United States v. Hawthorne
| Decision Date | 28 May 2014 |
| Docket Number | CASE NO. 1:12 CV 3041 |
| Court | U.S. District Court — Northern District of Ohio |
| Parties | UNITED STATES OF AMERICA, Plaintiff, v. NATHANIEL HAWTHORNE, et al., Defendant. |
MEMORANDUM OF OPINIONAND ORDER
This case is before the Court on the United States' Motion for Summary Judgment (Doc #: 25 ("Motion") and Nathaniel Hawthorne's cross-motion for summary judgment (Doc #: 28) ("Cross-Motion"). On December 13, 2013, the United States brought this action against Nathaniel Hawthorne and his wife, Sylvia, to reduce to judgment the federal income tax assessments against Nathaniel and to foreclose tax liens associated with real property known as 165 Snowshoe Trail, Chagrin Falls, Ohio ("the Snowshoe property"). For the following reasons, the Motion is GRANTED and the Cross-Motion is DENIED, and the Court exercises its discretion to enforce the foreclosure of the Snowshoe property.
Pursuant to Rule 56 of the Federal Rules of Civil Procedure, summary judgment is appropriate if the moving party shows that there is no genuine dispute of material fact. Fed. R. Civ. Pro. 56(a). In considering a summary judgment motion, the Court must construe the evidence in favor of the non-moving party. Muncie Power Prod., Inc. v. United Tech Auto Inc., 328 F.3d 870, 873 (6th Cir. 2003) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith RadioCorp., 475 U.S. 574, 587 (1986)). However, the court is not "obligated to wade through and search the entire record for some specific facts that might support the non-moving party's claims." InterRoyal Corp. v. Sponseller, 889 F.2d 108, 111 (6th Cir. 1989). If, after reviewing the record as a whole, a rational factfinder could not find for the nonmoving party, summary judgment is appropriate since there is no genuine issue of material fact for determination at trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
The following material allegations are undisputed. Mr. Hawthorne self-reported tax liabilities for tax years 2002 and 2006 through 2011 ("subject tax years"), but did not pay the full amounts owed. The following chart shows the amounts of unpaid federal income taxes, penalties and interest due as of October 18, 2012, and the dates Mr. Hawthorne was given notice and demand for payment.
Tax Period
Assessment Due
Amount Due Through (October 18, 2013)
$490,468.18
The Government recorded notice of its tax liens securing the above liabilities in the real property records of Geauga County, Ohio, on or about November 17, 2003, February 14, 2008,January 26, 2009, March 8, 2010, June 13, 2011, and June 4, 2012. The Government also filed notices of tax liens against Sylvia Hawthorne on May 7, 2004 and September 28, 2012 for the same tax periods as nominee, transferee, fraudulent conveyee, and/or alter ego of Nathaniel Hawthorne. As the chart shows, Nathaniel Hawthorne owed the Government $490,468.18 as of October 18, 2012, along with all interest and statutory additions that accrued from October 18, 2012 until his tax liabilities were paid.
In 1998, Wan Yin Jung conveyed the Snowshoe property to Nathaniel and Sylvia Hawthorne, as survivorship tenants - meaning that the Hawthornes each owned a fifty percent interest in the Snowshoe property under O.R.C. § 5320.20. See, e.g., Paternoster v. United States, 640 F.Supp.2d 983, 990 (S.D. Ohio 2009). As the chart shows, Mr. Hawthorne received his first notice and demand for tax payment on June 23, 2003. On July 15, 2003, however, he transferred title to his interest in the Snowshoe Property to his spouse, Sylvia. It is undisputed that Mr. Hawthorne continues to reside on this property today.1
Based on these allegations, the Government filed the instant action on December 13, 2012, seeking judgment in its favor for the outstanding tax liabilities, asserting that it has a valid and subsisting federal tax lien on all property and rights to property belonging to Nathaniel Hawthorne, and seeking to foreclose on his interest in the Snowshoe property. (Doc #: 1.)
The Court held a Case Management Conference on May 22, 2013, after which the Court issued a Case Management Plan with a discovery deadline of January 17, 2101 and adispositive motion deadline of March 18, 2014. (Doc #: 19.) On June 10, 2013, the Government filed a First Amended Complaint to add the income tax liabilities for the 2011 tax year recently assessed to the amounts asserted due and owing in the original complaint. (Doc #: 20.) The assessment for 2011 was $23,247.15, bringing the amount due through May 20, 2013 $518,362.15. (Id.)
On March 6, 2014, Nathaniel and Sylvia Hawthorne filed an unopposed motion for a 30-day extension of the deadlines set forth in the Case Management Plan so that they could complete the process of putting together a formal settlement offer to present to the Government. (Doc #: 24.) The Court granted the motion.
