Bennett v. U.S.A
| Decision Date | 09 December 2010 |
| Docket Number | Case No. 2:09-cv-12352 |
| Parties | TIMOTHY M. BENNETT, Plaintiff/Counter- Claim Defendant v. UNITED STATES OF AMERICA, Defendant/Counter- Claimant v. JOANNE BENNETT Counter-Claim Defendant. |
| Court | U.S. District Court — Eastern District of Michigan |
OPINION AND ORDER ON
Plaintiff Timothy M. Bennett brought this quiet title action seeking to remove a federal tax lien filed by the Internal Revenue Service for taxes owed by his mother, Joanne Bennett. The Government filed counterclaims arguing that the property at issue was properly subject to a federal tax lien under either fraudulent conveyance theory or nominee theory.
The action is presently before the Court on Timothy Bennett and the Government's cross-motions for summary judgment. The motions for summary judgment have been fully briefed by Timothy Bennett and the Government.1 Having reviewed the briefs and their accompanying exhibits, as well as the record as a whole, the Court finds that the relevant allegations, facts, and legal arguments are adequately presented in these written submissions, and that oral argument would not aid the decisional process. Accordingly, the Court will decide JCI's motion "on the briefs." See Local Rule 7.1(f)(2), U.S. District Court, Eastern District of Michigan. This opinion and order sets forth the Court's rulings on this motion.
This case arises out of the Internal Revenue Service's ("IRS's") collection activities regarding taxpayer Joanne Bennett. To secure the tax debts owed by Ms. Bennett, the IRS filed a notice of federal tax lien against Plaintiff Timothy Bennett (hereinafter "Bennett") as Joanne Bennett's nominee. Through the present action filed on June 17, 2009, Bennett seeks quiet title to real estate that is subject to the nominee lien.
In late 2003, Gary Bennett, Plaintiff Timothy Bennett's father, decided to move to Florida. He needed to sell his house located at 8787 Cooley Beach Drive in White Lake Township, Michigan (hereinafter "the Cooley Beach property"), so he enlisted the help of his ex-wife, Joanne Bennett, who was self-employed as a real estate agent at the time. Timothy Bennett decided to purchase the house from his father with the intent to then rent it out to his mother, Joanne, who had recently learned that she had to move out of the apartment she was then renting.
Timothy Bennett and Gary Bennett agreed to a purchase price of $205,000 for the Cooley Beach property.2 On or about, August 27, 2003, they signed a purchase agreement. Timothy Bennett and Joanne Bennett agreed that she would live at the Cooley Beach property and pay Timothy Bennett $600 a month and pay the property taxes for the house. They did not sign a lease agreement reflecting this arrangement.
At the closing of the sale on October 1, 2003, Joanne Bennett told her son that she should have her name listed on the closing documents as a co-owner for purposes of obtaining a Michigan homestead property tax exemption even if Timothy Bennett was paying the full purchase price. The Michigan homestead property tax exemption is an exemption from the property tax levied by local school districts for school operating expenses. It is an exemption that is only available for property that is used as its owner's principal residence. Mich. Comp. Laws § 211.7cc; see also Mich. Comp. Laws § 211.7a(3). Since Joanne Bennett planned to live at the property and Timothy did not, she explained that she would have to appear as a co-owner to claim the exemption. Timothy Bennett agreed and Joanne was included as a co-owner on both the closing documents and deed. In an affidavit attesting to the use of the property as a homestead, Joanne and Timothy Bennett each certified "under penalty of perjury, that I own (co-own) and occupy the [Cooley Beach property] as my principal residence, that I am filing an affidavit for only one dwelling, and that all information is true to the best of my knowledge." (Gov't Ex. 10.) Timothy Bennett later testified that he relied on Joanne Bennett as his real estate agent, mother and fiduciary to handle the purchase transaction. He testified that he believed that by signing the homestead affidavit, or "homesteading," Joanne Bennett was simply attesting to the fact that she planned to live at the property. (Timothy Bennett Dep. 25:14-18, 42:17-25.) Following the closing, Timothy Bennett began renting out the house to Joanne Bennett as agreed. Joanne was to pay $600 per month. Timothy paid maintenance costs, which were mostly minor. When Joanne did any maintenance or bought updated appliances for the house, she would deduct the costs from her monthly rent.
