Statute of Limitations

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United States of America, Plaintiff v. Timothy J. McCarville, Evelyn W. McCarville, Bank One, and Administrative Committee of the Money Purchase Plan of Local 400 and Mechanical Contractors Association of North Central Wisconsin, Defendants.

U.S. District Court, East. Dist. Wis. ; 01-C-787, August 21, 2003 .

Related DC Wis. decision at 2003-1 USTC ¶50,398.

[ Code Sec. 6203]

Assessment of tax: Certificates of Assessments and Payments: Prima facie case: Evidence: Frivolous arguments: Jurisdiction. --

Certificates of Assessments and Payments reflecting adjusted outstanding assessments against a retired steamfitter for seven tax years established a prima facie case of tax liability absent a showing of error. Because the taxpayer merely denied liability and filed nothing that drew the evidence into dispute, the government was entitled to have the assessments reduced to judgment. His contention that he could not be considered a "taxpayer" because he simply exercised his inalienable right to work as a steamfitter was rejected as meritless. The individual could not declare himself to be outside the scope of the federal tax laws. Further, the court had jurisdiction over the case, which involved federal law and federal taxation.

[ Code Secs. 6203, 6321 and 6323]

Tax liens: Date assessment created: Property subject to tax liens: Employee pension plans: Evidence. --

Federal tax liens against a delinquent taxpayer arose on the same dates as the unpaid taxes were assessed by the IRS, and the individual introduced no evidence to dispute that the government provided him with proper notice and demand for payment. Thus, the liens, which attached to "all property and rights to property," reached all of his rights and property interests in an employee benefit plan. His contention that the liens were not valid under state ( Wisconsin ) law were rejected because tax liens are subject to federal law.

[ Code Secs. 6323 and 6501]

Statute of limitations: Three-year period: Tax returns: Forms W-2: Substitute returns: Tolling of limitations period: Offers in compromise. --

The IRS's tax assessments against an individual who failed to timely file returns and who contended that he was not subject to federal income tax were not barred by the statute of limitations. The IRS assessed the taxes within the permitted three-year period, and the government had 10 years in which to collect the amounts owing. Neither the Forms W-2 filed by the taxpayer's employer nor the substitute returns filed by the IRS qualified as "returns" for purposes of starting the limitations period. Instead, the untimely returns filed by the taxpayer triggered the running of the statute of limitations, which was further tolled by his two offers in compromise (OICs). He provided no evidence contradicting the government's declaration regarding the periods during which the OICs were pending and their effect on the limitations dates.

[ Code Secs. 6663 and 7402]

Penalties, civil: Fraud: Evidence: Summary judgment. --

The government was not entitled to summary judgment on the issue of an individual's liability for fraud penalties absent a showing that no rational jury could find his claims regarding a lack of fraudulent intent to be sincere. The taxpayer contended that he believed he did not owe the assessed amounts and asserted that any false statements in his tax withholding statements were inadvertent and constituted mistakes. Although his self-serving allegations might seem incredible in the face of the government's evidence of fraud, the record did not disclose the taxpayer's education or level of sophistication.

DECISION AND ORDER

GRIESBACH, District Judge: The United States filed this case on August 3, 2001 , seeking to reduce federal tax assessments to judgment and foreclose federal tax liens against personal property. The United States also seeks to assess a penalty equal to 50% of his underpayment of taxes against McCarville for civil fraud. The case is presently before me on the United States ' motion for summary judgment against the main defendant, Timothy McCarville.

I conclude that there is no dispute as to material fact regarding the assessment of taxes owed by McCarville and the tax liens against his personal property and therefore grant the government's motion as to those issues. As to the civil fraud penalty, however, I conclude that a factual dispute does exist and therefore deny summary judgment as to that issue.

Summary judgment is proper if the pleadings, depositions, answers to interrogatories, and admissions on file, together with any affidavits, show 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); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

The moving party has the initial burden of demonstrating that it is entitled to summary judgment. Id. at 323. As a plaintiff moving for summary judgment, the United States must show that the evidence supporting its claims is so compelling that no reasonable jury could return a verdict for the defendant. See Select Creations, Inc. v. Paliafito Am., Inc., 911 F.Supp. 1130, 1149 (E.D. Wis. 1995); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986). Once this burden is met, McCarville must designate specific facts to defend the cause of action, showing that there is a genuine issue of material fact for trial. Celotex, 477 U.S. at 322-24. There must be a genuine issue of material fact for the case to go to trial. Anderson, 477 U.S. at 247-48. "Material" means that the factual dispute must be outcome-determinative under governing law. Contreras v. City of Chicago , 119 F.3d 1286, 1291 (7th Cir. 1997). A "genuine" issue of material fact requires specific and sufficient evidence that, if believed by a jury, would actually support a verdict in a party's favor. Fed. R. Civ. P. 56(e); Anderson, 477 U.S. at 249. Where the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

In analyzing whether a question of fact exists, the court construes the evidence in the light most favorable to the party opposing the motion. Anderson, 477 U.S. at 255.

The United States filed its motion for summary judgment on April 2, 2003 , together with several affidavits. Six days later McCarville, who represents himself, filed an "objection" to the motion for summary judgment; no evidence was presented by McCarville. Thinking perhaps that this was McCarville's brief in response to the motion, the United States filed a reply brief. Notwithstanding the local rules, which provide for only one response brief. Civil L.R. 7.1(c), McCarville also filed an "opposition" to the motion for summary judgment on May 1, again failing to submit any evidence. The United States filed a reply to McCarville's second brief as well. ¹

Then, because McCarville (as a pro se litigant) had not been properly warned about summary judgment procedures and the need for evidence, I gave McCarville those warnings and allowed him to file evidentiary materials if he desired. On July 7, he filed a "response" to the summary judgment motion. The first two pages are attested to under penalty of perjury. In other words, the first two pages of the response are verified, constituting some evidence. Almost everything McCarville says in those two pages, though, cannot be taken as facts in his favor. Other than his statement that for the years at issue he worked as a steamfitter, he merely sets forth his legal argument and legal conclusions. ( See, e.g., Pl.'s Resp. to Gov't Motion for Summ. J. at 2 ("The law is a witness to the fact that I am not liable for a federal income tax.").) "Self-serving assertions without factual support in the record will not defeat a motion for summary judgment." Jones v. Merchants Nat'l Bank & Trust Co., 42 F.3d 1054, 1058 (7th Cir. 1994).

I. UNDISPUTED FACTS

McCarville and his wife Evelyn reside in Iola, Waupaca County , Wisconsin . During the years for which the United States seeks recovery for unpaid taxes, McCarville worked as a steamfitter.

In February 1982, McCarville signed and filed a 1981 federal income tax return, jointly with his wife Evelyn. Federal income tax of about $2500 was withheld from his wages in 1981. In 1982, 1983, and 1984, however, McCarville filed form W-4 with his employers, claiming that he did not owe any federal income tax for the prior year and that he did not expect to owe any federal income tax in each then-present year. In 1982, 1983, and 1984, McCarville claimed he was exempt from the federal income tax withholding requirements. In 1984, no federal income tax was withheld form McCarville's wages.

