U.S. v. Kudasik

• Citation: 21 F.Supp.2d 501
• Decision Date: 08 June 1998
• Docket Number: Civil Action No. 96-209J.
• Parties: UNITED STATES of America, Plaintiff, v. James A. KUDASIK, Elinor A. Evenech, John Evenech, Danette A. Cook, Johnstown Bank and Trust Company, Pauline L. Zovnar, First Philson Bank, N.A., Lola J. Wohlfarth, Somerset County, Somerset Borough, and Borough of Central City, Defendants, and Somerset Area School District, Central City Borough, Shade-Central City School District, Jefferson Township, Milford Township, Rockwood Area School District, and Shade Township, Intervenors.
• Court: U.S. District Court — Western District of Pennsylvania

21 F.Supp.2d 501

UNITED STATES of America, Plaintiff, v. James A. KUDASIK, Elinor A. Evenech, John Evenech, Danette A. Cook, Johnstown Bank and Trust Company, Pauline L. Zovnar, First Philson Bank, N.A., Lola J. Wohlfarth, Somerset County, Somerset Borough, and Borough of Central City, Defendants and Somerset Area School District, Central City Borough, Shade-Central City School District, Jefferson Township, Milford Township, Rockwood Area School District, and Shade Township, Intervenors.

Civil Action No. 96-209J.

United States District Court, W.D. Pennsylvania.

June 8, 1998.

Tina M. Oberdorf, United States Attorney's Office, Pittsburgh, PA, Charles M. Flesch, United States Department of Justice,

Tax Division, Washington, DC, for United States of America.

James A. Kudasik, Somerset, PA, pro se.

William R. Carroll, Somerset, PA, for Rockwood Area School District, Somerset Borough, Jefferson Township, Somerset Area School District, Central City Borough, Shade Township, Shade-Central City School District, Milford Township.

MEMORANDUM and ORDER

D. BROOKS SMITH, District Judge.

I. Introduction

The United States filed a complaint against delinquent taxpayer, James A. Kudasik, seeking to reduce personal income tax assessments to judgment, set aside fraudulent conveyances of real estate and foreclose on federal tax liens. Before the court are the unopposed motions of the government for summary judgment and default judgment. Dkt. no. 32.

II. Facts

In 1976, James A. Kudasik, an attorney, purchased for $50,000 a two story building located at 158 E. Union Street in the Borough of Somerset. Located in the county seat of Somerset County, Pennsylvania, the structure was intended to serve as both his residence and law office. Dkt. no. 1, exh. A; dkt. no. 35, exh. A at 32, exh. D ¶ 21. In October 1979, Kudasik and his sister, Elinor Evenech, purchased for $16,000, as joint tenants with the right of survivorship, a 4.54 acre parcel of land, including mineral rights, in Milford Township, Somerset County. Dkt. no. 1, exh. J. Almost a year later, Kudasik purchased for $13,500, two parcels of ground situated in the Borough of Central City, Somerset County. Dkt. no. 1, exh. D. Less than a month later, Kudasik and a business partner conveyed in exchange for $7,000 two parcels of real estate, together with all the mineral rights, situated in Jefferson Township, Somerset County, to Kudasik, his sister Elinor and her husband, John Evenech, as joint tenants with the right of survivorship. Dkt. no. 1, exh. G.

On March, 25, 1983, Kudasik granted a mortgage on the Central City lots to Citizens National Bank in Windber in the amount of $16,500. Dkt. no. 35, exh. 6. On June 2, 1987, Kudasik conveyed the Central City parcels of land¹ to his sister, Elinor, for a one dollar consideration. Dkt. no. 1, exh. E. The deed from Kudasik to Elinor was not recorded at that time, and Kudasik did not notify the mortgagee that the title had been transferred. Dkt. no. 35, exh. A at 61. On July 3, 1990, the deed conveying the Central City parcels to Elinor was recorded. On July 12, 1990, the Evenechs conveyed their interest in the real estate to their daughter, Danette Cook, and a deed was recorded on August 17, 1990. Dkt. no. 1, exh. E and F.

The Central City parcels were rental property and the local realty taxes were sometimes paid by the lessees and at other times by Kudasik. Dkt. no. 35, exh. A at 48. Despite the unrecorded conveyance to his sister on June 2, 1987, Kudasik used the Central City parcels as part of the collateral for a second mortgage granted to Somerset Trust Company on June 24, 1987. Dkt. no. 35, exh. 4. Kudasik satisfied the earlier mortgage to Citizens' National Bank in June 1990. Dkt. no. 35, exh. 7. In February 1991, despite the conveyances from Kudasik to Elinor and then the Evenechs to Cook, Kudasik granted yet another mortgage in the amount of $10,563.48 to Cenwest National Bank which he satisfied in April 1993. Dkt. no. 35, exh. 8, 9; dkt. no. 35, exh. A at 65. The mortgage to Somerset Trust Company was marked satisfied on March 19, 1993. Dkt. no. 35, exh. 4. Although he has not been the record owner of the Central City parcels, Kudasik has "always considered [him]self to be the owner of the property." Dkt. no. 35, exh. A at 68.

On June 2, 1987, by a separate deed, Kudasik also conveyed to Elinor his undivided one-half interest in the Jefferson Township parcels and his undivided one-half interest in the Milford Township land. Dkt. no. 1, exh. H. The deed for those parcels was not recorded until June 26, 1990. Id. The Evenechs also conveyed the Jefferson and Milford Township pieces of land to their daughter, Danette Cook, on July 12, 1990. Dkt. no. 1, exh. I. This deed was recorded on August 17, 1990.

