United States of America v. Thill et al
Filing
37
FINDINGS AND RECOMMENDATIONS. Based on the foregoing, IT IS RECOMMENDED the Thills' 20 MOTION for Court Intervention MOTION to Dismiss is DENIED. The United States' 21 MOTION for Summary Judgment is GRANTED and the Thill s' 32 MOTION for Summary Judgment is DENIED. Any objections to the Findings and Recommendations must be filed with the Clerk of Court and copiesserved on opposing counsel within fourteen (14) days after entry hereof,or objection is waived. Signed by Magistrate Judge Carolyn S Ostby on 4/8/2015. (EMH, ) Modified on 4/9/2015 to change doc. type to written opinion (JDH, ).
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BILLINGS DIVISION
THE UNITED STATES OF
AMERICA,
CV-14-29-BLG-SPW-CSO
FINDINGS AND
RECOMMENDATIONS OF
UNITED STATES
MAGISTRATE JUDGE
Plaintiff,
vs.
KEITH THILL, GAYLE THILL,
and MONTANA DEPT. OF
REVENUE,
Defendants.
Plaintiff (“United States”) filed this civil action to reduce to
judgment outstanding federal tax assessments against Defendants
Keith Thill and Gayle Thill (collectively “the Thills”), and to foreclose
federal tax liens against certain real property that the Thills own.
Cmplt. (ECF 1) at 2.1 The United States is proceeding under 26 U.S.C.
§§ 7401, 7402, and 7403, and additionally invokes this Court’s
1
“ECF” refers to the document as numbered in the Court’s
Electronic Case Files. See The Bluebook, A Uniform System of Citation,
§ 10.8.3. Citations to page numbers refer to those assigned by the
electronic filing system.
-1-
jurisdiction under 28 U.S.C. §§ 1331, 1340, and 1345. Id.2
The following interrelated motions are now pending and listed in
the order that the parties filed them:
1.
The Thills’ “Motion for Court Intervention and or Dismissal
Directed to the United States’ [sic] of America[,]” ECF 20;
2.
The United States’ summary judgment motion, ECF 21; and
3.
The Thills’ summary judgment motion, ECF 32.
Having considered the relevant law and the parties’ submissions,
the Court enters the Findings and Recommendations that follow.
I.
The Thills’ Motion for Court Intervention and/or to Dismiss
A.
Background facts
Before summarizing the background facts, the Court notes that
the Thills do not make entirely clear to the Court the precise bases they
rely upon in seeking “court intervention” through their motion. They
2
The United States names the Montana Department of Revenue
(“DOR”) as a defendant under 26 U.S.C. § 7403(b) “because it may
claim an interest in the property against which the [United States]
seeks to foreclose its tax liens.” ECF 1 at 2-3. On May 6, 2014, the
United States and DOR filed a Stipulation setting forth their
agreement respecting the priority of liens at issue on the subject
property. Stipulation (ECF 8) at 2-3. They further agree that, because
the DOR’s interests in the outcome of this matter are protected, it no
longer needs to participate in this case’s proceedings. Id. at 3-4.
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cite no authority beyond a reference to Local Rule 73 (ECF 20 at 2), a
general reference to “violation of [their] Constitutional rights[,]” (id. at
5), and a reference to the Montana “Homestead Act[,]” (id. at 6). In
their motion’s prayer for relief, the Thills request that the Court “either
require that [the United States] accept our previous offer [of
settlement], or be much, much more reasonable, in a counter offer or
dismiss.” Id. at 12. Finally, they also “request that the court[’]s reply
to this motion not only [be] worded as is typical of court decisions but
explained so that we have a clear understanding what is being said.”
Id.
Affording the Thills’ motion liberal construction, the Court will
treat it as a motion to dismiss the United States’ Complaint for failure
3
Local Rule 7.1 of the Local Rules of Procedure for the U.S.
District Court for the District of Montana, among other things, governs
the filing of motions. Although the Thills reference the rule, they failed
to comply with several of its provisions, including: (1) the requirement
that the motion’s text states that the opposing party has been contacted
and states whether any party objects to the motion, L.R. 7.1(c)(1); (2)
the requirement that an opposed motion be accompanied by a
supporting brief filed separately from the motion, L.R. 7.1(d)(1)(A); and
(3) the requirement that briefs include a certificate confirming that the
supporting brief complies with the rule’s word limits, L.R. 7.1(d)(2)(E).
At this juncture in the proceedings, the Court deems it appropriate, in
the interest of efficiency, to address the merits of the pending motions
rather than delay the proceedings by requiring full compliance with
these procedural rules.
