U.S. v. Berman
| Decision Date | 06 August 1987 |
| Docket Number | No. 86-3630,86-3630 |
| Citation | 825 F.2d 1053 |
| Parties | -5437, 87-2 USTC P 9460 UNITED STATES of America, Plaintiff-Appellant, v. Lawrence W. BERMAN, Mariln Berman, and Forex Corporation, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Laurie A. Snyder, argued, Washington, D.C., Albert Ritcher, Asst. U.S. Atty., Columbus, Ohio, Robin L. Greenhouse, Michael L. Paup, Lead Counsel, Roger M. Olsen, Tax Div., Dept. of Justice, and Wynette J. Hewett, Washington, D.C., for plaintiff-appellant.
David Carruthers, Roland T. Gilbert, Kincaid, Palmer & Randall, Columbus, Ohio, for BancOhio.
Max I. Ziskind, Columbus, Ohio, for Roy & Co., Inc.
William H. Bluth, argued, Columbus, Ohio, for L. Berman, M. Berman and Forex Corp.
William Goldman, Columbus, Ohio, for Tallie Corp.
Patrick Smith, Columbus, Ohio, for Diamond Harmony.
Phillip Walther, Asst. Pros. Atty., Columbus, Ohio, for Treasurer of Franklin County.
Steve T. Greene, Newark, Ohio, and A.C. Strip, Columbus, Ohio, for Martin's Foods.
Richard Wuerth, Lane, Alton & Horst, Columbus, Ohio, for Central Trust Co.
Before GUY and BOGGS, Circuit Judges, and EDWARDS, Senior Circuit Judge.
The United States appeals the trial court's ruling that the government may not maintain a civil action to reduce an assessment to judgment in the absence of sending notice of the assessment and demand for payment to the taxpayer in accordance with section 6303(a) of the Internal Revenue Code, 26 U.S.C. Sec. 6303(a). Because we are convinced that the trial court erred as a matter of law, we reverse.
This action was brought by the United States of America against Lawrence W. Berman and Marilyn L. Berman to reduce two tax assessments to judgment and to foreclose on the tax liens that would arise from properly noticed assessments. The facts, as found by the trial court after a bench trial, are not challenged.
By warranty deeds dated June 3, 1961, and August 22, 1967, defendant Lawrence W. Berman acquired certain real property that is the subject of this suit, described as the "Alum Creek property." In addition, the Bermans owned a residence at 1362 Haddon Road in Columbus, Ohio.
On September 30, 1975, the Internal Revenue Service (IRS) received the defendants' joint individual income tax return (Form 1040) for the year ending December 31, 1972. The defendants' tax return indicated a tax liability of $67,368.00 for 1972; however, no payment was submitted with the return. At the trial, the government introduced the ACTRA computer transcript of the Bermans' account to show that on November 3, 1975, the defendants were jointly and severally assessed $101,323.97 for unpaid taxes, interest, and penalties for the 1972 tax year.
By a quitclaim deed dated January 21, 1976, and recorded February 10, 1976, Mr. Berman transferred the Alum Creek property and the residence at 1362 Haddon Road to Forex Corporation. The shares of Forex were wholly owned by Mr. Berman at the time of the transfer. Mr. Berman subsequently transferred all of the shares of Forex to his sister.
On April 5, 1976, the government filed a notice of federal tax lien against any and all property of the defendants with the Franklin County Recorder. The notice of lien states that the lien arises from an assessment made on November 3, 1975, for an unpaid balance of $101,323.97 from the tax year 1972.
At some time between the November 3, 1975 assessment and July 11, 1978, the Bermans' 1972 tax return was audited. As a result of that audit, the computer transcript of the Bermans' account states that on July 11, 1978, the defendants were assessed delinquent taxes, penalties, and interest for the 1972 tax year in the amount of $44,749.45.
