United States v. Peters
| Decision Date | 11 June 2014 |
| Docket Number | Case No. 4:12CV01395 AGF |
| Court | U.S. District Court — Eastern District of Missouri |
| Parties | UNITED STATES OF AMERICA, Plaintiff, v. GERALD PETERS, et al., Defendants. |
The United States brings this action against Defendants Gerald Peters and Darlene Peters ("Defendants"), to recover delinquent income taxes and penalties and to enforce, pursuant to 26 U.S.C. § 7403, its tax liens against their residence. 1 Now before the Court are the United States' motion for summary judgment and Ms. Peters' motion for summary judgment. For the reasons set forth below, the United States' motion for summary judgment will be granted and Ms. Peters' motion for summary judgment will be denied.
Unless otherwise noted the facts set forth below are not disputed by the parties.
Defendants Gerald and Darlene Peters, a married couple, are residents of Saint Louis County, Missouri.2 Ms. Peters owns and manages rental properties, sometimes through a business called Darlene Peters, Inc., and sometimes individually. Mr. Peters has never been an owner of Darlene Peters, Inc., but he assists Ms. Peters in her management of rental properties by performing maintenance duties.
In 1995, Defendants purchased a property at 17659 Ailanthus Drive, Chesterfield, Missouri 63005, (the "Ailanthus Property") where they currently reside.3 On June 8, 2001, the Peterses executed a purchase agreement to sell certain real property located in Ballwin, Missouri (the "Henry Property"). There is no indication in the record that Defendants' sale of the Henry Property was motivated by condemnation, threat of condemnation, theft, or seizure. Having entered into a purchase agreement, Defendants thereafter refused to close the sale. The prospective buyer sued them for specific performance in the Saint Louis County Circuit Court and prevailed. The Circuit Court ordered Defendants to close on the sale and in April of 2002, they did so.
Defendants distributed a portion of the proceeds from the sale of the Henry Property as follows: $200,000 to an acquaintance of Ms. Peters, Mary Openlander; $67,200 to Countrywide Mortgage as payment on a mortgaged property titled in the name of Darlene Peters, Inc.; and $37,899.50 to Shared Credit Union. Ms. Peters instructed Mary Openlander to hold the $200,000 check and subsequently these funds weretransferred to Darlene Peters, Inc. It is undisputed that Defendants did not reinvest the proceeds from the sale of the Henry Property in replacement property "similar or related in service or use." Id.
On October 15, 2003, after unsuccessfully appealing the Circuit Court's decision, Defendants filed their joint Form 1040, their federal income tax return for the 2002 tax year. They did not report the gain realized on the sale of the Henry Property, asserting pursuant to 26 U.S.C. § 1033, that the gain was not taxable because the conveyance of the property was an involuntary conversion. See 26 U.S.C. § 1033. The Peterses reported a total tax due of $59.00 on their 2002 tax return. The Internal Revenue Service ("IRS") audited Defendants' 2002 income tax return and concluded that the involuntary conversion principles set forth in 26 U.S.C. § 1033 did not apply to the sale of the Henry Property because Defendants voluntarily chose to sell the property and never obtained a replacement property, as required by that statute. See 26 U.S.C. § 1033.
On February 3, 2005, following its audit of the 2002 return, the IRS issued a Notice of Deficiency to Defendants in accordance with 26 U.S.C. §§ 6212 & 6213, finding that Defendants had not properly reported the gain realized from the sale of the Henry Property. The IRS also made additional adjustments to the 2002 tax return, determining that Defendants' tax liability was $155,833, and that Defendants owed a deficiency in the amount of $155,774. In addition, because Defendants had understated their total income for the 2002 tax year by more than ten percent, the IRS assessed a mandatory penalty pursuant to 26 U.S.C. § 6662(a). On July 11, 2005, the IRS sent Defendants a Notice of Deficiency reflecting these assessments and demanded payment.On December 30, 2005, the IRS filed a Notice of Federal Tax Lien against Defendants in St. Louis County, Missouri.
On February 9, 2006, Mr. Peters applied for innocent spouse relief pursuant to 26 U.S.C. § 6015, and on November 22, 2006, the IRS denied this request. Although he was entitled to do so, Mr. Peters did not appeal the IRS' refusal to grant him innocent spouse relief to the Tax Court.
Although the IRS refused to grant innocent spouse relief, on November 26, 2006, an employee in the IRS Appeals Account and Processing Support group incorrectly entered a code in the IRS computer system indicating that the IRS had in fact granted that relief. As a result of the coding error, Mr. Peters' tax liability account showed a zero balance for the 2002 tax year. On October 7, 2007, the IRS corrected the coding error and Mr. Peters' account once again reflected a balance owed for the 2002 tax year.
