Loving Saviour Church v. United States, Civ. No. 82-4176.

• Court: United States District Courts. 8th Circuit. United States District Courts. 8th Circuit. District of South Dakota
• Citation: 556 F. Supp. 688
• Decision Date: 09 February 1983
• Parties: LOVING SAVIOUR CHURCH, an unincorporated religious association, Plaintiff, v. UNITED STATES of America, Robert F. Cunningham, George E. Turner, and 7 Unknown Persons, Defendants.
• Docket Number: Civ. No. 82-4176.

556 F. Supp. 688

LOVING SAVIOUR CHURCH, an unincorporated religious association, Plaintiff,
v.
UNITED STATES of America, Robert F. Cunningham, George E. Turner, and 7 Unknown Persons, Defendants.

Civ. No. 82-4176.

United States District Court, D. South Dakota, S.D.

February 9, 1983.

556 F. Supp. 689

Gary H. Hemminger, Englewood, Colo., Peter J. Horner, Sioux Falls, S.D., for plaintiff.

Larry Meuwissen and Frank G. Gokey, Attys., Tax Div., Dept. of Justice, Washington, D.C., for defendants.

MEMORANDUM OPINION

JOHN B. JONES, District Judge.

I.

The Internal Revenue Service levied upon and seized a building in the City of Huron, South Dakota; a forty-acre tract of farm land; three motor vehicles, including a 1978 Plymouth Sapporo, a 1982 Lincoln Continental, and a 1982 Cadillac DeVille; and two bank accounts in the Huron Farmers and Merchants Bank in connection with the federal income tax liability of Albert A. Anderson and Myrtle G. Anderson. Title to all of the property was held by plaintiff, Loving Saviour Church, an unincorporated association. The bank accounts were in the name of Loving Saviour Church and the Anderson Business Trust.

Plaintiff brought this action under 26 U.S.C. § 7426¹ for a preliminary injunction to secure the release of the property and for damages resulting from the levy. Hearing on the preliminary injunction was combined with the trial on the merits, and the case was tried on December 16-17, 1982.

This court has jurisdiction under 28 U.S.C. §§ 1331 and 1346(e), and 26 U.S.C. § 7426.

Dr. Albert A. Anderson is a chiropractor, practicing in Huron, South Dakota, since 1959. He and Myrtle G. Anderson were married in 1964. The building in Huron has been used by Dr. Anderson as a residence and office since 1959; the 40-acre tract of farm land was owned by Mrs. Anderson prior to the marriage.

Dr. Anderson has been active in the First Baptist Church of Huron, the Christian Business Men's Committee, the Gideons, and the Christian Chiropractors Association. Mrs. Anderson graduated from the Chicago Evangelistic Institute's Bible College in 1949.

In 1975, Dr. and Mrs. Anderson attended a meeting sponsored by Michael Farber and purchased some trust forms. Mr. Farber was involved in the tax protest movement at that time. United States v. Farber, 630 F.2d 569 (8th Cir.1980), cert. denied, 449 U.S. 1127, 101 S.Ct. 946, 67 L.Ed.2d 114 (1981). Subsequently, the Andersons transferred all their property to the A & M Family Trust in late 1975. In 1976, a new A & M Family Trust and an Anderson Business Trust were set up to replace the 1975 trust.

In May, 1977, Dr. and Mrs. Anderson received Doctor of Divinity Degrees from the Life Science College, signed by William E. Drexler, as Dean. They at the same time received Certificates of Ordination in the Life Science Church headed by William Drexler. In September, 1977, Dr. Anderson received a charter from the Life Science Church, headed by William E. Drexler. Shortly thereafter, they set up the Life Science Church of Huron, with Dr. Anderson as pastor and trustee, Myrtle Anderson as trustee, Dr. Anderson's daughter, Alice Olsen, as trustee, and Mrs. Anderson's sister, Verda F. Rhoads, as trustee.

