United States of America v. Thompson et al

Filing 92

ORDER denying 79 Motion to Compel. Any objection to this Order shall be filed with the Clerk within 14 days after being served with a copy of this Order. Ordered by Magistrate Judge Thomas D. Thalken. (Copy mailed to pro se parties) (JSF)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA

UNITED STATES OF AMERICA,
Plaintiff,

8:13CV180

vs.
ORDER
HARLAN M. THOMPSON; DIANE C.
THOMPSON; MAPLE LEAF
FUNDING, A “PURE” TRUST;
CAPITOL ONE BANK; and
DISCOVER BANK,
Defendants.

This matter is before the court on the defendants’, Diane C. Thompson and
Harlan M. Thompson (the Thompsons), Motion to Compel (Filing No. 79).

The

Thompsons filed a brief (Filing No. 80) in support of the motion. The plaintiff, the United
States of America, filed a brief (Filing No. 82) and an index of evidence (Filing No. 83) in
response. The Thompsons did not file a reply.

BACKGROUND
The plaintiff filed this action in an attempt to reduce to judgment the federal
income tax assessments made against the Thompsons and foreclose federal tax liens
on property. See Filing No. 1 - Complaint p. 1. To this end, the government alleges the
Thompsons owe outstanding tax assessments and either created a sham trust or
fraudulently transferred property to avoid payment. Id. Additional details follow based
on a summary of facts alleged in the Complaint. On June 2, 2000, the Thompsons
purchased property located at 399 East 7th Street in Wakefield, Nebraska (the
Wakefield Property) and, also in June, borrowed approximately $223,000 against the
property. See id. ¶¶ 43-46. Nearly six years later, on May 29, 2006, the Secretary of
the Treasury assessed over $50,000 against the Thompsons for underreporting their
income on 2002 and 2003 federal income tax returns. See id. ¶¶ 12, 15. Less than one
year later, on February 8, 2007, the Thompsons quitclaimed the Wakefield Property to
the defendant Maple Leaf Funding, a “Pure” Trust (Maple Leaf), for $1.00 “subject to the

United States’ federal tax liens for 2002 and 2003.” See id. ¶¶ 49-50. Since the
transfer, Harlan Thompson has operated a business on, paid the utilities and property
taxes for, paid the deeds of trust to land on, and, with his wife, exercised exclusive
possession of the Wakefield Property. See id. ¶¶ 54-56, 58-60. The Secretary of the
Treasury also assessed amounts for the 2005, 2006, and 2007 tax years, including
income taxes due and penalties for filing frivolous tax returns. Id.
Based on these facts, the Complaint alleges five claims against the Thompsons.
See id. ¶¶ 9-65. In the first three claims, the plaintiff seeks to reduce to judgment the
alleged joint and individual federal income tax debts and I.R.C. § 6702(a) penalties for
frivolous returns the Thompsons incurred between 2002 and 2007. See id. at 1 and
¶¶ 9-33, Claims I, II, and III. The final two claims seek entry of foreclosure of a tax lien
filed with the Dixon County, Nebraska, Register of Deeds against the Wakefield
Property to enforce the federal income tax liabilities. See id. ¶¶ 34-65, Claims IV and V.
The Thompsons deny liability on the plaintiff’s claims, asserting each tax
assessment against them in Claims I, II, and III is invalid except for the 2006 tax
assessment, which has since been paid in full by a wage garnishment on Diane
Thompson. See Filing No. 44 - Brief p. 2-4. Additionally, the Thompsons argue the
§ 6702(a) frivolous return penalties were not properly processed by the IRS making the
penalties invalid. See Filing No. 47 - Amended Letter p. 1. Finally, the Thompsons
assert Claims IV and V are premature and will not ripen unless the tax assessments
against them are reduced to a judgment. See Filing No. 44 - Brief p. 5-11.
On September 9, 2014, the Thompsons served the plaintiff with a third request
for the production of “the source documents which contain the explanation why
Document Code 54 with a Blocking Series 520-529 is a User Fee.” See Filing No. 80 Brief Ex. A - Third Request. In the plaintiff’s October 29, 2014, response, the plaintiff
objected and stated, in part:
The Thompsons were not assessed with “user fees,” . . . .
Instead, they were each assessed with frivolous filing
penalties . . . . The United States has produced [discovery]
for the frivolous filing penalties at issue in this case . . . . The
Thompsons’ request for documents regarding “user fees”—
which request is based on their misreading of the Internal

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Revenue Manual—is not relevant to any party’s claim or
defense in this case.
See Filing No. 83-1 - Response to Third Request.
The Thompsons filed the instant motion to compel on November 10, 2014. See
Filing No. 79. The Thompsons argue the information sought in their third request will
prove the Internal Revenue Service (IRS) did not follow the requirements to make
penalty assessments against the Thompsons and the IRS improperly imposed filing
fees or user fees upon the Thompsons. See Filing No. 80 - Brief p. 3.
The plaintiff argues the Thompsons’ motion should be denied because the
Thompsons failed to comply with the local rules and confer with plaintiff’s counsel
before filing the instant motion.

See Filing No. 82 - Response at 4.