On May 23, 2011, the IRS erroneously filed a Certificate of Release of Federal Tax Lien with respect to Ms. Peters' tax liability. On July 7, 2011, the IRS revoked its release of the lien and refiled its Notice of Federal Tax Lien against Ms. Peters.
Apart from Mr. Peters' request for innocent spouse relief, Defendants did not contest the Notice of Deficiency. The IRS sent Defendants additional statutory notices and demands for payment in 2006, 2007, 2008, 2009, 2010, and 2011. It is undisputed that Defendants have not paid the additional tax and penalties assessed and remain indebted to the United States for the assessments as well as applicable penalties andinterest.4 The United States now seeks to enforce its tax liens with respect to the unpaid assessments, penalties and interest through the sale of the Ailanthus Property.
The United States filed this action on August 6, 2012. After the United States amended its complaint, Defendants answered and the parties made their initial disclosures. In his answer to the First Amended Complaint, Mr. Peters admitted that he owes the assessed federal tax liabilities for tax year 2002. See Doc. No. 7, ¶¶ 1-8; see also Doc. No. 4, ¶¶ 1-8. In her answer Ms. Peters also admitted that she was liable for the delinquent tax, but raised the affirmative defense that the amount of tax assessed was "in error." See Doc. No. 9, ¶¶ 8 & 17.
In accordance with the Case Management Order ("CMO") and the Federal Rules of Civil Procedure, the United States propounded discovery requests and deposed witnesses. In her responses to the United States' First Request for Admission, Ms. Peters responded to the inquiries regarding the validity of the July 11, 2005 assessment and her outstanding tax liability for the 2002 tax year as "non-applicable" and reserved the right to supplement her responses. Doc. No. 61-5. Ms. Peters did not, however, supplement her responses. In responding to the United States' Second Request for Admission, Mr. Peters admitted that the sale of the Henry Property was not due to threat of condemnation. Doc. No. 61-6. Ms. Peters failed to respond to all inquiries in the Second Request for Admission related to the sale of the Henry Property. Doc. No. 61-7. Duringher deposition, Ms. Peters testified that she had no documentation to support her assertion that the transfer of the Henry Property was due to an involuntary condemnation. Doc. No. 61-18, at 25, ll.19-22.
At the outset of the suit, Defendants were each represented by counsel, but on September 6, 2013, the Court granted the motion of Ms. Peters' counsel to withdraw. Ms. Peters has not obtained substitute counsel.5 Mr. Peters continued to be represented by counsel until May12, 2014, after briefing on these motions was complete.
Following the November 4, 2013 deadline for the completion of discovery in this matter, the Court granted a consent motion to extend the deadline for the filing of dispositive motions through January 31, 2014 and the trial date was continued to June 9, 2014. The United States filed its motion for summary judgment, and pursuant to the extension, Defendants' responses were due not later than February 21, 2014. Defendants filed timely responses to the summary judgment motion on February 10 and February 13, 2014 (Doc. Nos. 63 & 64), and the United States filed its reply on February 19, 2014. Ms. Peters thereafter filed an untimely response to the motion on February 28, 2014. (Doc. No. 68.) Inasmuch as the United States did not move to strike that filing and it is not the subject of dispute between the parties, the Court will consider that document as part of the record. Subsequently, on March 5 and March 11, 2014, after the deadline for the filing of responses to the summary judgment motion had passed, Ms. Peters filed, inopposition to the motion for summary judgment, her own affidavit6; a second affidavit; a copy of an unsigned letter on the letterhead of David Disbrow, Enrolled Agent, dated March 7, 2014; and an unfiled, unsigned 2002 federal income tax return purportedly prepared by an accountant, David Disbrow, and bearing the handwritten notation: "FOR DISCUSSION PURPOSES ONLY." Doc. Nos. 70 & 73. In her second affidavit, Ms. Peters asserted that the tax form and letter demonstrated that Defendants' tax liability for the 2002 tax year had been calculated incorrectly. Prior to these filings, Defendants had revealed neither the existence nor contents of the documents nor identified Disbrow as a possible fact or expert witness. The United States moved to strike the affidavit, the tax form and the letter.
While the motions to strike were pending, the Court conducted a hearing on the motion of Mr. Peters' counsel to withdraw from the case. At the hearing Mr. Peters made a pro se request that the Court, in ruling on the motion for summary judgment, consider the tax return and letter...
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