United States v. Gonzales

• Decision Date: 20 June 2018
• Docket Number: Case No: C 17-01523 SBA
• Citation: 323 F.Supp.3d 1119
• Parties: UNITED STATES of America, Plaintiff, v. Tom GONZALES, as Personal Representative FOR the ESTATE OF Thomas J. GONZALES, II, and as Successor Trustee of the Thomas J. Gonzales II 2001 Trust under agreement dated November 26, 2001 as amended and restated on November 28, 2001, Defendant.
• Court: U.S. District Court — Northern District of California

323 F.Supp.3d 1119

UNITED STATES of America, Plaintiff,

v.Tom GONZALES, as Personal Representative FOR the ESTATE OF Thomas J. GONZALES, II, and as Successor Trustee of the Thomas J. Gonzales II 2001 Trust under agreement dated November 26, 2001 as amended and restated on November 28, 2001, Defendant.

Case No: C 17-01523 SBA

United States District Court, N.D. California, Oakland Division.

Signed June 20, 2018

Amy Talburt Matchison, United States Department of Justice, Washington, DC, for Plaintiff.

Mark Douglas Wray, Law Ofc Mark Wray, Reno, NV, for Defendant.

ORDER GRANTING IN PART AND DENYING IN PART THE UNITED STATES' MOTION FOR SUMMARY JUDGMENT

Dkt. 35

SAUNDRA BROWN ARMSTRONG, Senior United States District Judge

The United States brings the instant action against Defendant Tom Gonzales ("Defendant"), as personal representative for the Estate of Thomas J. Gonzales, II (the "Estate"), and as successor trustee of THE THOMAS J. GONZALES II 2001 TRUST, under agreement dated November 26, 2001, as amended and restated on November 28, 2001 (the "Trust"), to collect unpaid interest assessed against Thomas J. Gonzales, II, deceased ("Taxpayer"). Presently before the Court is the United States' motion for summary judgment. Dkt. 35. Having read and considered the papers filed in connection with this matter and being fully informed, the Court hereby GRANTS IN PART and DENIES IN PART the United States' motion, for the reasons stated below. The Court, in its discretion, finds this matter suitable for resolution without oral argument. See Fed. R. Civ. P. 78(b) ; N.D. Cal. Civ. L.R. 7-1(b).

I. BACKGROUND ¹

A. THE PRIOR ACTION

Taxpayer sold shares of stock resulting in a capital gain of $132,521,496 in the 2000 tax year. Dkt. 174 at 2, Tom Gonzales v. United States, Case No. 08-03189 SBA (N.D. Cal. Mar. 4, 2011) ("Refund Action" or "R.A."). To avoid the income tax attendant to such a gain, Taxpayer participated in a tax shelter. Id. at 14. In April 2001, he filed a tax return for the 2000 tax year, wherein he reported capital losses from the tax shelter. Id. at 5.

Taxpayer died in December 2001. Compl. ¶ 2. Upon his death, Defendant became the personal representative of the Estate and successor trustee of the Trust. Id. ¶¶ 3-4. Thereafter, Defendant signed a series of consent forms (i.e., the Consents) that purported to extend, through December 31, 2006, the deadline for the Internal Revenue Service ("IRS") to assess taxes against Taxpayer for the 2000 tax year. Gonzales Decl. ¶ 2.

On December 6, 2006, the IRS issued a notice of deficiency to Defendant, in his capacity as the representative of the Estate, for underpayment of income taxes in the amount of $26,231,835 and an accuracy-related penalty in the amount of $5,246,367. SNOD at US000064. On April 12, 2007, the IRS assessed the aforementioned sums, as well as $13,361,360.50 in interest. Compl. ¶ 16; Form 4340 at US000003. On or about April 13, 2007, the IRS gave notice of the assessment and made demand for payment. Compl. ¶ 17; Form 4340 at US000004.

The Estate paid the tax and penalty under protest on August 17, 2007. Compl. ¶ 11. Defendant, as the personal representative of the Estate, then filed an administrative claim for refund. Id. The IRS abated the penalty in full because the Estate had complied with the IRS's disclosure initiative regarding abusive tax shelters, but otherwise disallowed the claim. Id. ¶ 12. The IRS did not refund the penalty, however, but retained the funds as a setoff against a portion of the interest owed on the additional tax liability for 2000. Id.

On July 2, 2008, Defendant, as personal representative of the Estate, filed suit in this Court for a refund. Dkt. 1, R.A.

Among other issues raised by the parties and decided by the Court was whether the IRS had properly credited the refund of the accuracy-related penalty against Taxpayer's unpaid statutory interest. Dkt. 174 at 19-20, R.A. The action was resolved in the United States' favor on summary judgment ("SJ Order"), id., and the Court entered judgment for the United States, Dkt. 175, R.A. The Ninth Circuit affirmed the judgment ("USCA Memo"), Dkt. 186, R.A., and the Supreme Court denied a petition for writ of certiorari ("USSC Order"), Dkt. 190, R.A. See Compl. ¶ 13.

