United States v. Smith
| Decision Date | 01 June 2012 |
| Docket Number | CASE NO. C11-5101 RJB |
| Court | U.S. District Court — Western District of Washington |
| Parties | UNITED STATES OF AMERICA, Plaintiff, v. TERRY L. SMITH, both individually and as trustee for the TERRY L. SMITH AND LOUISE A. SMITH FAMILY REVOCABLE LIVING TRUST; LOUISE A. SMITH, both individually and as trustee for the TERRY L. SMITH AND LOUISE A. SMITH FAMILY REVOCABLE LIVING TRUST; BLUE BEAR COMPANY; HSBC BANK NEVADA, N.A.; and JEFFERSON COUNTY Defendants. |
TERRY L. SMITH and LOUISE A. SMITH, both individually and as
trustees for the TERRY L. SMITH AND LOUISE A.SMITH FAMILY
This matter comes before the Court on motion of the United States for summary judgment against Terry L. Smith that reduces his tax liabilities from the 1999-2004 tax years to judgment and forecloses the United States' tax liens against the properties at issue in this suit. Dkt. 70. The United States also moves for summary judgment or default judgment againstLouise A. Smith and against the Terry L. Smith and Louise A. Smith Family Revocable Living Trust. Id. The United States asks that the tax liens against the properties at issue be foreclosed against the community property of Mr. and Mrs. Smith. Id. The United States also asks that the Living Trust be deemed to be the alter-ego and/or nominee of Mr. Smith and that the transfers of the properties at issue to the Living Trust be set aside as fraudulent transfers under Washington Law. Id.
Although Mr. Smith has filed numerous documents and pleadings with the Court, he and the other Defendants have failed to file an Answer to the Complaint and have failed to admit or deny the specific allegations contained in the United States' Complaint. The Defendants have also failed to file any responsive pleadings to the present motion for summary judgment.
The Court has considered the pleadings in support of and in opposition to the motion and the record herein.
Terry L. Smith failed to file proper tax returns for the 1999-2004 tax years, and, as a result, duly authorized delegates of the Secretary of the Treasury conducted examinations and calculated deficiencies for those years. Dkt. 70-5 pp. 2-38. For the 1999 and 2001 tax years, Mr. Smith challenged the IRS' Notice of Deficiency in the United States Tax Court. Mr. Smith admitted to not filing any returns, asserting that his income was not taxable and he was not required to file returns. Dkt. 70-4 pp. 16-19. The Tax Court entered an oral ruling, followed by a written Order of Dismissal and Decision, which dismissed Mr. Smith's challenge and decided Mr. Smith's tax liability, along with associated penalties, for the 1999 and 2001 tax years. Dkt. 70-4 pp. 27-45. The Tax Court also imposed a penalty against Mr. Smith pursuant to 26 U.S.C.§ 6673(a)(1) for making frivolous arguments. Id. Mr. Smith appealed to the Ninth Circuit, and the Ninth Circuit affirmed the Tax Court. Dkt. 70-4 pp. 48-50.
Mr. Smith's challenge to the Notice of Deficiency he received for the 2002 tax year was also dismissed. The Tax Court entered an order deciding his tax liability, along with associated penalties, for the 2002 tax year and also imposed a penalty under 26 U.S.C. § 6673(a)(1) for making frivolous arguments. Dkt. 70-4 pp. 52-54.
For the remaining tax years, Mr. Smith did not challenge the notices of deficiency that were sent to him and assessments were made against him after the period to challenge the deficiencies expired. Dkt. 70-5 pp. 2-38.
Due to previous court orders and Mr. Smith's failure to properly respond to the United States Requests for Admissions and this motion for summary judgment, the following facts, among others, concerning Mr. Smith's tax liabilities are deemed admitted: (1) Mr. Smith received income in each of the taxable years at issue in this suit; (2) Mr. Smith failed to file a tax return for each of the years at issue in this suit; (3) Mr. Smith received notices of deficiencies from the IRS for each of the tax years at issue in this suit; (4) Mr. Smith is liable to the United States for the tax liabilities as alleged in the United States' Complaint; and (5) Mr. Smith has failed to pay his tax liabilities in full for the tax years at issue in this suit.