McCarville did not file timely form 1040 income tax returns for 1982 through 1987. As a result, the Internal Revenue Service prepared substitutes for income tax returns for those years. The IRS determined that McCarville had federal income tax liability for 1982 through 1987 based on third-party information reported to the IRS (for example, employer W-2 reports of wages paid). A civil income tax audit for 1982 to 1984 began in September 1985, but it was suspended in June 1986 due to a criminal investigation. In October 1988, McCarville was convicted of failing to file federal income tax returns for 1984 and 1985 and sentenced to a term of imprisonment. In 1989, the civil income tax audit resumed for years 1982 to 1984, and another began for 1985 to 1987.

On February 27, 1990 , McCarville filed late income tax returns for 1983 through 1988. ² Thereafter, a delegate of the Secretary of the Treasury assessed McCarville for unpaid federal income taxes and related interest and other additions, based on the substitute returns. The assessments were made on May 30, 1990, for tax years 1986 and 1987, for unpaid taxes of about $18,000 and $15,000 respectively (exclusive of interest); September 10, 1990, for tax year 1985, for unpaid taxes of about $18,000 (exclusive of interest); and March 15, 1991, for tax years 1982, 1983, and 1984, for unpaid taxes of about $13,000, $8,000, and $76,000 respectively (exclusive of interest and additions).

The 1988 return was filed late an February 13, 1990 . On April 23, 1990 , a delegate of the Secretary of the Treasury assessed McCarville for unpaid federal income taxes and additions for 1988, in the amount of about $3,000 (exclusive of interest).

A delegate of the Secretary of the Treasury gave notice and demand to McCarville for the payment of federal income taxes, penalties, and interest for tax years 1982 through 1988. Despite the notices and demands, though, the assessments remain due and owing.

After discovery in this case resulted in the United States being provided with McCarville's copies the federal income tax returns for 1982 through 1988 and some W-2 forms, the IRS adjusted the tax liabilities assessed and some penalties against McCarville. As adjusted, the assessments, with interest and additions through March 10, 2003 , are as follows:

________________________________________________________________________________

Tax             Assessment      Amount          Accrued         Total Liability

Year            Date            Assessed,       Interest                       

                                Unpaid Balance  and Additions                  

________________________________________________________________________________

1982            3/15/91         $26,078.44      $0.00           $26,078.44     

________________________________________________________________________________

1983            3/15/91         $20,009.59      $0.00           $20,009.59     

________________________________________________________________________________

1984            3/15/91         $79,953.54      $0.00           $79,953.54     

________________________________________________________________________________

1985            9/10/90         $16,931.64      $31,391.23      $48,322.87     

________________________________________________________________________________

1986            5/30/90         $17,924.10      $35,157.19      $53,081.29     

________________________________________________________________________________

1987            5/30/90         $15,355.07      $30,362.66      $45,717.73     

________________________________________________________________________________

1988            4/23/90         $3,008.93       $5,824.79       $8,833.72      

________________________________________________________________________________

According to the United States , the total liability (adding up the last column) owed as of March 10, 2003 , was $281,997.18.

The IRS has an "integrated data retrieval system" (IDRS). IDRS transcripts are also known as Certificates of Assessment and Payments. The United States has submitted IDRS transcripts regarding the amounts McCarville owes. (Block Decl. ¶ ¶9, 17, Ex. H1-H7, J1-J7.) McCarville has presented no evidence to contradict any of the amounts the United States indicates is owed.

Notices of federal tax lien were filed against McCarville with the Register of Deeds Office for Waupaca County , Wisconsin as follows:

            ____________________________________________________________

            Tax Year                Dates Notices of Tax Lien Filed    

            ____________________________________________________________

            1982, 1983, 1984        6/27/91 and 
2/12/01
                

            ____________________________________________________________

            1985, 1986, 1987        1/7/91 and 
5/5/00
                  

            ____________________________________________________________

            1988                    7/3/90 and 
12/24/02
                

            ____________________________________________________________

McCarville submitted to the IRS two offers to compromise his federal income tax liabilities. The first offer in compromise (OIC) covered his liability for tax years 1983 to 1988. The OIC was accepted for processing by the IRS on January 28 1991 , and was rejected by the IRS on June 9, 1992 . The form OIC that McCarville signed included a waiver provision by which he agreed to a tolling of the statute of limitations while the first OIC was under consideration, plus one year afterward. ³ McCarville's second OIC covered tax liability for 1982 to 1988 and was accepted for processing on August 1, 2000 , and rejected by the IRS on March 16, 2001 .

The U.A. Local Union Chapter 400 (UA) is located in Appleton , Wisconsin . Its members participate in the "Money Purchase Plan of Local 400 and Mechanical Contractors Association of Central Wisconsin" (the "Money Purchase Plan") pursuant to collective bargaining agreements between the UA and various employers represented by the Mechanical Contractors Association of Central Wisconsin, Inc. Defendant Bank One is the trustee of the Money Purchase Plan. Defendant Administrative Committee is the sponsor and plan admin istrator of the Money Purchase Plan. The Money Purchase Plan is an employee benefit plan under the Employee Retirement Income Security Act.

McCarville is a retired member of the UA and has been a member since 1966. An individual account under the Money Purchase Plan was established on his behalf. By virtue of employers' contributions to the Money Purchase Plan made on his behalf, McCarville accrued certain benefits under the Money Purchase Plan starting in 1985. McCarville has a vested interest in the Money Purchase Plan. Upon retirement, McCarville is entitled to receive pension payments in the form of a qualified joint survivor annuity.

On February 18, 2002 , McCarville applied for normal retirement benefits and asked that he be paid $2,000 per month. He will receive benefits as long as there is an account balance on his behalf under the Money Purchase Plan. His wife Evelyn consented to this election of benefits, waived any interest in a joint survivor annuity, and is the primary beneficiary for any death benefit. As of December 31, 2000 , the vested account balance was $165,000.58, with a lump sum value of $197,193.29. ⁴

II. ANALYSIS

Over the course of this litigation McCarville filed numerous motions to dismiss the case on jurisdictional grounds. He argued that this court has no jurisdiction over him because he is not liable for income taxes. He raises those arguments again in response to the summary judgment motion. In addition, McCarville argues that the statute of limitations has expired for the claims of the United States in this case. I deal with the statute of limitations issue first, as it would be dispositive if McCarville is right.



A. Statute of Limitations

The statute of limitations is an affirmative defense, Fed. R. Civ. P. 8(c), for which McCarville bears the burden of proof, see Law v. Medco Research, Inc., 113 F.3d 781, 786 (7th Cir. 1997).

The IRS has three years after the filing of a "return" within which to assess the amount of the tax. 26 U.S.C. §6501(a). "`[R]eturn' means the return required to be filed by the taxpayer and does not include any return filed by a person from whom a taxpayer has received income. Id. When a person fails to file his return as required, the Secretary of the Treasury "shall make such return from his own knowledge and from such information as he can obtain through testimony or otherwise." 26 U.S.C. §6020(b)(1). (For example, employers are required to report to the IRS the wages paid to employees and the amount withheld for federal income tax.) But the execution of a substitute return by the Secretary pursuant to §6020(b) does not start the running of the statute of limitations period for assessment and collection. §6501(b)(3).