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to state a claim upon which relief can be granted under Rule 12(b)(6).4
In addressing a Rule 12(b)(6) motion, the Court must accept the
Complaint’s factual allegations as true and must construe the pleadings
in the light most favorable to the Plaintiff – here, the United States.
Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). Thus, the
following allegations from the United States’ Complaint are assumed to
be true for purposes of addressing the Thills’ motion to dismiss.
For the years 2003 through 2009, an authorized delegate of the
Secretary of the Treasury made timely federal income tax assessments
against the Thills, jointly. ECF 1 at 7.5 Despite notice and demand for
payment of the assessments, the Thills “have neglected, refused, or
failed to pay the income tax assessments against them and there
remains due and owing to the [United States] on those assessments the
total sum of $96,017.91 plus accrued interest, penalties and statutory
4
References to rules are to the Federal Rules of Civil Procedure
unless otherwise noted.
5
In its Complaint, for all of the tax assessments discussed herein,
the United States includes tables that provide the total tax liability
assessed by tax form, tax period, assessment date, liability assessed,
and type of liability assessed or proposed. The tables also list by
category the type of liability assessed or proposed, including: tax;
interest; estimated tax penalty; late filing penalty; failure to pay tax
penalty; and fees and collection costs. ECF 1 at 5-11.
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additions as provided by law, from January 31, 2014.” Id.
For the years 1997 through 2002, an authorized delegate of the
Secretary of the Treasury made timely federal income tax assessments
against Keith Thill. ECF 1 at 7-9. Despite notice and demand for
payment of the assessments, Keith Thill “has neglected, refused, or
failed to pay the income tax assessments against [him] and there
remains due and owing to the [United States] on those assessments the
total sum of $92,979.71 plus accrued interest, penalties and statutory
additions as provided by law, from January 31, 2014.” Id. at 9-10.
For the years 1999 through 2002, an authorized delegate of the
Secretary of the Treasury made timely federal income tax assessments
against Gayle Thill. ECF 1 at 10-11. Despite notice and demand for
payment of the assessments, Gayle Thill “has neglected, refused, or
failed to pay the income tax assessments against her and there remains
due and owing to the [United States] on those assessments the total
sum of $19,691.75 plus accrued interest, penalties and statutory
additions as provided by law, from January 31, 2014.” Id. at 11.
As a result of the foregoing unpaid federal income tax
assessments, statutory liens arose in favor of the United States against
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all property or rights to property, whether real or personal, belonging
to Keith Thill and Gayle Thill, as of the dates of the assessments. Id. at
12 (citing 26 U.S.C. §§ 6321 and 6322). Also, the liens immediately
attached to all after-acquired property or rights to such property. Id.
At issue in this action, there exists real property commonly
referred to as 2318 Lyndale Lane, Billings, Montana 59102 (“real
property at issue”).6 On August 4, 1986, the Thills acquired title to the
real property at issue via Warranty Deed recorded with the
Yellowstone County Clerk and Recorder’s Office. Id. at 3.
Notices of Federal Tax Lien relating to the federal tax
assessments described above were filed and recorded at the
Yellowstone County Recorder’s Office, as follows:
1.
On April 21, 2003, the Internal Revenue Service (“IRS”) filed
a Notice of Federal Tax Lien in the Yellowstone County
Recorder’s Office naming Gayle Thill as the taxpayer for
federal income tax liabilities (Form 1040) for the 1997, 1998,
6
The United States asserts that the real property at issue is more
particularly described as follows:
Lot 10, EXCEPT the south 12 feet thereof, Block 2, of Westward
Subdivision, in the City of Billings, Yellowstone County, Montana,
according to the official plat on file in the office of the Clerk and
Recorder of said County, under Document No. 586166.
Id. at 3.
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and 1999 tax periods, in the total amount of $6,305.02.
Serial #840320708.
2.
On June 7, 2004, the IRS filed a Notice of Federal Tax Lien
in the Yellowstone County Recorder’s Office naming Gayle
Thill as the taxpayer for federal income tax liabilities (Form
1040) for the 1997, 1998, 1999, 2000, and 2001 tax periods,
in the total amount of $12,471.86. Serial # 175211604.
3.
On December 9, 2004, the IRS filed a Notice of Federal Tax
Lien in the Yellowstone County Recorder’s Office naming
Keith Thill as the taxpayer for federal income tax liabilities
(Form 1040) for the 1997, 1998, and 1999 tax periods, in the
total amount of $13,029.98. Serial #203503304. (Refiled
September 9, 2013).
4.
On February 22, 2006, the IRS filed a Notice of Federal Tax
Lien in the Yellowstone County Recorder’s Office naming
Keith Thill as the taxpayer for federal income tax liabilities
(Form 1040) for the 2000, 2001, and 2002 tax periods, in the
total amount of $40,163.32. Serial #273159306.
