United States v. Brown
| Decision Date | 11 October 2011 |
| Docket Number | Civil Civil No. 2:10-CV-00127 BSJ,Civil No. 2:07-CV-00810 BSJ |
| Parties | UNITED STATES OF AMERICA Plaintiff, v. DOUGLAS BROWN; BARBARA BROWN; UTAH STATE TAX COMMISSION; GILBERT JENSEN; ROBERT TINGEY, AS TRUSTEE FOR THE D.E. BROWN FAMILY TRUST, Defendants; In re: FORECLOSURE OF REAL PROPERTY: 8282 Big Cottonwood Canyon Road, Brighton, Salt Lake County, Utah; Trustor: D.E. Brown Family, Trust Deed Dated June 22, 1993. |
| Court | U.S. District Court — District of Utah |
FINDINGS OF FACT &
MEMORANDUM OPINIONThis case was tried to the court for three days beginning April 25, 2011. After the close of the evidence, the court heard argument by counsel on April 27th and took the matter under advisement. (See Minute Entry, dated April 25-27, 2011 (dkt. no. 128).) Having reviewed the testimony and other evidence received at trial and having considered the arguments of counsel in light of the pertinent legal authorities, the court now rules as follows:
JURISDICTION & VENUE
This is a civil action commenced by the United States to reduce federal income tax assessments to judgment and to foreclose federal tax liens, invoking the jurisdiction of this court pursuant to 28 U.S.C. §§ 1340 & 1345 and 26 U.S.C. §§ 7402 & 7403. Venue is proper pursuant to 28 U.S.C. §§ 1391(b) & 1396 because the tax liabilities accrued in Utah, the defendants reside in Utah, and venue lies in the Central Division of the District of Utah because the real property at issue is located in Salt Lake County, Utah. See 28 U.S.C. § 125(2).
The United States' Second Amended Complaint pleaded six causes of action: (1) to reduce federal tax assessments to judgment against Douglas Brown; (2) to reduce federal tax assessments to judgment against Douglas and Barbara Brown; (3) to foreclose federal tax liens against real property held by Douglas and Barbara Brown; (4) to foreclose federal tax liens against real property held by Robert Tingey, trustee of the D.E. Brown Family Trust, as the nominee/alter-ego of Douglas and Barbara Brown, and to set aside the fraudulent transfer of the property; (5) to foreclose federal tax liens against real property held by Robert Tingey, trustee of the Trust, as a resulting trust for the benefit of Douglas and Barbara Brown; and (6) to obtain an exception to discharge pursuant to 11U.S.C. § 523(a)(1)(C) because of the Browns' tax avoidance.1 On December 8, 2010, this court granted summary judgment in favor of the United States on its first two claims as against:
(Order Granting United States' Motion for Summary Judgment with Regard to Tax Assessments, filed March 7, 2011 (dkt. no. 112).) Thereafter, only the United States' federal tax lien foreclosure claims remained to be tried in this case.
The United States asserts that it is entitled to foreclose valid federal tax liens arising from the Browns' unpaid federal income tax and gift tax liabilities on certain real property located at Brighton, Utah (hereinafter "the Brighton Ski Cabin"). The government relies upon three legal theories: (1) the federal tax liens attach to the Brighton Ski Cabin because the D.E. Brown Family Trust (hereinafter "the Trust"), which held record title to the cabin, is the nominee of defendants Douglas and Barbara Brown; (2) the federal tax liens attach because the Browns were the beneficial owners of 100% of theBrighton Ski Cabin property, as Douglas Brown's intention and actions in funding the purchase of the cabin property created a resulting trust by which the Browns retained the beneficial interest in the cabin property; and (3) the federal tax liens attach because the transfer of the Brighton Ski Cabin to the Trust was fraudulent as to creditors and may be set aside. The third theory appears to be an alternative to the first two theories, but either way, the United States insists that the Browns may be held to have been the true legal owners of the cabin property for the purpose of enforcing the Browns' federal tax liens.
The Browns contend that the federal tax liens do not attach to the Brighton Ski Cabin property because: (1) a nominee relationship is not recognized by Utah courts as providing a property interest to which a federal tax lien could attach; (2) the Trust is a valid irrevocable trust over which the Browns exercised no control; (3) the Browns' actions did not create a resulting trust because the Brighton Ski Cabin was purchased by the Trust prior to the tax obligations being assessed; (4) the Trust actually having purchased the Brighton Ski Cabin property, the Browns did not transfer that property to the Trust, so no fraudulent transfer could have occurred; and (5) the United States had waived any lien interest in the cabin property by stipulation in 1998.
