USA v. Heptner et al

Filing 43

ORDER: Plaintiff IRS's Motion for Summary Judgment (Doc. # 35 ) is GRANTED IN PART to the extent that the Clerk is directed to enter a Judgment in favor of the IRS and against Heptner in the amount of $250,829.14. However, the IRS 9;s Motion is DENIED to the extent it argues that it has an interest in the Crosswater Property that is superior to the interest held by ITS Billing. Defendant ITS Billing's Motion for Summary Judgment (Doc. # 33 ) is GRANTED. The Court finds that ITS Billing has a purchase money note and mortgage which is superior to the IRS's federal tax lien. The Clerk is directed to close the case. Signed by Judge Virginia M. Hernandez Covington on 6/15/2016. (KAK)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
UNITED STATES OF AMERICA,
Plaintiff,
v.

Case No. 8:15-cv-1125-T-33MAP

JAMES M. HEPTNER; HILLSBOROUGH
COUNTY TAX COLLECTOR; TLGFY,
L.L.C.; CATALINA TAX CO.,
L.L.C. SERIES 1; ITS BILLING,
INC.; and SWEETWATER CREEK
PROPERTY OWNERS ASSOCIATION,
INC.,
Defendants.
________________________________/
ORDER
This matter comes before the Court pursuant to Defendant
ITS Billing, Inc.’s Motion for Summary Judgment (Doc. # 33),
which was filed on February 12, 2016.

Plaintiff IRS also

filed a Motion for Summary Judgment (Doc. # 35) on February
26, 2016.

The Motions are ripe for the Court’s review.

For

the reasons that follow, the Court grants the IRS’s Motion to
the extent that it finds that the IRS is entitled to a
judgment in its favor against Heptner based on Heptner’s
failure to pay income taxes.

However, on the issue of lien

priority, the Court grants summary judgment in favor of ITS
Billing, because Heptner executed a purchase money mortgage in
favor of ITS Billing, which takes priority over the IRS’s
federal tax lien.

I.

Background
A.

Heptner’s Mounting Tax Liability

Defendant James Heptner is a disbarred attorney residing
in Tampa, Florida. (Heptner Dep. Jan. 27, 2016, Doc. # 35-4 at
55). He attended the tax program at the University of Florida,
but did not obtain an LL.M. in taxation because he “didn’t
have a knack for tax.” (Id. at 25).

On February 26, 2004,

Heptner filed untimely federal income tax returns for the
years 1993 through 1996, and 1999 through 2001, but he failed
to pay the taxes he reported on those returns. (Livingston
Decl. Doc. # 35-2 at ¶ 3).

In addition, Heptner filed

untimely returns for the years 2010 and 2012, but he did not
make full payment of his tax liabilities. (Id.). Heptner made
installment payments to the IRS from 2005 to 2009, but he fell
behind and “was unable to pay.” (Heptner Dep. Jan. 27, 2016,
Doc. # 35-4 at 21).
On September 28, 2004, the IRS filed a notice of federal
tax lien in the official records of Hillsborough County,
Florida against Heptner for the assessments made against him
for the years 1993 through 1996, and 1999 through 2001.
(Livingston Decl. Doc. # 35-2 at ¶ 13).

A notice for those

years was re-filed on December 30, 2013. (Id.).

Thereafter,

on December 18, 2014, the IRS filed a notice of federal tax
2

lien in the official records of Hillsborough County, Florida
against Heptner for the assessments made against him for the
years 2010 and 2012. (Id.).
As of March 16, 2016, Heptner’s tax liability amounts to
$250,829.14, and continues to accrue interest and penalties.
(Id. at ¶ 7).

Heptner agreed that, with respect to his tax

liability, “the numbers seem accurate” and he has “no evidence
to show it’s not accurate.” (Heptner Dep. Jan. 27, 2016, Doc.
# 35-4 at 16).

Heptner explains that: “I was in business for

myself and not a good money manager.” (Id. at 13).
B.

Heptner’s Employment with Damien Freeman

Heptner practiced law from 1984, until 2001. (Id. at 11).
Heptner became employed as a legal advisor and in-house
counsel by Damien Freeman, an entrepreneur, around 2002, and
continued to provide legal services until 2009. (Freeman Dep.
Oct. 8, 2015, Doc. # 35-6 at 113-119).