On December 21, 1977, the government filed another notice of federal tax lien with the Franklin County Recorder. This lien was on all property of "Forex Corporation, Nominee of Lawrence M. and Marilyn L. Berman." The notice of lien specified that the lien was on the Alum Creek property and on the Bermans' residence at 1362 Haddon Road. The lien arose from the November 3, 1975, assessment for the tax year 1972 and was for $99,267.13. 1
On August 4, 1978, the government filed two notices of federal tax lien with the Franklin County Recorder--one on the property of Lawrence W. and Marilyn L. Berman and a second on the property of "Forex Corporation, Nominee of Lawrence W. and Marilyn L. Berman." The lien against the defendants individually did not specify any particular property, although the lien against Forex and the Bermans jointly specified that it was a lien on the Alum Creek property and the residence at 1362 Haddon Road. The liens arose from the July 11, 1978 assessment for the tax year 1972, and were each in the amount of $44,749.45. 2 On October 29, 1981, the government filed the instant action seeking to reduce the assessments on the Alum Creek property to judgment and to foreclose on the liens filed against that property on April 5, 1976, December 21, 1977, and August 4, 1978.
The trial court noted that the government's objectives of reducing certain tax assessments to judgment and foreclosing upon the federal tax lien on the Alum Creek property required it to prove that certain statutory procedures were followed. These statutory procedures include the making of an assessment against the taxpayer, 26 U.S.C. Sec. 6203, and mailing a notice of assessment and demand for payment to the taxpayer, 26 U.S.C. Sec. 6303(a). In order to prove that the statutory prerequisites were fulfilled, the government presented the testimony of Annie P. Hicks, an employee of the criminal investigation division of the IRS. In addition, the government offered a portion of a computer transcript of the defendants' IRS account, which was interpreted for the court by Ms. Hicks. The computer transcript, generated from something called an "ACTRA" account, was offered to prove that an assessment was made against the defendants and that notice of assessment and demand for payment were sent to the defendants, thus creating a federal income tax lien under 26 U.S.C. Sec. 6321.
Title 26 U.S.C. Sec. 6203 provides the method to be used when the IRS makes an assessment against a taxpayer:
The assessment shall be made by recording the liability of the taxpayer in the office of the Secretary in accordance with the rules or regulations prescribed by the Secretary. Upon request of the taxpayer, the Secretary shall furnish the taxpayer a copy of the record of assessment.
In the present case, the government offered the ACTRA computer transcript as proof that the IRS assessed the unpaid balance of the taxes due for 1972 against the Bermans. Ms. Hicks described how section 6203 assessments are made by the IRS: "The assessment is made from information that is key punched from the return, according to what the taxpayer has entered on the return, as far as his income and deductions and exemptions, all of this is key punched and goes to the tape." Ms. Hicks' testimony established that a section 6203 assessment is an internal, mechanical, bookkeeping task performed by the computer based on return information. Ms. Hicks also identified the entries on the Bermans' computer printout which reflected that the assessments had been made on November 3, 1975, for unpaid taxes, and on July 11, 1978, for additional taxes, penalties, and interest for 1972.
The trial court concluded that the assessments had been made. 3 Section 6203 only requires that a notation or entry be made in the internal records of the IRS when an assessment is made against a taxpayer, and the ACTRA transcript itself reflected such notations. The court then turned to whether the government had proved that notice of assessment and demand for payment had been made.
Section 6303(a) provides:
Where it is not otherwise provided by this title, the Secretary or his delegate shall, as soon as practicable, and within 60 days, after the making of an assessment of a tax pursuant to section 6203, give notice to each person liable for the unpaid tax, stating the amount and demanding payment thereof. Such notice shall be left at the dwelling or usual place of business of such person, or shall be sent by mail to such person's last known address.
Section 6321, which creates a lien on the property of a taxpayer who fails to pay taxes, states:
If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.
The trial court noted that the purpose of requiring notice of assessment and demand for payment is to protect the individual liable for paying the taxes due. Moreover, the court held that "[n]otice and demand are statutory prerequisites to the institution of an action to collect taxes or to enforce a federal income tax lien," citing Meridian Wood Products Co., Inc. v. United States, 725 F.2d 1183, 1186 (9th Cir.1984).
The court was not persuaded by the testimony of Ms. Hicks or the computer transcript that notice of assessment and demand for payment had been made. The major difficulty the trial court had with accepting the ACTRA transcript as proof by a preponderance of the evidence that notice was sent was Ms. Hicks' testimony that the transcript was partially inaccurate. The ACTRA transcript contained four statements concerning notices sent to the Bermans informing them of the November 3, 1975, assessment. The transcript stated, according to the testimony of Ms. Hicks, that a second notice was sent on December 8, 1975. It also indicated that another second notice was sent on December 19, 1975, and that yet another second notice was sent on January 26, 1976. Ms. Hicks...
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