United States v. Nichols
| Decision Date | 28 May 2015 |
| Docket Number | NO: 13-CV-0167-TOR,: 13-CV-0167-TOR |
| Court | U.S. District Court — District of Washington |
| Parties | UNITED STATES OF AMERICA, Plaintiff, v. DON O. NICHOLS, et al., Defendants. |
BEFORE THE COURT is the United States' Motion for Partial Summary Judgment (ECF No. 31). This matter was submitted without oral argument. The United States is represented by Dylan C. Cerling and Adam D. Strait. Defendants Don O. Nichols and Terry A. Nichols are represented by Charles H. Hammer. Defendant Last Day Trust has not appeared in this case and an order of default has been entered against it. ECF No. 28. The Court has reviewed the record and files herein, and is fully informed.
On May 29, 2013, the United States filed its first amended complaint seeking: (1) judgment against Defendants Don and Terry Nichols (collectively "the Nichols") for unpaid federal income taxes and civil penalties for the years 1999, 2001-2009; (2) a determination that real property purchased by the Nichols in Reardon, Washington (the "subject property"), had been fraudulently transferred to Defendant Last Day Trust; (3) in the alternative, a determination that Last Day Trust holds title to the subject property as the nominee or alter ego for the Nichols; (4) a determination that the United States has valid tax liens against the Nichols' property; and (5) an order foreclosing on the subject property to satisfy the tax liens. ECF No. 3.
The United States has alleged in its complaint that the Nichols filed frivolous federal income tax returns for the tax years 1999, 2001-2008. Id. at ¶13-17. The Secretary of Treasury has made assessments of federal income taxes, penalties, interest, and other statutory additions against the Nichols who have neglected or refused to make the requested payments. Id. at ¶ 15-17, 19. The Internal Revenue Service ("IRS") has recorded statutory liens against all property and rights to property owned by the Nichols pursuant to 26 U.S.C. § 6321. Id. at ¶ 19-22.
The United States has also alleged that the Nichols purchased the subject property on August 17, 1984. Id. at ¶ 33. On December 10, 1998, a Real Estate Tax Affidavit was filed with the Spokane County Auditor changing the name on the property to "Don Nichols, Trustee of the Last Day Trust." Id. at ¶ 34. This document noted that the change was "a mere change in identity." Id. On December 31, 1998, the Nichols signed a statutory warranty deed purporting to convey the subject property to Don Nichols as trustee for the Last Day Trust in exchange for consideration in the amount of "zero dollars and no/110ths [sic]." Id. at ¶ 35. The United States further alleges that "[d]espite the purported transfers of the Subject Property, Defendants Don O. Nichols and Terry A. Nichols continue to occupy, possess, exercise dominion and control over, and have use and enjoyment of the subject property." Id. at ¶ 37.
In response to interrogatories by the United States, the Nichols submitted draft 1040X returns and Schedule A forms setting forth the deductions to which the Nichols believed they were entitled in the years at issue. ECF No. 32 ¶ 39; 33-42 at 8; 33-43 at 7. The United States now moves the Court for an order of partial summary judgment based upon undisputed facts established in those submissions and certified IRS records. ECF No. 31.
Summary judgment may be granted to a moving party who demonstrates "that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The moving party bears the initial burden of demonstrating the absence of any genuine issues of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The burden then shifts to the non-moving party to identify specific genuine issues of material fact which must be decided by a fact-finder. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). "The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff." Id. at 252.
For purposes of summary judgment, a fact is "material" if it might affect the outcome of the suit under the governing law. Id. at 248. A dispute concerning any such fact is "genuine" only where the evidence is such that a reasonable jury could find in favor of the non-moving party. Id. In ruling upon a summary judgment motion, a court must construe the facts, as well as all rational inferences therefrom, in the light most favorable to the non-moving party. Scott v. Harris, 550 U.S. 372, 378 (2007). Only evidence which would be admissible at trial may be considered. Orr v. Bank of Am., NT & SA, 285 F.3d 764, 773 (9th Cir. 2002).
