United States v. Lothringer

• Decision Date: 11 August 2020
• Docket Number: SA-18-CV-00373-XR
• Parties: UNITED STATES OF AMERICA, Plaintiff, v. ARTHUR DALE LOTHRINGER, JANET LYNN LOTHRINGER, PICK-UPS, INC., BEXAR COUNTY, TEXAS, Defendants.
• Court: U.S. District Court — Western District of Texas

UNITED STATES OF AMERICA, Plaintiff, v. ARTHUR DALE LOTHRINGER, JANET LYNN LOTHRINGER, PICK-UPS, INC.,BEXAR COUNTY, TEXAS, Defendants.

SA-18-CV-00373-XR

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION

August 11, 2020

ORDER ON SUMMARY JUDGMENT

On this date, the Court considered Plaintiff's Motion for Summary Judgment (ECF No. 64), Defendants' Response (ECF No. 66), and Plaintiff's Reply (ECF No. 68). After careful consideration, the Court will GRANT the motion.

BACKGROUND

This is a federal tax collection suit brought by Plaintiff United States of America ("Government") against Defendants Arthur Dale Lothringer ("Mr. Lothringer"), Janet Lynn Lothringer ("Mrs. Lothringer"), and Pick-Ups, Inc. ("Pick-Ups"). According to the Government, Pick-Ups owes a total of $1,777,047.98¹ in federal income tax, federal employment tax, penalties, and accrued interest for the tax years 2006, 2007, and 2008. The Government asks this Court to (1) reduce the tax assessments to a judgment that Pick-Ups is liable, (2) foreclose federal tax liens against properties titled to the Lothringers, (3) determine that Pick-Ups is the alter ego of Mr. Lothringer and impose the tax liabilities upon him, and (4) determine that Mr. Lothringer is liablefor Pick-Ups' taxes under the Texas Tax Code. ECF No. 1 at 7-9. The Government has moved for summary judgment, urging that there is no genuine issue of material fact on any of these counts, and additionally requesting that the Court award Mrs. Lothringer a homestead interest out of the sale of the Lothringers' residential real property. ECF No. 64 at 7. The relevant factual background to this case is long and as follows.

I. The business and operations of Pick-Ups

Pick-Ups was incorporated in 1994 by Mr. Lothringer with the Texas Secretary of State for the purpose of "selling and financing used pickup trucks." ECF No. 64-16. Mr. Lothringer was the president and the sole officer, director, and shareholder of Pick-Ups at all times. ECF No. 64-18; ECF No. 64-14, Deposition of Arthur Lothringer [hereinafter, "Lothringer Dep."] 23:24-24:9. Pick-Ups operated several used car lots in San Antonio, Texas from 1994 through 2011. Lothringer Dep. 23:10-13.

Only a couple of points are relevant in the early years of Pick-Ups' operations. First, from the very beginning, Pick-Ups failed to comply with requirements of the Texas Tax Code: for the years 1994-2002, 2008, 2010, and 2011, Pick-Ups failed to file Texas Franchise Public Information Reports with the Texas Secretary of State.² ECF No. 64-19 ¶ 6. Second, between 2003 and 2008, Mr. Lothringer's brother, Michael Lothringer, loaned over $260,000 to Pick-Ups. ECF No. 64-26, Deposition of Michael Lothringer [hereinafter, "MLothringer Dep."] 9:21-10:13. Mr. Lothringer claimed at one point that he sold Pick-Ups in 2007, but that he continued to operate as if he were still the owner, with the same title, role, and responsibilities through 2011. ECF No. 64-19 ¶ 11.

Pick-Ups maintained an active bank account with the International Bank of Commerce through 2012. That account shows that in 2009, Pick-Ups deposited over $2.2 million; in 2010, over $2.4 million; in 2011, over $680,000; and in 2012, only $4,210. ECF No. 64-19 ¶ 14. Similarly, Uniform Commercial Code ("UCC") records show transactions reflecting income for Pick-Ups during both 2009 and 2010 in excess of $2 million per year, and over $600,000 in 2011. ECF No. 64-19 ¶ 8.

By 2011, Pick-Ups was getting into trouble not just with the IRS (explained in more detail below), but also in the state of Texas. Sometime in 2011, while still operating Pick-Ups, Mr. Lothringer became the subject of a criminal investigation into Pick-Ups that resulted in two felony indictments against him in 2013.³ ECF No. 64-28. On May 23, 2011, the Texas Department of Motor Vehicles revoked Pick-Ups' dealer license. ECF No. 64-19 ¶ 9. According to Mr. Lothringer, Pick-Ups "shut down" on May 31, 2011. Lothringer Dep. 21:6-7. On July 29, 2011, the Texas Secretary of State forfeited the charter of Pick-Ups pursuant to Section 171.309 of the Texas Tax Code. ECF No. 64-14. According to the Government, despite the revocation of Pick-Ups' dealer license in 2011, Mr. Lothringer continued to operate Pick-Ups' business through calendar year 2014 "under multiple names and nominees." ECF No. 64-19 ¶ 9.