A number of facts pertaining to the federal tax lien claims are not in genuinedispute:2
A. Douglas and Barbara Brown's Federal Tax Liabilities
1. Douglas and Barbara Brown ("the Browns") were married on December 7, 1979.
2. The Browns failed to timely file their 1993 federal income tax return with the IRS and instead filed their return on September 11, 1997, and reported $349,926.00 in income tax. This amount was assessed against them on December 8, 1997. Notice and demand for payment was sent to the defendants on December 8, 1997. The current balance due for their 1993 tax year is $1,184,351.14.
3. The Browns failed to timely file their 1994 federal income tax return with the IRS and instead filed their return on September 11, 1997, and reported $241,930.00 in income tax. This amount was assessed against them on December 8, 1997. Notice and demand for payment was sent to the defendants on December 8, 1997. The current balance due for the their 1994 tax year is $779,831.66.
4. The Browns failed to timely file their 1995 federal income tax return with the IRS and instead filed their return on September 11, 1997, and reported $53,405.00 in income tax. This amount was assessed against them on December 8, 1997. Notice and demand for payment was sent to the defendants on December 8, 1997. The currentbalance due for their 1995 tax year is $116,360.54.
5. The Browns failed to timely file their 1996 federal income tax return with the IRS and instead filed their return on November 30, 1998, and reported $87,753.00 in income tax. This amount was assessed against them on February 22, 1999. Notice and demand for payment was sent to the defendants on February 22, 1999. An additional $21,381.00 in taxes was assessed on December 31, 2001, as a result of an examination and audit. The current balance due for their 1996 tax year is $290,381.70.
6. The Browns failed to timely file their 1999 federal income tax return with the IRS and instead filed their return on February 4, 2001, and reported $2,443.00 in income tax. This amount was assessed against them on March 26, 2001. Notice and demand for payment was sent to the defendants on March 26, 2001. The current balance due for their 1999 tax year is $6,121.34.
7. The Browns filed their 2001 federal income tax return with the IRS on April 15, 2002, and reported $5,951.00 in income tax. This amount was assessed against them on May 6, 2002. Notice and demand for payment was sent to the defendants on May 6, 2002. An additional $4,818.00 in taxes was assessed on March 1, 2004, as a result of an examination and adjustment. The current balance due for their 2001 tax year is $12,629.00.
8. The Browns filed their 2002 federal income tax return with the IRS on April 15, 2003, and reported $12,028.00 in income tax. This amount was assessed againstthem on June 2, 2003. Notice and demand for payment was sent to the defendant on June 2, 2003. The current balance due for their 2002 tax year is $12,209.82.
9. The Browns filed their 2005 federal income tax return with the IRS on April 15, 2006, and reported $6,803.00 in income tax. This amount was assessed against them on June 5, 2006. Notice and demand for payment was sent to the defendant on June 5, 2006. The current balance due for their 2005 tax year is $8,887.03.
10. Douglas Brown filed a 1994 federal gift tax return with the IRS on September 11, 1997, and reported $11,159.00 in gift tax. This amount was assessed against him on October 27, 1997. Notice and demand for payment was sent to the defendant on October 27, 1997. The current balance due for the 1994 tax year is $41,879.14.
11. Douglas Brown filed a 1995 federal gift tax return with the IRS on September 11, 1997, and reported $48,957.00 in gift tax. This amount was assessed against him on October 27, 1997. Notice and demand for payment was sent to the defendant on October 27, 1997. The current balance due for the 1995 tax year is $166,221.19.
B. Notices of Federal Tax Lien
12. On July 17, 1998, a delegate of the Secretary of Treasury recorded in the County Recorder's Office for Salt Lake County, located in Salt Lake City, Utah, a notice of federal tax lien against Douglas Brown for unpaid federal gift tax liabilities for the 1994 and 1995 tax years. The notice of federal tax lien was re-filed in the County Recorder's Office on November 6, 2007.
13. On April 17, 1998, a delegate of the Secretary of Treasury recorded in the County Recorder's Office for Salt Lake County, located in Salt...
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