U.S. v. Berk

• Decision Date: 17 August 2007
• Docket Number: Civ.A. No. 06-11457-DPW.
• Parties: UNITED STATES of America, Plaintiff, v. Steven A. BERK, Deborah B. Berk, Ocwen Loan Servicing, LLC, The Massachusetts Department of Revenue, Defendants.
• Court: U.S. District Court — District of Massachusetts

Page 385

374 B.R. 385

UNITED STATES of America, Plaintiff, v. Steven A. BERK, Deborah B. Berk, Ocwen Loan Servicing, LLC, The Massachusetts Department of Revenue, Defendants.

Civ.A. No. 06-11457-DPW.

United States District Court, D. Massachusetts.

August 17, 2007.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Robert J. Kovacev, U.S. Department of Justice, Washington, DC, for Plaintiff.

William T. Hogan, III, Nelson, Mullins, Riley & Scarborough, LLP, Christopher J. Decosta, Donovan Hatem, LLP, Eileen Ryan McAuliffe, Massachusetts Department of Revenue, Boston, MA, for Defendants.

MEMORANDUM AND ORDER

WOODLOCK, District Judge.

The United States of America brings this action against Defendants Steven A. Berk and Deborah B. Berk (collectively the "Berks") to reduce unpaid federal income tax assessments against the Berks to judgment (Count I) and to foreclose the federal tax liens associated with those assessments against a parcel of real property (the "Property") owned by the Berks (Count II). Also named as Defendants are Ocwen Loan Servicing, LLC ("Ocwen"), which claims an interest in the Property by virtue of a mortgage, and the Massachusetts Department of Revenue ("Commonwealth"), which claims an interest in the Property by virtue of Massachusetts state tax liens assessed against the Berks. The Berks, who appear pro se, have counterclaimed alleging that the tax assessments and liens on their property are invalid. The Berks seek damages for illegal tax collections, an injunction to remove all illegally placed liens, and an abatement of all tax liabilities.

The United States has filed a motion to dismiss the Berks' counterclaim and a motion for partial summary judgment on Count II. Defendants Ocwen and the Commonwealth have filed separate cross motions for summary judgment on Count II.

I. BACKGROUND

This case arises from the Berks' failure to pay their joint federal and state income taxes for the tax years 1990 through 2004.¹ The United States asserts that the Berks' federal tax liabilities total in excess of three quarters of a million dollars. Assessments of the Berks' federal tax liabilities led to the attachment of federal tax liens to all property and rights to property of the Berks, including the Property, which is located in Weston, Massachusetts and Which they use as their residence. The Commonwealth asserts that the Berks' state tax liabilities total in excess of a quarter million dollars; the Commonwealth has also placed tax liens on the Property. The Berks generally do not dispute the allegations that they have failed to pay taxes; however, they do challenge the validity of the tax assessments made by the United States and the liens against the Property associated with those assessments.

A. The Berks' Tax Liabilities

Defendant Steven A. Berk is a clinical psychologist who resides with his wife, defendant Deborah P. Berk, at the Property. From 1990 to 2004, the Berks accrued federal tax liabilities for every tax year excluding 1994 and 2000.

The Internal Revenue Service ("IRS") has issued Certificates of Assessment (Form 4340) that detail the Berks' tax liabilities for each individual tax period, including statutory interest and penalties. These assessments reflect liabilities that had not been paid as of the dates of assessment. Balances remain for all of the assessed tax periods, totaling $750,863.50, plus statutory interest and additions from and after August 2, 2006.

The Commonwealth has also assessed unpaid Massachusetts tax liabilities against the Berks, which stretch from the tax years 1990 through 2004, with the exception of 2000. As of November 30, 2006, these state tax liabilities total $245,385.65: plus interest and penalties.

The Berks filed for Chapter 7 bankruptcy protection on October 15, 1997, for which they received a discharge on November 23, 1998. See In re Steven A. Berk and Deborah B. Berk, Case No. 97-47192 (Bankr.D.Mass.).

B. The Property in Weston

The Berks became the owners of the Property, the address of which is 236 Glen Road in Weston, Massachusetts, on August 20, 1992. According to the deed, the Property straddles Middlesex and Norfolk Counties and contains 30,005 square feet of land.