Freeman is a high

school graduate who, by the age of 24, had 225 employees and
$100 million in corporate sales. (Id. at 10).

Freeman owns

various corporations, including ITS Billing, Inc. and YPD,
Inc. (Id. at 28, 36).
Freeman understood that Heptner lost his law license
because

“he

disbarment,

got

into

utilized

cocaine,”

Heptner

for
3

but
the

notwithstanding
provision

of

his

legal

services. (Id. at 118, 124, 234).1

Freeman paid Heptner

approximately $50,000.00 per year and provided regular raises.
(Id. at 123).

Heptner contends that he was also entitled to

a form of profit sharing and distributions from YPD as well as
litigation bonuses. (Heptner Dep. Jan. 27, 2016, Doc. # 35-4
at 45, 67-68).
Freeman was Heptner’s “direct boss” and the two ate lunch
together every day. (Freeman Dep. Oct. 8, 2015, Doc. # 35-6 at
119).

Freeman and Heptner formed a friendship and talked

about everything, including Heptner’s complex divorce and
custody battle over his daughter. (Heptner Dep. Jan. 27, 2016,
Doc. # 35-4 at 79-80).
C.

Acquisition of the Relevant Property

Heptner was residing in a condominium in Tarpon Springs,
Florida, but desired to relocate to West Tampa, to a home near
his daughter’s school. (Id. at 69). Freeman indicates that

1

See The Florida Bar v. Heptner, 887 So. 2d 1036, 1045
(Fla. 2004)("Heptner has been violating the rules for over ten
years, while injuring numerous clients. . . . An attorney who
practices law in this manner is a danger to his clients and
the public, and should be disbarred before causing further
harm. . . . Heptner involved his client in his felonious
activities regarding cocaine. Also, he continued to practice
law while suspended which, on its own, indicates that
disbarment is the appropriate sanction. Further, Heptner has
a noteworthy disciplinary history.
He is also guilty of
contempt and violating several rules.").
4

Heptner approached him “about obtaining a loan to buy a
house.” (Freeman Aff. Doc. # 33-1 at 2, ¶¶ 4-5). Freeman
explains, “at that time, Heptner was under pressure because he
was divorcing his wife, and . . . unless he could show the
divorce court that he resided near his daughter’s school, he
would lose visitation time with his daughter.” (Id.).
Freeman explains that, “Being a father of two daughters
myself, I sympathized with Heptner and agreed that my company,
ITS [Billing], would provide him a loan to buy the house in
June 2005.” (Id. at ¶ 6). “In addition to providing a $15,000
down payment, ITS [Billing] submitted an official check for
$430,825.99 to the title company on June 6, 2005.” (Id. at ¶
7).

Furthermore, Freeman contends that he loaned Heptner

$100,000.00 to remodel and renovate the home. (Freeman Dep.
Oct. 8, 2015, Doc. # 35-6 at 146, 321).
Freeman

maintains

that

he

furnished

these

funds

to

Heptner as a loan so that Heptner (who has poor credit) could
purchase a home and “stand a chance to be part of his
daughter’s life.” (Id. at 149).
story.

Heptner tells a different

He contends that at least a portion of the funds ITS

Billing provided to purchase the home were a “payment [of]
mon[ey] already earned from [the] YPD distributions.” (Heptner
Dep. Jan. 27, 2016, Doc. # 35-4 at 45).
5

Heptner indicates

that YPD was “a phenomenal success” grossing $7 million by
2005, and that Heptner had been promised a percent of those
proceeds pursuant to a “handshake” deal with Freeman. (Id. at
61, 67-68).
D.

