff v. Gilbert Mark Crisp, Rhonda Jean Crisp, Sequoia Property and Equipment Limited Partnership, Washington Mutual Bank, Defendants

U.S. District Court, East. Dist. Calif. , CV-F-97-5044 OWW DLB, 11/30/99

[Code Sec. 6323 ]

Federal tax liens: Priority: Filing of liens: First in time: Property, foreclosure: Deed of trust: Judicial notice: Successor beneficiary: Undisputed facts.--A bank's lien against proceeds from the foreclosure sale of delinquent taxpayers' real property had priority under state ( California ) law over subsequently filed federal tax liens. The court took judicial notice of a copy of the deed of trust recorded against the property, and the bank's status as successor beneficiary under the deed of trust was undisputed. Pursuant to the "first-in-time, first-in-right" rule, the tax liens were not valid until they were filed with the appropriate county recorder. Since the deed of trust was filed more than four years before the tax liens were perfected, it was superior to the tax liens.

MEMORANDUM AND ORDER RE DEFENDANT WASHINGTON MUTUAL'S REQUEST FOR JUDICIAL NOTICE AND SUMMARY JUDGMENT MOTION

I. INTRODUCTION

WANGER, District Judge:

This case is before the Court on Defendant Washington Mutual's September 20, 1999 motion for summary judgment. Plaintiff originally filed four complaints. The first was against Sequoia Property and Equipment Limited Partnership (filed 1/22/97); the second against Hyper-Jean Property and Equipment Limited Partnership (filed 1/30/98); the third against Wanda Jean Crisp, Hyper-Jean Property and Equipment Limited Partnership, Leader Federal Bank for Savings, Bankers Trust Company of California, and Mid-Valley Lenders (filed 10/14/98); and the fourth against Gilbert Mark Crisp, Rhonda Crisp, Sequoia Property and Equipment, and Washington Mutual Bank Inc. (filed 10/19/98). All four cases were consolidated for all purposes on August 6, 1999 .

The second amended complaint alleges two claims. (Doc. 61, No. 98-6188) First, Plaintiff requests the tax assessments against Gilbert Mark Crisp and Rhonda Jean Crisp from 1988 and 1989 be reduced to judgment. (Doc. 61, No. 98-6188 at 3-4) Second, Plaintiff the October 20, 1992 transfer of the real property known as 5036 West Oak Street , Visalia , California , from Gilbert Mark Crisp and Rhonda Jean Crisp be set aside. (Doc. 61, No. 98-6188 at 4-7) Defendant Washington Mutual Bank Inc. is a bank that is the successor beneficiary under a deed of trust recorded March 4, 1992 against the property in question.

Defendant Washington Mutual filed a motion for summary judgment to determine that its lien on the property is superior to the tax lien filed by Plaintiff. ( Br. at 4) Plaintiff submitted a notice of non-opposition.

II. LEGAL STANDARD

Summary judgment is appropriate only "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." Fed. R. Civ. P. 56(c); see also Maffei v. Northern Ins. Co. of New York , 12 F.3d 892, 899 (9th Cir. 1993). A genuine issue of fact exists when the non-moving party produces evidence on which a reasonable trier of fact could find in its favor viewing the record as a whole in light of the evidentiary burden the law places on that party. Triton Energy Corp. v. Square D Co., 68 F.3d 1216, 1221 (9th Cir. 1995); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252-56, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The non-moving party cannot simply rest on its allegation without any significant probative evidence tending to support the complaint. U.A. Local 343 v. Nor-Cal Plumbing, Inc., 48 F.3d 1465, 1471 (9th Cir.), cert. denied, 516 U.S. 912, 116 S.Ct. 297, 133 L.Ed.2d. 203 (1995).

[T]he 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 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. In such a situation, there can be "no genuine issue as to any material fact," since a complete failure of proof concerning an essential element of the non-moving party's case necessarily renders all other facts immaterial.

Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

The more implausible the claim or defense asserted by the opposing party, the more persuasive its evidence must be to avoid summary judgment. United States ex rel. Anderson v. Northern Telecom, Inc., 52 F.3d 810, 815 (9th Cir.), cert. denied, 516 U.S. 1043, 116 S.Ct. 700, 133 L.Ed.2d 657 (1996). Nevertheless, "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in its favor." Liberty Lobby, 477 U.S. at 255. A court's role on summary judgment, however, is not to weigh the evidence, i.e., issue resolution, but rather to find genuine factual issues. Abdul-Jabbar v. General Motors Corp., 85 F.3d 407, 410 (9th Cir. 1996).

Evidence submitted in support of or in opposition to a motion for summary judgment must be admissible under the standard articulated in 56(e). See Keenan v. Hall, 83 F.3d 1083, 1090 n.1 (9th Cir. 1996); Anheuser-Busch, Inc. v. Nat'l Beverage Distribs., 69 F.3d 337, 345 n.4 (9th Cir. 1995). Properly authenticated documents, including discovery documents, although such documents are not admissible in that form at trial, can be used in a motion for summary judgment if appropriately authenticated by affidavit or declaration. United States v. One Parcel of Real Property, 904 F.2d 487, 491-492 (9th Cir. 1990). Supporting and opposing affidavits must be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein. Fed. R. Civ. P. 56(e); Connor v. Sakai, 15 F.3d 1463, 1470 (9th Cir. 1993), rev'd on other grounds sub nom. Sandin v. Connor, 515 U.S. 472, 115 S.Ct. 2293, 132 L.Ed.2d 418 (1995).

III. DISCUSSION

Defendant Washington Mutual first requests the Court take judicial notice of a copy of the Deed of Trust recorded in Tulare County on March 4, 1992 . (J/N Request at 1, Ex. A) Federal Rule of Evidence Rule 201 provides in pertinent part "A judicially noticed fact must be one not subject to reasonable dispute in that it is either (1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned. A court shall take judicial notice if requested by a party and supplied with the necessary information." A deed of trust is an official record of Tulare County of which the accuracy is easily verifiable. Judicial notice is taken that a Deed of Trust was recorded for the property in question between Great Western Bank and Gilbert Mark Crisp and Rhonda Jean Crisp. Defendant Washington Mutual alleges that it is a successor beneficiary under the deed of trust. ( Br. at 2) Although this fact cannot be judicially noticed, it is undisputed. (Doc. 61 No. 98-6188 ¶8)

Defendant Washington Mutual also moves for summary judgment on the priority of its lien over the government's lien in the event the government prevails in a foreclosure action on the property. Pursuant to California Civil Code Section 2897, "[o]ther things being equal, different liens upon the same property have priority according to the time of their creation, except in cases of bottomry and respondentia." The "first-in-time, first-in-right" rule also controls in federal court. See Fleet Credit Corp. v. TML Bus Sales, Inc., 65 F.3d 119, 122 (9th Cir. 1995). On or about June 17, 1996 , the Internal Revenue Service (IRS) filed a notice of federal tax lien with the Tulare County Recorder against Gilbert Mark Crisp and Rhonda Jean Crisp for the assessments in question. (Doc. 61, No. 98-6188 ¶16) On or about August 27, 1996 , the IRS filed a notice of federal tax lien with the Tulare County Recorder against Sequoia Property, as nominee of Gilbert Mark Crisp and Rhonda Jean Crisp, for the assessments in question. (Doc. 61, No. 98-6188 ¶17) Pursuant to 26 U.S.C. §6323(a) & (f), a federal lien is not valid until filed pursuant to state law. Since the two federal liens were not filed until 1996 and Defendant Washington Mutual is the successor beneficiary of a deed of trust lien recorded in 1992, the lien of Defendant Washington Mutual is superior. Defendant Washington Mutual's motion for summary to determine its lien has priority over the government's lien is GRANTED.

IV. CONCLUSION

For the foregoing reasons, IT IS ORDERED: Defendant Washington Mutual's motion for summary judgment to determine its lien has priority over the government's lien is GRANTED.

SO ORDERED.

