Hill v. US

• Citation: 844 F. Supp. 263
• Decision Date: 13 October 1993
• Docket Number: Civ. No. 1:90CV138.
• Parties: Karen U. HILL, Plaintiff, v. UNITED STATES of America, Defendant and Third-Party Plaintiff, v. Maurice D. HILL, and Lore C. Hill, Third-Party Defendants.
• Court: U.S. District Court — Western District of North Carolina

844 F. Supp. 263

Karen U. HILL, Plaintiff, v. UNITED STATES of America, Defendant and Third-Party Plaintiff, v. Maurice D. HILL, and Lore C. Hill, Third-Party Defendants.

Civ. No. 1:90CV138.

United States District Court, W.D. North Carolina, Asheville Division.

October 13, 1993.

Richard S. Daniels, Patla, Straus, Robinson & Moore, P.A., Asheville, NC, for plaintiff and third-party defendants.

David B. Blair, Tax Div., U.S. Dept. of Justice, Washington, DC, Clifford C. Marshall, Asst. U.S. Atty., Asheville, NC, for defendant and third-party plaintiff.

MEMORANDUM OF DECISION

RICHARD L. VOORHEES, Chief Judge.

THIS MATTER came before the Court on June 22, 1992, for non-jury trial based on a complaint filed July 26, 1990. The Government's answer with counterclaims was filed on October 12, 1990. Upon completion of the two-day trial, counsel requested the opportunity to file post-trial briefs which were subsequently filed in July, 1992. Pursuant to Fed. R.Civ.P. 52, the Court renders its findings of fact and conclusions of law. For the reasons stated below, the Court finds in favor of the Plaintiff.

I. JURISDICTION

The case is properly before the Court pursuant to 26 U.S.C. § 7426 which provides in pertinent part:

(a) If a levy has been made on property ... any person (other than the person against whom is assessed the tax out of which such levy arose) who claims an interest in or lien on such property and that such property was wrongfully levied upon may bring a civil action against the United States in a district court of the United States ...

(b) The district court shall have jurisdiction to grant only such of the following forms of relief as may be appropriate ...

(2) If the court determines that such property has been wrongfully levied upon, the court may—

(a) order the return of specific property if the United States is in possession of such property;

(b) grant a judgment for the amount of money levied upon ...

26 U.S.C. § 7426(a), (b).

II. PROCEDURAL HISTORY

The Internal Revenue Service (IRS) asserted a federal tax lien against Plaintiff's property on January 29, 1990, for the unpaid taxes of her father, Maurice Hill. In April, 1990, the Government noticed the property for sale at public auction. The parties agreed by filed Stipulation that the property would not be sold pending the outcome of this litigation.

In addition to a counterclaim against Plaintiff, the Government filed third-party claims against Maurice Hill (the taxpayer) for unpaid withholding taxes, highway use taxes, civil penalties and interest for 1982 through 1987 in connection with his business.¹ The claims against Plaintiff's mother, Lore Hill, were deleted by the Government by means of amended answer. Lore Hill remains in the action only as a nominal party.² See Order, filed June 18, 1991 (Pleading No. 19). In 1991, the Government was granted partial summary judgment against Maurice Hill in the amount of $90,928.83, including interest and penalties through May 31, 1991, reflecting his tax liabilities. Id. at 4.

III. FINDINGS OF FACT

On October 3, 1991, the parties filed an Amended Stipulation of Facts and Proposed Issues for Trial. The Court incorporates those stipulated facts as follows:

1. All parties are properly before the Court and the Court has jurisdiction over the parties and the subject matter.

2. All parties have been correctly designated and there is no question of misjoinder or nonjoinder of parties.

3. The property that is the subject of this action consists of approximately 1.85 acres in Henderson County, North Carolina. Defendant's Exhibit A is a true and accurate copy of a deed from J.E. Osteen to the Plaintiff, dated August 14, 1985, that conveyed fee simple title to the property to Karen Hill.³

4. In 1982, Maurice Hill, who is Karen Hill's father, filed a personal Chapter 11 bankruptcy which was later converted to a Chapter 7 bankruptcy and concluded in 1985. Certain debts to the United States of America, acting by and through the Internal Revenue Service, were not discharged by the bankruptcy. Maurice Hill owes to the Internal Revenue Service the sum of $90,928.83 (which includes interest and penalties through May 31, 1991). As a result of these personal tax liabilities of Maurice Hill, the Internal Revenue Service filed a Notice of Federal Tax Lien under Internal Revenue laws against the property titled to Karen Hill. This was first done on January 29, 1990. The Internal Revenue Service thereafter scheduled a public auction sale for the property for July 31, 1990, in an effort to satisfy the personal tax obligations of Maurice Hill. This lawsuit was filed by Karen Hill in response to those actions by the Internal Revenue Service.