Heptner’s Web of Litigation

Although it is Heptner’s theory in this case that Freeman
did not loan him money to purchase the home and instead, the
home was purchased (at least in part) as compensation, Heptner
testified differently in June of 2005, in the context of his
divorce case, which was litigated in Pasco County, Florida:
Q:

Okay. Mr. Heptner, please state your address
for me please, if you would?
A:
2105 Crosswater Drive, Tampa, Florida, 33615.
Q:
How long have you lived there?
A:
Since last week.
. . . .
Q:
Who owns that home?
A:
I do.
Q:
Is the deed in your name?
A:
Yes.
Q:
And is it free and clear?
A:
No.
Q:
How much did you pay for the home?
A:
$442,000.
. . . .
Q:
How much did you put down on the house?
A:
Like $15,000.
Q:
And where did you obtain that money?
A:
From a loan from one of my employer’s
companies.
Q:
Is there paperwork to document that loan?
A:
Yes. It has handled by a title company.
Q:
And did you finance the balance of the
purchase price?
A:
Yes.
6

Q:
A:
Q:
A:
Q:
A:
Q:
A:
Q:
A:
Q:
A:
Q:
A:
Q:
A:

And is it all in one mortgage or is there a
secondary financing?
Just a single mortgage.
And who is that mortgage with?
I think it’s ITS [Billing].
Did you go through a mortgage broker?
No.
How did you arrange the financing?
Through my employer.
So it’s a hundred percent financing?
Yes.
And does ITS [Billing] know that?
Yes.
Did you fill out a financial statement or an
earnings income statement in order to qualify
for the loan?
Yes.
Was this an arm’s length transaction?
Yes.

(Heptner Dep. June 16, 2005, Doc. # 33-1 at 11-13)(emphasis
added).

In addition, in the context of his divorce case,

Heptner filed a financial affidavit listing a mortgage as one
of his liabilities. (Id. at 21).
When approached by Freeman, Heptner “refused in a hostile
and angry way” to sign a mortgage in 2006. (Heptner Dep. Jan.
27, 2016, Doc. # 35-4 at 90). Eventually, ITS Billing sued
Heptner in a Hillsborough County, Florida state court lawsuit
under case no. 12-CA-18078, to compel Heptner to deliver a
signed purchase money note and mortgage. (Freeman Aff. Doc. #
33-1 at 4, ¶ 18). ITS Billing recorded a lis pendens in the
state court action on December 6, 2012. (Doc. # 42 at 2).

7

Thereafter, ITS Billing moved to strike Heptner’s pleadings
based on fraud on the court. (Doc. # 33-1 at 30).
After holding an evidentiary hearing, the state court
granted the motion to strike Heptner's pleadings and entered
a default against Heptner in an order dated October 31, 2013.
(Doc. # 33-1 at 30-33).

The state court found that Heptner’s

representations regarding receiving the purchase money for the
Crosswater Property as compensation (as opposed to a loan)
“are neither reasonable nor credible.” (Id. at 33). The state
court further found that Heptner gave “false sworn testimony
designed to obtain an . . . advantage in [the] litigation” and
that ITS Billing “met its burden by clear and convincing
evidence

that

Heptner

has

sentiently

set

in

motion

an

unconscionable scheme.” (Id.).
On December 9, 2013, the date that a final hearing was
set to take place in the state court, Heptner filed for
bankruptcy protection under Chapter 13 of the United States
Bankruptcy

Code

under

case

no.

8:13-bk-16055-CPM.

The

bankruptcy case was ultimately dismissed on October 17, 2014.
The state court litigation resumed and, on August 6,
2015, the state court entered its Second Amended Judgment (1)
finding that Heptner defrauded ITS Billing; (2) ordering
Heptner to vacate the Crosswater Property; and (3) compelling
8

Heptner to sign and deliver a purchase money note and mortgage
within ten days. (Doc. # 33-1 at 36).

Among other detailed

factual findings, the state court’s August 6, 2015, order
found:
On June 6, 2005, Heptner agreed to, and the parties
made, a purchase money note and mortgage in favor
of ITS on the [Crosswater] Property. The principal
amount loaned to Heptner by ITS under the purchase
money note and mortgage was $442,000, plus interest
at the rate of 7% per annum, with a monthly payment
of $2,940.64.
(Id. at 38).
The state court took note that “Heptner has occupied the
Property for nearly 10 years and has not paid ITS one penny
under the purchase money note and mortgage.” (Id. at 39). The
state court ordered a judicial sale of the property to take
place on August 24, 2015, but that sale has not taken place,
to the Court’s knowledge. (Id.