All of the property previously placed in the A & M Family Trust and the Anderson Business Trust was thereafter deeded to the Life Science Church, and Dr. Anderson took a vow of poverty.

By a charter dated December 1, 1977, Dr. Anderson established "The Church of Disciple Albert A. Anderson," although he continued to use the name of Life Science Church and the logo L S C. In late 1979 or early 1980, it appears that Dr. Anderson ceased using the name "Life Science Church" and commenced using the name "Loving Saviour Church," retaining the

556 F. Supp. 690

logo L S C. It appears that a bank account was opened in the Farmers & Merchants Bank of Huron, South Dakota, on December 13, 1979, in the name of Loving Saviour Church

Dr. Anderson and his wife continued to occupy the Huron city property as a residence and chiropractic clinic. They used the automobiles titled in the name of the churches. The 1978 Plymouth automobile bore the personalized license plate "Myrtle." The cars are insured by Dr. Anderson in his own name because that was cheaper than insuring them in the church's name.

The financial affairs of the Andersons and the Loving Saviour Church have been kept secret. Dr. Anderson testified that he receives no benefits from his earnings as a chiropractor. He testified that he lives on money given him by the Loving Saviour Church, and that the source of all such funds is interest on principal from municipal bonds owned by the Loving Saviour Church.

The Andersons began having difficulties with the Internal Revenue Service soon after conveying their real estate to the trusts in 1975 and 1976. First, they were served a notice of deficiency for their 1976 and 1977 returns in the amount of $25,304 and $20,565, respectively. Although the Andersons petitioned to the United States Tax Court, that Court dismissed their case by Order of November 16, 1981, for failure to properly prosecute. These assessments were made upon these deficiencies on June 24, 1982. Next, in September, 1982, the Andersons were assessed $52,886 for 1978 taxes; $57,469 for 1979 taxes; and $62,807 for 1980 taxes. Consequently, tax liens arose on the dates of assessment. This suit does not contest the amount of taxes owed by the Andersons.²

II.

The issue in this tax lien case is whether and to what extent the taxpayer had property or rights to property to which the tax lien could attach. St. Louis Union Trust Co. v. United States, 617 F.2d 1293 (8th Cir.1980), citing Aquilino v. United States, 363 U.S. 509, 80 S.Ct. 1277, 4 L.Ed.2d 1365 (1960).

This issue must be decided under South Dakota law. Aquilino, supra.

Whether the taxpayer owned or had rights in the levied property is a factual question to be decided upon the unique facts of the particular case. Flores v. United States, 551 F.2d 1169 (9th Cir.1977); Terrapin Leasing, Ltd. v. United States, 449 F.Supp. 7, 43 AFTR2d 79-313 (W.D.Okl. 1978).

It is clear that an unincorporated association, like the plaintiff, can be a legal entity in this state, and, as such, can own property. S.D.C.L. 43-2-9; S.D.C.L. 2-14-2(16). Schallenkamp v. Stevens, et al., 81 S.D. 573, 138 N.W.2d 657 (1966). The ownership of property is defined in S.D.C.L. 43-2-1, which states:

The ownership of a thing is the right of one or more persons to possess and to use it to the exclusion of others.

The South Dakota Supreme Court has interpreted the word "owner" to mean one who has legal or rightful title, whether or not in possession; but the word may depend for its significance upon the connection in which it is used, and at times may include one not holding legal title. Lien v. Rowe, 77 S.D. 422, 92 N.W.2d 922 (1958).

Therefore, the fact that title to the levied property is in the name of Loving Saviour Church is not dispositive of the issue here.

Two distinct lines of analysis are helpful in resolving the issue in this case: A) the fraudulent conveyance theory, and B) the alter ego theory.

A.

The District Court recently faced the issue of whether taxpayers fraudulently conveyed

556 F. Supp. 691

property in order to invalidate a federal tax lien. In Carr Enterprises, Inc. v. United States, 539 F.Supp. 528 (D.S.D.1982), the taxpayers owned a...