U.S. v. Scherping

• Decision Date: 09 February 1999
• Docket Number: No. 98-2009,98-2009
• Citation: 187 F.3d 796
• Parties: (8th Cir. 1999) United States of America, Appellee, v. Laverne Scherping; Loren Scherping; Jane Scherping; Epsilon Company; C.J.S. Ranch, Appellants. Submitted:
• Court: U.S. Court of Appeals — Eighth Circuit

Page 796

187 F.3d 796 (8th Cir. 1999)

United States of America, Appellee, v. Laverne Scherping; Loren Scherping; Jane Scherping; Epsilon Company; C.J.S. Ranch, Appellants.

No. 98-2009

United States Court of Appeals FOR THE EIGHTH CIRCUIT

Submitted: February 9, 1999

Filed: August 11, 1999

Appeal from the United States District Court for the District of Minnesota

[Copyrighted Material Omitted]

Before McMILLIAN, LAY and MURPHY, Circuit Judges.

McMILLIAN, Circuit Judge.

Appellants are two brothers, Laverne Scherping and Loren Scherping, Loren's wife, Jane Scherping, and two business trusts, Epsilon Co. and C.J.S. Ranch. Appellants appeal from a summary judgment entered in the United States District Court¹ for the District of Minnesota in favor of the United States (government), holding that the government was entitled to foreclose its tax liens upon appellants' property to satisfy their tax liabilities. United States v. Scherping, Civil File No. 97-2282 (PAM/JGL) (D. Minn. Mar. 9, 1998) (memorandum and order). For reversal, appellants argue that the district court erred in: (1) finding the collection action was not barred by the 6-year statute of limitations, (2) ordering a "reverse pierce" and imposing liability upon C.J.S. Ranch for tax obligations of the Scherpings, and (3) finding that the transfer of their property to Epsilon Co. was fraudulent because the transfer did not render them insolvent. For the reasons discussed below, we affirm the judgment of the district court.

JURISDICTION

The district court has subject matter jurisdiction pursuant to 28 U.S.C. 1340 (original jurisdiction of civil action arising under any Act of Congress provision for the Internal Revenue), 1345 (original jurisdiction of all civil actions, suits, or proceedings commenced by the United States), and 26 U.S.C. 7402 (action to reduce to judgment tax assessments and foreclose tax liens against property). This court has appellate jurisdiction pursuant to 28 U.S.C. 1291. Appellants timely filed a notice of appeal. Fed. R. App. P. 4(a)(1).

FACTUAL BACKGROUND

This case has a long, checkered history, involving numerous tax court proceedings. Laverne Scherping and Loren Scherping (taxpayers), who are brothers, unsuccessfully appealed the two tax court cases from which this collection action arises to this court. See Scherping v. Commissioner, 747 F.2d 478, 480 (8 th Cir. 1984) (per. curiam) (Laverne Scherping); Scherping v. Commissioner, 725 F.2d 689 (8 th Cir. 1983) (table) (Loren Scherping). This collection action was filed in September 1989; the case was stayed pending a criminal tax investigation of taxpayers and James Noske and Joan Noske, involving some of the entities in issue here. Taxpayers were convicted on one count of conspiracy to evade income taxes with respect to some of the transactions in issue here, which convictions taxpayers unsuccessfully appealed. United States v. Noske,, 117 F.3d 1053, 1056 (8 th Cir.), cert. denied, 118 S. Ct. 315, 389 (1997).

After the completion of the criminal tax proceedings, the government sought to reduce to judgment taxpayers' tax assessments for tax years 1979 and 1980, and to foreclose its federal tax liens on property owned by the taxpayers and purportedly conveyed by them to the two business trusts, Epsilon and C.J.S. Ranch.

By deeds dated December 21, 1972, January 2, 1973, and January 4, 1974, Lawrence and Laura Scherping, taxpayers' parents, conveyed approximately 200 acres of farm land property to taxpayers which had a fair market value in excess of $200,000. On August 7, 1979, taxpayers transferred the same farm property to Epsilon for consideration of ten dollars ($10.00) and other good and valuable consideration. Taxpayers received shares in Epsilon. The trustees of Epsilon were taxpayers and their mother, Laura Scherping. Evidence showed that after the transfer, Loren and Jane Scherping not only continued to live on the farm property, but also farmed the property and paid insurance and all of the utility bills. Moreover, the same farm property was Epsilon's only asset and Epsilon maintained no bank account, financial records, or balance sheets and filed neither federal or state tax returns.