at 43). The state court

“retain[ed] jurisdiction” over the case “to enforce th[e]
amended final judgment.” (Id. at 45). Nonetheless, Heptner did
not comply with the state court’s August 6, 2015 Order.
Accordingly,

on

August

31,

2015,

the

state

court

initiated criminal contempt proceedings against Heptner. In
the context of those proceedings, Heptner agreed to sign, and
did sign, a purchase money note and mortgage. Those documents
have been filed with this Court. (Doc. # 35-7 at 26-64). The
9

note, executed on August 31, 2015, states that the “effective
date” is June 6, 2005. (Id. at 26). The presiding state court
judge also signed the note and mortgage. (Id. at 29, 45).
On May 8, 2015, the IRS filed the present action against
Heptner,

Hillsborough

County

Tax

Collector,

TLGFY,

LLC,

Catalina Tax Co., LLC Series 1, ITS Billing, and Sweetwater
Creek Property Owners Association, Inc. “to reduce to judgment
unpaid federal income taxes owed by James M. Heptner and to
foreclose federal tax liens that attach to real property
located at 4105 Crosswater Drive, Tampa, Florida.” (Doc. # 1).
Sweetwater Creek Property Owners Association, Inc., ITS
Billing, Heptner, and the Hillsborough County Tax Collector
filed Answers to the Complaint. (Doc. ## 3, 16, 21, 24). Upon
the IRS’s application, the Clerk entered a Rule 55(a), Fed. R.
Civ. P., default against Catalina Tax Co., LLC Series 1 and
TLGFY, LLC. (Doc. ## 30, 31).

ITS Billing and the IRS have

each filed Motions for Summary Judgment. (Doc. ## 33, 35).
ITS Billing essentially argues that “ITS’s purchase money
mortgage is superior to the IRS lien” while the IRS maintains
that its lien is superior to ITS Billing's lien because ITS
Billing failed to perfect the mortgage lien in accordance with
Florida law.

10

II.

Legal Standard
Summary judgment is appropriate “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.”
Civ. P. 56(a).

Fed. R.

A factual dispute alone is not enough to

defeat a properly pled motion for summary judgment; only the
existence of a genuine issue of material fact will preclude a
grant of summary judgment.

Anderson v. Liberty Lobby, Inc.,

477 U.S. 242, 247-48 (1986).
An issue is genuine if the evidence is such that a
reasonable jury could return a verdict for the nonmoving
party.

Mize v. Jefferson City Bd. of Educ., 93 F.3d 739, 742

(11th Cir. 1996) (citing Hairston v. Gainesville Sun Publ’g
Co., 9 F.3d 913, 918 (11th Cir. 1993)).

A fact is material if

it may affect the outcome of the suit under the governing law.
Allen v. Tyson Foods, Inc., 121 F.3d 642, 646 (11th Cir.
1997).

The moving party bears the initial burden of showing

the court, by reference to materials on file, that there are
no genuine issues of material fact that should be decided at
trial. Hickson Corp. v. N. Crossarm Co., Inc., 357 F.3d 1256,
1260 (11th Cir. 2004) (citing Celotex Corp. v. Catrett, 477
U.S. 317, 323 (1986)).

“When a moving party has discharged

11

its burden, the non-moving party must then ‘go beyond the
pleadings,’ and by its own affidavits, or by ‘depositions,
answers to interrogatories, and admissions on file,’ designate
specific facts showing that there is a genuine issue for
trial.”

Jeffery v. Sarasota White Sox, Inc., 64 F.3d 590,

593-94 (11th Cir. 1995) (citing Celotex, 477 U.S. at 324).
If there is a conflict between the parties’ allegations
or evidence, the non-moving party’s evidence is presumed to be
true and all reasonable inferences must be drawn in the nonmoving party’s favor.

Shotz v. City of Plantation, Fla., 344

F.3d 1161, 1164 (11th Cir. 2003). If a reasonable fact finder
evaluating the evidence could draw more than one inference
from the facts, and if that inference introduces a genuine
issue of material fact, the court should not grant summary
judgment.