 

[98-2 USTC ¶50,582] Lynn M. Ewing III, Plaintiff v. Donald Erickson, State of Missouri, Resac, Inc. and United States of America , Defendants

U.S. District Court, East. Dist. Mo. , East. Div., 4:97CV00359 DJS, 6/15/98

[Code Sec. 6323 ]

Liens and levies: Federal tax liens: State tax liens: Mortgagor's liens: Request for litigation costs: Priority: Foreclosure sale: Proceeds from: Deeds of trust: Property subject to.--Under state (Missouri) law, liens filed by the holder of trust deeds against proceeds from the foreclosure sale of the deeded property had priority over a subsequent federal tax lien against the owner of the property. However, the federal tax lien was not extinguished by the sale and, thus, attached to the remainder of the sale proceeds. The federal lien had priority over a state tax lien because the state lien attached only to the property itself, not to the proceeds from its sale. Finally, the federal lien was superior to a claim for reimbursement of court costs and attorneys' fees that the holder of the disputed funds incurred in an interpleader action that determined the proper distribution of the funds.

Richard C. Wuestling IV, Wuestling & James, 1015 Locust St., St. Louis, Mo. 63101-1322, Lynn M. Ewing III, Ewing & Hoberock, 123 N. Main, Nevada, Mo. 64772-0287, for plaintiff. Donald Erickson, 7219 Southwest, St. Louis, Mo. 63143, pro se. Douglas E. Nelson, 221 W. High St., Jefferson City, Mo. 65102-0899, Phillip K. Gebhardt, 2486 Westford Dr., Maryland Heights, Mo. 63043, Rachel I. Wollitzer, Department of Justice, Washington, D.C. 20530, for defendants. Andrew J. Lay, Kansas City, Mo. 64106-2149, John J. Lynch, Assistant Attorney General, St. Louis , Mo. 63101 , for cross-defendants.

MEMORANDUM AND ORDER

STOHR, District Judge:

This matter is before the Court on various motions for summary judgment filed by the parties.

Plaintiff Lynn Ewing, III, commenced this interpleader action in state court alleging that he has custody of $56, 557.65, ¹ proceeds from a foreclosure of a deed of trust, and that defendants are adverse claimants to the funds. Ewing is counsel for Roosevelt Bank, which held a promissory note secured by the deed of trust, and Merlyn Petersmeyer, trustee under the terms of the deed of trust. The defendants are Donald Erickson, who holds the equity of redemption in the property; Resac, Inc., which holds junior liens on the property; the State of Missouri , which holds judgment liens against Erickson; and the United States of America , which holds a tax lien against the property. The United States removed the action to this Court. (Doc. 1.) This Court added Petersmeyer as a party plaintiff. (Doc. 35.)

Erickson filed an amended counterclaim against Ewing, Petersmeyer, the law firm of Ewing and Hoberock, and Roosevelt Bank, alleging that they did not provide proper notice of the foreclosure sale. (Doc. 36.) Ewing filed a motion for summary judgment on the counterclaim. (Doc. 55.) Erickson filed motions for summary judgment against all of the parties. (Docs. 57, 59, 60, 62, 65.) Defendants Resac and the United States also filed motions for summary judgment. (Docs. 43, 56.) This Court previously dismissed a cross-claim filed by Erickson against the Missouri Attorney General and two Assistant Attorneys General, which alleged violations of 42 U.S.C. §1983.

The Court will first address Erickson's counterclaim. Erickson moved for summary judgment on the counterclaim, alleging that the counterclaim defendants conducted the foreclosure of his property without prior written notice to his last known address. He argues that notice of the foreclosure sale was sent to an old address, and that Ewing was on notice that Erickson's address had changed because a new address was given on his bankruptcy filings. Erickson noted that Ewing knew for purposes of serving this lawsuit that Erickson's address had changed. Erickson also filed a motion for summary judgment against Petersmeyer, arguing that he had a statutory and fiduciary duty as trustee to give Erickson notice.