In the summer of 2005, Timothy Bennett and his wife Ann Marie Bennett divorced. As part of the judgment in his divorce case, Timothy Bennett represented that the Cooley Beach property was jointly owned by Joanne Bennett and himself. The parties agreed that his interest in it was not marital property.
In September 2005, Timothy Bennett asked his brother, Kevin Bennett, an attorney, to draft a quitclaim deed conveying the Cooley Beach property from Timothy Bennett and Joanne Bennett as tenants in common to Timothy Bennett and Joanne Bennett as joint tenants with rights of survivorship.3 The quitclaim deed was executed and recorded with the Oakland County Register of Deeds on December 13, 2005.
In June 2006, the parties prepared another quitclaim deed conveying the property from Timothy Bennett and Joanne Bennett to Timothy Bennett alone. It was executed and recorded with the Oakland County Register of Deeds on August 8, 2006. Through this quitclaim deed, Timothy Bennett and Joanne Bennett granted their interest in the Cooley Beach property to Timothy Bennett alone. The deed states that it was executed for the full consideration of one dollar, but both Timothy Bennett and Joanne Bennett testified that no consideration was given in exchange for this transfer. He further testified that he was merely trying to "clean up the title" to the property in the wake of his divorce. (Timothy Bennett 62:23-25.) (Timothy Bennett Dep. 63:1-4.)
Prior to and concurrent with these real estate transactions, Joanne Bennett's financial situation was deteriorating. She seldom paid the $600 rent in full and did not pay any property taxes as she had agreed. Timothy Bennett learned of the delinquent property tax sometime in early 2006, after checking with the tax assessor.4 He then paid the property taxes himself. Joanne told her son that she could not pay because she was experiencing financial problems and that she would pay as much rent as she could afford. For a period of about a year, Joanne Bennett paid no rent, as she recovered from a hospitalization.
Joanne Bennett did not file federal income tax returns between 1999 and 2007. IRS account transcripts show that the IRS began contacting Joanne Bennett in 2002, requesting that she file her delinquent federal income tax returns. (Pl.'s Mot. for Summ. J. Ex. K.) In early 2007, after she had transferred the Cooley Beach property to Timothy Bennett and upon the urging of a friend, Joanne Bennett filed her delinquent tax returns.5No payments were made with these returns. On January 12, 2007, Citibank obtained a judgment against Joanne Bennett in the amount of $19,634.92, and on April 26, 2007, Chase Bank obtained a judgment against her in the amount of $12,697.73. By May 12, 2007, Joanne Bennett had no assets. On May 15, 2007, her checking account had a deficit balance of eighteen dollars.
On February 19, 2007, March 5, 2007, and August 6, 2007, a delegate of the Secretary of the Treasury of the United States made assessments of unpaid federal income taxes against Joanne Bennett for the tax years of 2000 through 2006. The Government sent notice and demand for payment of these assessments to Joanne Bennett. The total unpaid balance on these assessments with accrual as of April 26, 2010, was $111,850.57.6 These assessments gave rise to liens in favor of the United States against all of Joanne Bennett's property and rights to property. See 26 U.S.C. §§ 6321, 6322.
On December 31, 2007, a year and a half after signing the June 30, 2006 quitclaim deed, Joanne Bennett filed a Chapter 7 bankruptcy petition in this Court. (Joanne Bennett Dep. 45:21-25; Gov't Ex. 19, Joanne Bennett bankruptcy petition dkt. #1, Case No. 0766537, Bankr. E.D. Michigan.) In her bankruptcy petition, Joanne Bennett reported total assets in the amount of $2,240 and total liabilities in the amount of $163,827.53. She also reported having a monthly average income of $1,566.56 and average monthly expenses in the amount of $1,856.67.
In 2008, IRS Officer Lynsey Taulbee investigated and concluded that Joanne Bennett had no ability to pay the tax liability and recommended that her accounts be posted as not collectible. Joanne Bennett signed a collection information statement that was submitted to the IRS on August 16, 2007. In this statement, she attested that her only assets were $800 in her checking account and a life insurance policy with a cash surrender value of approximately $4,000. Officer Taulbee's general manager, Corinne Skerrett, advised Taulbee to search for other possible property which the IRS could seize from Joanne Bennett. After discovering the June 30, 2006 quitclaim deed, and reviewing utilities and maintenance bills, Taulbee concluded that the Cooley Beach property had been transferred to Timothy Bennett as Joanne Bennett's nominee. Officer Taulbee filed a Notice of Federal Tax...
To continue reading
Request your trial