United States v. Fuller
| Docket Number | 1:22-cv-271-LM |
| Decision Date | 17 July 2023 |
| Parties | United States of America v. Frederick J. Fuller, Individually and as Trustee of the Bow Sterling Place Realty Trust, et al. |
| Court | U.S. District Court — District of New Hampshire |
REPORT AND RECOMMENDATION
The government brought suit against Frederick J. Fuller individually and as trustee of the Bow Sterling Place Realty Trust (the “Trust”), seeking to reduce to judgment Fuller's unpaid federal tax liabilities pursuant to 26 U.S.C. §§ 6651, 6654. See Compl. (Doc. No. 1). The government also seeks judgments from this court that the federal tax liens for Fuller's tax liabilities attach to real property owned by the Trust, with priority over judgment liens, and permitting the government to enforce its tax liens pursuant to 26 U.S.C. § 7403. Nichole Wilkins, Raymond Mulcahey as Administrator of the Estate of Beverly Mulcahey, and the Town of Bow, New Hampshire, as lienholders of the real property owned by the Trust, are also named defendants with respect to the government's lien priority claim.[1] Fuller failed to respond to the government's complaint, and on October 31, 2022, the Clerk of Court entered default against him. (Doc. No. 17). Before the court for recommendation as to disposition is the government's motion for default judgment as to Fuller pursuant to Federal Rule of Civil Procedure 55(b)(2). (Doc. No. 20). For reasons explained below, the court recommends that the government's motion be granted and that judgment be awarded in the amount of $687,379.12, subject to statutory additions and interest.
When a party moves for a default judgment under Rule 55(b)(2), the court “may examine a plaintiff's complaint, taking all well-pleaded factual allegations as true, to determine whether it alleges a cause of action.” Ramos-Falcon v. Autoridad de Energia Electrica, 301 F.3d 1 2 (1st Cir. 2002). The defaulting party is “taken to have conceded the truth of the factual allegations in the complaint.” Ortiz-Gonzalez v. Fonovisa, 277 F.3d 59, 62 (1st Cir. 2002). Admitting the truth of the factual allegations, however, “does not admit the legal sufficiency of [the] claims.” 10 James W. Moore, Moore's Federal Practice § 55.32[1][b] (3d ed. 2013). For that reason, the court reviews the admitted facts in light of the elements of the claims pleaded before entering a default judgment. Sampson v. Lambert, 903 F.3d 798, 805-06 (8th Cir. 2018); Neff v. Mediation Processing Servs., LLC, No. 21-CV-310-JL, 2021 WL 7082838, at *1 (D.N.H. Sept. 27, 2021), report and recommendation adopted, No. 21-CV-310-JL, 2021 WL 7082833 (D.N.H. Oct. 14, 2021).
By virtue of his default, Fuller concedes the following facts alleged in the government's complaint. On July 27, 2011, Fuller acquired real property, situated at 43 Sterling Place, Bow, New Hampshire (the “Bow Property”), as trustee of the Bow Sterling Place Realty Trust through a warranty deed recorded with the Merrimack County Registry at Book 3265, Pages 04860489. Compl. (Doc. No. 1, ¶ 24). As stated in a Certificate of Trustee document dated December 16, 2013 and recorded with the Merrimack County Registry at Book 3425, Page 469, Fuller is both the sole trustee and the sole beneficiary of the Trust. Id. ¶ 31. Where Fuller treated the assets of the Trust as his own, the Trust has been operated as the alter ego of Fuller. Id. ¶¶ 31-32. In addition, Fuller operated the Trust as a sham trust that holds record title to the Bow Property as a nominee of the true owner, Fuller. Id. ¶ 33.
On April 9, 2012, the Secretary of the Treasury made assessments against Fuller for income taxes during the tax period ending on December 31, 2008. Id. ¶ 9. The tax assessment amount of $493,147.00 was reached by agreement between Fuller and the government. Id. ¶¶ 9-10. As of April 26, 2022, Fuller had a tax liability balance due in the amount of $637,228.22, reflecting assessed and accrued late-filing penalties, penalties for failure to make estimated tax payments, costs, and statutory interest as of that date. Id. ¶ 9. The government provided proper notice and demand for payment of these tax liabilities, but to date, Fuller has failed to pay the balance due. Id. ¶ 11.
