United States v. Holmes
| Decision Date | 16 August 2016 |
| Docket Number | CIVIL ACTION NO. 4:15-CV-00626 |
| Parties | UNITED STATES OF AMERICA, v. BARBARA L HOLMES, et al, Defendants. |
| Court | U.S. District Court — Southern District of Texas |
Pending before the Court is the defendants', Barbara L. Holmes, individually, and as independent executrix of the estate of Shirley H. Bernhardt, and Kevin W. Holmes, individually (the "defendants"), motion for summary judgment and brief in support (Dkt. Nos. 26 and 27). The plaintiff, the United States (the "Government"), has filed a response in opposition to the motion (Dkt. No. 29) to which the defendants have filed a reply (Dkt. No. 32). Also before the Court is the Government's motion for summary judgment (Dkt. No. 28). The defendants have filed a response to the Government's motion (Dkt. No. 30) to which the Government has filed a reply (Dkt. No. 31). After having carefully considered the motions, responses, replies, the record, and the applicable law, the Court determines that the Government's motion for summary judgment should be GRANTED in part and the defendants' motion for summary judgment should be DENIED.
This suit is brought by the Government to collect an unpaid estate tax deficiency based on the Internal Revenue Service's ("IRS") assessment surrounding the estate of Shirley H. Bernhardt1 (the "Estate"). Barbara Holmes is designated as the independent executrix of the Estate. On July 16, 1998, the Estate filed a Form 706 estate tax return with the IRS for the 1997 tax year prepared by Kevin Holmes as the agent, and signed by Barbara Holmes. Kevin Holmes is a certified public accountant, a tax lawyer, and is also married to Barbara Holmes. The return reported an estate tax liability of $700,024.34, which was remitted by the Estate. On October 9, 1998, the IRS selected the Estate's 1997 tax return for audit. On June 26, 2001, the IRS issued a Notice of Deficiency against the Estate, determining that the gross estate should have been increased from the $2,884,113.00 reported on the Estate's tax return to $4,706,731.00. The adjusted valuation resulted in an additional estate tax liability of $1,225,577.00. The Estate contested the Notice of Deficiency in the United States Tax Court, and on June 8, 2004, the tax court adopted a stipulated decision of the parties ordering a balance tax deficiency due to the IRS in the amount of $215,264.70. This amount represented the sum of the net tax deficiency held to be due of $263,843.70 less the total equitable recoupment2 offset of $48,579.00. The stipulated decision also ordered that the Estate may claim a "State estate, inheritance, legacy or succession" ("state estate") tax credit of $40,534.50, which, in turn, would further reduce the balance deficiency due. Lastly, the stipulated decision permitted the IRS to assess statutory interest.
On July 16, 2004, the IRS reassessed the estate tax deficiency reflecting a balance deficiency due of $223,309.20 and added interest in the amount of $108,703.62. It is undisputed that the IRS's assessment was erroneous because it applied the state estate tax credit to the netdeficiency instead of the balance deficiency due as stated in the stipulated order. Notice containing the erroneous assessment was sent to Barbara Holmes. On September 15, 2004, the Estate, through Kevin Holmes, responded to the assessment with its belief that it was inaccurate and requested a second determination.
On December 27, 2004, the IRS placed the Estate's case in the revenue officer queue for collection, but the case was not assigned to a revenue officer until April 22, 2013. Subsequently, on August 19, 2013, the IRS filed Notices of Federal Tax Liens in connection with the Estate's unpaid taxes. On September 27, 2013, the IRS sent the Estate, by certified mail, a final Notice of Intent to Levy and Notice of Right to a Hearing. In the notice, the IRS advised the Estate of its right to seek a Collection Due Process or Equivalent hearing (collectively, "CDP hearing") pursuant to 26 U.S.C. §§ 6320 and 6330. On October 5, 2013, Kevin Holmes responded to the notice, by certified mail, with a Form 12153 request for a CDP hearing along with a Form 2848 power of attorney, properly executed by Barbara Holmes, authorizing Kevin Holmes to represent the Estate in the hearing.
The IRS claims that part of the Estate's October 5, 2013 package—specifically, the CDP hearing request—was misplaced due to the federal government shutdown from October 1, 2013 to October 16, 2013. As a result, the IRS is unable to locate the original Form 12153 CDP hearing request. However, the IRS was able to locate and process the Form 2848 Power of Attorney that accompanied the request.
