United States of America v. Isaacson et al

Filing 110

ORDER denying 62 Motion to Dismiss (Renewed) Amended Complaint as to Defendant Barbara Callahan, Trustee of the Kenneth R. Bassett Trust. So Ordered by Judge Joseph N. Laplante. (jb)

UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE

United States of America
v.

Civil No. 09-cv-332-JL
Opinion No. 2011 DNH 113

Kenneth C. Isaacson f/k/a
Kenneth R. Bassett,
Hazel M. Isaacson,
Roberta Doheny as Trustee of
the Kenneth R. Bassett Trust,
Cambridge Trust Co., and
Insurcomm, Inc.
MEMORANDUM ORDER
This is a civil enforcement action brought by the United
States of America, which is seeking (1) to reduce to judgment
certain unpaid tax liabilities assessed by the Internal Revenue
Service (“IRS”) against defendants Kenneth and Hazel Isaacson;
(2) to establish the validity of federal tax liens upon all of
their “property and rights to property,” 26 U.S.C. § 6321; (3) to
declare that the defendant Kenneth R. Bassett Trust (“Trust”), of
which Kenneth Isaacson (formerly Bassett) is the alleged founder
and sole beneficiary, is merely his “nominee” and therefore
subject to such liens; and (4) to enforce a federal tax lien upon
real property in Rye, New Hampshire, which is held by the Trust
but allegedly occupied and controlled by the Isaacsons.

This

court has subject-matter jurisdiction under 28 U.S.C. § 1331

(federal question) and 26 U.S.C. §§ 7402-7403 (federal tax
enforcement).
The Trust has moved to dismiss any claims against it, see
Fed. R. Civ. P. 12(b)(6), arguing that the United States has not
alleged sufficient facts to state a claim for recovery on a
“nominee” theory.
the motion.

After hearing oral argument, this court denies

While the complaint is not especially detailed, the

United States has alleged sufficient facts to survive a motion to
dismiss and proceed with discovery on that theory.
I.

Applicable legal standard
To survive a motion to dismiss under Rule 12(b)(6), the

plaintiff’s complaint must make factual allegations sufficient to
“state a claim to relief that is plausible on its face.”
Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

“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 for the misconduct alleged.”

Id.

In

analyzing whether dismissal is appropriate, the court must accept
as true all wellpleaded facts set forth in the complaint and must
draw all reasonable inferences in the plaintiff’s favor.

See,

e.g., Tasker v. DHL Ret. Sav. Plan, 621 F.3d 34, 38 (1st Cir.
2010).

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II.

Background
The United States alleges that, as of May 2009, Kenneth and

Hazel Isaacson each owed it about $1 million for unpaid federal
income taxes, based on their income in 1999 and 2002.

In 2001

and 2002, after the IRS had assessed some of those tax
liabilities, and “in anticipation of future federal tax
liabilities,” Kenneth Isaacson allegedly transferred about $4
million that he received in stock distributions over to the
Kenneth R. Bassett Trust, which he had formed in 1996 (when his
last name was Bassett) and of which he is the sole beneficiary.
The Trust allegedly used those funds, in 2002, to purchase real
property in Rye, New Hampshire.
The United States alleges that the Isaacsons “exercise
dominion and control” over the Rye property, “retain possession”
of it, and “continue to enjoy the benefits of ownership.”

The

United States further alleges that Kenneth has a “close
relationship” with the trust.

Based on those allegations, the

United States claims that the Trust holds title to the Rye
property “as the mere nominee of [Kenneth], the true and
equitable owner” of the property.”1

1

While not relevant for purposes of analyzing the present
motion, the defendants allege that Kenneth “has suffered from
mental illness at all relevant times” and that the Trust is a
valid “special needs trust” for his benefit.
3

III. Analysis
Under the Internal Revenue Code, the United States may
impose a tax lien “upon all property and rights to property,
whether real or personal, belonging to [a] person” who fails or
refuses to pay federal taxes.

26 U.S.C. § 6321; see also, e.g.,

Drye v. United States, 528 U.S. 49, 55 (1999); United States v.
Murray, 217 F.3d 59, 60 (1st Cir. 2000); Markham v. Fay, 74 F.3d
1347, 1355 (1st Cir. 1996).

“The tax code ‘creates no property

rights but merely attaches consequences, federally defined, to
rights created under state law.’”

Markham, 74 F.3d at 1355-56

(quoting United States v. Bess, 357 U.S. 51, 55 (1958)); see
also, e.g., Murray, 217 F.3d at 63.

The statutory language is

“broad and reveals on its face that Congress meant to reach every
interest in property that a taxpayer might have.”

Drye, 528 U.S.

at 56 (quotation omitted).
It is well established that a federal tax lien may be
imposed on “not only the property and rights to property owned by
the delinquent taxpayer, but also property held by a third party
if it is determined that the third party is holding the property
as a nominee or alter ego[2] of the delinquent taxpayer.”