Samples ex rel. Samples v. City of Atlanta, 846

F.2d 1328, 1330 (11th Cir. 1988) (citing Augusta Iron & Steel
Works, Inc. v. Employers Ins. of Wausau, 835 F.2d 855, 856
(11th Cir. 1988)).
consists

of

conclusional

However, if the non-movant’s response

nothing

“more

allegations,”

proper, but required.

than

summary

a

repetition

judgment

is

of
not

his
only

Morris v. Ross, 663 F.2d 1032, 1034

(11th Cir. 1981), cert. denied, 456 U.S. 1010 (1982).

12

III. Analysis
A.

Judgment in Favor of the IRS on Tax Liability

An assessment of federal tax by the IRS is presumed
valid. United States v. Chila, 871 F.2d 1015, 1018 (11th Cir.
1989)(“[A]

Certificate

of

Assessments

and

presumptive proof of a valid assessment.”).

Payments

is

A taxpayer has

the burden of overcoming the presumption of correctness by
proving that the method of computing the tax, and therefore
the assessment, is arbitrary and without foundation. Olster v.
Comm’r of IRS, 751 F.2d 1168, 1174 (11th Cir. 1985).
Here, Heptner testified during his deposition that he had
no proof that the assessments were incorrect.

(Heptner Dep.

Jan. 27, 2016, Doc. # 35-4 at 16). Although he vaguely claims
that the proper procedures may not have been followed, he has
“no idea” what policies are in question and certainly has not
pointed to any evidence demonstrating that the assessments are
arbitrary or without foundation. (Id. at 24). In addition, it
should be noted that the assessments against Heptner were
calculated based on returns Heptner himself filed.
The Court determines that the assessments are calculated
correctly.
penalties

The amounts of assessed and accrued interest and
for

those

liabilities
13

are

the

product

of

an

operation of law. See 26 U.S.C. §§ 6621, 6622, 6651.

The IRS

has provided the computation of these amounts, and they are
not reasonably subject to dispute.

The Court accordingly

directs the Clerk to enter Judgment in favor of the IRS and
against Heptner in the amount of $250,829.14.
B.

Priority of Tax Liens

The IRS argues that federal tax liens attach to the
Crosswater Property and that the Crosswater Property should be
foreclosed in this suit. It is not disputed that Heptner
became the owner of the Crosswater Property via warranty deed
dated June 6, 2005.

That deed has been filed in this case

(Doc. # 35-5 at 26) and was recorded in the public records of
Hillsborough County, Florida, on June 7, 2005. (Id.).
On September 28, 2004, prior to the purchase of the
Crosswater Property, the IRS had filed a notice of federal tax
lien in the official records of Hillsborough County, Florida
against Heptner for the assessments made against him from 1993
through 1996, and 1999 through 2001. (Livingston Decl. Doc. #
35-2 at ¶ 13). A notice for those years was re-filed on
December 30, 2013. (Id.).

In addition, on December 18, 2014,

the IRS filed a notice of federal tax lien in the official
records of Hillsborough County, Florida against Heptner for

14

the assessments made against him for the years 2010 and 2012.
(Id.).
A tax lien arises by operation of law upon the assessment
of the tax and the failure by the debtor to pay upon demand.
26 U.S.C. §§ 6321, 6322.

At the time of the assessment, a tax

lien attaches to all property belonging to the taxpayer. 26
U.S.C. § 6321.

The Supreme Court interpreted 26 U.S.C. § 6321

in United States v. National Bank of Commerce, 472 U.S. 713,
719-20 (1985), and explained that § 6321 “is broad and reveals
on its face that Congress meant to reach every interest in
property that the taxpayer might have.”
The

IRS

argues,

“because

of

the

unpaid

income

tax

assessments against Heptner, it is beyond dispute that federal
tax liens attach to all of his property interests, wherever
they are located, including his interest in the Subject
Property.” (Doc. # 35 at 12). “Absent provision to the
contrary, priority [of IRS tax liens] for purposes of federal
law is governed by the common-law principle that the first in
time is the first in right.” United States v. McDermott, 507
U.S. 447, 449 (1993).
ITS

Billing

asserts

that

contrary" is applicable here.