5.
On September 7, 2010, the IRS filed a Notice of Federal Tax
Lien in the Yellowstone County Recorder’s Office naming
Keith Thill as the taxpayer for federal income tax liabilities
(Form 1040) for the 2003, 2004, 2005, and 2006 tax periods,
in the total amount of $59,222.06. Serial #694032610.
Id. at 3-4, 12.
On May 29, 2007, the Montana Thirteenth Judicial District Court,
Yellowstone County, issued a Warrant of Distraint as to Keith Thill’s
liabilities to the Montana Department of Revenue for the years 1997
through 2000. Id. at 4.
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On June 13, 2011, the Montana Thirteenth Judicial District
Court, Yellowstone County, issued a Warrant of Distraint as to Keith
Thill’s liabilities to the Montana Department of Revenue for the years
2003 through 2006. Id.
Between July 5, 2012, and December 12, 2013, the IRS recorded
additional Notices of Federal Tax Lien in the Yellowstone County
Recorder’s Office for various liabilities of the Thills. Id. at 4-5.
The tax liens arising from the assessments described above
continue to attach to the real property at issue. Id. at 12. The liens
have priority over all interests in the real property at issue acquired
after the attachment of the tax liens, subject to the provisions of 26
U.S.C. § 6323(a). Id. Also, under 26 U.S.C. § 7403(c), the United
States is entitled to a decree of sale of the real property at issue to
enforce its tax liens. Id.
On March 7, 2014, the United States filed this civil action to
reduce to judgment the federal tax assessments against the Thills and
to foreclose the federal tax liens against the real property at issue that
the Thills own. Id. at 2.
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B.
Legal Standard for Motion to Dismiss
“Dismissal under Rule 12(b)(6) is proper only when the complaint
either (1) lacks a cognizable legal theory or (2) fails to allege sufficient
facts to support a cognizable legal theory.” Zixiang Li v. Kerry, 710
F.3d 995, 999 (9th Cir. 2013) (quoting Mendiondo v. Centinela Hosp.
Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008)). Although the Court
accepts all fact allegations as true, the Court is not required to accept
as true allegations that are merely conclusory, unwarranted deductions
of fact, or unreasonable inferences. Daniels-Hall v. Nat’l Educ. Ass’n,
629 F.3d 992, 998 (9th Cir. 2010).
The Court’s standard of review under Rule 12(b)(6) is informed by
Rule 8(a)(2), which requires that a pleading contain “a short and plain
statement of the claim showing that the pleader is entitled to relief.”
Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009) (quoting Fed. R. Civ. P
8(a)). To survive a motion to dismiss under Rule 12(b)(6), “a complaint
must contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’” Id. at 678. “A claim has
facial plausibility when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is liable
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for the misconduct alleged.” Id. A plausibility determination is context
specific, and courts must draw on judicial experience and common
sense in evaluating a complaint. Levitt v. Yelp! Inc., 765 F.3d 1123,
1135 (9th Cir. 2014). In Levitt, the Ninth Circuit summarized the test:
First, to be entitled to the presumption of truth, allegations
in a complaint or counterclaim may not simply recite the
elements of a cause of action, but must contain sufficient
allegations of underlying facts to give fair notice and to
enable the opposing party to defend itself effectively.
Second, the factual allegations that are taken as true must
plausibly suggest an entitlement to relief, such that it is not
unfair to require the opposing party to be subjected to the
expense of discovery and continued litigation.
Id. (citations omitted).
C.
Analysis
In moving to dismiss, the Thills advance multiple arguments,
some of which are redundant and many of which are repetitive of other
arguments related to the pending summary judgment motions. They
argue that: (1) the United States did not need to bring this action but
instead could have accepted their offer of compromise, id. at 2; (2) they
possess “lawful proof” of “possible misconduct or worse by the IRS and
Sandra Welch[,]”7 id.; (3) they tried to resolve the action but were
7
Sandra Welch is a commissioned Revenue Officer with the IRS
who, at some point, was assigned to the Thills’ case. See ECF 21-6.
