U.S. v. McLean, 4:04-CV-427.
| Decision Date | 12 January 2006 |
| Docket Number | No. 4:04-CV-427.,4:04-CV-427. |
| Citation | 420 F.Supp.2d 613 |
| Parties | UNITED STATES of America, Plaintiff, v. Robert E. McLEAN and Paulette A. McLean, Defendants. |
| Court | U.S. District Court — Eastern District of Texas |
Ralph F. Shilling, Jr., Esq., Trial Attorney, Tax Division, Texas Bar No. 18265030, U.S. Department of Justice, Dallas, TX, for United States.
G. Tomas Rhodus, Esq., Dallas, TX, for Defendants.
Before the court are Defendants' Motion for Summary Judgment, filed July 28, 2005, Dkt. # 11; Defendants' Motion to Strike Affidavits of Lillie Parker, filed August 15, 2005, Dkt. # 18; and Plaintiff's Cross-Motion for Summary Judgment, filed August 1, 2005. Dkt. # 14. For the reasons stated in this opinion, Defendants' Motion for Summary Judgment is DENIED, Defendants' Motion to Strike Affidavits of Lillie Parker is DENIED, and Plaintiff's Cross-Motion for Summary Judgment is GRANTED.
This is one in a series of cases that the United States initiated to recover erroneous tax refunds that it paid to participants of an illegal tax shelter which was developed by Daniel A. Fisher and enjoined from operation on January 26, 2004 by the United States District Court for the Northern District of Texas. See Pl.'s Ex. 7. For his role in the scheme, Fisher was convicted of, inter alia, 34 counts of aiding and assisting in the preparation of false and fraudulent tax returns, sentenced to nearly twenty years imprisonment and ordered to pay a $1,000,000 fine.
Despite the fact that Fisher claimed to be an expert in tax law and structuring, Pl.'s Ex. 7 at ¶ 2, the illegal tax scheme which he developed and sold to hundreds of clients is relatively straightforward. It was promoted primarily to wealthy married couples. Id. at ¶ 4. It involved establishing a sham partnership for the couple, which is made retroactive to prior years, to which the couple would assign their individual assets, income and expenses. Id. Fisher would then prepare partnership tax returns which claimed that the couple's non-deductible personal expenses were deductible business expenses of the partnership. Id. As a final step, Fisher would prepare amended individual tax returns for the couple which claimed that the couple's original tax returns overestimated their income in previous years by failing to account for the effect of the sham partnership. Id. In all, it is estimated that Fisher's clients collectively obtained over $5,000,000 in erroneous income tax refunds by using this scheme.
At issue in this case is Robert and Paulette McLean's use of Fisher's scheme to induce $23,844 in erroneous tax refunds. Shortly after meeting Fisher in 2001, the McLeans, with Fisher's help, established Expotech Enterprises, a partnership in which Robert, Paulette and their daughter, Amber, were the sole partners. Fisher's company, The Structured Advantage, Inc. ("TSA"), then prepared partnership tax returns for Expotech for the years 1998 and 1999 which claimed that Expotech had been in existence since 1997 and showed losses of $72,956 and $65,319, respectively. Pl.'s Exs. 5 & 6. These losses, which resulted in part from deductions which Expotech took for the McLeans' personal expenses, were then accounted for on amended tax returns which TSA prepared for the McLeans for the years 1998 and 1999. Pl.'s Exs. 3 & 4. Because the passed-on losses decreased the McLeans' taxable income for those years by $64,856 and $55,385, respectively, the McLeans sought and were paid refunds in September 2001 for virtually all of the income taxes they paid in those years. The United States thereafter filed the present suit on December 6, 2004 to recover the amounts refunded. See Pl.'s Compl. at 1.
Because the United States filed the present suit more than two years after the McLeans' refunds were paid however, the McLeans now move the court for summary judgment claiming that the United States' suit against them is barred by the two-year statute of limitations contained in section 6532(b) of the Internal Revenue Code, 26 U.S.C. § 6532(b). Under § 6532(b), the United States is barred from filing a suit to recover erroneous tax refunds more than two years after the refunds were paid unless the any part of the refunds were induced by fraud or a misrepresentation of material fact, in which case the United States may file a suit to recover the refunds any time within five years after they were paid. 26 U.S.C. § 6532(b). In its response and cross-motion for summary judgment, the United States asserts alternatively that its suit against the McLeans is not barred by § 6532(b) because the disputed refunds were induced by misrep resentations of material fact and because the suit was filed within five years after the refunds were paid. For the reasons provided below, the court agrees with the United States.
Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment "shall be rendered forthwith if 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 a judgment as a matter of law." FED. R. Cry. P. 56(c). This rule, according to the Supreme Court, "mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a sufficient showing to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
It is well-settled that the summary judgment procedure may be used to effectively adjudicate affirmative defenses. JAMES WM. MOORE ET AL., MOORE'S FEDERAL PRACTICE § 56 (3d ed.1999). Where a party moves for summary judgment based on an affirmative defense however, the judgment will only be granted if the party asserting the defense adduces evidence to support each element of the defense and demonstrates the lack of any genuine issue of material fact with regard thereto. See Rushing v. Kansas City S. Ry. Co., 185 F.3d 496, 505 (5th Cir.1999). This is so even if certain elements of an affirmative defense can be characterized as elements of the underlying prima facie case. See Schaffer ex rel. v. Weast, ___ U.S. ___, ___, 126 S.Ct. 528, 534, 163 L.Ed.2d 387 (2005). In such a situation, the burden of persuasion with regard to the affected elements is shifted to the defendant who must prove "beyond peradventure" all of the essential elements of the defense to prevail on its motion for summary judgment. Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir.1986).
Since § 6532(b) took its present form in 1934, only a handful of cases have addressed the question of what constitutes a misrepresentation of material fact thereunder. The first to do so was Merlin v. Sanders, 144 F.Supp. 541 (N.D.Ga.1956), aff'd 243 F.2d 821 (5th Cir.1957). The question before the district court in Merlin was whether the plaintiff had misrepresented a material fact in her 1949 federal income tax return by claiming a tax credit of $1,752.70 when $487.08 of that amount had previously been refunded to her. 144 F.Supp. at 542. After noting that a misrepresentation under § 6532(b...
To continue reading
Request your trial
-
Ford v. Hous. Indep. Sch. Dist.
...v. City Pub. Serv. Board, 40 F.3d at 712–13.Summary judgment may be employed to adjudicate affirmative defenses.2 U.S. v. McLean, 420 F.Supp.2d 613, 615 (E.D.Tex.2006), citing James W. Moore, et al., Moore's Fed. Practice ¶ 56 (3d ed.1999). The party moving for summary judgment on an affirm......