United States v. Balice, Civ. No. 14-3937 (KM)(JBC)
| Decision Date | 09 August 2017 |
| Docket Number | Civ. No. 14-3937 (KM)(JBC) |
| Parties | UNITED STATES OF AMERICA, Plaintiff, v. MICHAEL BALICE, AMBOY BANK, et al., Defendants. |
| Court | U.S. District Court — District of New Jersey |
NOT FOR PUBLICATION
The United States has filed this action to reduce to judgment defendant Michael Balice's tax liability for several years, and to foreclose on a property at 70 Maple Avenue in Metuchen, New Jersey, currently held in trust. Now pending before the Court are two interrelated motions:
For the reasons stated below, the motion of the United States for summary judgment is granted.
Because I write for the parties, I assume familiarity with the numerous previous decisions in this matter. A brief overview of the pertinent facts is nevertheless helpful.1
The Maple Avenue property was once owned by Michael Balice and his then-wife, Marion Balice (collectively, the "Balices").2 In August of 1994, the Balices, saddled with outstanding federal income tax and other liabilities, attended a seminar given by Ronald Ottaviano that instructed attendees on how to create trusts to obtain tax benefits. (Pl. Br. 3-4) Thereafter, on August 28, 1994, the Balices executed a quitclaim deed purporting to transfer title of the Maple Avenue property—their primary residence at the time—to the Rosewater Trust ("Rosewater"). (Id.) The Balices did not receive consideration for the transfer. (Id. 3)
On August 29, 1994, the Balices applied to the IRS for an Employer Identification Number for Rosewater, listing Marion Balice as Rosewater's executor or trustee. A "certification" document dated October 5, 1994, purportedly appointed Balice as Rosewater's "Exchanger". (Id. 4; Pl. Exs. I-J)
In its decision upholding the Balices' tax deficiencies for the 1997 and 1998 tax years, the United States Tax Court made the following findings concerning a checking account the Balices had opened in Rosewater's name:
(Pl. Ex. B)
Marion Balice made signed declarations in 2011 and 2015, the substance of which echoed the Tax Court's findings. She admitted that Rosewater was fictitious and set up to hold title to and protect the Maple Avenue property from federal tax and other liabilities; that no consideration was exchanged for the transfer; and that the Balices lived in the property and used personal funds to pay its expenses, post-transfer. (Pl. Br. 5; Ex. L) In connection with this litigation, Balice himself signed a declaration stating that he resided at the Maple Avenue property from 1989 to the present day, excluding his incarceration, and has paid utility bills for the properly. (Id.; ECF No. 176 ¶¶ 1-2)
The Balices filed a joint income tax return for the 1998 tax year that reported a total amount due of $7,779, which they paid in full. The Internal Revenue Service ("IRS"), however, subsequently determined that the Baliceswere liable for a deficiency of $32,449 as well as a penalty of $6,489.80, for the 1998 tax year, and sent the Balices a June 21, 2004 deficiency notice saying so. Balice challenged the deficiencies in Tax Court and the Tax Court upheld the deficiencies on December 10, 2009. (Pl. Ex. B, C; see ECF No. 208 p.2) Following the Tax Court decision on February 22, 2010, the IRS again assessed the Balices' 1998 taxes, concluding that they still owed $76,586. Those deficiencies remain largely unpaid (see Am. Compl. ¶ 19) and with penalties and interest, amount to $60,179.68 as of January 9, 2017. (Pl. Br. 2)
Balice did not file any tax return for the tax years 2007 and 2008, despite earning income by marketing products that purported to teach others how to avoid income tax by creating sham trusts. For marketing these products, a jury convicted Balice on December 21, 2011 of conspiracy to defraud the United States, wire and mail fraud, and attempt to evade income tax. (See Pl. Ex. D) Thereafter, the IRS determined Balice's tax deficiencies for 2007 and 2008, which Balice again challenged in the United States Tax Court. Again, the Tax Court upheld the deficiencies, holding that for 2007, Balice owed $35,497 in unpaid taxes and $35,049 in statutory penalties, and that for 2008, Balice owed $3,810 in unpaid tax and $1,180 in penalties. Additionally, the Tax Court imposed a $25,000 fine, under 26 U.S.C. § 6673(a), for maintaining frivolous positions during the Tax Court litigation. (Pl. Br. 3; see Pl. Ex. E-F) On Balice's appeal, the Third Circuit upheld the Tax Court's decision. (Pl. Br. 3 (citing Balice v. CIR, No. 15-2366 (3rd Cir. February 5, 2016)).