If the IRS has assessed the amount of the tax within the permitted three year period, the tax may be collected by a proceeding in court filed within ten years after the assessment of the tax. 26 U.S.C. §6502(a)(1). ⁵

The Secretary has the authority to compromise any civil case arising under the Internal Revenue Code prior to referral for prosecution of such a case in court. 26 U.S.C. §7122(a). An OIC must be submitted to the IRS on and according to its forms in order to be accepted. ( See Third Kosmatka Decl., Ex. EE.) Generally, when an OIC is accepted for processing by the IRS, the running of the statute of limitations is suspended at least while the OIC is pending. See 26 U.S.C. §6331(l)(5), (k)(1). An OIC is pending beginning on the date the Secretary accepts such offer for processing. §6331(k)(1).

For an OIC rejected before January 1, 2000 , the running of the statute of limitations was suspended during the period that an OIC was pending with the Secretary plus one year. See, e.g., Treas. Reg. §301.7122-1(f) (1960). Consideration of an OIC was conditioned on the taxpayer executing a waiver of the statute of limitations for that period. Id. ; United States v. Harris Tr. & Sav. Bank [ 68-1 USTC ¶12,512], 390 F.2d 285, 288 (7th Cir. 1968). ( See also Third Kosmatka Decl., Ex. EE at 1.) For an OIC rejected on or after January 1, 2000 , the running of the statute of limitations was to be suspended during the period that an OIC was pending plus thirty days. See §6331(l)(5)(k)(1), (1998). However, as of December 21, 2000 , Congress eliminated the suspension of the statute of limitations during the pendency of an OIC. Community Renewal Tax Relief Act of 2000, Pub. L. 106-554 App. G. §313(b)(3), 114 Stat. 2763. ( See also the discussion in Pl.'s Reply at 9-10.)

McCarville argues that the United States has missed the statute of limitations because it is now 2003 and the tax years at issue were fifteen to twenty years ago. But the date of filing (in this case August 3, 2001 ) rather than the current date is the dispositive one for statute of limitations purposes. And McCarville's contention does not address the specific statute of limitations provisions of the tax code. If the United States filed its complaint within the time period allowed by the statutes, the action is not barred.

McCarville also argues that the dates upon which the statute of limitations started running for the various tax years were the dates his employer filed W-2s regarding the amounts McCarville was paid. McCarville cites 26 U.S.C. §6103(b)(1)-(2) as support for his argument. Section 6103(b)(1) provides a definition of "return" that includes any tax return required by and filed with the Secretary by or on behalf of a person. According to McCarville, his employer's W-2s constituted returns filed on his behalf, in lieu of form 1040. Therefore, the assessments for tax years 1982 through 1986 were all outside the three year period when made in 1990 and 1991.

Even assuming that a W-2 would constitute a return under the definition in §6103(b), that subsection itself states that the definition McCarville cites applies only to §6103, which governs confidentiality and disclosure of tax returns and return information. McCarville's contention flies in the face of §6501(a), which defines "return" for purposes of the starting of the limitations period as the return required to be filed by McCarville, not his employer. That "return" is the return on the form described in 26 U.S.C. §6011 and Treas. Reg. §1.6012-1(a)(6) (describing 1040 and 1040A). The filing of a W-2 does not constitute the filing of a tax return for purposes of the statute of limitations. Bachner v. Comm'r [ 96-1 USTC ¶50,217], 81 F.3d 1274, 1279-81 (3d Cir. 1996); see United States v. Birkenstock [ 87-2 USTC ¶9416], 823 F.2d 1026, 1030 (7th Cir. 1987). The substitute returns filed by the Secretary do not start the period, either. §6501(b)(3).

McCarville does not provide evidence contradicting, nor does he even dispute, the calculations proffered by the United States in the Declaration of Pat Kosmatka, filed April 2, 2003 , regarding the periods during which the OICs were pending and their effect on the statute of limitations dates. Thus, those calculations are taken as undisputed.

He does contend that the IRS Restructuring and Reform Act of 1998 (RRA) eliminated any ability for a taxpayer to agree to an extension of the statute of limitations. The portions of the law that he cites, though, appear to apply to an installment agreement, which both parties here agree they did not have. The RRA did amend §6502 by limiting the IRS's ability to secure agreements from taxpayers to extend the statutory period for collection, but the revision, see Pub. L. 105-206, 112 Stat. 685, even if applicable to OICs, cannot affect the validity of the OIC waiver McCarville signed back in 1991.

McCarville did not file any return for 1982, so the statute of limitations period did not commence (and thus could not have expired) before the United States assessed taxes on March 15, 1991 . McCarville filed his returns for 1983 through 1987 in February 1990, so the three-year statute of limitations period had not expired when the United States assessed the taxes on March 15, 1991 (1982-1984), September 10, 1990 (1985), and May 30, 1990 (1986-1987). McCarville filed his return for 1988 on February 13, 1990 . The United States then had three years to assess the taxes, which it did within about two months, on April 23, 1990 .

Based upon these assessment dates, the United States then initially had ten years from each assessment date (March 15, 2001, September 10, 2000, and May 30, 2000, and April 23, 2000) to file this case, pursuant to §6502. An additional two years, four months, and eleven days are added on, though, for 1985 through 1988 for the period of time during which McCarville's first OIC was pending (January 28, 1991, to June 9, 1992 --one year, four months, eleven days) and for one year afterward. Because the assessments for 1983 and 1984 were not made until the first OIC was already pending, the tolled time runs only from the assessment date of March 15, 1991 , meaning that an additional one year, two months, and twenty-four days, plus one year, are added. An additional four months and twenty days are added on for 1982 through 1988 for the period of time during which McCarville's second OIC was pending from August 1, 2000 , to December 21, 2000 , the effective date of Congress' elimination of the provision suspending the statute of limitations during the pendency of an OIC.


From the above table, it appears the only tax year for which the United States was in danger of missing the statute of limitations was 1982. The case was filed one day before the limitations period expired even for that year. It therefore follows that McCarville's statute of limitations defense fails.

McCarville contends that because of the IRS's delays in assessing and prosecuting his tax liability, the amount due has grown substantially. He provides no authority, though, for any equitable argument around Congressional statutes setting forth the statute of limitations periods. Moreover, he ignores the fact that if he did not have money withheld from his paychecks, he himself received the benefit from those funds all these years. I therefore reject this argument as well.



B. Liability for Tax

According to McCarville, he cannot be considered a "taxpayer" because he merely exercised his inalienable right to work as a steamfitter --an occupation he says was lawful and innocent and a common-law job. ( See, e.g., Def.'s Objection to Summ. J. at 1 ("I still feel that applying the income tax against our constitutionally secured right to work is an abridgement of this sacred right.").) McCarville contends that no statute subjects him to tax liability; he often repeats his mantra of "NO STATUTE-NO JURISDICTION!" ( See, e.g., Def.'s Opp'n to Summ. J., Ex. 1, Ex. 2 at 1.) He believes that the Internal Revenue Code is not positive law and does not subject him to tax liability. And even under the Internal Revenue Code, he says, federal taxes are due only from federal employees and corporate officers and those who voluntarily subject themselves to internal revenue laws.

I addressed these "jurisdictional" arguments previously and found them to be without merit. In short, the Internal Revenue Code is positive law that applies to McCarville, McCarville cannot declare himself to be outside the scope of the internal revenue laws, and although he has the right to work at the occupation of his choosing, taxes can be imposed on his income. See Peth v. Breitzmann [ 85-1 USTC ¶9321], 611 F.Supp. 50, 53, 56 (E.D. Wis. 1985) (Reynolds, J.) ("For once and for all, wages are taxable income." "No reasonable person could seriously think that, for example, the revenue laws can be avoided, and the government's tax collection efforts can be brought to a standstill, by the contention that wages are not income."). Moreover, this court has jurisdiction over this case, as it involves federal law, and federal income taxation in particular. See 26 U.S.C. §7402; 28 U.S.C. §§1340, 1345.