Ewing also moved for summary judgment on the counterclaim, arguing that Erickson received proper notice of the foreclosure sale because notice was sent by registered mail to Erickson's last known address twenty-eight days prior to the sale, and notice was sent to his attorney as well. He argued that he reviewed Erickson's audit file, which did not contain any notice of bankruptcy, and that the notice sent to Erickson's address was not returned. Ewing further argued that Erickson never requested the bank to send correspondence regarding his loan to any other address, and that he was later informed of Erickson's current address for purposes of serving this lawsuit by the attorney for Resac.

This Court finds that Ewing satisfied his duty to provide Erickson with notice of the action. The Missouri statute requires notice of a foreclosure sale to be mailed by registered or certified mail to the grantor not less than twenty days prior to the date set for the sale. See Mo. Rev. Stat. §443.325.3(3). Ewing sent proper notice to the last address known to the Bank twenty-eight days prior to the sale. See Woolsey v. Bank of Versailles, 951 S.W.2d 662, 666-67 (Mo. Ct. App. 1997) (notice proper where borrower did not inform bank of new address for loan-related correspondence, despite bank's knowledge of different address for checking and savings account information); Kurtz v. Ripley County State Bank, 785 F. Supp. 116, 118 (E.D. Mo.) (actual receipt not necessary to comply with statute), aff'd, 972 F.2d 354 (8th Cir. 1992). Even if Erickson included a new address on bankruptcy filings submitted to the bank, he did not inform the bank that the address he had provided for the bank to mail loan-related correspondence had changed. Because Ewing provided proper notice of the foreclosure, Erickson does not have a claim for inadequate notice against Petersmeyer.

Ewing argues alternatively that Erickson had actual notice of the sale, because he called Ewing 's office the morning of the sale to request that it be halted. Ewing submitted the affidavit of his legal assistant, who attested that Erickson had called the law firm on the morning of September 18 and stated that he was aware of the pending foreclosure sale, that he had filed for bankruptcy, and that he wanted the foreclosure sale stopped.

Erickson responded with an affidavit attesting that he did not call the law office in an attempt to halt the foreclosure sale. Ewing moves to strike Erickson's response for certain "malicious, scandalous, and hostile" statements made by Erickson. The Court agrees that Erickson's response is inappropriate and again instructs him to refrain from including unwarranted and inflammatory allegations in future pleadings. See Fed. R. Civ. P. 12(f). The Court declines to strike Erickson's affidavit. The Court need not resolve the factual dispute regarding whether Erickson received actual notice, however, given its finding that cross-claim defendants complied with the Missouri statute.

Erickson also argues in his counterclaim that the counterclaim defendants violated Missouri law and a fiduciary duty by failing to deliver the surplus proceeds of the sale to him and instead filing this interpleader action, knowing there was no possibility of multiple liability. Erickson alleges that the actions constituted civil conspiracy. Ewing argues in support of summary judgment that the interpleader action was proper because of the possible multiple liability. Ewing argues that no wrongful act was committed in support of Erickson's allegation of civil conspiracy.

An interpleader action is an appropriate solution when a party "is or may be exposed to double or multiple liability." Fed. R. Civ. P. 22(1). Ewing joined several parties as defendants who had possible claims to the foreclosure surplus. The Court finds that counterclaim defendants did not breach any duty to Erickson by filing this interpleader action. Moreover, the Court notes that Erickson cannot file a counterclaim against non-parties to the action. See Fed. R. Civ. P. 13(a) (counterclaim is claim pleader has against any opposing party). Although the Court may join additional parties in a proper situation, see Fed. R. Civ. P. 13(h), the Court finds that joinder is not feasible, as complete relief can be accorded among those already parties, see Fed. R. Civ. P. 19. Accordingly, Erickson's claims against Ewing 's law firm and Roosevelt Bank must fail for this reason. Ewing 's motion for summary judgment on the counterclaim will be granted, and Erickson's counterclaim will be dismissed.