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unsuccessful, id. at 4; (4) they were verbally abused by Sandra Welch,
id.; (5) they “are in the midst of a nightmare violation of [their]
Constitutional rights[,]” id. at 5; (6) the IRS has not supplied them with
a copy of what their actual alleged debt is, but they “have received a
multitude of confusing paperwork but never one that [they] can look at
and easily see what [their] alleged debt actual amount is[,]” id. at 6; (7)
they “have a Homestead Act filed on [their] home and have for many
years[ ]” that protects them from this action, id. at 6-7; (8) although
they have asked repeatedly over the past 17 years for explanations of
the IRS’ demands, they have never been “given actual answers to
[their] questions,” id. at 7, 10; (9) in 2003, Gayle Thill’s paycheck was
garnished in an amount far in excess of what the law allows and “no
one has been able to show [them the] Treasury Directive” authorizing
the garnishment, id. at 7; (10) the laws are “so convoluted that the
average American cannot follow them[,]” id. at 8; (11) they have broken
no laws that would cause them to lose any of their rights as Americans,
id. at 10; (12) Sandra Welch “is not a government employee because if
she was she would have an Oath of Office[,]” id. at 11; and (13) they are
in a precarious financial situation and may be rendered homeless if the
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United States prevails in this action, id.
The Thills attached to their motion six unauthenticated exhibits.
See ECF 20-1 – 20-7. Because the exhibits are not properly
authenticated, the Court has not considered them in addressing the
pending motions. See Fed. R. Evid. 901(a) (setting forth authentication
requirement); U–Haul Int’l, Inc., 576 F.3d 1040, 1043 (9th Cir. 2009)
(district courts have discretion to render evidentiary rulings). For this
reason, the Court concludes that it need not convert the Thills’ Rule
12(b)(6) motion to one for summary judgment under Rule 56. See Rule
12(d) (“If, on a motion under Rule 12(b)(6) . . . matters outside the
pleadings are presented to and not excluded by the court, the motion
must be treated as one for summary judgment under Rule 56.”).
Turning to the Thills’ motion, the Court concludes that it is
without merit. As is evident from the foregoing recitation of the Thills’
arguments, they do not properly challenge the sufficiency of the United
States’ Complaint because they fail to cite to any controlling or
persuasive legal or factual basis for the relief they seek.
Specifically, to the extent that their above-listed arguments, or
any of their other arguments in the record of this case, suggest that the
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federal income tax is legally invalid or that the IRS is not a government
agency, the Thills are wrong. The Ninth Circuit Court of Appeals, in In
re Becraft, 885 F.3d 547, 548-49 (9th Cir. 1989), addressed a litigant’s
argument that “[t]he Sixteenth Amendment does not authorize a direct
non-apportioned income tax on resident United States citizens and thus
such citizens are not subject to the federal income tax laws.” Noting
that it “hardly need comment on the patent absurdity and frivolity of
such a proposition[,]” the Ninth Circuit noted:
For over 75 years, the Supreme Court and the lower federal
courts have both implicitly and explicitly recognized the
Sixteenth Amendment’s authorization of a non-apportioned
direct income tax on United States citizens residing in the
United States and thus the validity of the federal income tax
laws as applied to such citizens. See, e.g., Brushaber v.
Union Pacific Railroad Co., 240 U.S. 1, 12–19, 36 S.Ct. 236,
239–42, 60 L.Ed. 493 (1916); Ward, 833 F.2d at 1539; Lovell
v. United States, 755 F.2d 517, 519 (7th Cir.1984); Parker v.
Commissioner, 724 F.2d 469, 471 (5th Cir.1984); United
States v. Romero, 640 F.2d 1014, 1016 (9th Cir.1981).
In re Becraft, 885 F.2d at 548-49 (emphasis added); see also Wilcox v.
Commissioner, 848 F.2d 1007, 1008 (9th Cir. 1989) (federal income tax
system is not a voluntary system).
Also, to the extent that the Thills maintain that the Court has the
authority to order the United States to accept the Thills’ settlement
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offer, they again are wrong. They fail to cite to any legal authority for
this proposition, and the Court is not aware of any.
And, to the extent that the Thills claim reliance on Montana’s
Homestead Act to somehow preclude foreclosure of federal tax liens
against their real property, the Court is not persuaded.
Commencing a civil action under 26 U.S.C. § 7403 “is one method
in a formidable arsenal of collection tools available to the government
to collect taxes.” United States v. Gibson, 817 F.2d 1406, 1407 (9th Cir.
1987). Section 7403 allows the government to enforce a federal tax lien
through a forced sale of property in which the tax debtor has any
interest.
Where, as in this case, all persons “having liens upon or claiming
any interest in the property involved” have been named as defendants,
the Court may “proceed to adjudicate all matters involved therein and
finally determine the merits of all claims to and liens upon the
property....” 26 U.S.C. § 7403(b) and (c). In addition, “in all cases
where a claim or interest of the United States therein is established,”
the Court “may decree a sale of such property, by the proper officer of
the court, and a distribution of the proceeds of such sale according to
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the findings of the court in respect to the interests of the parties and of
the United States.” 26 U.S.C. § 7403(c).