Additionally,

assuming the court considers the Thompsons’ motion, the plaintiff argues the
Thompsons have failed to make a threshold showing their request is relevant and within
the scope of discovery. Id. at 4-5. The plaintiff argues the request has no possible
bearing on the claims at issue and is a result of the Thompsons’ misreading of the
Internal Revenue Manual, which is merely an instructional handbook that “does not
have the force of law, does not confer rights to taxpayers, and is not binding on the IRS
in litigation with taxpayers.” Id. at 5-8 (citing United States v. Meisner, 2007 WL
1290088, at *7 (D. Neb. May 2, 2007)). Lastly, the plaintiff contends it provided the
Thompsons with relevant discovery regarding the assessments of frivolous filing
penalties. Id.

ANALYSIS
A.

Duty to Confer
The Local Rules state:
To curtail undue delay in the administration of justice, this
court only considers a discovery motion in which the moving
party, in the written motion, shows that after personal
consultation with opposing parties and sincere attempts to
resolve differences, the parties cannot reach an accord.
This showing must also state the date, time, and place of the
communications and the names of all participating persons.
“Personal
consultation”
means
person-to-person
conversation, either in person or on the telephone. An
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exchange of letters, faxes, voice mail messages, or emails is
also personal consultation for purposes of this rule upon a
showing that person-to-person conversation was attempted
by the moving party and thwarted by the nonmoving party.
See NECivR 7.1(i). The Federal Rules of Civil Procedure also require good faith efforts
by the moving party to resolve a dispute prior to filing a motion to compel. See Fed. R.
Civ. P. 37(a)(1). The Thompsons have failed to show they complied with local and
federal rules and as a result, the Thompsons’ motion is premature. Nevertheless, in the
interest of judicial economy, the court will consider the merits of the Thompsons’ motion.

B.

Merits
“Parties may obtain discovery regarding any nonprivileged matter that is relevant

to any party’s claim or defense.” Fed. R. Civ. P. 26(b)(1). “Broad discovery is an
important tool for the litigant, and so ‘[r]elevant information need not be admissible at
the trial if the discovery appears reasonably calculated to lead to the discovery of
admissible evidence.’” WWP, Inc. v. Wounded Warriors Family Support, Inc., 628
F.3d 1032, 1039 (8th Cir. 2011) (alteration in original) (quoting Fed. R. Civ. P.
26(b)(1)).

Accordingly, if information has any possibility of impacting either parties’

claim or defense it is relevant. See Cardenas v. Dorel Juvenile Grp., Inc., 230 F.R.D.
611, 615-16 (D. Kan. 2005).
“When the discovery sought appears relevant on its face, the party resisting the
discovery has the burden to establish that the requested discovery does not come
within the scope of relevance.” Cardenas, 230 F.R.D. at 615-16. “Conversely, when
the relevancy of the discovery request is not readily apparent on its face, the party
seeking the discovery has the burden to show the relevancy of the request.” Id. at 616.
Mere speculation that information might be useful will not suffice; litigants seeking to
compel discovery must describe with a reasonable degree of specificity the information
they hope to obtain and its importance to their case. See Oppenheimer Fund, Inc. v.
Sanders, 437 U.S. 340, 352 (1978).
The Thompsons have failed to show the requested discovery, specifically the
cited portion of the Internal Revenue Manual, which “is not binding on the IRS in

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litigation with taxpayers,”1 is relevant and discoverable.

The Thompsons seek the

requested information to challenge the assessments of frivolous filing penalties as
improper user fees. However, as stated in the plaintiff’s response and objection to the
Thompsons’ discovery request, the Thompsons were not assessed user fees.

See

Filing No. 83-1 - Response to Third Request. Instead, the Thompsons were assessed
frivolous filing penalties. See Filing No. 1 - Complaint ¶¶ 21-23, 29-31. The plaintiff
represents it already produced discovery pertaining to the assessments of frivolous
filing penalties. See Filing No. 83 - Lindgren Decl. ¶¶ 5-6. There is no evidence the
plaintiff intends to argue the Thompsons were assessed and failed to pay user fees.
The Thompsons have not shown the requested discovery is relevant or that the
plaintiff’s production was deficient; therefore, the motion will be denied. Accordingly,

IT IS ORDERED:
The Thompsons’ Motion to Compel (Filing No. 79) is denied.

ADMONITION
Pursuant to NECivR 72.2 any objection to this Order shall be filed with the Clerk
of the Court within fourteen (14) days after being served with a copy of this Order.
Failure to timely object may constitute a waiver of any objection. The brief in support of
any objection shall be filed at the time of filing such objection. Failure to file a brief in
support of any objection may be deemed an abandonment of the objection.

Dated this 8th day of December, 2014.
BY THE COURT:
s/ Thomas D. Thalken
United States Magistrate Judge
1

See Meisner, 2007 WL 1290088, at *7 (“It is universally held that the IRM does not have the force of
law, does not confer rights on taxpayers, and is not binding on the IRS in litigation with taxpayers.”)
(collecting cases); see also Ghandour v. United States, 37 Fed. Cl. 121, 126 n.14 aff’d, 132 F.3d 52
(Fed. Cir. 1997) (“We note that the IRM ‘[does] not have the force and effect of law’ (United States v.
Horne, 714 F.2d 206, 207 (1st Cir. 1983)), is ‘adopted solely for the internal administration of the IRS
. . . [, and] does not confer any rights upon the taxpayer.’ United States v. Will, 671 F.2d 963, 967 (6th
Cir. 1982). Accordingly, we do not consider the section cited to therein to be persuasive.”).
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