When the Jefferson Township parcels were conveyed in 1980 to Kudasik and his sister, Elinor, they were encumbered by a $20,000 mortgage granted by Kudasik and his partners in March 1978 to Somerset Trust Company. Dkt. no. 35, exh. 3. A concrete block motel had been erected on one of the Jefferson Township parcels and the Evenechs established their residence in a mobile home located on the premises. Dkt. no. 1, exh. G; dkt. no. 35, exh. D ¶ 23. Despite Kudasik's one-half interest in the property and Kudasik's partnership's liability on the mortgage, the Evenechs have paid the local taxes and utilities for the Jefferson Township parcels, as well as the mortgage payments, since 1980. Dkt. no. 35, exh. A at 76; dkt. no. 35, exh. D ¶ 23. The 1978 mortgage was satisfied in March 1994. Dkt. no. 1, exh. G. The Milford Township parcel is unimproved and the Evenechs have paid the assessed local taxes since they acquired their interest in the real estate in 1979. Dkt. no. 35, exh. D ¶ 24.

Finally, Kudasik transferred his interest in the Union Street building to his sister in March 1990. Dkt. no. 1, exh. B. Although Somerset Trust Company held a June 1987 mortgage that was secured by the Union Street property, Kudasik did not notify the mortgagee of the transfer. Dkt. no. 35, exh. 4; dkt. no. 35, exh. A at 40. Kudasik continued to make all the mortgage payments until it was satisfied in March 1993. Dkt. no. 35, exh. A at 40. Kudasik characterized the mortgage as a "business loan," and admitted that he deducted the interest in preparing his income tax return. Dkt. no. 35, exh. A at 41. Then, on August 17, 1990, the Evenechs deeded their interest in the real estate to their daughter, Danette Cook. Dkt. no. 1, exh. C. Kudasik continued to live in and work from the Union Street building. From Kudasik's perspective, he believed that he was the owner of the Union Street property and "always treated it that way." Dkt. no. 35, exh. A at 42. Over the years, regardless of who held legal title to the property, Kudasik paid the local real estate taxes, the utilities, insurance and mortgage payments. Id. at 40, 47.

Kudasik, however, did not pay his personal income tax for calendar years 1983, 1985-1986, 1988-1991, and 1993, although it appears that he filed 1040 income tax returns for those years. See dkt. no. 33, at 6 n. 5; dkt. nos. 1 and 2 ¶¶ 30, 40, 50, 58. As a result of Kudasik's delinquency, the IRS issued assessments for the tax due, plus statutory interest and penalties. The first assessment was issued on November 15, 1993 for calendar years 1983 and 1985. Assessments followed in 1994 and 1995 for the remaining calendar years of 1986, 1988-1991 and 1993. See dkt. no. 34 ¶ 4. Notice of the federal tax liens for calender years 1983 and 1985-1986 was filed on June 28, 1994 in the Somerset County Prothonotary's Office showing an unpaid balance of $38,631.39. Dkt. no. 35, exh. B. Notice of the federal tax liens for tax years 1988-1990 was filed later that year showing an unpaid balance of $42,791.55. Id. at 2. A year later, on October 24, 1995, notice of the federal tax liens for 1991 and 1993 was filed indicating a balance due of $57,961.15.

Notice of a federal tax lien against Danette Cook, Kudasik's niece, was filed on March 27, 1996. The notice indicated Kudasik's indebtedness of $149,384.09 for federal taxes, interest and penalties for calendar years 1983, 1985-1986, 1988-1991 and 1993. Cook was designated "as nominee for James A. Kudasik ... to the extent of his interest in" the real estate on Union Street, and in Central City and Jefferson and Milford Townships. Dkt. no. 35, exh. B.

Subsequently, on August 5, 1996, the government filed this civil action "for the purpose of reducing income tax assessments to judgment, setting aside numerous fraudulent conveyances of four separate real properties, and foreclosing federal tax liens against the four real properties...." Dkt. no. 1 ¶ 1. The government sued Kudasik, Mr. and Mrs. Evenech and Danette Cook. The complaint also named as defendants Johnstown Bank and Trust, First Philson Bank, N.A., Lola J. Wohlfarth, and Pauline L. Zovnar, due to their alleged creditor status. Some of the municipal entities within which the parcels of land were situated were named as defendants, and others were granted leave to intervene pursuant to Federal Rule of Civil Procedure 24(a). See dkt. no. 18.

The first of the government's five count complaint seeks to reduce to judgment the assessments totaling $138,206.26. The remaining four counts seek to set aside as fraudulent the conveyances from Kudasik to Elinor and from the Evenechs to Cook. If the conveyances are set aside, Kudasik would be deemed the legal owner at the time the IRS assessments were issued and foreclosure would lie.

Kudasik, who is an attorney, has filed an answer to the complaint. In it, he admits that he failed to pay income taxes due for 1983, 1985-1986, 1988-1991, and 1993, but he disputes the statutory assessments for interest and penalties. Dkt. nos. 1 and 2 ¶¶ 20-21. Kudasik denies that the conveyances to his sister, Elinor, and to his niece, Danette Cook were fraudulent and void, and that he conveyed the land with the...