such

a

"provision

to

the

Specifically, it contends that

because ITS Billing has a purchase money mortgage, it has an
15

interest superior in priority to that of the IRS. The Supreme
Court has decreed: “A federal tax lien is subordinate to a
purchase-money mortagee’s interest notwithstanding that the
agreement is made and the security interest arises after
notice of the tax lien.” Slodov v. United States, 436 U.S.
238, 259 (1978)(citing United States v. New Orleans R.R. Co.,
20 L. Ed. 434 (1871)).
The IRS issued a revenue ruling formally pronouncing that
federal

tax

liens

are

inferior

to

valid

purchase

money

mortgages. That revenue ruling states: “[T]he Internal Revenue
Service will consider that a purchase money security interest
or mortgage valid under local law is protected even though it
may arise after a notice of Federal tax lien has been filed.”
IRS Rev. Rul. 68-57.
Ample case law demonstrates that purchase money mortgages
are entitled to super-priority, taking priority over federal
tax liens. See e.g., First Interstate Bank of Utah, N.A. v.
IRS, 930 F.2d 1521, 1523 (10th Cir. 1991)(“[A] security
interest based on the extension of purchase money defeats a
previously filed federal tax lien.”); First Nat'l Bank v.
Lawyers Title Ins. Corp., No. 08-913, 2010 U.S. Dist. LEXIS
98155, at *10 (W.D. La. Aug. 12, 2010)("It is well established
that a security interest based on the extension of purchase
16

money

defeats

a

previously

filed

federal

tax

lien.");

Bednarowski & Michaels Dev. LLC v. Wallace, 293 F. Supp. 2d
728, 733 (E.D. Mich. June 16, 2003)("Federal law however, does
generally give priority to purchase money mortgages.

The

Supreme Court has held that a federal tax lien is subordinate
to

a

purchase

money

mortgage

regardless

of

whether

the

agreement was entered into before or after the filing of a tax
lien. Decisional law has long established that a purchase
money

mortgagee's

interest

in

the

mortgaged

property

is

superior to antecedent liens prior in time and therefore, a
federal

tax

lien

is

subordinate

to

a

purchase

money

mortgagee's interest notwithstanding that the agreement is
made and the security interest arises after notice of the tax
lien.")(internal citations omitted).
Confronted with the application of its own revenue ruling
to denigrate the priority of its lien in this case, the IRS
asserts that ITS Billing is not entitled to super-priority
because

it

"failed

to

timely

and

properly

perfect"

mortgage under Florida law. (Doc. # 35 at 15).

its

It is

undisputed that ITS Billing has not recorded or otherwise
"perfected" its mortgage.

Nevertheless, the Court is not

persuaded that ITS Billing loses its priority under these
circumstances.

The

applicable
17

revenue

ruling

and

other

decisional law require that a purchase money mortgage be
“valid” and do not mention or require “perfection.” IRS Rev.
Rul. 68-57.
In addition, under Florida law, validity and perfection
are two legally distinct concepts. That is, a mortgage can be
“valid” without having been “perfected.”

As explained in In

re Daniels, No. 09-10758-BKC-LMI, 2013 WL 655918, at *6 (S.D.
Fla. Bankr. Feb. 22, 2013):
There is nothing in Fla. Stat. § 697.01 that
requires that, in order for a document to
constitute a mortgage, it must be recorded. Fla.
Stat. § 695.01 requires that any mortgage must be
“recorded according to law” in order for the
mortgage to “be good and effectual in law or equity
against creditors or subsequent purchasers for a
valuable
consideration
and
without
notice.”
Consequently, recording is required to protect a
lien from innocent third parties; recording is not
required in order for a lien to be created on the
property.
Id.
Nevertheless,

the

IRS

contends

that

ITS

Billing's

mortgage must be perfected to take priority over a federal tax
lien, and relies upon United States v. Crissman, No. 4:09-cv1884, 2011 WL 5374573, at *2 (M.D. Pa. Nov. 4, 2011). The
Crissman

decision states that “purchase money mortgages only

have priority against federal tax liens to the extent that
they are perfected or are valid under local law.” Id.

In

Pennsylvania, local laws require recording within ten days in
18

order for a mortgage to be valid.

