United States of America v. Taylor et al

Filing 38

MEMORANDUM OPINION. Signed by Judge Abdul K Kallon on 5/17/2019. (AFS)

FILED
2019 May-17 PM 03:36
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
NORTHWESTERN DIVISION
UNITED STATES OF
AMERICA,
Plaintiff,
v.
NEIL TAYLOR, ET AL.,
Defendants.

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Civil Action Number
3:18-cv-00720-AKK

MEMORANDUM OPINION
The United States filed this lawsuit against Neil Taylor (individually
and as the executor of the Estate of Haffred Neil Taylor), Lanette Taylor,
Nancilu Underwood, C. Wilbur Underwood, and Laura Stewart to reduce to
judgment the federal income and employment tax liabilities of Neil Taylor
and to foreclose federal tax liens which have attached to two real properties
in which Neil Taylor holds an interest. Doc. 1. The United States has
reached stipulations regarding the property interests of Lanette Taylor, the
Underwoods, and Stewart. Docs. 24, 28, 30. Presently before the court is
the United States’ motion for summary judgment against Neil Taylor. Doc.

34. As of the date of this order, Neil Taylor has not filed a response to the
motion. For the reasons below, the motion is due to be granted.
I. LEGAL STANDARD FOR SUMMARY JUDGMENT
Under Rule 56(a) of the Federal Rules of Civil Procedure, summary
judgment is proper “if the movant shows that there is no genuine dispute as
to any material fact and the movant is entitled to judgment as a matter of
law.” Fed. R. Civ. P. 56. “Rule 56[] mandates the entry of summary
judgment, after adequate time for discovery and upon motion, against a party
who fails to make a showing sufficient to establish the existence of an
element essential to that party’s case, and on which that party will bear the
burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986)
(alteration in original). The moving party bears the initial burden of proving
the absence of a genuine issue of material fact. Id. at 323. The burden then
shifts to the nonmoving party, who is required to “go beyond the pleadings”
to establish that there is a “genuine issue for trial.” Id. at 324 (citation and
internal quotation marks omitted). A dispute about a material fact is genuine
“if the evidence is such that a reasonable jury could return a verdict for the
nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986).

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II. FACTUAL BACKGROUND 1
Taylor is an attorney and owner of a law firm employing several
employees in Russellville, Alabama. Docs. 34-1 at 6; 35 at 1, 4. For the
taxable years 2007 through 2014, Taylor owes $216,158.15, as of March 15,
2019, for unpaid income taxes, penalties, and interest. Docs. 34-1 at 2-6;
34-2 ; 35 at 1-6. In addition, for the years 2008 through 2016, Taylor owes
$166,041.57, as of March 15, 2019, for unpaid employment taxes, penalties,
and interest. Doc. 34-1 at 8; 34-4; 34-5; 34-6; 34-7; 35 at 6-9. During this
period, the Department of Treasury issued several Notices of Federal Tax
Lien, which it recorded in the Office of the Judge of Probate of Franklin
County, Alabama. The liens notified Taylor of his tax liabilities, the United
States’ demand for payment, and that “there is a lien in favor of the United
States on all property and rights to property belong[ing] to [Taylor] for the
amount of these taxes,” plus penalties, interest, and costs. Docs. 34-9 and

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The United States contends that Taylor failed to respond to their Request for
Admissions issued on November 5, 2018. Doc. 34-18. Pursuant to Rule 36(a)(3) of the
Federal Rules of Civil Procedure, “[a] matter is admitted unless, within 30 days after
being served, the party to whom the request is directed serves on the requesting party a
written answer or objection addressed to the matter and signed by the party or its
attorney.” In light of Taylor’s failure to object to these request for admissions, the United
States is correct that Taylor has admitted to “fil[ing] a return with the IRS concerning
each of the income and federal employment tax years at issue” and “did not pay in full
the tax liability that he reported on those return.” Doc. 35 at 14-15.