The property upon which the United States seeks to foreclose its liens is a sailboat owned by the Smiths and two parcels of real property. The two parcels are vacant and unimproved and are not the primary residence of the Smiths. Dkt. 70-2 pp. 39-40, 69-70. Although the parcels are titled under the name of the Living Trust, the Smiths did not receive any consideration in return for transferring Parcel A to the Living Trust and used personal funds to pay for the purchase of Parcel B. Dkt. 70-2 pp. 46, 78-79. The Smiths purchased both parcels, use bothparcels, and pay the property taxes, insurance, and other costs of both parcels. Dkt. 70-2 pp. 38-40, 46-47, 67-68, 70-72.
Mr. Smith purchased the boat Mystera in 1981. Dkt. 70-2 pp. 74-75. Since the late 1980s, the Smiths have used the boat for their personal recreational use. Dkt. 70-2 pp. 76. Mr. Smith pays the expenses associated with maintaining the boat. Dkt 70-2 pp. 78. Mr. Smith transferred title of the boat to the Living Trust without receiving any consideration in return. Dkt. 70-2 pp. 78.
Both parcels of real property and the Mystera have liens recorded against them in the name of a purported entity called the "Blue Bear Company." The purported Blue Bear Company was named as a Defendant under 26 U.S.C. § 7403(b) because it may have an interest in the subject property. Dkt. 46. Default judgment was entered against Blue Bear Company on May 2, 2012, extinguishing any claim that Blue Bear Company has to the subject property or sale proceeds upon foreclosure of the tax liens and sale of the property. Dk. 73.
All of the transfers of title of the Subject Properties to the Living Trust occurred after the tax liabilities at issue began to accrue. Parcel A was transferred to the Living Trust on August 19, 2005. Parcel B was purchased by the Smiths and titled in the name of the Living Trust on April 9, 2002. The Mystera sailboat was transferred to the Living Trust on December 5, 2001. Dkt. 70-3
Because Mr. Smith failed to respond to the United States Requests for Admissions and failed to file a response to this motion for summary judgment, the following facts, among others, concerning the subject properties are deemed admitted: (1) The Living Trust is the alter-ego of Mr. Smith; (2) The Living Trust holds title to the Subject Properties as the nominee of Mr. Smith; (3) The Subject Properties were transferred to the Living Trust with the actual intent tohinder, delay, or defraud the United States; (4) Mr. Smith placed the Blue Bear Company liens upon the Subject Properties with the actual intent to hinder, delay, or defraud the United States; and (5) The Blue Bear Company has no independent legal existence.
The United States initiated this action by filing its Complaint on February 3, 2011. Dkt. 1. The Complaint seeks to reduce tax assessments against Terry L. Smith to judgment and to foreclose federal tax liens upon real property. Dkt. 1. Terry L. Smith, Louise A. Smith, and the Living Trust were served on or about February 10, 2011. Dkt. 11-14. An Amended Complaint was filed on October 4, 2011, naming Blue Bear Company as a named Defendant. Dkt. 44.
In response to this suit, Mr. Smith has filed numerous documents with the Court and at least three separate motions to dismiss.1 See Dkt. 49, 59 and 75. These motions were denied as "simply the byproduct of tax defier rhetoric." Dkt. 49 pp. 4; Dkt. 59 pp. 4; Dkt. 75 pp. 2.
The United States presently moves for summary judgment.
Summary judgment is appropriate only when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). In assessing a motion for summary judgment, the evidence, together with all inferences that can reasonably be drawn therefrom, must be read in the light most favorable to the party opposing the motion. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); County of Tuolumne v. Sonora Cmty. Hosp., 236 F .3d 1148, 1154 (9th Cir. 2001).
The moving party bears the burden of informing the court of the basis for its motion, along with evidence showing the absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). On those issues for which it bears the burden of proof, the moving party must make a showing that is "sufficient for the court to hold that no reasonable trier of fact could find other than for the moving party." Calderone v. United States, 799 F.2d 254, 259 (6th Cir. 1986); see also Idema v. Dreamworks, Inc., 162 F.Supp.2d 1129, 1141 (CD. Cal. 2001).
In order to successfully rebut a motion for summary judgment, the nonmoving party must point to facts supported by the record which demonstrate a genuine issue of material fact. Reese v. Jefferson Sch. Dist. No. 14J, 208 F.3d 736 (9th Cir. 2000). A "material fact" is a fact "that might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Where reasonable minds could differ on the material facts at issue, summary judgment is not appropriate. See v. Durang, 711 F.2d 141, 143 (9th Cir. 1983). A dispute regarding a material fact is considered genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Liberty Lobby, 477 U.S. at 248. The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient to establish a...
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