1. Liability for Assessed Taxes

Other than his jurisdictional and statute of limitations arguments, McCarville has not really argued any other defense to liability for assessed taxes, so I can assume he has none. In any event, the United States has established that no reasonable jury could find for McCarville on this issue.

Federal tax assessments are presumptively correct. Advo Delta Corp. Canada Ltd. v. United States [ 76-2 USTC ¶9570], 540 F.2d 258, 262 (7th Cir. 1976). Once the United States puts forth evidence that federal tax assessments have been made and balances are due, a prima facie case of tax liability has been established and the burden shifts to the taxpayer to refute it. Id.; accord Pittman v. Comm'r [ 96-2 USTC ¶50,658], 100 F.3d 1308, 1313 (7th Cir. 1996); United States v. Stonehill [ 83-1 USTC ¶9285], 702 F.2d 1288, 1293-94 (9th Cir. 1983). ⁶ Certificates of Assessments and Payments carry a presumption of validity and are sufficient evidence to show that assessments were made against a taxpayer, in accordance with statutory and regulatory requirements. Hefti v. IRS [ 93-2 USTC ¶50,591], 8 F.3d 1169, 1172 (7th Cir. 1993); Long v. United States [ 92-2 USTC ¶50,431], 972 F.2d 1174, 1181 (10th Cir. 1992). To rebut the presumption of correctness, the taxpayer must show that the assessments are incorrect; he cannot meet his burden by simply denying liability generally. Advo Delta Corp. [ 76-2 USTC ¶9570], 540 F.2d at 262. The United States has submitted certified Certificates of Assessments and Payments reflecting adjusted outstanding federal income tax assessments against McCarville for 1982 through 1988, with a total amount due as of March 10, 2003 , of $281,997.18.

McCarville has filed nothing that draws into dispute the evidence proffered by the United States . McCarville implicitly admits that he did not file returns or pay the amount of taxes owed. He submits nothing even suggesting that the evidence of the United States regarding the assessments is incorrect. His arguments regarding the court's jurisdiction do not rebut the prima facie case established by the United States . No rational jury could fail to find for the United States on this issue.

Summary judgment will be granted for the United States on the matter of reducing the assessed amounts to judgment.

2. Liability for Fraud Penalty

In addition, the United States seeks to reduce to judgment the civil fraud penalties assessed against McCarville under 26 U.S.C. §6653(b) for 1982, 1983, and 1984. Section 6653(b) provides that "if any part of the underpayment ... of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 50 percent of the underpayment." ⁷ Although the certificate of assessments and payments is proof of the assessment, the United States admits that the burden of proof does not shift to the taxpayer on this issue. The United States admits that it has the burden to prove fraud by clear and convincing evidence. (Pl.'s Mem. in Supp. at 6-7.) See also Pittman [ 96-2 USTC ¶50,658], 100 F.3d at 1319. To prove fraud, the United States needs to establish that a person intended to evade taxes that he knew or believed were owed. Id. The United States does not need to prove the precise amount of the underpayment resulting from fraud, but only that some part of the underpayment is attributable to fraud. Id.

In support of its motion, the United States points to a several pieces of evidence from which a factfinder could reasonably conclude that McCarville's underpayment of his taxes for the years in question was due to fraud. While not conclusive, failure to file tax returns for an extended period of time is persuasive circumstantial evidence of an intent to defraud the United States . Marsellus v. Comm'r [ 77-1 USTC ¶9129], 544 F.2d 883, 885 (5th Cir. 1977); Stoltzfus v. United States [ 68-2 USTC ¶9499], 398 F.2d 1002, 1005 (3d Cir. 1968); Castillo v. Comm'r [ CCH Dec. 41,940], 84 T.C. 405, 409 (1985). Here, McCarville admits he failed to file returns for seven years. The United States has provided evidence that McCarville did file a 1981 income tax return, establishing that McCarville knew about the need and had the ability to file. In addition, McCarville was convicted for willful failure to file a tax return for 1984 and thus is collaterally estopped from contesting that his failure to file for that year was willful. Castillo [ CCH Dec. 41,940], 84 T.C. at 409-10.

But a willful failure to file an income tax return is not the same as fraud. Fraud denotes an intent to obtain an advantage by deceiving another with material misstatements of fact. McCarville claims that he is not liable for the taxes assessed against him. He claims he ceased filing returns after he "realized that [he] was a person not liable for the tax...." (Def.'s Obj'n to Summ. J. at 4; Def.'s Opp'n to Summ. J., Ex. 10 at 1.)

Filing false W-4 forms also indicates an intent to evade the collection of taxes. Granado v. Comm'r [ 86-1 USTC ¶9453], 792 F.2d 91, 92 (7th Cir. 1986); Castillo [ CCH Dec. 41,940], 84 T.C. at 410. In Granado, the Seventh Circuit upheld the assessment of civil fraud penalties under §6653(b), where the taxpayer filed false W-4 forms and failed to file tax returns. McCarville filed W-4 forms during 1982, 1983, and 1984, in which he claimed to be exempt and avoid the withholding of federal income tax from he wages, when he was not so exempt. His W-4 for 1982 indicated that he had not paid taxes in 1981, which he had. Under Granado, McCarville's false statements on his W-4s would support a finding of fraud under §6653(b).

However, McCarville argues that his employer required him to fill out the W-4s in order to be employed and that he checked the statements that he did not incur a tax liability in the previous years and did not expect liability in those current years because those statements "were the closest language to not subject to available." (Def.'s Opp'n to Summ. J. at 2-3.) In other words, McCarville argues that he filled out the W-4s as he did because he believed he was not subject to taxation at all, not because he intended to deceive the government. He contends that "[a]ny mistakes, if there were any, were inadvertant, not fraud." ( Id. at 3.)

McCarville's claim that he truly believes he does not owe income taxes constitutes evidence from which a factfinder could conclude that his underpayment was not due to fraud. His claim that any false statements in his W-4s were inadvertent and constitute mistakes likewise raises an issue of fact that is not easily or properly resolved on summary judgment. While these self-serving claims may seem incredible in the face of the other evidence the United States has highlighted, the record does not disclose McCarville's education or level of sophistication. I am unable to conclude as a matter of law that no rational jury could find his claims to be sincere. Accordingly, summary judgment will not be granted on this issue.

3. Validity of Federal Tax Liens

If a person liable for federal taxes fails to pay them after assessment, notice and demand, the amount of the unpaid taxes and any interest and penalties "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. "[A]ll property and rights to property" is "broad and reveals on its face that Congress meant to reach every interest in property that a taxpayer might have. Stronger language could hardly have been selected to reveal a purpose to assure the collection of taxes." United States v. Nat'l Bank of Commerce [ 85-2 USTC ¶9482], 472 U.S. 713, 719-20 (1985) (citation omitted) (internal quotation marks omitted). The federal tax lien arises at the time the tax is assessed; it continues until the liability is satisfied or becomes unenforceable by reason of lapse of time. 26 U.S.C. §6322.

