US v. Kitsos

• Decision Date: 11 June 1991
• Docket Number: No. 90 C 3449.,90 C 3449.
• Parties: UNITED STATES of America, Plaintiff, v. John G. KITSOS, et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

770 F. Supp. 1230

UNITED STATES of America, Plaintiff, v. John G. KITSOS, et al., Defendants.

No. 90 C 3449.

United States District Court, N.D. Illinois, E.D.

June 4, 1991.

Supplement to Memorandum Opinion and Order June 11, 1991.

Scott Harris, U.S. Dept. of Justice, Washington D.C., for plaintiff.

John Kitsos, pro se.

MEMORANDUM OPINION AND ORDER¹

SHADUR, District Judge.

This action has been brought by the United States against John G. Kitsos ("John") and Alice Kitsos ("Alice") — collectively "Kitsoses" — and Universal Bible Church of Bolingbrook ("Church") in this tax deficiency action based on the Tax-Court-adjudicated income tax liabilities of John covering a number of his taxable years. In part the United States seeks a determination that John has retained his interest in the residence at 326 Stafford Way, Bolingbrook, Illinois (the "Property") despite a purported conveyance of that interest to Church in March 1978 — a determination that would enable the United States to collect upon John's tax liability by levying upon the Property.²

On March 13, 1991 the United States moved for summary judgment under Fed. R.Civ.P. ("Rule") 56 against all three defendants, supporting its motion with (1) a memorandum, (2) the materials called for by Rule 56(e) and (3) the statement required by this District Court's General Rule ("GR") 12(m) (which was adopted to implement Rule 56) and asking for this relief:

1. a reduction to judgment of John's tax liabilities;

2. a finding (a) that the purported transfer to Church of John's interest in the Property was fraudulent or (b) that Church held the property as John's nominee; and

3. an order for sale of the Property, with the proceeds to be distributed to those holding an interest in the Property.

At that time this Court established a schedule for the remaining briefing on the summary judgment motion, but defendants then asked for more time immediately before the scheduled April 15 due date for their responses.³ Although no really substantive reason was offered in support of that motion, in an April 19 opinion this Court — reluctant to let the matter go effectively by default — granted another 28 days (to May 13) for the required responses.⁴ Earlier (on March 28) it had mailed to defendants the type of letter that it customarily sends to all pro se litigants faced with a Rule 56 motion (see Ex. 1).

When the extended May 13 due date arrived, defendants filed these documents rather than the required Rule 56(e) and GR 12(n) responses:

1. another "Motion To Reset and Further Extend Deadline Filing Dates," asking (again!) for 60 more days "in which to complete and file the additional material which is essential in their defense";

2. Church's "Motion to Recind and Set Aside Prior Court Orders and Permit a Trustee to Appear Pro Se for Defendant Church; Deny Plaintiffs Motion of Default and Summary Judgement";

3. John's affidavit as "Trustee of Church in Opposition of Government Motion for Summary Judgement";

4. John's individual affidavit "in Opposition to Summary Judgement"; and

5. Alice's affidavit "in Opposition to Government Summary Judgement Motion."

This Court's May 15 opinion, for the reasons set out at some length there, denied defendants' motion for extension referred to in paragraph 1 and Church's motion referred to in paragraph 2. At this point nothing more has been received from defendants and the United States has fired its final shot — by filing the "Response of the United States in Support of Its Motion for Summary Judgment" — so that the issues are ripe for determination.

Facts⁵

John's tax liabilities have been established in the amounts respectively set out in the attached group Ex. 2 (United States Exs. D and E) for the calendar years 1971 through 1978. Because those Exhibit figures obviously cannot reflect the full amount of prejudgment interest to the date of the judgment that should be entered here, the entry of that judgment must await further input. Accordingly the United States is being ordered to submit to this Court's chambers and to defendants on or before June 17 its calculation of the amount of a judgment to be entered against John on June 28 (including in its submission an explanation of its calculation of prejudgment interest), together with a proposed form of order for judgment. This Court will await any response to be filed in its chambers by John (or by either or both of the other defendants) on or before June 25 and will then proceed to enter judgment for the appropriate amount on the June 28 date.