However, this Court cannot

apply the Crissman decision in this case because Florida does
not have such a statute requiring that a mortgage be recorded
in order to be valid. In fact, the Daniels case explains that
"recording is not required in order for a lien to be created
on the property." In re Daniels, 2013 WL 655918, at *6.
The IRS also contends that genuine disputes of material
fact preclude the entry of summary judgment in favor of ITS
Billing: “Whether ITS Billing loaned James Heptner the funds
used to purchase the [Crosswater] Property in this case and
whether ITS Billing acquired a security interest in that
property are disputed material facts.” (Doc. # 36 at 1).
However, it is not disputed that ITS Billing provided the
purchase money in this case at the closing in the form of a
cashier's check in the amount of $430,825.99. (Doc. # 33-1 at
7). And, in the presence of a state court judge, Heptner
signed and delivered a purchase money mortgage and note in
favor of ITS Billing. (Doc. # 35-7 at 26-64).

The purchase

money note and mortgage have been filed in this case and are
before the Court.
Although the IRS states that it is not bound by the state
court proceedings, the IRS does not argue that the mortgage
and note are invalid.

The IRS comments that ITS Billing did
19

not acquire the note and mortgage simultaneously with the
transaction, but Heptner admits that when he entered into the
“arrangement that [he] had with Mr. Freeman,” ITS Billing
acquired a mortgage “at that time.” (Heptner Dep. Jan. 27,
2016, Doc. # 35-4 at 121).
The applicable revenue ruling states that a purchase
money mortgage takes priority over federal tax liens.

The

Court accordingly grants ITS Billing’s Motion for Summary
Judgment by finding that ITS Billing, the holder of a valid
purchase money note and mortgage, has an interest in the
Crosswater Property that is superior to the interest held by
the IRS.
C.

Set-Off

The IRS also indicates: “even if the Court determines
that ITS has an interest in the [Crosswater] Property that is
superior to the federal tax lien, it should not recover
proceeds to the extent it has unpaid debt to the United
States.” (Doc. # 36 at 14).

The IRS explains that it “has an

inherent, common law right to setoff payments due to debtors
for amounts those debtors owe it.” (Id.) (citing Capuano v.
United

States,

955

F.2d

1427,

1429

(11th

Cir.

1992)).

According to the IRS, “ITS Billing admittedly owes the United
States unpaid taxes for multiple years [and] . . . it would be
20

inequitable for ITS Billing to recover proceeds from the sale
of the [Crosswater] Property to the detriment of the United
States even if the Court determines that ITS Billing has a
superior claim to that property.” (Id.).
The IRS admits that it has not assessed tax liabilities,
penalties, and interest as to ITS Billing and “the United
States

is

unable

to

provide

the

Court

with

a

precise

computation of the total debt of ITS Billing.” (Id. at 15).
ITS Billing correctly responds that “it is not appropriate for
the IRS to raise an entirely new issue at the eleventh hour,
especially as a claim for offset when the IRS is the plaintiff
in this case.” (Doc. # 37 at 10). The Court agrees with ITS
Billing that the issue of its own tax liabilities, which have
yet to be calculated, is irrelevant to the present litigation.
In the instance that the IRS determines that ITS Billing is a
tax debtor, it should file a separate action against ITS
Billing, not interject those claims into the present action,
at the eleventh hour.
Accordingly, it is
ORDERED, ADJUDGED, and DECREED:
(1)

Plaintiff IRS’s Motion for Summary Judgment (Doc. # 35)
is GRANTED IN PART to the extent that the Clerk is
directed to enter a Judgment in favor of the IRS and
21

against Heptner in the amount of $250,829.14.

However,

the IRS’s Motion is DENIED to the extent it argues that
it has an interest in the Crosswater Property that is
superior to the interest held by ITS Billing.
(2)

Defendant ITS Billing’s Motion for Summary Judgment (Doc.
# 33) is GRANTED.

The Court finds that ITS Billing has

a purchase money note and mortgage which is superior to
the IRS’s federal tax lien.
(3)

The Clerk is directed to close the case.
DONE and ORDERED in Chambers in Tampa, Florida, this 15th

day of June, 2016.

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