Under these federal statutes, the federal government’s tax liens
reach all property interests of the delinquent taxpayer and “the
Supremacy Clause8 . . . provides the underpinning for the Federal
Government’s right to sweep aside state-created exemptions . . . [,]”
such as homestead exemptions, to these tax collection tools. United
States v. Rodgers, 461 U.S. 677, 701 (1983). As such, the Thills’
reliance in this case on Montana’s Homestead Act is misplaced.
Finally, respecting the Thills’ remaining arguments, the Court
concludes that they fail to support the Thills’ Rule 12(b)(6) motion.
Nothing in their arguments demonstrates that the United States’
Complaint lacks cognizable legal theories or fails to allege sufficient
facts to support cognizable legal theories. Zixiang, 710 F.3d at 999.
8
The Supremacy Clause, U.S. Const. Art. VI, cl. 2, provides:
This Constitution, and the Laws of the United States which
shall be made in Pursuance thereof; and all Treaties made,
or which shall be made, under the Authority of the United
States, shall be the supreme Law of the Land; and the
Judges in every State shall be bound thereby, any Thing in
the Constitution or Laws of any State to the Contrary
notwithstanding.
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For all of the foregoing reasons, and because the Thills have failed
to raise a substantive challenge to either the factual or legal sufficiency
of the United States’ Complaint, their motion to dismiss should be
denied.
II.
The Parties’ Summary Judgment Motions
The parties have filed cross motions for summary judgment. See
United States’ Summary Judgment Mtn. (ECF 21)9 and the Thills’
Summary Judgment Mtn. (ECF 32).10 Because the motions are
9
Respecting the United States’ motion, the parties filed the
following: Mem. in Support of United States’ Mtn. for Summary
Judgment (ECF 21-2); Thills’ Opposition to United States’ Summary
Judgment Mtn. and Additional Support for Thills’ Mtn. to Dismiss
(ECF 30); Thills’ Opposition to United States’ Stmt. of Undisputed Facts
and Declarations of Aaron Bailey and Sandra Welch (ECF 31); United
States’ Response [Reply] to Thills’ Opposition to Mtn. for Summary
Judgment (ECF 33); and Thills’ Response [Sur-reply] to United States’
Resp. [Reply] to Mtn. for Summary Judgment (ECF 34).
The Court notes that the Thills’ response to the United States’
reply brief is improper. See Local Rule 7.1(d)(1)(D) (after the moving
party files its reply brief, “[n]o further briefing is permitted without
prior leave.”). Also, the Thills attached exhibits to their response brief
(ECF 30) and to their opposition to the United States’ Statement of
Undisputed Facts (ECF 31). The exhibits are not properly
authenticated. See Fed. R. Evid. 901(a). Nevertheless, the Court has
reviewed them and concludes that their content does not alter the
Court’s conclusions herein.
10
Respecting the Thills’ summary judgment motion, the parties
filed the following: Thills’ Mtn. for Summary Judgment (ECF 32);
Declaration of Keith & Gayle Thill (ECF 32-18); United States’
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interrelated and overlap, the Court addresses them together.
A.
Factual Background11
Keith Thill and Gayle Thill are residents of Billings, Montana.
They own real property at 2318 Lyndale Lane, which is the subject of
this action. United States’ Stmt. of Undisputed Facts (ECF 21-1) at ¶ 1.
Keith Thill held various jobs over the past 18 years, mostly
working as a painter. Id. at ¶ 2. Gayle Thill worked in the retail
grocery business for a number of years and also performed odd jobs. Id.
at ¶ 3.
In 2001, the IRS began an examination to determine the Thills’
income tax liabilities because the Thills failed to file tax returns for the
tax periods 1997 through 2002, a pattern that continued through 2009.
Id. at ¶¶ 4, 5. The examination culminated with federal income tax
assessments, made by an authorized delegate of the Secretary of the
Treasury, for the years 1997 through 2009. Id. at ¶¶ 4, 11, 14, 17.
Response (ECF 35); and Declaration of Aaron Bailey (ECF 36). Again,
the Thills attached unauthenticated exhibits to their motion and
opening brief (ECF 32). And their declaration (ECF 32-18) is unsworn.
Nevertheless, the Court has reviewed all documents and concludes that
their content does not alter the Court’s conclusions herein.
11
Unless otherwise noted, the background facts are undisputed by
relevant or admissible evidence.
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The IRS computed the Thills’ federal income tax liability because
the Thills failed to report income and failed to cooperate in the
examination process. Id. at ¶ 6. The IRS used a variety of methods,
including bank deposit analysis and Information Reporting Program
Transcripts (“IRP Transcripts”). These are retrievable computer
records maintained by the IRS that reflect data reported by third
parties on various IRS forms, including Forms W-2 (employee wages),
1099 (non-employee compensation), and 1098 (home mortgage interest).