In October 1982 the government sent notices to taxpayers of deficiencies for tax years 1979 and 1980, asserting taxes and penalties in the amount of $94,223 against Laverne Scherping, against Loren and Jane Scherping for tax year 1979 for $33,683, and against Loren Scherping for tax year 1980 for $51,418. Taxpayers contested in tax court each of the notices and their petitions were dismissed for failure to state a. claim. The tax court noted that taxpayers were part of an unending parade of taxpayers bent on flooding the tax court's docket with frivolous claims. Thereafter, the tax court determined the liabilities and additions to the taxes as set forth in the notice of deficiencies. This court dismissed or affirmed taxpayers' appeals. Scherping v. Commissioner, 747 F.2d at 480; Scherping v. Commissioner, 725 F.2d 689. These are the same assessments which the government seeks in this suit to reduce to judgment and to collect.

Subsequent to the transfer by taxpayers and their mother of the farm property to Epsilon on January 13, 1983, taxpayers and Laura Scherping, as trustees of Epsilon, recorded two deeds dated June 15, 1982, purporting to convey the same farm property to Epsilon. Finally, by deed, reciting for consideration of $1,000 or less, Epsilon, by taxpayers and Laura Scherping, purported to convey the same farm property to C.J.S. Ranch. Epsilon received no consideration for the transfer. C.J.S. Ranch had no other assets and did not maintain a bank account. Once again, as after the Epsilon conveyance, Loren and Jane Scherping continued to live on the property, farmed it, and paid no rent.

After the completion of the criminal tax cases, the government moved to reopen this case and for summary judgment, asking the district court to order a sale of the farm property transferred by taxpayers to C.J.S. Ranch because Epsilon and C.J.S. Ranch were alter egos of taxpayers and because the transfers of the same farm property to Epsilon and C.J.S. Ranch were fraudulent under Minn. Stat. 513.25 and 513.26. Taxpayers filed an opposition to the government's motion and their own affidavits. Taxpayers argued that the collection action was untimely, that Minnesota law does not allow "reverse" piercing of the corporate veil, and that the transfers to the business trusts were not sham transactions or fraudulent conveyances.

The district court granted summary judgment in favor of the government and ordered the property to be sold (not including the 240 acres owned by C.J.S. Ranch that had been formerly owned by Laura Scherping) and the proceeds of the sale to be paid over to the government (and any excess proceeds to be paid to taxpayers after expenses and costs of sale). The district court rejected the statute of limitations argument, holding that the liens filed against C.J.S. Ranch were not assessments of tax against C.J.S Ranch but against taxpayers and Jane Scherping. See slip op. at 800-01(noting that the government timely filed a suit against taxpayers and that, once suit is timely filed, proceeding to judgment was not curtailed by statute of limitations). The district court also held that, under Minnesota law, the trusts were alter egos of taxpayers because there was a close identity between taxpayers and the trusts, taxpayers were not innocent individuals, and application of the alter ego theory would prevent the very sort of fraud and injustice that the alter ego doctrine seeks to avoid, and rejected taxpayers' argument that Minnesota courts would refuse to apply the "reverse" piercing-the-corporate-veil doctrine under these circumstances. See id. at 7-12. The district court also held, in the alternative, that the transfers by taxpayers to Epsilon and C.J.S. Ranch in 1979 and 1982, respectively, were fraudulent conveyances under Minnesota law. See id. at 12-15. This appeal followed.

STANDARD OF REVIEW

This court reviews a grant of summary judgment de novo. See, e.g., Dillon v. Yankton Sioux Tribe Housing Authority, 144 F.3d 581, 583 (8 th Cir. 1998). Fed. R. Civ. P. 56(c) provides that summary judgment shall be granted where the record reveals that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 246 (1986); Postscript Enterprises v. City of Bridgeton, 905 F.2d 223, 225 (8 th Cir. 1990).

STATUTE OF LIMITATIONS

First, taxpayers argue that the district court erred in holding that this action was not barred by the 6-year statute of limitations. Title 26 U.S.C. 6502, as in effect at the relevant time, provided in pertinent part:

(a) Length of period. -- Where the assessment of any tax imposed by this title has been made within the period of limitation properly applicable thereto, such tax may be collected by levy or by a proceeding in court, but only if the levy is made or the proceeding begun

(1) within 6 years after the assessment of the tax, or

. . . .

If a timely proceeding in court for the collection of a tax is commenced, the period during which such tax may be collected by levy shall be extended and shall not expire until the liability for the tax (or a judgment against the taxpayer arising from such liability) is satisfied or becomes unenforceable.

Here, it is undisputed that this collection action was timely filed within the 6-year statutory period. The government filed the notices of federal tax liens in 1984; this collection action was filed in 1989, within the 6-year statutory period, although the government failed to make effective service on C.J.S. Ranch at that time. Eight years later, in 1992, the government amended its complaint to add C.J.S. Ranch as a party. Taxpayers argue that C.J.S....