On April 17, 2014, the Government filed the pending Motion for Summary Judgment. (Doc #: 25.) The Hawthornes filed a response and an untimely Cross-Motion for Summary Judgment (Doc #: 28). The Government filed a reply in support of its Motion and an opposition to the Cross-Motion. (Doc #: 29). The Hawthornes have not filed a reply in support of their Cross-Motion.
An assessment of tax by the IRS is presumptively correct. Affiliated Foods, Inc. v. Commissioner, 154 F.3d 527, 530 (5th Cir. 1998); U.S. v. Brandt, No. 1:12 cv 1132, 2014 WL 1266849, at *2 (S.D. Ohio Mar. 26, 2014) (citing Sinder v. United States, 655 F.2d 729, 731 (6th Cir. 1981)). In order to overcome the presumption of correctness, the taxpayer bears the burden of proving by a preponderance of the evidence that, in fact, the assessment is incorrect. Kinnie v. United States, 994 F.2d 279, 283 (6th Cir. 1993). Here, however, the tax liabilities are undisputed as Mr. Hawthorne reported the tax liabilities himself. It is also undisputed that, iftax liabilities are not paid on or before the statutory date for payment, interest accrues on the underpayment from the due date until paid; and interest accrues with respect to any additions to the tax. Respectively, 26 U.S.C. §§ 6601(a), 6601(e)(2).
26 U.S.C. § 6321 provides that, after assessment, notice and demand, a lien arises in favor of the United States in the amount of the assessment. This statutory lien attaches to all property and rights to property of the taxpayer on the date of the assessment and continues until the liability for the amount assessed is satisfied. 26 U.S.C. § 6322. The Supreme Court has held that § 6321 is broad in scope and applies to every interest the taxpayer has in property. United States v. National Bank of Commerce, 472 U.S. 713, 719-20 (1985).
The first assessment against Mr. Hawthorne for the amount owed for the 2002 tax year occurred on June 23, 2003. Pursuant to §§ 6321 and 6322, a statutory lien attached to all property and rights to property owned by Mr. Hawthorne on that date. Among the property owned by Mr. Hawthorne on June 23, 2003 was his one-half interest in the Snowshoe property.
Federal law determines the relative priority of federal tax liens and any competing liens. Aquilino v. United States, 363 U.S. 509, 513-14 (1960). In the absence of statutory authority to the contrary, "priority for the purposes of federal law is governed by the common-law principle that 'first in time is the first in right.'" United States v. McDermott, 507 U.S. 447, 449 (1993). The statutory lien against Nathaniel Hawthorne attached to the Snowshoe property on June 23, 2003. Therefore, any transfer of Nathaniel Hawthorne's property to his wife after that date was subject to the prior federal tax lien. Because Nathaniel Hawthorne transferred title to his interest in the Snowshoe property three weeks after the assessment, that transfer "passe[d] cum onere, or with the lien attached." United States v. Bess, 357 U.S. 51, 57 (1958). And there isno evidence, let alone assertion, that Sylvia meets any of the narrowly limited exceptions set forth in § 6323 to federal tax lien priority.
Mr. Hawthorne, a lawyer, does not dispute this fundamental tax law. Rather, he relies on a self-serving affidavit that outlines a history of marital discord completely irrelevant to these proceedings and contends simply that the Government must prove that he intended to defraud the IRS. Even if there was no intent to defraud the IRS, it does not change the undisputed fact that the unpaid taxes were assessed and demand was made for them in June 2003 - one month prior to the transfer made to Sylvia - and that any transfer of his property to Sylvia after that date was subject to the prior federal tax lien. Bess, 357 U.S. at 57; United States v. Cache Valley Bank, 866 F.2d 1242, 1245 (10th Cir. 1989).
In any event, the undisputed facts paint a compelling picture of fraud. They show that Mr. Hawthorne (who, again, is a lawyer) transferred his interest in the Snowshoe property to his wife after he knew that he owed the IRS over $340,000 (having reported the amount owed and paying only part of that amount) and after the IRS sent him notice and demand for that amount; the transfer was made to a family member; there is no evidence that his wife gave him any consideration for this transfer of interest; and Mr. Hawthorne continues to reside on that property today - eleven years after transferring his interest to his wife. See Cardiovascular & Thoracic Surgery, Inc. v. DiMazzio, 37 Ohio App.3d 162 (Ohio Ct. App. 1987) (). Furthermore, the evidence shows that, in the same month he transferred his interest in the Snowshoe...
To continue reading
Request your trial