In the present case, the federal tax liens thus arose on the same dates as the unpaid taxes were assessed: March 15, 1991, for the liabilities for the 1982, 1983, and 1984 tax years; September 10, 1990, for the liability for the 1985 tax year; May 30, 1990, for the liabilities for the 1986 and 1987 tax years; and April 23, 1990, for the liability for the 1988 tax year. McCarville provides no evidence to dispute that the United States gave proper notice and demanded payment of the assessment. As the liens reach "all property and rights to property," there can be no dispute whatsoever that the liens reach all of McCarville's right and property interest in the Money Purchase Plan.

Under 26 U.S.C. §6323, the liens are valid against certain persons when a Notice of Federal Tax Lien is filed. Here, the notices of federal tax lien for 1982 to 1984 were filed on January 7, 1991 , and timely refiled on February 12, 2001 . The notices of federal tax lien for 1985 to 1987 were filed on June 27, 1991 , and timely refiled on May 5, 2000 . The notice of federal tax lien for 1988 was filed on July 3, 1990 , but lapsed. Another notice of federal tax lien for 1988 was filed on December 24, 2002 . The notices of federal tax liens were filed in Waupaca County , where McCarville resides.

On January 7, 1991 , and June 27, 1991 , the IRS perfected its lien against the pension plan and related benefits by filing a tax lien in the personal property records of Waupaca County . See 26 U.S.C. §6323(f)(2)(B).

McCarville argues that the notices of federal tax liens are not certified as required by Wisconsin law and not properly signed. ( See Def.'s Opp'n to Summ. J., Ex. 8.) The matter of federal tax liens is one of federal, not state, law, however. United States v. Union Cent. Life Ins. Co. [ 62-1 USTC ¶9103], 368 U.S. 291, 293-94 (1961); Kivel v. United States [ 89-2 USTC ¶9415], 878 F.2d 301, 303 (9th Cir. 1989). Title 26 U.S.C. §6323(f)(3) provides that the Secretary prescribes the form and content of the notices and that such notices shall be valid notwithstanding any other provision of law. Delegation authority to sign notices of tax liens is set out in IRS Delegation Order 196 ( see Locke Decl., Ex.) and McCarville has provided no evidence contradicting the evidence of the United States that the IRS officers who authorized the notices at issue in this case were proper designees.

III. MCCARVlLLE'S COUNTERCLAIM

The United States seeks summary judgment on its claim as well as on McCarville's counterclaim seeking release of the tax liens. Because the United States has established upon undisputed facts that the tax liens are valid, summary judgment must be granted against McCarville on his counterclaim.

IV. CONCLUSION

Summary judgment must be granted against Timothy McCarville in favor of the United States . The United States has not, however, moved for summary judgment against the other defendants and has not dismissed its claims against Evelyn McCarville even though it indicated in its opening brief that it no longer seeks a money judgment against her. McCarville also filed a crossclaim, which must be addressed. Therefore, I will set a telephonic status conference call to discuss the resolution of the remainder of this case.

For the foregoing reasons, IT IS ORDERED that the motion for summary judgment filed by the United States against Timothy McCarville is granted in part and denied in part. The motion is denied as to the civil fraud penalties. In all other respects the motion of the United States for summary judgment is granted.

IT IS ORDERED that McCarville's counterclaim is dismissed.

IT IS ORDERED that a telephonic status conference will be held on September 19, 2003, at 9:30 a.m. to discuss further proceedings in the case.

¹ Because McCarville proceeds pro se, I have been generous and have considered both briefs filed in response to the motion for summary judgment.

² The United States did not seem to have these returns until McCarville provided the United States during discovery with copies stamped "received" by the IRS on February 27, 1990 . Taking the facts in McCarville's favor, those returns were indeed filed on February 27, 1990 . No "received"-stamped copy was provided regarding 1982, though, and McCarville has not sworn in his summary judgment filings that it was ever filed with the IRS.

³ Although a copy of the first OIC no longer exists (it was apparently destroyed after six years), the United States has presented evidence that the form at that time contained the waiver provision and that it would not have accepted the OIC if the waiver had not been made. McCarville has produced no contrary evidence.

⁴ The proposed finding of fact submitted by the United States on this point indicates an amount of $197,193.99, but the exhibit itself, Choudoir Decl., Ex. F, indicates $197,193.29.

⁵ The period provided by §6502(a)(1) was expanded from six years to ten years, effective for taxes assessed after November 5, 1990, and taxes assessed before that date if the prior six-year period had not expired by November 5, 1990. Omnibus Budget Reconciliation Act of 1990, Pub. L. 101-508 §11317(a)(1), (c), 104 Stat. 1388. As the assessments against McCarville occurred in 1990 and 1991, the ten year period applies for all tax years at issue in this case.

⁶ The burden of proof provision of 28 U.S.C. §7491 does not apply here, as examination of McCarville's tax liability commenced before the effective date of that provision. RRA, Pub. Law 105-206 §300(c), 112 Stat. 685.

⁷ Since the years in issue, §6653 has been amended and this provision was deleted.

 

[43-2 USTC ¶9572] United States of America , Plaintiff, v. Rudolph Spreckels, Bank of America National Trust & Savings Association et al., Defendants

Southern Division of the United States District Court for the Northern District of California, No. 3970-L, 50 FSupp 789, Filed July 21, 1943

Priority of judgment creditors: Assertion of claim against third parties.--Because of the Government's failure to properly assert its claims against third persons with adverse interests within the statutory period applicable to the assertion of a lien for unpaid taxes, the Court holds that the assignee of a judgment, upon which execution had been taken, should prevail as to all property acquired thereunder, except certain real property on which the United States had a valid and existing lien as against all the world at the time of the issuance of the execution.

Frank J. Hennessy, U. S. Attorney, Thos. C. Lynch, Assistant U. S. Attorney, Post Office Bldg., San Francisco , Calif. for plaintiff. Keyes & Erskine, 625 Market St., San Francisco, Calif., Attorneys for defendant Bank of America National Trust & Savings Association.

Opinion

ST. SURE, District Judge:

The Government sues in equity, under §3678 of the Internal Revenue Code, to enforce certain liens upon property of Rudolph Spreckels for balance of income taxes due for the year 1928 in the amount of $603,179.41 plus interest. The Collector of Internal Revenue made due demand upon the taxpayer for payment, but no payments have been made on that balance.

[The Facts]

On August 7, 1934, the Collector reported a notice of lien for taxes in the recorders' offices of Kings, Shasta and Kern counties, and the City and County of San Francisco; and in the clerks' offices of the United States District Court, Northern District of California, Northern and Southern Divisions, and of the Northern Division of the Southern District of California. During August of 1934 notices of lien and levy were served upon a number of corporations and associations in which the taxpayer held stock.

On November 22, 1934 , the taxpayer agreed in writing to waive the statutory period for collection of the aforementioned balance, and the time for collection was extended to December 31, 1935 . This suit was filed on December 30, 1935, one day before the expiration of the time specified in the waiver. A copy of the complaint and subpoena were served on the taxpayer and returned and filed on April 2, 1936. The other defendants named were served in October of 1940.