The United States requests the following findings by the Court: (1) the Nichols are not entitled to certain deductions, (2) the Nichols are subject to certain penalties as well as interest, and (3) Last Day Trust acts wholly as a nominee or alter ego for the Nichols. ECF No. 31. The Nichols "do not deny that Last Day Trust was operating as a nominee entity," nor do they object to any of the United States' statements of undisputed fact. No. 38 at 2-4.
While the Nichols raise no factual objections, they do object to the United States motion on grounds that it is premature and maintain that a final tally of the Nichols' tax liability will be established through negotiations. Id. at 2, 3. The United States has not requested the Court to determine a final amount of the Nichols' tax liability in the current motion. This motion is not premature because the United States is entitled to narrow the field of issues for trial through a motion for partial summary judgment. See,e.g., Sebastian Int'l, Inc. v. Russolillo, 151 F. Supp. 2d 1215, 1217 (C.D. Cal. 2001) (); Continental Airlines, Inc. v. Goodyear Tire & Rubber Co., 819 F.2d 1519, 1525 (9th Cir. 1987) (). The Courttherefore considers whether, based upon the undisputed material facts, the United States is entitled to summary adjudication on each of the issues identified.
Income tax deductions are "a matter of legislative grace and . . . the burden of clearly showing the right to the claimed deduction is on the taxpayer." Sparkman v. C.I.R., 509 F.3d 1149, 1159 (9th Cir. 2007) (quoting New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440 (1934)); see also Talley Indus. Inc. v. C.I.R., 116 F.3d 382, 387 (9th Cir. 1997) . "Taxpayers are required to keep sufficient records to substantiate deductions." Sparkman, 509 F.3d at 1159 (citing 26 U.S.C. § 6001; 26 C.F.R. § 1.6001-1(a)). "If evidence to establish a deduction is lacking, the taxpayer, not the government, suffers the consequence" and the deduction is not allowed. Talley Indus. Inc., 116 F.3d at 387-88.
In their draft 1040X and Schedule A forms submitted to the United States, the Nichols claim certain charitable deductions. The United States contends that "the Nichols have not provided sufficient evidence to substantiate the purported charitable deductions" and requests the Court to "find the Nichols are not entitled to charitable deductions . . . in an amount greater than the receipts they haveprovided" for the years 1999, 2001-2004, and 2007. ECF No. 31 at 9-10. The Nichols have not denied the United States' factual allegations regarding the numbers represented on these draft forms nor that the Nichols lack appropriate receipts for some of the claimed contributions. See ECF No. 38.
In general, a taxpayer is allowed to deduct any contributions or gifts made to qualifying organizations for their use. See 26 U.S.C. § 170(a). 26 C.F.R. § 1.170A-13(a)(1) requires that charitable contribution deductions, whether made by cash or otherwise, be substantiated by at least one of the following:
(i) A canceled check.
(ii) A receipt from the donee charitable organization showing the name of the donee, the date of the contribution, and the amount of the contribution. A letter or other communication from the donee charitable organization acknowledging receipt of a contribution and showing the date and amount of the contribution constitutes a receipt . . . .
(iii) In the absence of a canceled check or receipt from the donee charitable organization, other reliable written records showing the name of the donee, the date of contribution, and the amount of the contribution.
If the donation is a small amount, any written or other evidence from the donee charitable organization acknowledging receipt is generally sufficient (e.g., emblem, button, or other token). The reliability of the records is determined on thebasis of all relevant facts and circumstances. See 26 C.F.R. § 1.170A-13(a)(2)(C). To claim a charitable contribution deduction of $250 or more, the taxpayer must substantiate the contribution with a contemporaneous written acknowledgment from the donee organization. 26 U.S.C. § 170(f)(8); 26 C.F.R. § 1.170A-13(f)(8). However, "[s]eparate contributions of less than $250 are not subject to the requirements of section 170(f)(8), regardless of whether the sum of the contributions made by a taxpayer to a donee organization during a taxable year equals $250 or more." 26 C.F.R. § 1.170A-13(f)(8).
After reviewing the Nichols' draft forms and substantiating evidence, the Court makes the following findings of undisputed fact:
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