Because the Court finds that notice of the foreclosure sale was proper, the Court can address which defendant is entitled to the surplus foreclosure proceeds. Defendant Resac has filed a motion for partial summary judgment, arguing that it holds two deeds of trust on the property that was foreclosed, and that it is entitled to principal, interest, and late charges on the deeds of trust. (Doc. 43.) Resac argues that the outstanding principal, accrued interest, and late charges amounted to $3,924.05 as of March 1, 1998 . Erickson opposes the motion, arguing that under Missouri law, junior deeds of trust and notes alleged by Resac were extinguished as a matter of law by the foreclosure sale under Roosevelt Bank's senior deed of trust. Erickson argues that Resac's junior deeds of trust created a lien only against the foreclosed property, not against the foreclosure sale proceeds. (Docs. 57, 58.)

The United States has also moved for summary judgment, arguing that it has valid perfected liens against the foreclosure proceeds which have priority over all liens except for the amount of the prior liens by defendant Resac. The United States argues that tax, penalty, and interest amounted to $90,580.49 as of the filing of the notice of federal tax liens, and that interest and penalties have continued to accrue. The United States further argues that the State of Missouri 's judgment lien does not extend to the proceeds, and that the United States has priority over any claim by plaintiffs for attorney's fees and costs of the action. (Doc. 56.) Erickson moved for summary judgment against the United States , arguing that the United States ' tax lien against Erickson was a lien only against the foreclosed property, not against the foreclosure sale proceeds. (Doc. 59.)

The State of Missouri has not moved for summary judgment. Erickson has filed a motion for summary judgment against the State of Missouri , also arguing that Missouri 's judgment lien was only against real property. (Doc. 60.)

Under Missouri law, disposition of the proceeds of a foreclosure sale is ordinarily ascertained from directions in the deed of trust, unless those directions conflict with the law. See Hilfiker v. Preyer, 690 S.W.2d 451, 452 (Mo. Ct. App. 1985). Missouri law also provides that after the first obligation is satisfied, the holder of a second deed of trust is entitled to the excess proceeds. See In re Rob erts, 91 B.R. 57, 59-60 (E.D. Mo. 1988).

This Court finds that defendant Resac is first entitled to its share of the surplus proceeds. Resac held two junior deeds of trust on the property. The first was recorded July 1, 1985 , and the second was recorded August 26, 1993 . The deed of trust held by Roosevelt Bank provided that any excess proceeds from a foreclosure sale would be applied "to the person or persons legally entitled thereto." (Doc. 43, Ex. C ¶18.) Resac's first deed of trust provided that any surplus proceeds after payment of prior notes would be first applied to the amount unpaid on this note and interest accrued thereon. (Doc. 43, Ex. F. at 3.) Resac's second deed of trust provided that any surplus should be paid "to the person or persons legally entitled thereto." ( Id. Ex. K. at 2.)

Erickson relies on Brask v. Bank of St. Louis, 533 S.W.2d 223, 227 (Mo. Ct. App. 1975) to argue that Resac's deeds of trust were extinguished when the property was sold. Another Court in this district previously rejected the same argument, noting that Brask "does, in fact, hold that a foreclosure sale extinguishes junior lien encumbrances, but this is as between the purchaser at the foreclosure sale and the lienholders. The foreclosure sale cannot extinguish the security agreement between [the lender] and debtors. . . . [After a foreclosure sale occurs], if proceeds remain above satisfaction of the obligation to the holder of the first deed of trust, [the lender] has a right to those proceeds." Rob erts, 91 B.R. at 60.

The Court finds that the United States is entitled to the remaining surplus proceeds of the foreclosure sale. See 26 U.S.C. §§6321, 6323. Notice of the federal tax lien was filed on June 12, 1995 . The United States acknowledges that Resac has a superior entitlement to part of the foreclosure sale proceeds. See 26 U.S.C. §6323(a) (tax lien not valid against holder of security interest until notice is filed by the Secretary). Erickson does not dispute the validity of the tax lien. He argues only that the lien does not extend to the surplus sale proceeds. Erickson's argument is meritless. See, e.g., Frappier v. Texas Commerce Bank, N.A., 879 F. Supp. 715, 717-18 (S.D. Tex.) (federal tax lien attached to excess proceeds of foreclosure sale), aff'd, 71 F.3d 878 (5th Cir. 1995).

