USA v. Bauer et al

Filing 47

ORDER. United States' Second Motion for Default Judgment Against Kyle L. Bauer 44 is GRANTED. The Clerk shall enter judgment in favor of the United States and against defendant Kyle L. Bauer in the amount of $72,921.89 less any paymen ts made against the liabilities, plus interest and other statutory additions that have accrued since February 4, 2020. United States' federal tax liens against the properties located at 749 and 751 E. 8th Street, Akron, CO 80720 are foreclo sed, and those properties shall be sold. Deficiency judgment is granted to the United States in the amount of the outstanding tax liabilities not satisfied by the sale of 749 and 751 E. 8th Street, Akron, CO 80720. Within 14 days of the entry of judgment, plaintiff may have its costs by filing a bill of costs with the Clerk of the Court, by Chief Judge Philip A. Brimmer on 8/25/20.(sgrim, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Chief Judge Philip A. Brimmer
Civil Action No. 18-cv-00034-PAB-NRN
UNITED STATES OF AMERICA,
Plaintiff,
v.
KYLE L. BAUER and
COLORADO DEPARTMENT OF REVENUE,
Defendants.

ORDER

This matter is before the Court on the United States’ Second Motion for Default
Judgment Against Kyle L. Bauer [Docket No. 44].
I. BACKGROUND
The United States brings this lawsuit to reduce to judgment federal tax liabilities
assessed against defendant Kyle Bauer and to foreclose federal tax liens on Mr.
Bauer’s property, located at 749 and 751 E. 8th Street, Akron, Colorado 80720. 1
Docket No. 1 at 1, ¶ 1.
During the time periods relevant to this case, Mr. Bauer conducted business

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On January 13, 2020, the Clerk of Court entered default. Docket No. 43. As a
result, the allegations in plaintiff’s complaint, Docket No. 1, are deemed admitted.
Olcott v. Del. Flood Co., 327 F.3d 1115, 1125 (10th Cir. 2003).

under the name of Bauer Construction, a sole proprietorship.2 Id. at 3, ¶ 11. Based on
Mr. Bauer’s failure to file (a) a Form 1040 Individual Income Tax Return for the tax year
ending on December 31, 2002, (b) a Form 941 Employer’s Quarterly Federal Tax
Return on behalf of Bauer Construction for the quarterly tax periods ending on
December 31, 2006 and March 31, 2007, and (c) a Form 940 Employer’s Annual
Federal Unemployment Tax Return on behalf of Bauer Construction for the tax year
ending on December 31, 2006, a duly authorized delegate of the Secretary of the
Treasury made assessments against Mr. Bauer for the unpaid tax liabilities. Id. at 3-4,
¶¶ 13-20; see also Docket No. 28 at 2-3, ¶¶ 4, 6-8. According to the assessments, Mr.
Bauer owes $65,255.64 in unpaid taxes, penalties, and interest at the time plaintiff filed
the complaint. Docket No. 1 at 4-5, ¶ 21.
Plaintiff filed this lawsuit on January 5, 2018. Docket No. 1. Count One of the
complaint seeks to reduce to judgment the unpaid federal income tax assessments
made against Mr. Bauer. Id. at 5-6, ¶¶ 22-23. Count Two requests a judgment against
Mr. Bauer based on the unpaid federal employment tax assessments. Id. at 6, ¶¶ 2425. Count Three seeks to foreclose federal tax liens on Mr. Bauer’s property and
requests a decree of sale pursuant to 26 U.S.C. § 7403(c). Id. at 6-7, ¶¶ 26-32.
On March 30, 2018, plaintiff filed a Motion to Extend Time for Service and to
Serve By Publication [Docket No. 9], wherein plaintiff stated that it had been unable to
locate and serve Mr. Bauer despite diligent efforts and requested leave to serve Mr.