II. Pick-Ups' tax troubles

It seems that for several of the years Pick-Ups was in business, it had persistent trouble with its federal taxes. Pick-Ups failed to file federal income (Form 1120) tax returns with the IRS for the years 2008, 2009, 2010, and 2011. ECF No. 64-19. The tax liabilities that are relevant here are from tax years 2006, 2007, and 2008.

For the year 2006, Mr. Lothringer late-filed an income (Form 1120) tax return for Pick-Ups with the Internal Revenue Service ("IRS") on October 22, 2007. ECF No. 64-9. Mr. Lothringer disclosed gross receipts or sales of $17,469,568 and assets of $2,650,918, but taxable income of only $9,269 and total tax of $1,457. Id. An IRS audit of Pick-Ups' 2006 income tax return disagreed and found a revised taxable income of $4,390,207, total additional tax due of $1,491,280, plus total penalties of $447,523. ECF No. 64-5 at 4. (This $1.9 million bill allegedly owed forms the basis of the majority of the Government's present complaint.)

In 2009, the Government also assessed taxes owed by Pick-Ups for unpaid federal employment (Form 941) tax for the last quarter of 2007 and the first quarter of 2008. The record reflects that a few partial payments were made, additional penalties were assessed, and interest accrued on the Form 941 tax due. In 2010, the IRS assessed civil penalty (Section 6721) taxes against Pick-Ups for the 2007 tax year, which also accrued interest.

III. The Tax Court litigation

On September 21, 2011, the massive income taxes and penalties Pick-Ups allegedly owed from 2006 came calling when the IRS issued a statutory notice of deficiency, notifying Pick-Ups it owed $1,938,803 for the year 2006. ECF No. 64-5 at 1. Pick-Ups contested this proposed tax deficiency by filing a petition against the Commissioner of Internal Revenue in the U.S. Tax Court on December 9, 2011 (the "Tax Court case").⁴ ECF No. 64-10. According to Pick-Ups' petition, the assessed tax deficiency for 2006 was wrong because the "audit results did not reflect loss on sale notes." Id. at 5. Pick-Ups requested a trial in San Antonio, Texas, which was set for November 5, 2012. Id. at 22.

The Commissioner filed a pretrial memorandum, in which he conceded an adjustment to Pick-Ups' 2006 income of $2,020,171.151. ECF No. 64-4 at 67. As a result, the memorandum stated Pick-Ups' total tax liability was reduced from $1.93 million to $1,045,748.69. Id. The memorandum explains that during the audit of Pick-Ups' 2006 income tax return, Mr. Lothringer told the IRS that he "sold notes receivable at a discount to third-party finance companies," and that if the third-party company could not collect on the note after a certain period of time, Pick-Ups "was required to buy back the note." ECF No. 64-4 at 69. Mr. Lothringer further explained that he would "then typically re-sell the note to other finance companies," resulting in losses on the notes. Id. Because the losses were not reported on Pick-Ups' 2006 return, and because (according to the IRS) Pick-Ups "failed to provide sufficient information regarding these sales during the audit," the IRS did not allow any losses when calculating Pick-Ups' taxable income. Id.

During discovery in the Tax Court case, Mr. Lothringer provided an analysis of the discount on the notes sold and supporting spreadsheets to support Pick-Ups' claim of $5,610,883.99 in losses as a result of discounted notes in 2006. Id. The Commissioner requested additional information to support the claimed losses, which Mr. Lothringer stated he could provide by September 6, 2012. Id. at 70. On August 22, 2012, the Commissioner issued written discovery requests to Pick-Ups. Id. Pick-Ups failed to timely respond within 30 days, and so the Commissioner claimed that Pick-Ups was deemed to have admitted that all adjustments to income in the notice of deficiency were not disputed, and that the only issue in dispute was the $5,610,883.99 in losses from the sale of notes. Id. On October 10, Mr. Lothringer provided supporting documents showing the terms of the sales of notes. Id. The Commissioner's review of the information provided showed the notes were not as discounted as Pick-Ups claimed, and that Pick-Ups was entitled to losses of $2,020,171.51. Id. at 71.

The Tax Court case was called on November 5, 2012, the parties were heard, and the Tax Court ordered the parties to either submit a stipulated decision document or file a written status report. In a written status report filed on May 3, 2013, the Commissioner informed the Tax Court that he had proposed a decision document to Pick-Ups but that Pick-Ups "had not decided whether or not to execute the decision." ECF No. 64-10 at 20. The Commissioner also told the Tax Court that there had been "no communication" with Pick-Ups and that he intended to file a motion for entry of decision. Id. The Tax Court gave the parties until June 7, 2013 to furnish decision documents. Id. They did not do so. Instead, on June 6, the Commissioner filed a Motion to Dismiss for Lack of Prosecution. Id. The Tax Court granted that motion on June 12, 2013, and further:

ORDERED and DECIDED that there is a deficiency in income tax due from [Pick-Ups] for the taxable year 2006 in the amount of $610,917.00;

That there is an addition to tax due from [Pick-Ups] pursuant to section 6651(a)(1), I.R.C., for the taxable year 2006 in the amount of $61,230.70; and

That there is penalty due from [Pick-Ups] pursuant to section 6662(a), I.R.C., for the taxable year 2006 in the amount of $122,183.40.

Id. at 21. The Tax Court decision was not appealed.

On October 29, 2013, the IRS assessment...