To return to the dates relevant to this action in substantive terms, on March 2, 1978 John and Alice joined in executing and recording a deed conveying the Property to Church — a newly-formed corporation that John had organized under the Illinois not-for-profit statutes regarding religious corporations (what had been Sections 46a through 46h of the 1913 amendments to the legislation regarding such corporations, codified as Ill.Rev.Stat. ch. 32, ¶¶ 176-183). Until recently defendants have vacillated between representing Church to be an unincorporated association whose only members were John and Alice⁶ and contending that there were also other members — as yet wholly unidentified — of the same unincorporated association.⁷ Most recently, however, defendants have "discovered" that their frequent earlier representations were false and that Church is an Illinois not-for-profit corporation formed in 1978, with John as its Trustee.⁸ Contemporaneously with the making of that revised representation, Church then asked this Court to (Motion To Recind 3):

1. Set aside prior Court Order and permit a Trustee to appear for the Defendant Universal Bible Church;

2. Deny the Plaintiffs Motion of Default;

3. Deny Plaintiffs Motion for Summary Judgement against the Church;

4. Allow John Kitsos to be impleaded as Trustee of the Church and act herein for the Church.

(The Church was denied a public defender and is unable to pay a private attorney at this time)⁹

Because this Court had told defendants often enough that their notions in that respect were and are simply untenable, the May 15 opinion denied Church's motion.

In all events, the most relevant fact for current purposes is that the transfer to Church was without adequate consideration in the sense that is required by the legal doctrines discussed later in this opinion. No transfer tax was paid, based on this representation stamped on the deed and signed by John:

Exempt Under Provisions of Paragraph E, Section 4, Real Estate Transfer Tax Act.

That reference to "Paragraph E," handwritten by John, is to Ill.Rev.Stat. ch. 120, ¶ 1004(e), which reads:

Deeds where the actual consideration is less than $100.¹⁰

Ever since that time John has controlled Church — that is, assuming that it has any real existence at all — and he has claimed throughout this litigation to act for it.

As for the post-conveyance conduct of defendants, U.S. 12(m) ¶¶ 16-26 and n. 1 (attached to this opinion as its Ex. 3) tell the story as to the lack of significance to be attached to Church's purported "ownership" of the Property. Defendants respond with no facts — they merely offer generalized denials that do not create any real issue of fact, let alone any material factual issue. All that they have offered that could be characterized as even partly responsive to the United States' filing is a statement in their memorandum that the designation of John and Alice as the parties insured on the hazard and liability insurance covering the Property — a designation made with no mention whatever of Church either as a party insured or as having any interest in the Property — is in error and will be corrected. That assertion would not make a difference even if it were to be credited, and this Court is not required to do that.¹¹

John's Tax Liability

John contested his tax liability for the years at issue before the Tax Court. He lost. On August 25, 1987 Tax Court Judge Edna Parker issued a decision (part of Ex. 2 to this opinion) pursuant to that Court's January 22, 1987 opinion, determining the deficiencies in tax and additions to the tax that were later set out in the Form 4340 Certificates of Assessment (the balance of Ex. 2 to this opinion).

Although John purports to challenge the existence of his tax liabilities here, it has been firmly established for nearly a half century that claim preclusion — res judicata — forecloses any such attack (Commissioner v. Sunnen, 333 U.S. 591, 598, 68 S.Ct. 715, 719, 92 L.Ed. 898 (1948); United States v. International Building Co., 345 U.S. 502, 73 S.Ct. 807, 97 L.Ed. 1182 (1953)). Nor has any real question been presented here as to the validity of the assessments (see United States v. Chila, 871 F.2d 1015, 1017-18 (11th Cir.1989); cf. United States v. Warner, 855 F.2d 372, 374 (7th Cir.1988)). As stated earlier, all that is required is to bring the amounts up to date to reflect the full prejudgment interest.

As for the relationship between John's established tax liabilities and the conveyance to Church — the issue whether that conveyance may be disregarded because it was fraudulent as to the United States — the relevant question is whether the United States was a "creditor" of John's at the time of the 1978 conveyance. On that score the opinion of this Court's former colleague Judge Susan Getzendanner, issued in a remarkably similar case (a purported conveyance of a taxpayer's residence to a "church" without the receipt of any current consideration¹²), could have been written expressly to fit this case (Indiana National Bank v. Gamble, 612 F.Supp. 1272, 1276 (N.D.Ill.1984) (citations omitted)):

Although those prior year's income taxes had not yet been assessed, the law is well settled, for fraudulent conveyance purposes, tax liabilities are due and owing on the date the returns are required to be filed and not the date of assessment.

Fraud in the Conveyance of the Property

As just indicated, the...