The State of Missouri has not moved for summary judgment requesting any part of the surplus proceeds. The Court notes that Missouri 's judgment lien does not extend to the surplus sale proceeds. See Hawkins v. Alcorn, 698 S.W.2d 37, 39 (Mo. Ct. App. 1985) (judgment against person results in lien only against real estate and does not follow surplus from sale under preexisting deed of trust). In addition, although plaintiff Ewing has withdrawn his claim for attorney's fees (Doc. 76), the Court notes that the federal tax liens are prior to any claim by plaintiff for attorney's fees and costs of this action. See Millers Mut. Ins. Ass'n v. Wassall [84-2 USTC ¶9621], 738 F.2d 302, 303 (8th Cir. 1984).

Accordingly,

IT IS HEREBY ORDERED that plaintiff's motion for summary judgment on defendant Erickson's counterclaim (Doc. 55) is GRANTED. Defendant Erickson's motion for summary judgment on the counterclaim (Doc. 65) is DENIED. Defendant Erickson's counterclaim is DISMISSED.

IT IS FURTHER ORDERED that defendant Resac's motion for partial summary judgment (Doc. 43) is GRANTED. Resac shall recover the excess proceeds from the foreclosure sale up to the amount of the unpaid principal, interest, and late charges due on its deeds of trust as of the date of this order.

IT IS FURTHER ORDERED that defendant United States ' motion for summary judgment (Doc. 56) is GRANTED. The United States shall recover all funds remaining after defendant Resac receives the funds to which it is entitled.

IT IS FURTHER ORDERED that defendants Resac and the United States shall consult with plaintiff Ewing regarding the final judgment. Within fifteen days of their receipt of this Memorandum and Order, the parties shall submit a proposed final judgment, addressing how the transfer of funds should be effectuated.

IT IS FURTHER ORDERED that defendant Erickson's motion for summary judgment against the State of Missouri (Doc. 60) is GRANTED.

IT IS FURTHER ORDERED that defendant Erickson's motions for summary judgment against Resac (Docs. 57, 58); the United States (Doc. 59); and Petersmeyer (Doc. 62) are DENIED.

IT IS FURTHER ORDERED that plaintiff Ewing's motion to strike and for sanctions, or alternatively for leave to file a supplemental response (Doc. 82) is GRANTED in part and DENIED in part. Defendant Erickson's improper allegations are stricken from the response.

IT IS FURTHER ORDERED that all other pending motions are DENIED as moot.

¹ The Court has not ordered plaintiff Ewing to deposit the interpleaded funds into the registry of the Court. It appears that Ewing retains custody of the funds, although the possibility exists that the funds have been deposited into the registry of the state court.

 

 

[92-2 USTC ¶50,318] United States , Plaintiff v. Hassan Almassi, et al., Defendants

U.S. District Court, West. Dist. Wash., Seattle, C90-858WD, 2/20/92

[Code Secs. 6323 , 6672 and 7402 ]

Civil penalties: Failure to collect and pay over tax: 100% penalty for failure to withhold or pay over withheld tax: District Court: Jurisdiction: Claim arising in respect of assessment or collection of tax: Lien for taxes: Deeds of trust securing claims recorded before priority of United States attached.--The taxpayer was a responsible person of a drapery company who willfully failed to collect, truthfully account for, and pay over employment taxes to the IRS. Furthermore, the deeds of trust issued by the taxpayer to his three children were valid conveyances made to secure an existing debt and, in return for forbearance, were issued for fair and genuine consideration, did not render the grantors insolvent, and were not made to hinder, delay, or defraud the government or other creditors. Thus, the deeds of trust did not constitute fraudulent transfers. Moreover, the government did not establish that the statute of limitations had run on the underlying promissory notes, and the potential availability of a limitations defense would not invalidate the indebtedness reflected in the notes. Accordingly, although the government had jurisdiction to reduce the responsible person assessments to judgments, it was not entitled to have the deeds of trust set aside.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

DWYER, District Judge:

This case was tried to the court on February 18, 1992 . All testimony received, exhibits admitted, the deposition of Katayoun Almassi, and the arguments and briefs of counsel, have been fully considered. The court now makes and enters the following findings of fact, as established by a preponderance of the evidence or stipulation of the parties, and the following conclusions of law:

FINDINGS OF FACT

1. As background, the court adopts and incorporates the following agreed statement from the pretrial order:

The United States filed this action on June 15, 1990, to reduce "responsible person" (26 U.S.C. §6672 ) assessments to judgment, set aside fraudulent transfers, and foreclose federal tax liens against a specific parcel of real property located in Bellevue, Washington. The "responsible person" assessments arise out of Hassan Almassi's involvement with Designer's Drapery Co., Inc. (Employer Identification Number 91-0981411) and Designers Drapery & Co., Ltd. (Employer Identification Number 91-1225873) and the failure of those corporations to withhold, truthfully account for, and pay over withheld income and FICA taxes from July 1, 1979, through March 31, 1984. Assessments were made on October 1 and 15, 1984, and August 16, 1986 . Notices of Federal Tax Liens were filed with the King County Auditor on December 28, 1984 , and October 28, 1986 .

The fraudulent transfer claim arises from Hassan and Guita Almassi's granting of three deeds of trust upon the subject property, each for $70,000.00, in favor of Ardeshir Almassi, Kourosh Almassi, and Katayoun Almassi on August 1, 1984 . The property is encumbered by a first deed of trust in favor of Goldome Realty Credit Corporation. The United States and Goldome have stipulated that Goldome's interest is superior to the United States ' interest, and that should the Court foreclose federal tax liens on the subject property, such foreclosure should be subject to Goldome's senior mortgage lien.

2. The court finds as facts the following facts which are admitted by the parties in the pretrial order:

(a) Meladith Gopinath left Designer's Drapery Company in April, 1979.

(b) The Articles of Incorporation, dated January, 1977, establish Hassan Almassi as the Executive Vice President and interim director.

(c) Hassan Almassi contributed $75,000 to the incorporation of the business in December, 1976.

(d) Beginning in April, 1977, Hassan Almassi was regularly present at the office of the corporation, and within a few months he was responsible for paying bills. Prior to Gopinath's departure, Almassi prepared most checks for Gopinath's signature. After Gopinath's departure Almassi prepared and signed all the checks himself. Between April, 1977, and April, 1979, Almassi occasionally completed payroll, and after April, 1979, Almassi was the only one who completed the payroll. Hassan Almassi worked at the business full time until it was sold in 1984.

(e) During the entire life of the corporation, Hassan Almassi owned 45%-50% of the total stock issued by the corporation.

(f) After Mr. Gopinath left the business in April, 1979, Hassan Almassi ran the company with the help of a manager.

(g) Other than Mr. Gopinath, Hassan Almassi and Guita Almassi were the only persons authorized to sign corporate checks. Guita Almassi did not sign any checks after April, 1979. The account on which Gopinath was a signatory was closed in January, 1981.

(h) Two or three weeks after Gopinath left the business, Almassi learned that Gopinath was still writing checks on the corporate account.

(i) On July 3, 1980 , Almassi signed the corporation's U.S. Corporate Income Tax Return (Form 1120) for the tax year ending September 30, 1979 .

(j) Almassi signed minutes of corporate meetings which purportedly took place on January 13 and 20, and September 9, 1977 . The meetings never took place.

(k) Prior to coming to the United States in 1977, Almassi had no experience in American business or knowledge of American law. Prior to Gopinath's departure in April, 1979, Almassi had no experiences in American business other than those in Designers Drapery Co., Inc., indicated herein.

(l) From April, 1977, through April, 1979, Hassan Almassi did the corporation's payroll, and was aware that he was withholding federal taxes from the employees' paychecks.

(m) After Gopinath left, the corporation made federal tax deposits "on and off." Almassi wrote these checks.

(n) Almassi hired someone to draft a letter to the Small Business Administration, which Almassi signed on September 25, 1980 . The letter made reference to a $44,000 tax liability to federal and state authorities. The federal tax liability referred to was the corporation's employment tax liability.

(o) The corporation's accountant, Skipton & Company, prepared some financial statements for the corporation at Mr. Almassi's request. One such statement, prepared through May 31, 1980 , and dated August 1, 1980 , identified federal withholding taxes payable on the page labelled "Liabilities."