IRP Transcripts are obtained for individuals by running searches under
the individual’s Social Security number in the computer file system
maintained by the IRS. Id. at ¶ 6.
The IRS also issued statutory notices of deficiency to the Thills
about their liabilities. The notices included information regarding the
basis for the findings of deficiency. Id. at ¶ 7. In response to the
notices and other correspondence from the IRS, the Thills sent various
letters and other documents to the IRS. Among other things, these
documents stated that the IRS is not a valid federal entity and
otherwise purported to show that the Thills were exempt from federal
taxation. Id. at ¶ 8.
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In 2013, the Thills provided the IRS with Forms 1040 for the
periods 2003 through 2009. The liabilities for these periods were
adjusted to reflect the information contained in the Forms 1040 to the
extent they were consistent with the third-party-sourced information
already collected. Id. at ¶ 9. Although there was no substantial
deviation between the initial assessments and the information provided
by the Thills, the adjustments resulted in a lowering of the total
liabilities. Id. at ¶ 10.
Despite notice and demand for payment of the assessments, the
Thills have neglected, refused, or failed to pay the income tax
assessments against them. The following sums remain due and owing
to the United States on those assessments:
1.
Keith and Gayle Thill, jointly, for 2003 through 2009:
$96,017.91 plus accrued interest, penalties, and
statutory additions as provided by law, from January
30, 2015. Id. at ¶¶ 11, 12, 13.
2.
Keith Thill, individually, for 1997 through 2002:
$95,472.4212 plus accrued interest, penalties, and
12
This amount is different from the amount listed in the United
States’ Complaint. See ECF 1 at ¶ 24 (listing liability amount for Keith
Thill as $92,979.71). Although the discrepancy is likely caused by
accruing interest on the total amount, it is not explained in the United
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statutory additions as provided by law, from January
30, 2015. Id. at ¶¶ 14, 15, 16.
3.
Gayle Thill, individually, for 1999 through 2002:
$19,691.75 plus accrued interest, penalties, and
statutory additions as provided by law, from January
31, 2014. Id. at ¶¶ 17, 18, 19.
The Thills do not dispute that they were paid wages and earned
income during the periods described above. Id. at ¶ 20. But they do
dispute the IRS’ authority to assess and collect taxes on their earnings.
Id.
The real property at issue in this action is commonly referred to
as 2318 Lyndale Lane, Billings, Montana 59102. Id. at ¶ 21. On
August 4, 1986, the Thills acquired title to it via warranty deed
recorded with the Yellowstone County Clerk and Recorder’s Office. Id.
at ¶ 22. Between April 21, 2003, and December 12, 2013, the United
States recorded a number of Notices of Federal Tax Lien in the
Yellowstone County Clerk and Recorder’s Office for the Thills’
liabilities set forth above. Id. at ¶ 23.
On March 7, 2014, the United States filed this action. ECF 1. On
January 23, 2015, the United States filed its summary judgment
States’ materials.
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motion. ECF 21. On March 3, 2015, the Thills filed their summary
judgment motion. ECF 32.
B.
Summary Judgment Standard
“The court shall grant summary judgment 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(a). A
party seeking summary judgment always bears the initial
responsibility of informing the court of the basis for its motion, and
identifying those portions of the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, if
any, which it believes demonstrate the absence of a genuine issue of
material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
Material facts are those which may affect the outcome of the case.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as
to a material fact is genuine if there is sufficient evidence for a
reasonable fact-finder to return a verdict for the nonmoving party. Id.
Entry of summary judgment is appropriate “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
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the burden of proof at trial.” Celotex Corp., 477 U.S. at 322. If the
moving party meets its initial responsibility, the burden then shifts to
the opposing party to establish that a genuine issue of fact exists.
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586
(1986).
C.
Analysis
“In an action to collect tax, the government bears the burden of
proof. The government can usually carry its initial burden, however,
merely by introducing its assessment of tax due.” United States v.
Stonehill, 702 F.2d 1288, 1293 (9th Cir. 1983). “Normally, a
presumption of correctness attaches to the assessment, and its
introduction establishes a prima facie case.” Id. (citing Welch v.
Helvering, 290 U.S. 111, 115 (1933); United States v. Molitor, 337 F.2d
917, 922 (9th Cir. 1964)). However, “[t]he presumption does not arise
unless it is supported by a minimal evidentiary foundation.” Id. (citing
Weimerskirch v. Commissioner, 596 F.2d 358, 360 (9th Cir. 1979)).