The Berks executed a note and granted a mortgage on the Property in favor of Margaretten & Company on August 21, 1992. The mortgage was eventually assigned to HSBC Bank USA, N.A. as Trustee on Behalf of ACE Securities Corporation Home Equity Trust and for the Registered Holders of ACE Securities Corporation Home Equity Loan Trust, Series 2005-SD1, Asset-Backed Pass-Through Certificates. Ocwen, which has a place of business at 1675 Palm Beach Lakes Boulevard, West Palm Beach, Florida 33416, is the servicer of the mortgage pursuant to a limited power of attorney between HSBC and Ocwen on October 19, 2006. The power `of attorney grants Ocwen the authority to receive payments on the note and mortgage, endorse checks or other instruments received by Ocwen made payable to HSBC, pursue collection activities and foreclosures relating to the note and mortgage, and to perform other acts on behalf of HSBC that arise in the normal course of servicing the note and mortgage. As of January 9, 2007, the amount due Ocwen under the note and mortgage and HSBC's mortgaged security interest in the Property was $347,640.95.

C. The Tax Liens

In accordance with 26 U.S.C. § 6321, after the Berks' failure to resolve their tax liabilities, the United States issued federal tax liens attaching to the Berks' property and rights to property, including the Property in Weston. Notices of these liens were filed with the South Middlesex Register of Deeds and the Norfolk Register of Deeds. Similarly, the Commonwealth recorded six notices of state tax liens against the Berks spanning the 1990-2004 tax years.²

II. DISCUSSION

A. Standard of Review

Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A party seeking summary judgment must make a preliminary showing that no genuine issue of material fact exists. Nat'l Amusements, Inc. v. Town of Dedham, 43 F.3d 731, 735 (1st Cir.1995), cert. denied, 515 U.S. 1103, 115 S.Ct. 2247, 132 L.Ed.2d 255 (1995). Once the movant makes such a showing, the nonmovant must point to specific facts demonstrating that there is, indeed, a trialworthy issue. Id. A "genuine" issue is one supported by such evidence that "a `reasonable jury, drawing favorable inferences,' could resolve it in favor of the nonmoving party." Triangle Trading Co., Inc. v. Robroy Indus., Inc., 200 F.3d 1, 2 (1st Cir.1999) (quoting Smith v. F.W. Morse & Co.; 76 F.3d 413, 428 (1st Cir. 1996)).

In all tax suits, the Internal Revenue Commissioner's deficiency determination "is presumed correct, and ... the taxpayer bears the burden of proof and persuasion to show otherwise." Lefebvre v. Commissioner of Internal Revenue, 830 F.2d 417, 419 n. 3 (1st Cir.1987) (citing United States v. Rexach, 482 F.2d 10, 15-17 (1st Cir.1973)). In terms of tax assessments, a taxpayer must meet this burden by presenting specific evidence sufficient to overcome the "presumption of correctness" attached to any federal tax assessment. Fulle v. United States, No. 88-893-MLW, 1994 WL 568842, at *2 (D.Mass. Oct. 5, 1994). If the taxpayer cannot meet this burden then the court must allow the United States' motion for summary judgment as to the validity of the assessed tax amounts. See United States v. LaBombard, 107 F.Supp.2d 57, 60 (D.Mass.2000).

B. Motion of the United States for Partial Summary Judgment (Count II)

In moving for partial summary judgment on Count II of its complaint, the United States effectively contends that there is no genuine issue of material fact as to the validity of the federal income tax assessments against the Berks and that the United States is entitled to foreclose its liens arising from those assessments against the Property.

1. Validity of Assessments and Notice

Pursuant to 26 U.S.C. § 6201 et seq., the IRS has the authority to make assessments of all unpaid taxes. Once the IRS makes an assessment of tax liability, it must "give notice to each person liable for the unpaid tax, stating the amount and demanding payment thereof within 60 days of the assessment. 26 U.S.C. § 6303. The IRS is required to leave notice at the taxpayers' home or usual place of business, or by mail. Id. The IRS in practice "makes assessments by having an assessment officer fill out and sign a `summary record of assessment,' also known as a Form 23C." Geiselman v. United States, 961 F.2d 1, 5 (1st Cir.1992)(per curiam). Here, the government has not provided Forms 23C but instead has provided Form 4340 Certificates of Assessments and Payment, which list the amounts of each assessment and the 23C assessment date for each tax period in question as well as dates of notices sent to the Berks. The Berks challenge the procedural validity of the assessments by conclusorily alleging that "in numerous instances," they did not receive notice of assessments as required by 26 U.S.C. § 6303.³

Forms 4340 are "presumptive proof of a valid assessment," Geiselman, 961 F.2d at 6 (quoting United States v. Chila, 871 F.2d 1015, 1018 (11th Cir.1989)), so long as they contain 23C dates and sufficient dates of notice. See. Geiselman, 961 F.2d at 5-6; United States v. Kattar, 81 F.Supp.2d 262, 267-68 (D.N.H.1999). Here, the 4340 Forms all contain 23C dates, typically located in a column on the right-hand side of page one of the certificates. In terms of sufficient notice dates, the First Circuit has noted that "First Notice" dates (which the Government contends without opposition are the Statutory Notice dates it has provided), usually located on the certificates as notations documenting...