(p) Almassi signed the following Employer's Quarterly Tax Returns (Form 941):

(i) For the third quarter of 1979 on September 3, 1980 .

(ii) For the fourth quarter of 1979 on September 3, 1980 .

(iii) For the first quarter of 1980 on September 3, 1980 .

(iv) For the second quarter of 1980 on September 3, 1980 .

(v) For the fourth quarter of 1980 on January 31, 1981 .

(vi) For the third quarter of 1981.

(vii) For the first quarter of 1982, on June 23, 1982 .

(viii) For the second quarter of 1982, on June 30, 1982 .

(q) At Almassi's direction, the corporation changed its accounting firm from Skipton & Company to Gordon's Accounting.

(r) The Form 941 return for the third and fourth quarters of 1982 and first, second and third quarters of 1983 were prepared by and signed by employees of Gordon's Accounting.

(s) Hassan Almassi first learned that the IRS was checking up on the business in October, November or December of 1980, from his son, Ardeshir, who worked at the business for several months.

(t) On June 23, 1982 , Hassan Almassi was interviewed at the IRS office by Revenue Officer Steve Wilson. He filled out a Form 4180 ("Report of Interview Held With Persons Relative to Recommendation of 100-Percent Penalty Assessments"). On the form he indicated he was responsible for the day-to-day management of the company from April, 1979 through the date of the interview; that he first learned that the employment tax liability had not been paid on January 1, 1982 ; and that he authorized the payment of other obligations while the tax liabilities were accruing. On the form Almassi further indicated that within the corporation's structure, he was the person who bore the responsibility for filing the Form 941, paying the withheld federal taxes to the Government, and making federal tax deposits.

(u) Sometime prior to April, 1979, Gopinath induced Almassi to invest money in Designer's Drapery Co., Inc., in part, by representing that he was also investing money in Designer's Drapery Co., Inc. Gopinath did not, however, invest as much money as he represented that he had in the corporation. Almassi filed suit against Gopinath in December, 1979, and an agreed judgment in Almassi's favor was filed. After paying legal fees, there was no net return to Almassi.

(v) Almassi also filed suit against Skipton and Company, and obtained a judgment. At this date, counsel are uncertain of the date the suit was filed or the date judgment was entered.

(w) Hassan Almassi is a native of Iran . In 1971, he immigrated to Canada . In 1968 Hassan Almassi's mother gifted three parcels of real property in Isfahan, Iran, to Hassan and Guita Almassi's three children, defendants herein, Ardeshir, Kourosh and Katayoun. At that time, they were approximately 12, 7 and 1 years old, respectively.

(x) In 1975, when the Almassi family was living in Canada , Hassan Almassi and the oldest child, Ardeshir, returned to Iran to sell the three parcels. Together, they sold the three parcels to three different buyers. Each parcel sold for 3,900,000 rials, the Iranian monetary unit.

(y) Hassan Almassi was paid directly for the sales of the two parcels belonging to the younger children. Ardeshir signed his check over to his father. Hassan Almassi bought three or four rental housing units in Canada with the money from the sales. Almassi then moved to the United States , sold the Canadian units at a loss, and used the remainder of the proceeds for his own expenses and in the drapery business.

(z) Hassan Almassi has prepared and signed three promissory notes in favor of his children in the amount of $70,000 each, representing the amount he realized upon the sale of the property. These notes bear the date " July 15th, 1977 ." The children were not present when the notes were prepared and signed. The children gave no additional consideration for the notes. The notes are payable on demand, with no interest. Though the children have made demands of payment, no payments on the debt have been made.

(aa) After the promissory notes were executed they were stored in Hassan Almassi's safety deposit box.

(bb) By letter dated September 9, 1982 , the IRS first notified Mr. Almassi of its intention to assess him with the 100% penalty for the third and fourth quarters of 1979, and all four quarters of 1980. Almassi's attorney responded by letter dated September 15.

(cc) By letter dated September 20, 1982 the IRS advised Mr. Almassi that unless he perfe