A dispute later arose regarding the timeliness of the Estate's CDP hearing request.3 On May 2, 2014, Kevin Holmes mailed a letter containing a copy of the October 5, 2013 CDP hearing request, stating that the original letter was sent by certified mail. On June 2, 2014, KevinHolmes sent an additional letter reiterating the Estate's position that the certified October 5, 2013 package containing the CDP hearing request was timely received. In that letter, the Estate also withdrew its request for a CDP hearing, but demanded an equivalent hearing and requested a copy of the IRS audit file in anticipation of the hearing. An additional request was sent on July 8, 2014. On July 11, 2014, the IRS notified the Estate that it accepted the Estate's timely request for a CDP hearing.
On March 10, 2015, the Government filed suit against Barbara Holmes individually and in her official capacity as independent executrix of the Estate and Kevin Holmes, individually to collect the unpaid estate tax liability. The Government asserts federal jurisdiction pursuant to 26 U.S.C. § 7402, 7403, and 7404 and 28 U.S.C. §§ 1340 and 1345. The Court addresses the parties cross-motions for summary judgment.
The defendants acknowledge the tax liability, but contend that the Government's collection efforts against the Estate are barred by the ten-year limitations period set out in § 6502 of the Internal Revenue Code. Thus, the defendants urge the Court to grant summary judgment in their favor.
In response to the defendants' motion, the Government argues that the statutory limitation period had not expired when it filed suit because the limitation period was suspended for 241 days pursuant to 26 U.S.C. § 6330 while the defendants' CDP hearing was "pending" from October 5, 2013 to June 2, 2014. Thus, the Government contends that the defendants' motion is without merit as it met the statute of limitation and urge that summary judgment begranted in its favor reducing the unpaid tax deficiency to judgment in the amount of $551,627.96. In addition, the Government also moves for summary judgment on the defendants' counterclaim arguing that the defendants lack standing to bring their 26 U.S.C. § 7433 counterclaim for refund because they are not "taxpayers" as it applies to the statute.
Rule 56 of the Federal Rules of Civil Procedure authorizes summary judgment against a party who fails to make a sufficient showing of the existence of an element essential to the party's case and on which that party bears the burden at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc). The movant bears the initial burden of "informing the district court of the basis for its motion" and identifying those portions of the record "which it believes demonstrate the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323; see also Martinez v. Schlumber, Ltd., 338 F.3d 407, 411 (5th Cir. 2003). Summary judgment is appropriate where "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c).
If the movant meets its burden, the burden then shifts to the nonmovant to "go beyond the pleadings and designate specific facts showing that there is a genuine issue for trial." Stults v. Conoco, Inc., 76 F.3d 651, 656 (5th Cir. 1996) (citing Tubacex, Inc. v. M/V Risan, 45 F.3d 951, 954 (5th Cir. 1995); Little, 37 F.3d at 1075). "To meet this burden, the nonmovant must 'identify specific evidence in the record and articulate the 'precise manner' in which that evidence support[s] [its] claim[s].'" Stults, 76 F.3d at 656 (citing Forsyth v. Barr, 19 F.3d 1527, 1537 (5th Cir.), cert. denied, 513 U.S. 871, 115 S. Ct. 195, 130 L. Ed. 2d 127 (1994)). It maynot satisfy its burden "with some metaphysical doubt as to the material facts, by conclusory allegations, by unsubstantiated assertions, or by only a scintilla of evidence." Little, 37 F.3d at 1075 (internal quotation marks and citations omitted). Instead, it "must set forth specific facts showing the existence of a 'genuine' issue concerning every essential component of its case." Am. Eagle Airlines, Inc. v. Air Line Pilots Ass'n, Intern., 343 F.3d 401, 405 (5th Cir. 2003) (citing Morris v. Covan World Wide Moving, Inc., 144 F.3d 377, 380 (5th Cir. 1998)).
"A fact is material only if its resolution would affect the outcome of the action, . . . and an issue is genuine only 'if the evidence is sufficient for a reasonable jury to return a verdict for the [nonmovant].'" Wiley v. State Farm Fire and Cas. Co., 585 F.3d 206, 210 (5th Cir. 2009) (internal citations omitted). When determining whether a genuine issue of material fact has been established, a reviewing court is required to construe "all facts and inferences . . . in the light most favorable to the [nonmovant]." Boudreaux v. Swift Transp. Co., Inc., 402 F.3d 536, 540 (5th Cir. 2005) (citing Armstrong v. Am. Home Shield Corp....
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