Thus, “before the [IRS] Commissioner can rely on this presumption of
correctness, the Commissioner must offer some substantive evidence
showing that the taxpayer received income from the charged activity.”
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Weimerskirch, 596 F.2d at 360 (citations omitted).
Certain official forms, such as Certificates of Assessments and
Payments (Form 4340), “can constitute proof of the fact that . . .
assessments were actually made.” Hughes v. United States, 953 F.2d
531, 535 (9th Cir. 1992) (citations omitted). In the Ninth Circuit, it is
settled “that Certificates of Assessments and Payments are ‘probative
evidence in and of themselves and, in the absence of contrary evidence,
are sufficient to establish that . . . assessments were properly made.’”
Koff v. United States, 3 F.3d 1297, 1298 (9th Cir. 1993) (quoting Hughes,
953 F.2d at 540).
In the case at hand, the United States has produced the
Certificates of Assessments and Payments as proof of the Thills’ tax
liabilities for 1997 through 2009. Decl. of Revenue Officer Sandra
Welch (ECF 21-6) (exhibits 4-6 (ECF 21-10 through 21-12)) (attesting
that exhibits 4-6 are “[t]rue and correct copies of Certificates of
Assessments, Payments and other Specified Matters (Form 4340) for
[the Thills’] liabilities, which reflect the assessments and abatements
for all periods, including the joint liabilities and individual liabilities
for Keith Thill and Gayle Thill[.]”). Each certificate reflects the accrued
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taxes in a given year and are “proof . . . that . . . [the] assessments were
actually made.” Hughes, 953 F.2d at 535. As noted, they constitute
“‘probative evidence in and of themselves and, in the absence of
contrary evidence, are sufficient to establish that . . . assessments were
properly made.’ ” Koff v. United States, 3 F.3d 1297, 1298 (9th Cir. 1993)
(quoting Hughes, 953 F.2d at 540).
Also, the United States has provided the “minimal evidentiary
foundation” necessary to establish that its assessments are entitled to a
“presumption of correctness.” Stonehill, 702 F.2d at 1293. It has
produced: (1) the Thills’ tax returns (Forms 1040), ECF 21-9 at 2-45; (2)
examples of third-party reports used to determine the Thills’ tax
liabilities from the IRP Transcripts, ECF 21-7 at 1-50; and (3) the
Thills’ deposition testimony, ECF 21-4 (Gayle Thill’s deposition) at 2-23
and ECF 21-5 (Keith Thill’s deposition) at 2-23.
In their deposition testimony, the Thills admit that they were
employed during the relevant periods. ECF 21-4 at 5 (depo. p. 5, ll. 515; p. 10, ll. 24-25; p. 11, ll. 1-3); ECF 21-5 at 5 (depo. p. 11, ll. 3-21).
They also admit that they stopped filing federal income tax returns in
1997. ECF 21-5 at 8 (depo. p. 21, ll. 8-25; p. 23, ll. 1-19). The Thills
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continued their refusal to file federal income tax returns until 2013,
when they submitted returns for 2003 through 2009. Welch Decl. (ECF
21-6) at ¶ 9. But they continued to refuse to pay over the tax,
penalties, and interest due.
Based on the foregoing, the Court concludes that the United
States has satisfied, with sufficient evidence, its burden regarding the
Thills’ tax liability. See Koff, 3 F.3d at 1298. The burden now shifts to
the Thills to set forth “specific facts showing that there is a genuine
issue” of fact respecting their tax liability. Liberty Lobby, 477 U.S. at
250.
Taxpayers may rebut the presumption of correctness by
demonstrating that the assessments are “arbitrary and capricious.”
Stonehill, 702 F.2d at 1294 (citing Helvering v. Taylor, 293 U.S. 507,
515 (1935)). If the assessment is based upon multiple items, then the
presumption of correctness attaches to every item. Id. Proof of error as
to one item destroys its individual presumption, but the presumption of
correctness that attached to the other items remains. Id.
Here, the Thills have not rebutted the presumption of correctness.
They have neither argued nor shown with competent, relevant evidence
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that they did not earn the income reflected in the Certificates of
Assessment or that the amounts, as represented by the United States,
are incorrect. Simply put, they have failed to rebut any of the United
States’ evidence with any evidence of their own. Rather, they advance
various arguments, both in their responses to the United States’
summary judgment motion, and in support of their own motions to
dismiss and for summary judgment, asserting that they are not subject
to the federal income tax laws. The Court already has rejected several
of these arguments in the above discussion addressing the Thills’
motion to dismiss. And, in reviewing their remaining arguments, the
Court concludes that they lack merit.