The defendant Bank of America National Trust and Savings Association, hereinafter called the bank, asserts an interest adverse to the claim of the Government, under a judgment against the taxpayer in the sum of $923,031.90 obtained by its assignee on June 3, 1936. A transcript of the judgment was recorded in Kings county on October 10, 1936, in the City and County of San Francisco on October 28, 1936, and in San Mateo county on November 14, 1936. The bank had execution issued upon the judgment and obtained title to various properties belonging to the taxpayer, on which the Government claims it has a prior lien.

Defendant bank contends that the statute of limitations ran as to it because of the failure of the Government to serve it with the complaint and subpoena until October of 1940, and that therefore any lien the Government might claim to property in its hands expired.

[Equity Action Is Commenced by Filing of Complaint with Intent to Prosecute Suit Diligently]

The modern Federal rule is that an action in equity is commenced by the filing of a complaint with the bona fide intent to prosecute the suit diligently provided there is no unreasonable delay in the issuance or service of the subpoena. U. S. v. Hardy, 74 Fed. (2d) 841 [35-1 USTC ¶9060]; United States v. Miller, 164 Fed. 444; Linn & Lane Timber Company v. U. S. , 236 U. S. 574. It would seem that a delay of four years and ten months in serving a defendant who was during that period available for service at all times is unreasonable on its face. The suit cannot therefore be deemed to have been commenced as to the bank as of the date of its filing.

[Application of Doctrine of Laches to Government]

The argument of counsel for the Government that the delay was due to laches on the part of its officers and that the doctrine of laches is not applicable to the United States , is not tenable. The United States as well as a private individual is bound by statutes of limitation, and it may allow its rights to lapse as well by failing to issue and serve process within a reasonable time, as by failing to file an action within the statutory period.

The Government claims that there is no statute of limitations applicable to this suit; that it is an action in equity which could have been brought at any time. §276(c) of the Internal Revenue Code provides:

Where the assessment of any income tax imposed by this Chapter has been made within the period of limitation properly applicable thereto, such tax may be collected by distraint or by a proceeding in court, but only if begun (1) within six years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Commissioner and the taxpayer before the expiration of such six-year period. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.

Section 3671 provides that "unless another date is specifically fixed by law, the lien shall arise at the time the assessment list was received by the Collector and shall continue until the liability for such amount is satisfied or becomes unenforceable by reason of lapse of time." To determine when the lien becomes "unenforceable by lapse of time" these two sections should be read together, for if the statute ran on the tax itself the lien, which is only security therefor, should simultaneously expire. This question was before the court in Equitable Life Assurance Society v. Moore, 29 Fed. Supp. 179 [39-2 USTC ¶9775], and the court said:

It was the intent of Congress to give notice to third parties by the filing of the lien, and to continue that lien in existence until satisfied or until six years and such additional period as might be agreed upon by the taxpayer and the Commissioner had expired * * *. I conclude that the statute did not bar the enforcement of the lien until the expiration of the last extension * * *

[Government's Claim Against Third Parties with an Adverse Interest Should Be Asserted in Statutory Period]

I think that the Government should assert its claim against third parties claiming property of the taxpayer adversely to it within the statutory period applicable to the lien against the taxpayer. Otherwise a lien, although forever lost as against the taxpayer, could be indefinitely asserted against his creditors.

The same statutory period should not apply as to property on which the Government had properly recorded and perfected its lien. It is not urged that the taxpayer was not properly sued and served within the statutory period, and the Government did not lose its lien as to him. The Government could not be required to anticipate that third parties would execute in 1936 upon property on which it had perfected its lien, and to have sued to prevent such action in 1935. However, Section 3672 provides that "Such lien shall not be valid as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed by the Collecter * * * in accordance with the law of the state or territory in which the property subject to the lien is situated, whenever the state or territory has by law provided for the filing of such notice." Act 8487, Deering's General Laws (California Stats. 1923, p. 1124) provides for the filing of notices of liens for internal revenue taxes in the office of the county recorder of the county or counties within which the property subject to such lien is situated.

The lien of the Government was properly recorded in Kings county and attached to the real property located there prior to the time it was executed upon by the bank. The balance of the property to which the bank makes claim under its judgment (with the exception of certain land in Tulare county where no lien was recorded by the Government) consists of intangible personal property. Following the general rule that the situs of such property is the domicile of the owner, the Government should have recorded its lien in San Mateo county where the taxpayer resided. This was not done until 1937, after the bank had executed on such property under its judgment.

[Conclusion]

I conclude that the rights of the bank should prevail as to all property acquired under its judgment except the real property located in Kings county, upon which the United States had a valid and existing lien as against all the world, at the time execution was issued.

Judgment will be entered accordingly.

 

 

[70-2 USTC ¶9626]United States of America, Plaintiff v. John Besase; Sam Besase; George Besase; Estate of Joseph Besase; Angelo Perna; Sam Rappaport; Ted Maison; Josephine Besase; Lucas County State Bank; Cissie Rappaport; First Federal Savings and Loan Association; Anna Perna; Toledo Home Federal Savings and Loan Association; Thelma Kritzer; Sylvania Savings Bank; Rosemarie Besase; Anthony Besase, Jr.; George S. West, and Pauline A. West, Defendants

U. S. District Court, No. Dist. Ohio , East. Div., Civil Action No. C 70-367, 319 FSupp 1064, 9/14/70

[Code Secs. 6212(b), 6502, 6901, 6903 and 7403--Result unchanged by '69 Tax Reform Act]

Enforcement of tax liens: Statute of limitations: Transferee liability: Decedent: Appointment of admin istrator.--It was determined that the government complied with the six-year statute of limitations in an action to enforce tax liens because the assessment date of April 17, 1964 is excluded and the date the original complaint was filed, April 17, 1970, is included in the computation of time. The fact that the complaint was filed at 6:12 p. m. did not make the filing after the termination of the business day. Moreover, the amended complaint adding the name of a taxpayer clarified the claim that was made against him in the original complaint. Also, the absence of a fiduciary of a deceased taxpayer's estate tolled the statute but until an admin istrator was appointed the present claim could not proceed. Further, additional counts to foreclose tax liens and to set aside transfers were timely but action thereon could not proceed until taxpayers' liability was first determined.

Rob ert B. Krupansky, United States Attorney, Cleveland , Ohio , for plaintiff. John Kennedy Lynch, 907 E. Ohio Bldg., Cleveland, Ohio, Lawrence E. Duffey, 525 Security Bldg., Toledo, Ohio, David G. Wise, 935 Nat'l Bank Bldg., Toledo, Ohio, Bowman, Ave., Raitz & Cox, 200 Toledo Legal Bldg., Toledo, Ohio, Cline, Bischoff & Cook, 420 Security Bldg., Toledo, Ohio, for defendant.

Memorandum and Order

THOMAS, District Judge:

On April 17, 1970 , the Government filed suit against John Besase, George Besase, Sam Besase, Joseph Besase, Angelo Perna, Sam Rappaport, and Ted Maison. Involving a claim for federal excise tax liabilities, fraud penalties, and interest, judgment is sought in the amount of $1,067,889.74. On April 27, 1970 , the Government filed its amended complaint. Counts I and II involve the claims of the original complaint and are directed against the original defendants except that the Estate of Joseph Besase has been substituted for Joseph Besase. As new party defendants the amended complaint adds: Josephine Besase, Lucas County State Bank, Cissie Rappaport, First Federal Savings and Loan Association, Anna Perna, Toledo Home Federal Savings and Loan Association, Thelma Kritzer, Sylvania Savings Bank, Rosemarie Besase, Anthony Besase, Jr., George S. West and Pauline A. West.