5. Third-Party Defendant, Maurice Hill handled certain aspects of the property purchase. He determined that Osteen owned the property and negotiated the final price with Osteen. He contacted the surveyor and the attorney who did the closing, and attended the closing.

6. On or about July 9, 1987, Maurice Hill and the other Third-Party Defendant, Lore C. Hill, who is Maurice Hill's wife and Karen Hill's mother, toured Geo-Con's facilities in Oregon to look at a model kit home. Defendant's Exhibit C is a true and correct copy of a price quote for the house kit that Maurice Hill received (invoice number 1).

7. In September, 1987, Maurice Hill obtained a certified check in the amount of $4,500 from Clyde Savings & Loan Association and sent it in to Geo-Con as an initial payment for a house kit. Defendant's Exhibit D is a true and correct copy of Clyde Savings & Loan official check number 06026269. Defendant's Exhibit B is a true and correct copy of a Geo-Con invoice showing a $10,057 price of the kit, a $4,500 down payment, and a $5,567 balance due. Defendant's Exhibit J is a true and correct copy of another invoice that Maurice Hill later requested from Geo-Con (invoice number 1933).

8. On November 2, 1987, Maurice Hill went to Oregon with his brother in order to deliver final payment for and pick up the kit home. Maurice Hill delivered a portion of this balance in the form of a certified check from Clyde Savings & Loan in the amount of $3,000. Defendant's Exhibit E is a true and correct copy of Clyde Savings & Loan official check number 06027265. Defendant's Exhibit B is a true and correct copy of Geo-Con's invoice for the kit (invoice number 1642).

9. Beginning in May, 1986, Maurice Hill generally supervised and participated in the assembly of the kit home.

10. On May 7, 1986, Maurice Hill applied for a general contractor's licensing exemption in order to assemble the house on the property. Defendant's Exhibit F is a true and correct copy of the Application for General Contractor's Licensing Exemption.

11. On May 7, 1986, Maurice Hill applied for a building permit for construction of a house upon the property. Defendant's Exhibit G is a true and correct copy of the building permit and application.

12. On April 28, 1988, Maurice Hill applied for a permit to perform electrical work in the house on the property. Defendant's Exhibit H is a true and correct copy of the electric permit application.

13. On September 9, 1989, the Inspector for Henderson County, North Carolina, issued a Certificate of Occupancy. Defendant's Exhibit I is a true and correct copy of the Certificate of Occupancy.

14. Defendant's Exhibit K is a true and correct copy of a check drawn on the joint account of Maurice Hill and Lore Hill relating to the purchase of a heat unit for a sauna that was at the house.

15. Defendant's Exhibit L is a true and correct copy of a check drawn upon the joint account of Maurice Hill and Lore Hill to pay the Henderson County taxes on the property.

16. Defendant's Exhibit M is a true and correct copy of a check that Lore C. Hill drew on her account to pay property taxes on the property for 1989.

17. Defendant's Exhibit N is a true and correct copy of receipts for payments to Duke Power Company for utilities for the house on the property.

18. Defendant's Exhibits O-Q are true and correct copies of the Plaintiff's Federal income tax returns for 1986, 1987, and 1988.

19. Lore Hill has paid for homeowner's insurance on the property. Defendant's Exhibit R is a true and correct copy of Amended Declarations for the homeowner's insurance on the property for the period from June 22, 1988, to June 22, 1989. Defendant's Exhibit S is a continuation certificate for the homeowner's insurance policy for the property from June 22, 1989, to June 22, 1990.

20. Defendant's Exhibit T is a true and correct copy of telephone bills and payment receipts for the telephone at the house.

21. Defendant's Exhibit U is a true and correct copy of a deed from Thomas W. Hill to Lore C. Hill dated September 18, 1986.

22. Defendant's Exhibit V is a true and correct copy of a deed from Lore C. Hill to Thomas W. Hill dated December 22, 1988.

23. The deposition of Gary Near may be used at trial because the witness is at a distance greater than 100 miles from the place of trial.

24. The deposition of Brad Munson may be used at trial because the witness is at a distance greater than 100 miles from the place of trial.

In addition to the stipulated facts, the Court makes the following additional findings based on the evidence adduced at trial.

25. The property in question borders real estate owned by Maurice Hill's brother, Thomas U. Hill. The property in question is "landlocked" and Plaintiff does not have an easement or right-of-way to the property (which is located near the top of a mountain). In 1986, Plaintiff's mother was granted a right-of-way and access to water for the property from Plaintiff's uncle, Thomas U. Hill. Defendant's Exhibit U. Agent Rosa Shade of the Internal Revenue Service testified on cross examination that the lack of a recorded right-of-way to the property significantly diminished its value on the open market.

26. When the IRS valued the property for purposes of a de minimis bid at auction,

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