On July 21, 2022, the government filed suit against Fuller, as well as against the other lienholders of the Bow Property, seeking to: (1) reduce Fuller's tax liabilities to judgment; (2) determine that the government's federal tax liens attach to the Bow Property owned by the Trust with priority over judgment liens; and (3) enforce the federal tax liens under 26 U.S.C. § 7403. Fuller was served with a copy of the summons and complaint on August 18, 2022. (Doc. No. 3). When Fuller did not file a response to the complaint within the time allowed, the Clerk of Court entered default against him (Doc. No. 17), and the government moved for default judgment. (Doc. No. 20). The court held a case management conference on February 9, 2023, and following that conference, on April 14, 2023, the government submitted a supplemental brief, which included clarification on the sufficiency of the government's claims, as well as additional documentation to support Fuller's tax liabilities. (Doc. No. 25).
The government brings three claims against Fuller: in Count I it seeks to reduce Fuller's tax liabilities to judgment; in Count II it seeks a ruling that its federal tax liens attach to the Bow Property owned by the Trust with priority over judgment liens; and in Count III it seeks permission to enforce the tax liens under 26 U.S.C. § 7403. The government moves for default judgment on all claims and seeks the entry of judgment in the amount of $675,929.44, subject to statutory additions and interest, which continue to accrue pursuant to 26 U.S.C. §§ 6601, 6621, and 6622, and 28 U.S.C. § 1961(c).
“26 U.S.C. § 6651(a)(2) imposes a penalty for failure to pay taxes due on or before the date prescribed for payment of such unless it is shown that such failure is due to reasonable cause and not due to willful neglect.” Kennedy v. United States, 542 F.Supp. 1046, 1049 (D.N.H. 1982) (quotation omitted). Under the statute, “the imposition of such penalties is mandatory absent a satisfactory demonstration by the taxpayer that its failure to comply was due to reasonable cause and not due to willful neglect . . . .” Id. (quotation omitted). 26 U.S.C. § 6654 similarly imposes a penalty for failure to make estimated tax payments.
Court proceedings to collect a tax liability must be made “within 10 years after the assessment of the tax.” 26 U.S.C. § 6502(a)(1). The limitations period is tolled, however, while a Collection Due Process (“CDP”) hearing and appeal is pending. 26 U.S.C. § 6330(e)(1).
The government's assessment of Fuller's 2008 tax liabilities occurred on April 9, 2012. According to the admitted allegations in the complaint, Fuller filed a CDP hearing request on October 1, 2012. Compl. (Doc. No. 1, ¶ 17). On February 11, 2013, following the CDP hearing and notice of determination, Fuller appealed the determination to the Tax Court. Id. ¶ 18. On October 7, 2014, the Tax Court entered a decision affirming the determination and stipulating that the taxpayer waived any restrictions provided in 26 U.S.C. § 6330(e). Id. Accordingly, the limitations period was tolled from October 1, 2012 through October 7, 2014 for a total of 736 days. Where the initial limitations period would have run on April 9, 2022, the tolling period of 736 days extended the limitations period to April 14, 2024. Where the government initiated this action against Fuller on July 21, 2022, the court is satisfied that the government's claim against Fuller is timely.
The admitted facts in the complaint establish the government's claim against Fuller. Specifically, the government adequately states that Fuller owed income tax liabilities for the 2008 tax year and that despite receiving proper notice of these tax liabilities, Fuller failed to pay the balance due. Accordingly, the government is entitled to default judgment as to liability on Count I.
In Count II, the government seeks a ruling from this court that: (1) its federal tax liens attach to the Bow Property owned by the Trust; and (2) the federal tax liens have priority over other judgment liens. The non-defaulting parties, however, stipulated to the order of priority, (Doc. No. 21), rendering the issue moot.[2]Thus, the court considers only whether the government has satisfied its burden to demonstrate that its tax liens, arising from Fuller's tax liabilities, attach to the Bow Property owned by the Trust.
1. Attachment of the Government's Tax Liens to the Bow Property
The government initially sought attachment of its tax liens to the Bow Property owned by the Trust based two theories: (1) the Trust is the alter ego of Fuller; and (2) the Trust is the nominee of Fuller. In its supplemental brief, however, the government appears to have abandoned its alter ego argument and solely asserts that the Trust is the nominee of Fuller.
Under 26 U.S.C. § 6321, “the government may impose a lien on property in the hands of a nominee or alter ego of the taxpayer.” In re Callahan, 419 B.R. 109, 124 (Bankr. D. Mass. 2009).
To determine whether property is in the hands of the taxpayer's nominee, the court must “initially look to state law to determine what rights the taxpayer has in the property . . . then to federal law to determine whether the taxpayer's state-delineated rights qualify as ‘property' or ‘rights to property' within the compass of the federal tax lien legislation.” Id. (quoting Drye v....
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