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34-10. The United States subsequently filed this suit to reduce to judgement
Taylor’s liability and to foreclose its liens on two parcels of real property in
which Taylor has an interest. Doc. 1. See also 26 U.S.C. § 7401.
III. ANALYSIS
Pursuant to the Internal Revenue Code, “if any person liable to pay
any tax neglects or refuses to pay the same after demand, the amount
(including any interest, additional amount, addition to tax, or assessable
penalty, together with any costs that may accrue in addition thereto) shall be
a lien in favor of the United States upon all property and rights to property,
whether real or personal, belonging to such person.” 26 U.S.C. § 6321. In
light of Taylor’s failure to respond to the United States’ motion, the court
reviews whether the United States is entitled to reduce to judgement
Taylor’s tax liabilities and permit federal tax lien foreclosure against
Taylor’s property.
A. Whether the United States May Reduce Taylor’s Tax
Assessments to Judgement
“In reducing [a tax] assessment to judgment, the Government must
first prove that the assessment was properly made.” United States v.
Korman, 388 Fed. Appx. 914, 915 (11th Cir. 2010) (per curiam) (internal
quotation marks omitted). “An ‘assessment’ amounts to an IRS
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determination that a taxpayer owes the Federal Government a certain
amount of unpaid taxes. It is well established in the tax law that an
assessment is entitled to a legal presumption of correctness—a presumption
that can help the Government prove its case against a taxpayer in court.”
United States v. Fior D’Italia, Inc., 536 U.S. 238, 242 (2002). Without a
“finding that the computational methods used and . . . the assessment was
arbitrary and without foundation,” the tax payer’s “tax deficiency is
presumptively correct.” Olster v. Comm’r of Internal Revenue Serv., 751
F.2d 1168, 1174 (11th Cir. 1985) (internal punctuation omitted). Although
the IRS has an ongoing obligation to “make the inquiries, determinations,
and assessments of all taxes . . . which have not been duly paid,” 26 U.S.C. §
6201(a), the “taxpayer has the burden of proving that the [tax assessment]
computational method used is arbitrary and without foundation.” Olster, 751
F.2d at 1174 (citing Mersel v. United States, 420 F.2d 517 (5th Cir. 1970)).
The United States has satisfied its burden of providing evidence
demonstrating all of the tax penalties and interest assessed against Taylor
through the declaration of K. Cole, Forms 4340,2 and the Notices of Federal

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Certified copies of Form 4340 “establish the fact of assessment and carry with them a
presumption of validity and that the assessments they reflect were properly made.”
(continued...)

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Tax Liens that it filed against Taylor. See docs. 34-1, 34-2, 34-4, 34-5, 34-6,
34-7, 34-8, 34-9, 34-10, 37-1, 37-2; see also 26 U.S.C. § 7491(c) (stating
that the United States initially has “the burden of production in any court
proceeding with respect to the liability of any individual for any penalty,
addition to tax, or additional amount imposed by [the tax code]”). The
declaration establishes, in part, that as of March 15, 2019, Taylor owes
$216,158.15 for unpaid income taxes, penalties, and interest and
$166,041.57 for unpaid employment taxes, penalties, and interest. Doc. 341 at 2-6, 8. Cole based these amounts on certified copies of the Department
of Treasury Account Transcript, i.e. Form 4340, of Taylor’s employment
and income tax returns, which show Taylor’s “assessed penalties for failing
to pre-pay taxes, filing delinquent tax returns, and making late payments, as
well as the interest charged for late payments.” United States v. Trevitt, 196
F. Supp. 3d 1366, 1379 (M.D. Ga. 2016).

Based on these submissions, the

United States “has clearly met its burden of production regarding the tax

(… continued)

United States v. White, 466 F.3d 1241, 1248 (11th Cir. 2006) (citing Roberts v. C.I.R.,
329 F.3d 1224, 1227 (11th Cir.2003)). These forms are essentially a transcript and record
“setting forth taxpayer’s name, date of assessment, character of liability assessed, taxable
period, and amounts assessed.” Roberts, 329 F.3d 1228 (citing 26 C.F.R. § 301.6203-1).

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penalties and interest assessed for each year.” Trevitt, 196 F. Supp. 3d at
1379.
The burden therefore shifts to Taylor to prove the documents’
inaccuracy, or “that the [tax assessment] computational method used is
arbitrary and without foundation.” Olster, 751 F.2d at 1174. As stated
previously, Taylor opted to ignore the United States’ motion. Consequently,
Taylor has failed to meet his burden, and the court accepts the United States’
submissions as presumptive proof of Taylor’s tax liability. See Korman, 388
F. App’x at 915 (affirming “the presumption that the assessment was
proper” because the tax payer failed to dispute the accuracy of the
assessments, provided no evidence, and only offered “erroneous,
unsupported, or irrelevant arguments”).
B. Whether the United States May Foreclose its Tax Liens
on Taylor’s Properties
Based on Taylor’s tax liability assessments, the United States moves
to foreclose its tax liens on two of Taylor’s real properties—(1) 105A
Jackson Avenue, Russellville, Alabama 35653 (“Office Property”) and (2)
959 Shady Grove Road, Phil Campbell, Alabama 35581 (“Shady Grove
Property”).