[Amended Complaint]

In newly added Count III of the amended complaint, the Government seeks to foreclose federal tax liens against certain property allegedly owned by George Besase, Sam Rappaport, and Angelo Perna. Some of the new defendants are said to claim an interest in these properties. Count IV of the amended complaint seeks to set aside a conveyance of real property owned by defendant taxpayer Joseph Besase, deceased. The transfer to Thelma Kritzer is alleged to be in fraud of the United States . Count V of the amended complaint seeks to enforce tax liens against real property owned by the defendant Joseph Besase. Other new party defendants are alleged to claim an interest in said property.

The original defendants move to dismiss the amended complaint and the new individual defendants also move to dismiss the amended complaint. New defendants Lucas County State Bank, First Federal Savings and Loan Association, Toledo Home Savings and Loan Association, and Sylvania Savings Bank have each filed an answer setting forth that each is a payee on a note and a mortgage to secure the note. Payment of balances owed on these obligations is asked.

[Statute of Limitations Issue]

First to be considered is the claim of the defendants that

[T]he complaint and the amended complaint fail to state a claim against these defendants upon which relief can be granted for the reason that it appears on the face of the complaint and the amended complaint that the alleged claims arose more than six years prior to the filing of the action herein. . . .

Section 6502 of the Internal Revenue Code of 1954, 26 U. S. C. ¶6502, provides in pertinent part:

(a) LENGTH OF PERIOD--where the assessment of any tax imposed by this title has been made within the period of limitation properly applicable thereto, such tax may be collected by levy or by a proceeding in court, but only if the levy is made or the proceeding is begun--

(1) within 6 years after the assessment of the tax, . . ..

Rule 6(a), Federal Rules of Civil Procedure (as amended July 1, 1970 ), specifies that in computing any period of time

[T]he day of the act, event, or default from which the designated period of time begins to run shall not be included. The last day of the period so computed shall be included, unless it is a Saturday, a Sunday, or a legal holiday . . ..

Cases express the same rule of law but need not be cited. It is sufficient to apply Rule 6(a) to the facts of the original complaint and the amended complaint, and the filing dates stamped on the face of these complaints.

The assessment date of April 17, 1964 , is excluded, and the last day; namely, April 17, 1970 , the date on which the complaint was filed, is included in the computation of time. Thus it is determined that in filing the original complaint on April 17, 1970, the United States of America has complied with the six-year statute of limitations.

Defendants alternately note that the complaint shows on its face that it was filed with the Clerk of this court at 6:12 p. m., April 17, 1970 . Defendants further note that the ordinary business of Internal Revenue Services ends at 5:00 p. m., and that assessments made during the day are made prior to 5:00 p. m. Therefore, it is argued that the filing of the complaint at 6:12 p. m. on April 17, 1970 , was after the termination of the business day "and thus it was filed after the expiration of six years since the time of assessment."

This argument, though ingenious, conflicts with the established rule that in seeking a measure of time "the day is the unit, because people generally measure periods of more than one day by days, months, or years." Burnet v. Willingham L. & T. Co. [2 USTC ¶655], 282 J. S. 437, 439 (1931). As Mr. Justice Holmes further says in his opinion:

The fiction that a day has no parts is a figurative recognition of the fact that people do not trouble themselves without reason about a nicer division of time.

See also, 52 Am. J. 339, Time §15.

[Amended Complaint Related Back]

In the following contention defendants raise the next point to be considered:

Since the complaint fails to state a cause of action against Sam Besase, for the assessment of $121,748.80, it is clear that the amended complaint which attempts to include him with the others on the claim is barred by the statute of limitations since the amended complaint may not relate back to the date of the original complaint in respect to new parties defendant or new causes of action. [citations]

The original complaint describes two assessments made on April 17, 1964 . Paragraph IV of the complaint states that jeopardy assessments for Federal Excise Tax liabilities were made against John Besase, George Besase, Sam Besase, Joseph Besase, Angelo Perna, Sam Rappaport, and Ted Maison, as individuals and as members of a partnership. The amounts listed are $584,474.85 for the periods January 31, 1961 , through June 30, 1963 ; fraud penalties totaling $292,237.49; and interest assessed in the amount of $69,428.60.

Paragraph VI of the complaint states that

On April 17, 1964 , the District Director of Internal Revenue made assessments against John Besase, George Besase, Angelo Perna, Sam Rappaport and Ted Maison, individually and as members of a partnership, for Federal Wagering Excise Taxes in the amount of $79,526.28.

In addition, paragraph VI mentions $39,763.15 in fraud penalties, and interest in the amount of $2,459.37, and the paragraph states that the total for the "taxable periods July 7, 1963 , through October 31, 1963 ," is $121,748.80.

Count I of the amended complaint repeats the claim against all the original defendants set forth in paragraph IV of the original complaint. Count II of the amended complaint repeats the claim set forth in paragraph VI of the original complaint. However, the name of Sam Besase has been added to the names that appear in paragraph VI of the original complaint. Nevertheless, the original complaint names Sam Besase as one of the defendants. Paragraph VII of the original complaint further states that:

Despite demands for payment, the above named defendants are indebted to the United States of America in the amount of $1,067,889.74, plus interest thereon according to law.

Necessarily "the above named defendants" include Sam Besase as well as the other defendants who are alleged to be indebted to the United States as to the total amount. The total includes the amounts listed in both the first and the second assessments set forth in paragraphs IV and VI.

Paragraph IV refers to all the defendants, including Sam Besase, "as individuals and as members of a partnership." Paragraph VI states that the assessments are made against the named persons "individually and as members of a partnership." These various references in the original complaint are broad enough to incorporate a claim against Sam Besase on the second assessmenet along with the other defendants.

In determining whether an amendment adding or changing a party should relate back to the date of the original pleading, the court should ascertain (1) whether the claim alleged in the amendment arose out of the same transaction, conduct, or occurrence as set forth in the original pleading; (2) whether within the period provided for commencement of the action, the party to be made part of the litigation has received "notice of the institution of the action" and that he will not be prejudiced in maintaining a defense by his inclusion, and (3) whether the party knew or should have known that except for a mistake the action would "have been brought against him." Craig v. United States, 413 F. 2d 854 (9th Cir. 1969); see also Montalvo v. Tower Life Bldg., 426 F. 2d 1135 (5th Cir. 1970). Applying these criteria it is concluded that Count II of the amended complaint in adding the name of Sam Besase clarifies the claim against him that was made in the original complaint. It is not a new claim against him as to the second assessment. Instead, the amendment relates back and, therefore, it is not foreclosed by the ending of the period of limitation on April 17, 1970 .

As defendants observe:

The amended complaint has withdrawn the name of Joseph Besase as shown in the original complaint and substituted the Estate of Joseph Besase.

It is argued that thus "the pleadings show on their face that action against the fiduciary of the estate of Joseph Besase, deceased is barred by the statute of limitations."

[Administrator Not Appointed]

The implication of this argument is that there is a fiduciary of the Estate of Joseph Besase, deceased. Attached to the brief of the Government are various documents relating to Joseph J. Besase, deceased. These records reveal that Joseph Besase died on June 2, 1963 , a resident of Toledo , Lucas County, Ohio. He died intestate and no admin istration proceedings have been conducted. The certificate of Willis E. Ludeman, judge and ex-officio clerk of the Probate Court, Lucas County, Ohio states that

No fiduciary has been appointed or elected and the above is the full and complete file in this case.

