Savidge v. United States
| Decision Date | 31 October 2018 |
| Docket Number | Civil No. 16-8705 (NLH/JS) |
| Parties | GERALD R. SAVIDGE, Trustee of the Phyllis W. Souders Trust U/A Dated 9/11/97, Plaintiff, v. UNITED STATES OF AMERICA, Defendant. |
| Court | U.S. District Court — District of New Jersey |
STEVEN J. JOZWIAK
SUITE 206
Attorney for Plaintiff Gerald R. Savidge, Trustee Phyllis R. Souders Trust U/A Dated 9/11/97
U.S. DEPARTMENT OF JUSTICE
TAX DIVISION
ROOM 6833
WASHINGTON, DC 20001
Attorney for Defendant United States of America
The instant matter is a refund suit brought by a taxpayer against the United States of America. Presently before the Court are cross-motions for summary judgment, which have both been fully briefed. For the reasons expressed below, Defendant's Motion for Summary Judgment will be granted and Plaintiff's Motion for Summary Judgment will be denied.
This Court takes its recitation of facts from Plaintiff's and Defendant's Local Civil Rule 56.1 statements. This Court will note any dispute where applicable. Phyllis W. Souders1 brought an action in the 1990s against the South Carolina Public Service Commission (d/b/a Santee Cooper) in the United States District Court for the District of South Carolina (the "Santee Cooper Litigation"). Phyllis Souders sued for damages suffered to her property (the "Property") as a result of severe flooding caused by Santee Cooper's work on a nearby hydroelectric project.
After many years of litigation, United States District Judge Patrick Michael Duffy held a binding mediation hearing from November 18 to November 21, 2008. As a result, the South Carolina District Court ordered judgment entered against Santee Cooper and in favor of Phyllis Souders "in the amount of $304,750.00, plus 8% interest from the date of flooding to the date of this Order, and $40,000.00 on the trespass cause of action." The interest totaled $747,572.2 By the time judgmentwas entered in 2009, Phyllis Souders was deceased.
The Estate of Phyllis Souders (the "Estate") received the above award. The Estate distributed $724,133 to the Phyllis W. Souders Trust U/A Dated 9/11/97 (the "Trust"), which was the sole beneficiary of the Estate. Plaintiff, Gerald R. Savidge, is both the Executor of the Estate and the Trustee of the Trust. The tax treatment of this interest is where the dispute between the parties lies.
For the tax year ending January 31, 2010, the Estate submitted an income tax return reporting $747,572 of "interest income" - described as "Santee Cooper - Interest on Litigation" - and, after deducting administrative expenses, reported distributing the remaining $724,133 to the Trust. The Estate also passed a $409,919 excess deduction to the Trust. Since the South Carolina District Court awarded $344,750 for damages and trespass to the Property at issue, there was a "net capital loss" to the Estate's basis in the Property in the previously mentioned excess deduction amount. After reporting the interest income and capital loss, the Trust reported owing $107,778 intaxes and paid that amount to the United States.
In May 2013, the Estate submitted an amended return for the above-described tax year. This return omitted both the interest income and "long-term capital loss" that was reported in the previous return and stemmed from the Santee Cooper Litigation. The Trust treated the interest income and long-term capital loss in the same way, and did not include either on the amended return. Both the Trust and the Estate provided the below explanation for the amended filing:
After submittal of the amended returns, the accountant who prepared them for both entities followed up in December 2013 requesting "written verification of the status of the return." The Internal Revenue Service ("IRS") sent a letter to the Estate in response. The letter was in regard to the tax period "Aug. 31, 2009" and stated: 3 No further action was taken by the IRS. No refund was issued.
Plaintiff filed his complaint against the United States on November 22, 2016. Defendant, after withdrawing a motion to dismiss, filed an answer on July 7, 2017. Discovery ensued. Cross-motions for summary judgment were filed by the parties on March 15, 2018. Both have been fully briefed and are ripe for adjudication.
This Court has jurisdiction under 28 U.S.C. § 1346(a)(1) as this is a civil action brought against the United States for "the recovery of . . . internal-revenue tax alleged to have been erroneously or illegally assessed or collected . . . ."
Summary judgment is appropriate where the Court is satisfied that "'the pleadings, depositions, answers to interrogatories, and admissions on file, together with theaffidavits if any,' . . . demonstrate the absence of a genuine issue of material fact" and that the moving party is entitled to a judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986) (citing FED. R. CIV. P. 56).
An issue is "genuine" if it is supported by evidence such that a reasonable jury could return a verdict in the nonmoving party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is "material" if, under the governing substantive law, a dispute about the fact might affect the outcome of the suit. Id. "In considering a motion for summary judgment, a district court may not make credibility determinations or engage in any weighing of the evidence; instead, the non-moving party's evidence 'is to be believed and all justifiable inferences are to be drawn in his favor.'" Marino v. Indus. Crating Co., 358 F.3d 241, 247 (3d Cir. 2004) (citing Anderson, 477 U.S. at 255).
Initially, the moving party bears the burden of demonstrating the absence of a genuine issue of material fact. Celotex, 477 U.S. at 323 (); see Singletary v. Pa. Dep't of Corr., 266 F.3d 186, 192 n.2 (3d Cir. 2001) .
Once the moving party has met this burden, the nonmoving party must identify, by affidavits or otherwise, specific facts showing that there is a genuine issue for trial. Celotex, 477 U.S. at 324. A "party opposing summary judgment 'may not rest upon the mere allegations or denials of the . . . pleading[s].'" Saldana v. Kmart Corp., 260 F.3d 228, 232 (3d Cir. 2001). For "the non-moving party[] to prevail, [that party] must 'make a showing sufficient to establish the existence of [every] element essential to that party's case, and on which that party will bear the burden of proof at trial.'" Cooper v. Sniezek, 418 F. App'x 56, 58 (3d Cir. 2011) (citing Celotex, 477 U.S. at 322). Thus, to withstand a properly supported motion for summary judgment, the nonmoving party must identify specific facts and affirmative evidence that contradict those offered by the moving party. Anderson, 477 U.S. at 257.
This Court will first address Defendant's Motion for Summary Judgment. This motion presents two arguments.4 First, Defendant argues its defenses are not time-barred. Second, Defendant argues the interest income was properly taxed in the first return. This Court will address each argument in turn.
Plaintiff's central argument throughout the course of this litigation asserts that in cases where an amended return reducing a tax liability is filed, once the statute of limitations has expired under 26 U.S.C. § 6501, the IRS must accept the amended return and forfeit the tax previously paid if it has taken no action. Plaintiff continues to rely on this argument at the summary judgment stage. In relevant part, 26 U.S.C. § 6501(a) states: "the amount of any tax imposed by this title shall be assessed within 3 years after the return was filed."
In response, Defendant argues that the IRS is not time-barred from disputing the accuracy of an amended return under 26 U.S.C. § 6501. It cites Lewis v. Reynolds and its progeny,which together stand for the proposition that, even though "the statute of limitations may have barred the assessment and collection of any additional sum, it does not obliterate the right of the United States to retain payments already received when they do not exceed the amount which might have been properly assessed and demanded." 284 U.S. 281, 283 (1932). See also Morristown Trust Co. v. Manning, 104 F. Supp. 621, 628 (D.N.J. 1951) (...
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