Doc. 35 at 16.

“Whether the interests of [Taylor] in the

propert[ies]” constitutes “‘property and rights to property’ for the purposes
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of the federal tax lien statute, 26 U.S.C. § 6321, is ultimately a question of
federal law.” United States v. Craft, 535 U.S. 274, 278 (2002). But, because
the “federal tax lien statute itself creates no property rights but merely
attaches consequences, federally defined, to rights created under state law,”
United States v. Bess, 357 U.S. 51, 55 (1958), the “answer to this federal
question, however, largely depends upon state law.” Craft, 535 U.S. at 278.
Accordingly, the court applies Alabama law to determine Taylor’s property
interests and then federal law to determine whether these interests are
“property and rights to property” for the purposes of the federal tax lien
statute. See Aquilino v. United States, 363 U.S. 509, 513–14 (1960).
i. Office Property in Russellville, Alabama
The Underwoods sold and conveyed the Office Property to Taylor and
his wife, Lanette Taylor, “for and during their joint lives and upon the death
of either of them, then to the survivor of them in fee simple, together with
every contingent remainder and right of reversion.” Docs. 34-12 at 2, 3; 3413; 28. Under Alabama law, this language is a “clear expression of intent to
create a joint tenancy with a right of survivorship that fulfilled the unities of
interest, title, and possession” and creates “a joint tenancy with a right of
survivorship.” Ex Parte Arvest Bank, 219 So. 3d 620, 627 (Ala. 2016). As

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joint tenants with the right of survivorship, Lanette and Neil Taylor each
“owns an undivided one-half interest [in the Office Property] for life, plus
the right to own the unencumbered whole” upon the death of the other.
Owens v. Owens, 281 Ala. 239, 243 (1967); see also Porter v. Porter, 472
So. 2d 630, 634 (Ala. 1985) (noting that each tenant in a joint tenancy is
“seized of some equal share while at the same time each owns the whole.”).
Relevant here, the United States’ lien “does not transfer ownership of
property [to the joint tenant]; it simply gives the judgment creditor a claim
against any property owned by the judgment debtor.” Ex Parte Arvest Bank,
219 So. 3d at 628, n.6.

In other words, Taylor still has an interest in the

property that his creditor may seek to foreclose on.
The court must next consider how other existing liens on the Office
Property compete with the United States’ tax liens. “Federal tax liens do not
automatically have priority over all other liens.” U.S. By & Through I.R.S. v.
McDermott, 507 U.S. 447, 449–51, (1993). Moreover, “federal law . . .
determines the priority of competing liens asserted against the taxpayer’s
‘property’ or ‘rights to property.’” Aquilino, 363 U.S. at 513–14. And,
“[a]bsent provision to the contrary, priority for purposes of federal law is
governed by the common-law principle that ‘the first in time is the first in

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right.’” McDermott, 507 U.S. at 449–51 (citing United States v. New Britain,
347 U.S. 81, 85 (1954)).
Here, The Underwoods still hold a valid mortgage on the Office
Property. See doc. 34-14. The Underwoods and Taylor signed the Mortgage
Reamortization concerning the Office Property and the probate court
recorded it nearly five years before the IRS filed its first notice of Federal
Tax Lien with the Judge of Probate of Franklin County, Alabama. Doc. 3414, Doc. 34-9.

Indeed, the Underwoods and the United States have

stipulated and agreed that the “Underwoods’ mortgage on the Office
Property is superior to the income and employment tax liens of the United
States of America which it seeks to foreclose of the Office Property in this
case.” Doc. 24.
Also, Lanette Taylor and the United States have stipulated and agreed
that Lanette Taylor “owns a 50 percent interest” in the Office Property and
that she is “entitled to 50 percent of the sale proceeds of the foreclosure
sale,” after cost reimbursement to the United States and satisfaction of the
Underwoods’ mortgage. Doc. 28. Therefore, in light of Taylor’s joint
tenant interests in the Office Property, and subject to the Underwoods’
mortgage lien, the United States is entitled to summary judgement on its