According to the complaints the jeopardy assessments were made on April 17, 1964 , upon the original defendants, including Joseph Besase. By this date Joseph Besase was deceased. A fiduciary appointed by said date would have stood in the shoes of Joseph Besase; see First National Bank v. Commissioner [40-1 USTC ¶9472], 112 F. 2d 260 (7th Cir. 1940); see also, 26 U. S. C. §6903 and 26 C. F. R. §301.6903-1(a). A notice of assessment might have been given to a fiduciary, had one been appointed. With no fiduciary appointed in Joseph Besase's estate there was none to whom a notice of assessment might be sent. Nevertheless, the assessment was duly recorded, it is presumed. Comparably the death of a taxpayer to whom a deficiency notice is sent does not affect its sufficiency where fiduciary fails to give notice of his appointment. See, 26 U. S. C. §6212(b) and 26 C. F. R. §301.6212-1(b).

It is concluded that no one claiming under the Estate of Joseph Besase can take advantage of the continuing failure to have a fiduciary appointed in the Estate of Joseph Besase. By the same reasoning it is concluded that the absence of a fiduciary against whom the Government may bring an action to collect the unpaid tax liability tolls the six-year period of limitation for the bringing of an action provided by Section 6502, Internal Revenue Code of 1954, 26 U. S. C. §6502.

Under applicable Ohio probate law both a claim and an action against an estate may only proceed against a fiduciary of an estate. See, Ohio Revised Code §§ 2117.06; 2117.12; and 2117.30. The absence of appointment of a fiduciary tolls the time in which claims may be presented against the estate. Whether the Government need present such a claim will be reserved. In any event, it is determined that until an admin istrator for Joseph Besase, deceased, is appointed, the present claim against the Estate of Joseph Besase cannot proceed. However, the Government can apply to the Probate Court of Lucas County to appoint a fiduciary for his estate.

[New Claims and Parties]

Last to be considered is the motion to dismiss counts III, IV, and V of the amended complaint. New causes of action, these are brought against parties added as defendants by the amended complaint.

Count III of the amended complaint asks that tax liens be foreclosed on certain parcels of real estate owned by the defendant taxpayers George Besase, Sam Rappaport, and Angelo Perna. Joined as parties defendants who claim an interest in these properties are Josephine Besase, Lucas County State Bank, Cissie Rappaport, First Federal Savings and Loan Association, Anna Perna, and Toledo Home Federal Savings and Loan Association.

In Count IV the plaintiff seeks to have set aside a conveyance of real property made to Thelma Kritzer from its owner Joseph Besase, now deceased. Named as additional parties claiming interest in this property are Thelma Kritzer and Sylvania Savings Bank.

Count V of the amended complaint seeks to enforce tax liens against real property owned by the defendant taxpayer Joseph Besase, now deceased. Additional parties added under this count as having an interest in the property are Anthony Besase, Jr., Rose Besase, George S. West, Pauline A. West, and Lucas County State Bank.

It is noted that counts III, IV, and V of the amended complaint filed April 27, 1970, involve new claims and new defendants; and that the complaint recites that the assessment for the taxes in question were made on April 17, 1964. It is argued that these new claims "should not be permitted in an amended complaint but even if permitted, should not be allowed to relate back to the date of the filing of the original complaint." Thus, it is urged that

[T]he new causes of action and the right to proceed against the new party defendants are clearly barred by the statute of limitations.

Counts III, IV, and V are new claims. They do not relate back to the original complaint. The plaintiff "does not contend that these counts relate back to the original complaint, in order to avoid the statute of limitations." It is plaintiff's position that "these new causes of action are not barred by the statute of limitations in Section 6502, Internal Revenue Code of 1954."

Counts III, IV, and V involve actions to foreclose tax liens, either on property still owned by some of the taxpayers or on property allegedly owned by the taxpayers at the time of the creation of the tax liability and since allegedly transferred in fraud of creditors.

Should the Government fail to bring suit against a taxpayer within the six years after assessment allowed by Section 6502, Internal Revenue Code of 1954, 26 U. S. C. §6502, the Government is thereafter barred from foreclosing a tax lien on the property of a taxpayer. United States v. Stone [58-2 USTC ¶9665], 257 F. 2d 685, 687 (5th Cir. 1958) points out that "the lien sought to be foreclosed is only an incident to the claim for taxes it secures; and that, the claim for taxes barred, the lien falls with it."

When, however, a timely suit is brought against the taxpayer within the six-year period of limitation, the suit tolls the statute of limitations and an action may be brought after that period to foreclose a tax lien on property of a taxpayer which he has transferred after the imposition of tax lien. See, United States v. Haddad [66-1 USTC ¶9175], 250 F. Supp. 845 (D. Rhode Island 1965), aff'd sub nomine Badway v. United States [66-2 USTC ¶9709], 367 F. 2d 22 (1st Cir. 1966).

Recovery of the unpaid tax liability of a taxpayer may be sought against a transferee of property of the taxpayer where authorized by state law. See, United States v. Truax [55-1 USTC ¶9486], 223 F. 2d 229 (5th Cir. 1955), Hall v. United States [68-2 USTC ¶9665], 403 F. 2d 344 (5th Cir. 1968) and United States v. 58 Street Plaza Theatre, Inc. [68-1 USTC ¶9407], 287 F. Supp. 475 (S. D. N. Y. 1968). In applying such state statutes it appears that the United States shall be deemed a creditor of a taxpayer from the date when the obligation to pay the taxes accrues. See, 58 Street Plaza Theatre, supra, at 501. Rules governing the tolling of the statutes of limitations in an action to foreclose a tax lien brought under Section 7403, Internal Revenue Code of 1954, 26 U. S. C. §7403, are deemed to govern equally an action brought under state law to set aside a transfer by a taxpayer to defraud the United States, the creditor of the taxpayer.

It has been determined that the suit against the taxpayers brought on April 17, 1970 , is timely. Compliance with the period of limitations provided by Section 6502, Internal Revenue Code of 1954, 26 U. S. C. §6502, is established. Hence, counts III, IV, and V to foreclose tax liens and to set aside transfers are likewise determined to be timely.

In United States v. Stone, supra, it has been seen that a failure of the claim against the taxpayer defeats the action to foreclose a lien, since the lien is only an incident to the claim for taxes it secures. Under this logic counts III, IV, and V depend upon the Government's success in establishing liability against the taxpayers in counts I and II. This logic is demonstrated in Hall v. United States , supra. In Hall, supra, the action against a transferee was upheld as "a suit to follow assets, fraudulently acquired, in order to collect a judgment against the taxpayer." The action against the transferee is called "ancillary and is limited to collecting the judgments [against the taxpayer-transferor], once they were obtained." Applying Hall, counts III, IV, and V are deemed to be ancillary; and it would appear that these counts should not be allowed to proceed to trial until, if at all, judgments on counts I or II, or both, for unpaid taxes are rendered against the particular taxpayers named in counts III, IV, and V. At an appropriate time the trial of counts III, IV, and V should be separated from the trial of counts I and II, in accordance with Rule 42(b), Federal Rules of Civil Procedure.

IT IS SO ORDERED.