U.S. v. Stephens

• Decision Date: 10 December 2001
• Docket Number: Nos. CIV.S-01-1076WBS/DAD, CIV.S-98-920WBS/DAD.,s. CIV.S-01-1076WBS/DAD, CIV.S-98-920WBS/DAD.
• Court: U.S. District Court — Eastern District of California
• Parties: UNITED STATES of America, Plaintiff, v. Lawrence H. STEPHENS, Defendant.

185 F.Supp.2d 1116

UNITED STATES of America, Plaintiff, v. Lawrence H. STEPHENS, Defendant.

Nos. CIV.S-01-1076WBS/DAD, CIV.S-98-920WBS/DAD.

United States District Court, E.D. California.

December 10, 2001.

G. Patrick Jennings, U.S. Dept. of Justice, Tax Div., Washington, DC, for plaintiff.

Andrew J. Weill, Law Offices of Andrew J. Weill, San Francisco, CA, for defendants.

MEMORANDUM AND ORDER

SHUBB, District Judge.

Plaintiff United States of America brought this lawsuit to reduce federal tax assessments against defendant Lawrence H. Stephens to judgment. Defendant moves for summary judgment on the grounds that the United States' claim is barred by the statutes of limitations in Sections 6502(a) and 6501(a) of the Internal Revenue Code. The United States brings a cross motion for partial summary judgment, asking the court to adjudicate the amount of the tax liability at issue.

I. Factual and Procedural Background

In 1986 and 1987, a business operated as Silver Creek Construction Co. failed to pay employment taxes under I.R.C. § 3111 ("FICA") and I.R.C. § 3301 et. seq. ("FUTA"). (United States Compl. ¶ 10.) This lawsuit concerns Silver Creek's liabilities for five tax periods: (1) the quarter ending December 31, 1986; (2) the quarter ending June 30, 1987; (3) the quarter ending September 30, 1987; (4) the year ending December 31, 1986; and (5) the year ending December 31, 1987. (United States Compl. ¶¶ 6, 7).

The United States claims that defendant was a general partner in the BDS partnership, which allegedly operated Silver Creek starting in 1987. (Pl.'s Opp'n at 5.) Prior to 1987, Silver Creek was owned by Robert Davis and then by the Robert D. Davis and John L. Reisenger partnership. (Id.) Allegedly, BDS acquired an 80% interest in Silver Creek in June of 1987 and assumed the employment tax liabilities in question. (Id. at 2.) The United States contends that defendant, as a general partner of BDS, is personally liable for the partnership's debts. (Id. at 2.)

According to documentation submitted by the parties, tax returns for the periods in question were initially filed on (1) January 17, 1990 (Weill Decl. Ex. L at 3); (2) July 31, 1987 and August 31, 1987 (Jennings Decl. Ex. E); (3) December 12, 1987 (Weill Decl. Ex. O); (4) June 8, 1987 (Weill Decl. Ex. L at 4); and (5) June 6, 1988 (Weill Decl. Ex. H), respectively. These tax returns identify only Robert D. Davis as the employer liable for all relevant tax periods except the quarter ending September 30, 1987. The return filed for that quarter names the "Robert D. Davis and John L. Reisenger, Ptrs" as the taxpayer. (Weill Decl. Ex. O). None of the relevant returns filed in 1987 and 1990 identify BDS as the employer.

The IRS assessed liabilities within two years of the filing of these returns. The dates of these assessments are undisputed. They are, respectively: (1) January 16 or 17, 1990 (Weill Decl. Ex. L at 3); (2) October 5, 1987 (Weill Decl. Ex. N); (3) May 8, 1989 (Weill Decl. Ex. O); (4) July 20, 1987 (Weill Decl. Ex. L at 4); and (5) June 6, 1988 (Weill Decl. Ex. H).

There is some confusion about exactly whom these taxes were assessed against. The parties have submitted two Certificates of Payments and Assessments to the court. These certificates provide information for all relevant tax periods except for FUTA taxes for 1987. From these certificates, it appears that taxes were assessed in 1987 and 1990 against "Robert. D. Davis"¹ (who is identified in the IRS's records by Employer Identification Number 77-099582 ("EIN")), "Robert D. Davis & John L. Reisenger Ptrs" (EIN 77-0306265), and "Davis, et al, Ptr" (EIN 77-0151987).²

The IRS officer responsible for these assessments was Randy Reece. (Reece Decl. ¶ 2.) According to Reece, when he was examining Silver Creek's tax liabilities he was substantially confused about who owned the company. (Id. ¶ 7.) He attributes his confusion various factors, such as: Robert D. Davis using different Employer Identification Numbers ("EINs"), which the IRS uses to create and track employer accounts; Silver Creek's failures to file tax returns on time; Silver Creek's apparent split into two businesses; and the attempt of Glenn D. Bell, a partner in the BDS partnership, to continue the business under a different name. (Id. ¶ 7.)