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liens attached to Taylor’s fifty percent interest in the Office Property and the
sale of this interest to satisfy Taylor’s unpaid federal tax liabilities. See 26
U.S.C. § 7403(c).
ii. Shady Grove Property in Phil Campbell, Alabama
The United States also seeks to foreclose its lien on Taylor’s property
interest in the Shady Grove Property, which belonged to his late father’s
estate. See doc. 34-15 (conveyance of the property to Haffred Taylor by
deed in lieu of foreclosure, which is “an instrument [that] transfers to the
mortgagee all right, title, and interest of the mortgagor in the mortgaged
property . . . ” Beasley v. Mellon Fin. Servs. Corp., 569 So. 2d 389, 393
(Ala. 1990) (citing Ala. Code 1975, § 35–10–51(1))). The Last Will and
Testament of Haffred Taylor, which on Taylor’s petition the probate judge
of Franklin County, Alabama ordered to admit, docs. 34-17 at 13 and 34-16
at 4-8, gives Laura Stewart a “four tenths interest [40% interest]” and Neil
Taylor a “six tenths interest [60 % interest]” in Haffred Taylor’s property
interests, doc. 34-16 at 2-4. Therefore, the court finds that Neil Taylor owns
60% interest of the Shady Grove Property and that Stewart owns the rest.
Doc. 34-15 at 3. Indeed, Stewart and the United States have stipulated and
agreed that Stewart owns a “40 percent interest in the Shady Grove

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Property” and is entitled to a corresponding share of the sale proceeds of the
foreclosure sale, if any. Doc. 30. And, because Taylor has the right to
receive sixty percent of his father’s estate, this “right to receive property is
itself a property right” subject to an IRS notice of levy and federal tax lien.
Drye, 528 U.S. at 61 (citing United States v. Nat’l Bank of Commerce, 472
U.S. 713, 721 (1985)).

Accordingly, the United States is entitled to

summary judgement on its liens attached to Taylor’s sixty percent interest in
the Shady Grove Property and the sale of this interest to satisfy Taylor’s
unpaid federal income and employment tax liabilities. See 26 U.S.C. §
7403(c).
C. Whether Third Party and Competing Interests Exist
The United States filed its initial notice of lien against Taylor with the
Franklin County, Alabama Probate Court on February 8, 2012. Doc. 34-1 at
8; 34-9 at 2. “Upon filing the notices of lien, the lien was perfected against
all third-party claims that did not have a prior perfected lien.” United States
v. Xiulu Ruan, No. CR 15-0088-CG-B, 2018 WL 6055509, at *2 (S.D. Ala.
Nov. 19, 2018). Outside of the Underwoods’ mortgage on the Office
Property, nothing in the record indicates that other third parties or competing
interests preclude priority of the United States’ federal tax lien against

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Taylor. Atlantic States Construction, Inc. v. Hand, Arendall, Bedsole,
Greaves and Johnston, 892 F.2d 1530, 1534 (11th Cir. 1990) (noting that
two basic principles govern the adjudication of priority of competing liens:
(i) “the first in time is the first in right”; and (ii) a federal tax lien is superior
to a nonfederal lien that is inchoate.). Where, as here, there are no competing
liens in the record, “several courts have been unwilling to require the United
States to marshal assets for the benefit of junior lienholders when it is
seeking to enforce a federal tax lien.” United States v. Urioste, No. 4:15-CV1787-VEH, 2017 WL 117760, at *11 (N.D. Ala. Jan. 12, 2017); see also
United States v. Cohen, 271 F. Supp. 709, 718 (S.D. Fla. 1967) (“The
Court’s usual equity powers are said to be limited by the special statutory
provisions of § 6325 regarding discharge of tax liens, which provisions
make no mention of discharge by marshaling other assets of the taxpayer.”).
Based on the record, there are no reasons present to prevent the United
States from enforcing its lien against Taylor. 3 See United States v. Adent,
821 F.3d 911, 915 (7th Cir. 2016) (“The Supreme Court indicated that a
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“26 U.S.C. § 6323 . . . provide[s] for subordination of federal tax liens with respect to
certain state lien interests regardless of the choateness doctrine.” Aetna Insurance Co. v.
Texas Thermal Industries, Inc., 591 F.2d 1035, 1038 (5th Cir. 1979). To the extent that
any of those exceptions are applicable here, Taylor has failed to raise them, and nothing
in the record indicates that any such state liens exist.

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district court has no discretion to deny a forced sale when no innocent thirdparty interests are at issue.”).
IV. CONCLUSION
For the reasons explained above, the United States’ motion for
summary judgment, doc. 34, is due to be granted. The court will enter a
separate order dismissing this case.
DONE the 17th day of May, 2019.

_____________________________
ABDUL K. KALLON
UNITED STATES DISTRICT JUDGE

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