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The Colorado Department of Revenue disclaims any interest it may have in the
subject properties. Docket No. 5 at 1.
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Bauer by publication pursuant to Fed. R. Civ. P. 4(e)(1) and Colo. R. Civ. P. 4(g).
Docket No. 9 at 4-5. On April 2, 2018, the magistrate judge granted the motion.
Docket No. 11. In addition to requiring service by publication, the magistrate judge
ordered plaintiff to mail a copy of the complaint and summons to Mr. Bauer at 751 E.
8th Street, Akron CO 80720. Docket No. 11 at 2. On May 24, 2018, plaintiff filed proof
of publication and a declaration verifying that plaintiff had mailed a copy of the
complaint and summons to Mr. Bauer’s properties at 749 and 751 E. 8th Street. See
Docket Nos. 14, 15. After Mr. Bauer failed to appear in this action, plaintiff moved for
entry of default under Fed. R. Civ. P. 55(a). Docket No. 16. The Clerk of Court entered
default on June 15, 2018, Docket No. 18, and on October 22, 2018, plaintiff filed its first
motion for default judgment under Fed. R. Civ. P. 55(b). Docket No. 27.
On September 30, 2019, the Court denied plaintiff’s first motion for default
judgment. Docket No. 30. The Court found that counts one and two of the complaint
were in personam claims and, as a result, service by mail to Mr. Bauer’s property at
749 and 751 E. 8th Street, Akron, CO 80720, was insufficient to properly serve him
because plaintiff did not identify a substituted person to receive service on behalf of Mr.
Bauer. Id. at 5-7.
On November 6, 2019, the magistrate judge granted plaintiff’s motion to serve
Mr. Bauer by substituted service. Docket No. 38 at 1. Specifically, the magistrate
judge found that Betty Schropfer, Mr. Bauer’s neighbor and tenant, was an appropriate
person for substituted service. Id. at 3. On December 5, 2019, plaintiff filed an affidavit
showing that Ms. Schopfer was served as a substituted person for Mr. Bauer on
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November 25, 2019. Docket No. 39; Docket No. 40. On December 17, 2019, plaintiff
moved for entry of default. Docket No. 41. The Clerk of Court entered default on
January 13, 2020. Docket No. 43. Plaintiff filed a second motion for default judgment
on February 5, 2020. Docket No. 44.
II. LEGAL STANDARD
In order to obtain a judgment by default, a party must follow the two-step process
described in Fed. R. Civ. P. 55. First, the party must seek an entry of default from the
Clerk of the Court under Rule 55(a). Second, after default has been entered by the
Clerk, the party must seek judgment under the strictures of Rule 55(b). See Williams v.
Smithson, 57 F.3d 1081, 1995 W L 365988, at *1 (10th Cir. June 20, 1995)
(unpublished table decision) (citing Meehan v. Snow, 652 F.2d 274, 276 (2d Cir.
1981)).
The decision to enter default judgment is “committed to the district court’s sound
discretion.” Olcott, 327 F.3d at 1124 (citation omitted). In exercising that discretion,
the Court considers that “[s]trong policies favor resolution of disputes on their merits.”
Ruplinger v. Rains, 946 F.2d 731, 732 (10th Cir. 1991) (quotation and citations
omitted). “The default judgment must normally be viewed as available only when the
adversary process has been halted because of an essentially unresponsive party.” Id.
It serves to protect plaintiffs against “interminable delay and continued uncertainty as to
his rights.” Id. at 733. When “ruling on a motion for default judgment, the court may
rely on detailed affidavits or documentary evidence to determine the appropriate sum
for the default judgment.” Seme v. E&H Prof’l Sec. Co., Inc., No. 08-cv-01569-RPM4