B. THE INSTANT ACTION

Although Defendant satisfied the underpayment of income tax and penalty prior to filing the Refund Action, he failed to pay the interest assessed against Taxpayer for tax year 2000. Compl. ¶¶ 14, 18. As of August 29, 2016, Taxpayer remained indebted to the United States "in the amount of $8,749,116.09, plus such additional amounts, including interest and penalties, which accrued and continue to accrue as provided by law." Id. ¶ 19.

On March 21, 2017, the United States filed the instant action against Defendant—in his capacity as the personal representative of the Estate and as successor trustee of the Trust—to collect unpaid interest assessed against Taxpayer. The United States brings a single cause of action for reduction of interest to judgment.

On January 9, 2018, the United States filed the instant Motion for Summary Judgment, seeking judgment against Defendant, as personal representative of the Estate and successor trustee of the Trust, "in the amount of $9,234,440.14, for unpaid interest associated with the tax liability of [Taxpayer] for tax year 2000, less any additional credits according to proof, plus interest and other statutory additions as provided by 28 U.S.C. § 1961(c) and 26 U.S.C. §§ 6601, 6621 from January 4, 2018." Mot. at 6, Dkt. 35.

Defendant opposes the motion, arguing: (1) the IRS fails to establish the liability of either the Trust or the Estate; (2) the IRS's claim is barred by the statute of limitations; (3) the IRS did not give the requisite notice of the assessment of interest (4) the IRS's claim is barred by estoppel; and (5) the IRS cannot rely on the Form 4340 to carry its burden of proving the amount owed. Opp'n, Dkt. 38.

The United States filed a reply. Dkt. 41. After the close of briefing, the Court issued an order directing the parties to file supplemental briefs on two issues: (1) the liability of the Trust; and (2) the effect, if any, of the Refund Action on Defendant's statute of limitations claim. Dkt. 44. The parties submitted their respective briefs, and the motion is ripe for adjudication. U.S.'s Supp. Br., Dkt. 45; Def.'s Supp. Br., Dkt. 46.

II. LEGAL STANDARDS

A. SUMMARY JUDGMENT

A party may move for summary judgment on some or all of the claims or defenses presented in an action. Fed. R. Civ. P. 56(a). "Summary judgment is appropriate only where ‘there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.’ " Salazar-Limon v. City of Houston, Tex., ––– U.S. ––––, 137 S.Ct. 1277, 1280, 197 L.Ed.2d 751 (2017) (quoting Fed. R. Civ. P. 56(a) ). The moving party bears the initial burden of identifying those portions of the pleadings, discovery, and affidavits that establish the absence of a genuine dispute of material fact. Cline v. Indus. Maint. Eng'g & Contracting Co., 200 F.3d 1223, 1229 (9th Cir. 2000) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 323-25, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ). If the moving party meets its burden, the burden then shifts to the non-moving party to go beyond the pleadings and identify specific facts demonstrating the existence of a triable issue. Id. (citing Celotex, 477 U.S. at 323-24, 106 S.Ct. 2548 ; Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ).

In evaluating a motion for summary judgment, "the court must ‘view the facts and draw reasonable inferences in the light most favorable to the [non-moving party].’ " Salazar-Limon, 137 S.Ct. at 1281 (quoting Scott v. Harris, 550 U.S. 372, 378, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007) (quotation omitted) ). Facts must be viewed in this manner, however, only if there is a genuine dispute as to a material fact. Scott, 550 U.S. at 380, 127 S.Ct. 1769. A factual dispute is material if it "might affect the outcome of the suit under governing law." Anderson, 447 U.S. at 248, 106 S.Ct. 2505. "Factual disputes that are irrelevant or unnecessary will not be counted." Id. A factual dispute is genuine if it properly can be resolved in favor of either party. Id. at 250, 106 S.Ct. 2505. "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Id. at 249-50, 106 S.Ct. 2505 (internal citations omitted).

B. TAX LIABILITY

"In an action to collect taxes, the government bears the initial burden of proof." Palmer v. United States, 116 F.3d 1309, 1312 (9th Cir. 1997) (citing United States v. Stonehill, 702 F.2d 1288, 1293 (9th Cir. 1983) ). The government may satisfy this burden by introducing into evidence its deficiency determinations and assessments of taxes due, which are generally entitled to a presumption of correctness. Oliver v. United States, 921 F.2d 916, 919 (9th Cir. 1990) (citing Stonehill, 702 F.2d at 1293 ). As to the form of this evidence, a Certificate of Assessments and Payments, i.e., a Form 4340, "is probative evidence in and of itself and, ‘in the absence of contrary evidence, [is] sufficient to establish that notices and assessments were properly made.’ " Hansen v. United States, 7 F.3d 137, 138 (9th Cir. 1993) (quoting Hughes v. United States, 953 F.2d 531, 540 (9th Cir. 1992) (a certified Form 4340 is admissible as a self-authenticating public record) ). Introduction of the assessment shifts the burden to the taxpayer to rebut the presumption by countervailing proof. Stonehill, 702 F.2d at 1294. If rebutted, the presumption disappears, and the burden of proving the deficiency reverts to the government. Id.

III. DISCUSSION

The United States moves to reduce outstanding interest to judgment. Interest accrues by operation of law upon the underpayment of any tax. 26 U.S.C. § 6601(a) ("If any amount of tax imposed by this title ... is not paid on or...