Accounting for liabilities, statutory additions, and the $25,000 penalty, Balice owes $117,337.27 for the 2007 tax year and $6,693.51 for the 2008 tax year, as of January 9, 2017. (Pl. Br. 3; MacGillivray Decl. ¶¶ 11-13)
By opinion and order dated July 10, 2015, I previously denied Amboy's motion for summary judgment, which argued that Amboy's HELOC mortgage lien on the Maple Avenue property has full priority over the tax lien of the United States. (See ECF No. 71, United States v. Balice, No. CIV. 14-3937 KM JBC, 2015 WL 4251146, at *9 (D.N.J. July 10, 2015) (hereinafter, "Balice I"), reconsideration denied, No. 14-3937 (KM)(JBC), 2016 WL 1178860 (D.N.J. Jan. 15, 2016). There, in Balice I, I determined that Amboy's lien would take priority, but only "to the extent of the outstanding balance on the home equity line of credit as of July 12, 2005, plus any additional sums advanced thereafter, but before August 27, 2005." I explained that the amount of the lien could not be determined on summary judgment, however, because the priority dollar amount depends on the outstanding loan disbursements that occurred before August 27, 2005, any reduction of that balance by repayment, and interest and fees—all issues undeveloped in the record at the time.
The parties still have not submitted evidence sufficient to establish the dollar amount of Amboy's priority. The government's motion for summary judgment, which is directed at Balice, puts off the issue: it recognizes in principle, however, that the proceeds of a foreclosure sale on the Maple Avenue property would be distributed to Amboy Bank "to satisfy those portions of Amboy Bank's lien that the Court determines, pursuant to further briefing, hold priority over federal tax liens," prior to being distributed to the United States to satisfy "the outstanding balance of the federal tax liens that attach to the property, including interest and penalties arising from such liens . . . ." (Pl. Br. 13) Therefore, the dollar amount of any such priority is not at issue on this motion; indeed the parameters of the issue depend to some degree on the issues decided here, so the parties' failure to address it definitively is understandable.
In Balice I, I also denied Balice's motion to dismiss and rejected Balice's argument that under principles of res judicata, the prior judgments for Balice'stax debts for the years 1992, 1993, 1996, and 2001 bar the government from proceeding with this action. I explained that not only are different tax years at issue in this case (with respect to claims for judgment), but the government is also seeking foreclosure in this action—a type of relief it did not seek in prior actions. "Rather, those prior actions established the Balices' liability for tax assessments and entered money judgments, resulting in the attachment of tax liens to all property and rights that the Balices owned." Balice I at *9. There is no preclusion, I noted, even as to tax years for which debts were previously reduced to judgment, on which the United States seeks to foreclose in this action. Id. at *10.
Moreover, in Balice I, I rejected, inter alia, Balice's tax-protestor-style arguments that the U.S. Constitution does not give Congress the power to collect income taxes and that Congress may not delegate tax-collecting power to the IRS. Id. at *10-12. I rejected largely identical arguments in my opinion dated July 20, 2016. (See ECF No. 152, hereinafter "Balice II", pp. 1-2)
In that July 20, 2016 opinion, Balice II, I also rejected Balice's argument that the 2010 assessment of his 1998 taxes violated the three-year statute of limitations provided for in 26 U.S.C. § 6501. That statute establishes a six-year, rather than three-year, statute of limitations when a taxpayer has understated his income by more than 25%, as Balice did. 26 U.S.C. § 6501(e)(1). (Balice II at 3-4) Even setting aside this substantive reasoning, I held that Balice's timeliness argument was barred by res judicata, "having already been decided adversely to Balice in the Tax Court" in a decision that became final on February 8, 2010. (Id. 4)
In an opinion and order dated October 11, 2016, "Balice III", I rejected, inter alia, Balice's motion for summary judgment, and with it his argument that tax withholding in the amount of $10,162 satisfied his 1998 tax year deficiency. (See ECF No. 167, hereinafter "Balice III", at 4) I explained that Count I seeks to reduce to judgment additional amounts due for the 1998 tax year, over and above the $10,162, so Balice's argument was beside the point.(Id.) In Balice III, I also, for the second time, disposed of...
To continue reading
Request your trial