KMT, 2010 WL 1553786, at *11 (D. Colo. Mar. 19, 2010).
A party may not simply sit out the litigation without consequence. See Cessna
Fin. Corp. v. Bielenberg Masonry Contracting, Inc., 715 F.2d 1442, 1444-45 (10th Cir.
1983) (“[A] workable system of justice requires that litigants not be free to appear at
their pleasure. We therefore must hold parties and their attorneys to a reasonably high
standard of diligence in observing the courts’ rules of procedure. The threat of
judgment by default serves as an incentive to meet this standard.”). One such
consequence is that, upon the entry of default against a defendant, the well-pleaded
allegations in the complaint are deemed admitted. See 10A Charles Alan Wright &
Arthur R. Miller, Federal Practice and Procedure § 2688.1 (4th ed., 2020 rev.). “Even
after default, however, it remains for the court to consider whether the unchallenged
facts constitute a legitimate cause of action, since a party in default does not admit
mere conclusions of law.” Id. A court need not accept conclusory allegations. Moffett
v. Halliburton Energy Servs., Inc. 291 F.3d 1227, 1232 (10th Cir. 2002). Although
“[s]pecific facts are not necessary” in order to state a claim, Erickson v. Pardus, 551
U.S. 89, 93 (2007) (per curiam) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
(2007)), the well-pleaded facts must “permit the court to infer more than the mere
possibility of misconduct.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (quotations and
alterations omitted). Thus, even though modern rules of pleading are somewhat
forgiving, “a complaint still must contain either direct or inferential allegations
respecting all the material elements necessary to sustain a recovery under some viable
legal theory.” Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008) (quotation and
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citation omitted).
III. ANALYSIS
Before addressing the merits of plaintiff’s motion for default judgment, the Court
must determine whether it has jurisdiction over this case. See Dennis Garberg &
Assocs., Inc. v. Pack-Tech Int’l Corp., 115 F.3d 767, 772 (10th Cir. 1997) (“[A] district
court must determine whether it has jurisdiction over the defendant before entering
judgment by default against a party who has not appeared in the case.”). The Court
has subject matter jurisdiction because this is an action by the United States to reduce
to judgment federal tax liabilities and foreclose on federal tax liens. See 26 U.S.C.
§§ 7402(a), 7403; 28 U.S.C. §§ 1340, 1345. Regarding the issue of personal
jurisdiction, plaintiff alleges that Mr. Bauer resides in the District of Colorado. See
Docket No. 1 at 2, ¶ 4. Additionally, the property at issue is located in the District of
Colorado, and the federal tax liabilities accrued based on business conducted in
Colorado. Docket No. 1 at 3, ¶ 11; Docket No. 44 at 6 n.3. B ased on these allegations,
and the proper substituted service on Mr. Bauer, Docket Nos. 38, 39, 40, the Court
finds that it has personal jurisdiction. See United States v. Olsen, No. 14-cv-03302WJM-KLM, 2016 WL 322554, at *2 (D. Colo. Jan. 27, 2016) (noting that the District of
Colorado has personal jurisdiction over Colorado residents “because the District of
Colorado encompasses the entire state”).
Plaintiff alleges that Mr. Bauer is liable for (1) unpaid federal income taxes for
2002, (2) quarterly employment taxes for the fourth quarter of 2006 and the first quarter
of 2007, and (3) yearly unemployment taxes for 2006. Docket No. 1 at 4-5, ¶ 21;
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Docket No. 44 at 5. Plaintiff further states that the Internal Revenue Service (“IRS”)
has authorized the United States file suit to claim the unpaid taxes. Docket No. 1 at 2,
¶ 2; Docket No. 44 at 5-6. Plaintiff seeks a judgment for the unpaid federal tax
liabilities plus interest and statutory penalties, as well as to foreclose on two properties
which have federal tax liens. Docket No. 44 at 12-13.
The Court finds that plaintiff is entitled to default judgment against Mr. Bauer.
Plaintiff has submitted various Forms 4340 for the relevant tax periods. See Docket
Nos. 45-1, 45-3, 45-4, 45-5. These forms show that Mr. Bauer has outstanding federal
income tax liability for 2002, Docket No. 45-1, owes outstanding quarterly employment
taxes for the fourth quarter of 2006, Docket No. 45-3, and the first quarter of 2007,
Docket No. 45-4, and owes yearly unemployment taxes for 2006. Docket No. 45-5.
Form 4340 contains information regarding the “identification of the taxpayer, the
character of the liability assessed, the taxable period . . ., and the amount of the
assessment.” Ford v. Pryor, 552 F.3d 1174, 1178 (10th. Cir. 2008) (citation omitted).
As a result, Form 4340 is “presumptive proof of a valid assessment.” Id. at 1179
(quoting March v. IRS, 335 F.3d 1186, 1188 (10th Cir. 2003). “This presumption will
permit judgment in the Commissioner’s favor unless the opposing party produces
substantial evidence overcoming it.” United States v. McMullin, 948 F.2d 1188, 1192
(10th Cir. 1991) (citations omitted). Defendant has not entered an appearance and, as
a result, has failed to rebut this presumption. See United States v. Elsberg, No. 08-cv00552-MSK-KLM, 2010 WL 5177439, at *5 (D. Colo. Aug. 17, 2010).
Furthermore, Michael Sandoval, a Revenue Officer for the IRS, submitted an
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affidavit demonstrating that Mr. Bauer owes $21,087.90 for the 2002 tax year,
$10,679.87 for the 2006 tax year, $20,603.37 for the four quarter of 2006, and
$20,550.75, for the first quarter of 2007. Docket No. 45 at 1, 7, ¶¶ 1, 23- 35; see also
Docket No. 45-8 at 2, 5, 8, 11. These numbers were computed through the IRS
INTSTD module, “which provides a calculation of accrued interest and penalties to any
requested date on unpaid tax assessments for a particular taxpayer.” Docket No. 45 at
4-5, ¶ 15. The INTSTD computations result from the totals calculated in the Forms
4340. The Court is satisfied that these computations are correct. Therefore, plaintiff
has provided sufficient evidence to demonstrate that Mr. Bauer owes $72,921.89. 3
Plaintiff also claims that the total should be decreased by any payments made against
the liabilities, and increased by interest and statutory additions accruing from February
4, 2020. Docket No. 44 at 12. These additions are provided by statute, 26 U.S.C.
§§ 6601, 6621, 6622; 28 U.S.C. § 1961(c), and should be calculated according to
statute.
If a taxpayer fails to pay tax liabilities after a demand for payment, the IRS
receives a lien in the amount of the unpaid assessment. See 26 U.S.C. §§ 6321, 6322.
Plaintiff has shown that a lien entered against the properties located at 749 and 751 E.
8th Street, Akron, CO 80720. Docket No. 46-1 at 3-5, 12-21; Docket No. 46-2 at 3-5,
12-21. The Court can order foreclosure of federal tax liens on encumbered property,