Federal courts have uniformly and consistently rejected the
arguments and types of arguments that the Thills advance here.
Lonsdale v. United States, 919 F.2d 1440, 1448 (10th Cir. 1990); see also
United States v. Sullivan, 274 U.S. 259, 263-64 (1927); United States v.
Studley, 783 F.2d 934, 937 (9th Cir. 1986); United States v. Buras, 633
F.2d 1356, 1361 (9th Cir. 1980); United States v. Neff, 615 F.2d 1235,
1238-40 (9th Cir. 1980). As the court in Lonsdale stated:
the following arguments are completely lacking in legal
merit and patently frivolous: (1) individuals (“free born,
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white, preamble, sovereign, natural, individual common law
‘de jure’ citizens of a state, etc.”) are not “persons” subject to
taxation under the Internal Revenue Code; (2) the authority
of the United States is confined to the District of Columbia;
(3) the income tax is a direct tax which is invalid absent
apportionment; (4) the Sixteenth Amendment to the
Constitution is either invalid or applies only to corporations;
(5) wages are not income; (6) the income tax is voluntary; (7)
no statutory authority exists for imposing an income tax on
individuals; (8) the term “income” as used in the tax statutes
is unconstitutionally vague and indefinite; (9) individuals
are not required to file tax returns fully reporting their
income; and (10) the Anti–Injunction Act is invalid.
To this short list of rejected tax protester arguments
we now add as equally meritless the additional arguments
made herein that (1) the Commissioner of Internal Revenue
and employees of the Internal Revenue Service have no
power or authority to administer the Internal Revenue laws,
including power to issue summons, liens and levies, because
of invalid or nonexistent delegations of authority, lack of
publication of delegations of authority in the Federal
Register, violations of the Paperwork Reduction Act, and
violations of the Administrative Procedure Act, including
the Freedom of Information Act; and (2) tax forms, including
1040, 1040A, 1040EZ and other reporting forms, are invalid
because they have not been published in the Federal
Register.
Lonsdale, 919 F.2d at 1448.
Although the Thills have not asserted all of these arguments, they
have asserted some of them and versions of some of them. None of the
Thills’ arguments supporting their position that they are not subject to
federal income tax have merit. Also, the Thills have failed to present
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evidence creating a genuine issue of material fact that would preclude
summary judgment in favor of the United States. And they have failed
to demonstrate that they are entitled to summary judgment in their
favor. Thus, the United States is entitled to summary judgment on its
claim that the Thills are indebted to the United States for income tax
liabilities for the years 1997 through 2009.
The Court next turns to the issue of whether the United States
should be permitted to collect the Thills’ tax liabilities by foreclosing its
federal tax liens on the real property at issue. The United States is
specifically empowered to enforce liens against real property in
satisfaction of unpaid tax liabilities. 26 U.S.C. § 6321. Such liens arise
at the time the assessment is made and continue to exist until the tax
liability is extinguished. 26 U.S.C. § 6322.
Here, as noted, federal tax assessments have been made against
the Thills for the years 1997 through 2009. Statutory tax liens arose as
of the dates of the assessments and attached to all of the Thills’
property and their rights to property, including the real property at
issue. Because the Thills continue to have outstanding tax liabilities,
the liens remain in full force and effect at the present time. Also, the
United States issued Notices of Federal Tax Lien for each liability at
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issue. ECF 21-6 at ¶ 25 (citing exhibit 10 thereto). The liens,
therefore, may be properly foreclosed upon by the United States. 26
U.S.C. § 7403(a). Thus, the United States is entitled to summary
judgment allowing it to enforce tax liens on the property of Keith and
Gayle Thill.
III. Conclusion
Based on the foregoing, IT IS RECOMMENDED that:
1.
The Thills’ “Motion for Court Intervention and or Dismissal
Directed to the United States’ [sic] of America[,]” ECF 20, be
DENIED;
2.
The United States’ summary judgment motion, ECF 21, be
GRANTED; and
3.
The Thills’ summary judgment motion, ECF 32, be
DENIED.
IT IS FURTHER RECOMMENDED that the Court direct the
United States to submit a proposed Order of Judicial Sale consistent
with the foregoing.
NOW, THEREFORE, IT IS ORDERED that the Clerk shall
serve a copy of the Findings and Recommendations of United States
Magistrate Judge upon the parties. The parties are advised that
pursuant to 28 U.S.C. § 636, any objections to the findings and
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recommendations must be filed with the Clerk of Court and copies
served on opposing counsel within fourteen (14) days after entry hereof,
or objection is waived.
DATED this 8th day of April, 2015.
/s/ Carolyn S. Ostby
United States Magistrate Judge
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