After assessing the taxes in question, Reece filed numerous notices of federal tax lien in January of 1990. (Id. ¶ 9.) Liens were issued against Nightengale Development Company; Glenn D. Bell; Jeanette Bell, Robert Davis and BDS, a General Partnership; Glenn D. Bell; Lawrence Stephens; Ray Nieves; Robert Davis; and BDS, a General Partnership. (Weill Decl. Ex. E.) The leins are ambiguous as to whether BDS, a General Partnership, and Stephens are listed as taxpayers or as nominees (Weill Decl. Ex. A-J).

Meanwhile, Reece contacted defendant, who told him that the BDS partnership was never formed and never bought Silver Creek; Davis, on the other hand, told Reece that BDS was formed and did buy Silver Creek. (Reece Decl. ¶ 12.) According to Reece, he suspected Davis was telling the truth, but still remained unclear about who owned Silver Creek. (Id.) Nevertheless, Reece applied for a new EIN to be assigned to BDS in November of 1990.

In October of 1991, the ownership of Silver Creek was resolved in the bankruptcy trial of Glenn Bell.³ (Id. Ex. A at 44-51.) The bankruptcy court found that in 1987, Bell, Davis, and defendant formed the BDS partnership and acquired 80% of Silver Creek, assuming Silver Creek's liabilities. (Id. Ex. A at 36, 47-49.) The court also found that the returns filed on behalf of Silver Creek in 1986 and 1987 "did not properly reflect the changes in ownership of the entities and as a result did not properly reflect who was liable for the various tax liabilities." (Id. Ex. A at 5, 50.) Accordingly, the bankruptcy court entered findings as to how the tax liabilities should have been reported. (Id. Ex. A at 5.) These findings corrected the amount of liability, as well as the entities and persons responsible for those liabilities, that had been reported in the returns initially filed with the IRS.⁴ (Id.)

In light of the bankruptcy court's findings, Reece requested new returns for Silver Creek to be filed. (Id. ¶ 13.) These returns were all filed in the spring of 1992 and were the first Silver Creek returns to identify BDS as the taxpayer liable for the relevant tax periods. (Weill Decl. Ex. L at 5, 7-11; Jennings Decl. Ex. F-J.) They were also the first returns naming the Robert D. Davis and John L. Reisenger partnership as the employer liable for FICA taxes for the quarters ending December 31, 1986 and June 30, 1987, and FUTA taxes for the years of 1986 and 1987. (Jennings Decl. Ex. L, F, A, G.)

Reece assessed the liabilities on these returns in June and July of 1992, (Id. Ex. B), and later adjusted the amounts to match the findings of the bankruptcy court. (Reece Decl. ¶ 13.)

On June 1, 2001, fourteen years after the first set of assessments and nine years after the second set of assessments, the United States filed this lawsuit against defendant to collect the unpaid employment taxes.

II. Discussion

The court must grant summary judgment to a moving party "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 judgment as a matter of law." Fed.R.Civ.P. 56(c). The party adverse to a motion for summary judgment may not simply deny generally the pleadings of the movant; the adverse party must designate "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e); see Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Simply put, "a summary judgment motion cannot be defeated by relying solely on conclusory allegations unsupported by factual data." Taylor v. List, 880 F.2d 1040, 1045 (9th Cir.1989). The non-moving party must show more than a mere "metaphysical doubt" as to the material facts. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

A. Waiver of Statute of Limitations Defense

The United States contends that defendant waived his statute of limitations defense by failing to raise it in a responsive pleading. A statute of limitations defense is an affirmative defense that the defendant should raise in the pleadings. See Fed.R.Civ.P. 8(c). "In the absence of prejudice, however, an affirmative defense may be raised for the first time at summary judgment." Camarillo v. McCarthy, 998 F.2d 638, 639 (9th Cir.1993). The United States has not claimed prejudice, nor is any suggested by the record. Therefore, defendant may raise the statute of limitations defense in his motion for summary judgment.

B. Internal Revenue Code Section 6502(a)

"Statutes of limitation sought to be applied to bar the rights of the Government, must receive a strict construction in favor of the Government." Badaracco v. Comm'r, 464 U.S. 386, 391, 104 S.Ct. 756, 78 L.Ed.2d 549 (1984) (quoting E.I. Dupont De Nemours & Co. v. Davis, 264 U.S. 456, 462, 44 S.Ct. 364, 68 L.Ed. 788 (1924)). Under Internal Revenue Code Section 6502(a), the government must institute a court proceeding to obtain a judgment for unpaid tax assessments within ten years after a timely assessment has been made, or prior to the expiration of any period of collection agreed upon in writing by the taxpayer and the IRS. I.R.C. § 6502(a).⁵

Because the United States filed this lawsuit on June 1, 2001, its claim is time-barred unless the taxes at issue were assessed after June 1, 1991. Defendant argues that the ten year limitations period expired, because it began to run after the IRS made the first set of assessments against Silver Creek in 1987 and 1990. The United States contends that the statute of limitations began to run when the second set of...