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In plaintiff’s motion, it claims that it is owed $72,922.19. Docket No. 44 at 12.
However, calculations based on Mr. Sandoval’s affidavit and the INTSTD printouts
demonstrate that Mr. Bauer’s liability is $72,921.89. Docket No. 45 at 1, 7, ¶¶ 1, 23- 25;
see also Docket No. 45-8 at 2, 5, 8, 11.
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the sale of the property, and the application of the sale’s proceeds to the unpaid federal
tax liability at issue. 26 U.S.C. § 7403. Other than some property taxes for 2019, the
State of Colorado and Ms. Schropfer are the only parties with an interest in the 749 and
751 properties. Docket No. 44 at 11. However, Ms. Schropfer and the State of
Colorado have disclaimed any interest in the property. Docket Nos. 5, 17. Plaintiff
maintains that, assuming the property taxes are not paid by the time of foreclosure, it
will provide for the payment of the property taxes in a proposed order of sale pursuant
to 26 U.S.C. § 6323(b)(6). Given the stipulation of the State of Colorado and Ms.
Schropfer, and plaintiff’s proposal to provide payment for the 2019 property taxes, the
Court finds that foreclosure of the encumbered property is appropriate.
IV. CONCLUSION
Wherefore, it is
ORDERED that the United States’ Second Motion for Default Judgment Against
Kyle L. Bauer [Docket No. 44] is GRANTED. It is further
ORDERED that the Clerk shall enter judgment in favor of the United States and
against defendant Kyle L. Bauer in the amount of $72,921.89 less any payments made
against the liabilities, plus interest and other statutory additions that have accrued
since February 4, 2020, pursuant to 26 U.S.C. §§ 6601, 6621, 6622, and 28 U.S.C.
§ 1961(c). It is further
ORDERED that then United States’ federal tax liens against the properties
located at 749 and 751 E. 8th Street, Akron, CO 80720 are foreclosed, and those
properties shall be sold pursuant to 26 U.S.C. § 7403 and 26 U.S.C. § 2001. Pursuant
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to the stipulation between the State of Colorado and Betty Schropfer, the United States
has priority over the distribution, subject to the payment of any outstanding liabilities
pursuant to 26 U.S.C. § 6323(b)(6). It is further
ORDERED that a deficiency judgment is granted to the United States in the
amount of the outstanding tax liabilities not satisfied by the sale of 749 and 751 E. 8th
Street, Akron, CO 80720. It is further
ORDERED that, within 14 days of the entry of judgment, plaintiff may have its
costs by filing a bill of costs with the Clerk of the Court.

DATED August 25, 2020.
BY THE COURT:

PHILIP A. BRIMMER
Chief United States District Judge

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