2

Spotts

The United States initially alleged that the Trust was both
Isaacson’s nominee and his alter ego. To fall within the latter
category, “the trust[] at issue” must be “not just [the
taxpayer’s] nominee[] with respect to [a particular property] but
his alter ego for all purposes,” under a reverse corporate veilpiercing analysis. In re Krause, 637 F.3d 1160, 1165 (10th Cir.
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v. United States, 429 F.3d 248, 251 (6th Cir. 2005) (citing G.M.
Leasing Corp. v. United States, 429 U.S. 338, 35051 (1977)); see
also, e.g., Holman v. United States, 505 F.3d 1060, 1065 (10th
Cir. 2007); Oxford Capital Corp. v. United States, 211 F.3d 280,
284 (5th Cir. 2000); Dalton v. Comm’r, 135 T.C. 393, 404 (U.S.
Tax Ct. 2010); United States v. Kattar, 81 F. Supp. 2d 262, 27375 (D.N.H. 1999) (DiClerico, D.J.).
“The nominee theory focuses upon the taxpayer’s relationship
to a particular piece of property,” asking “whether the taxpayer
has engaged in a legal fiction by placing legal title to property
in the hands of a third party while actually retaining some or
all of the benefits of true ownership.”
(citing Oxford Capital, 211 F.3d at 284).

Holman, 505 F.3d at 1065
Factors that may be

relevant to that analysis include:
•

“No consideration or inadequate consideration is paid by the
nominee;

•

Property is placed in the name of the nominee in
anticipation of a suit or occurrence of liabilities while
the transferor continues to exercise control over the
property;

•

A close relationship between the transferor or the nominee
exists;

•

Conveyances were not recorded;

•

The transferor retained possession of the property;

2011). At oral argument, however, the United States withdrew its
alter ego theory, relying solely on the nominee theory.
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•

The transferor continued to enjoy the benefits of the
transferred property.”

Kattar, 81 F. Supp. 2d at 274 (formatting altered); see also
Holman, 505 F.3d at 1065 n.1 (citing Spotts, 429 F.3d at 253
n.2); Oxford Capital, 211 F.3d at 284 n.1.3
The Trust argues that it cannot be considered Kenneth
Isaacson’s nominee with respect to the Rye property because--as
the complaint acknowledges--the Trust purchased that property
from a third party, not from Kenneth himself, meaning that
Kenneth was not the “transferor” (for purposes of any of the
factors just set forth).

But, as the Tenth Circuit Court of

Appeals recently explained in rejecting a similar argument:
[A]n actual transfer of legal title [from the taxpayer
to the alleged nominee] is not essential to the
imposition of a nominee lien. A delinquent taxpayer
who has never held legal title to a piece of property
but who transfers money to a third party and directs
the third party to purchase property and place legal

3

The parties disagree over whether federal or state law
governs the nominee analysis. The United States argues for
federal law; the Trust argues for state law. Precedent on that
issue is not entirely clear or consistent. See, e.g., In re
Callahan, 442 B.R. 1, 5 (D. Mass. 2010) (discussing different
approaches that courts have taken). This court need not resolve
the issue, at least for now, because federal and state law “are
so similar that the distinction is of little moment. The issue
under either state or federal law depends upon who has active or
substantial control.” Shades Ridge Holding Co. v. United States,
888 F.2d 725, 728 (11th Cir. 1989) (citations omitted); see also
Robbins v. Johnson, 147 N.H. 44, 46 (2001) (“The key to the
nominee nature of a trust is that the beneficiaries are in
practical control of the trust property.”). Both parties agree
that the factors set forth above--or substantially similar ones-should guide the nominee inquiry.
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title in the third party’s name may well enjoy the same
benefits of ownership of the property as a taxpayer who
has held legal title. In both instances, the third
party may be the taxpayer’s nominee.
Holman, 505 F.3d at 1065 (citing Scoville v. United States, 250
F.3d 1198, 1202-03 (8th Cir. 2001)).
That is essentially what the United States alleges here:
that Kenneth transferred funds to the Trust after the IRS had
assessed federal tax liabilities against him, and “in
anticipation of future federal tax liabilities,” which funds were
used to purchase the Rye property shortly thereafter.

It is

reasonable to infer that Kenneth--who allegedly founded the
Trust, is its sole beneficiary, and has a “close relationship”
with it--directed the Trust to make that purchase.

The United

States has further alleged that, while the Trust holds legal
title to the Rye property, Kenneth and Hazel “retain possession”
of it, “exercise dominion and control” over it, and “enjoy the
benefits of ownership.”

So nearly all of the nominee factors

have been expressly alleged.
The Trust argues that the complaint’s allegations are
“nonspecific and conclusory” and therefore insufficient to state
a claim for relief.

It is true that “a plaintiff’s obligation to

provide the ‘grounds’ of his entitlement to relief requires more
than labels and conclusions, and a formulaic recitation of the
elements of a cause of action will not do.”

7

Twombly, 550 U.S. at

555 (quoting Fed. R. Civ. P. 8(a)(2)) (formatting altered).

But

it is also true that “a complaint attacked by a Rule 12(b)(6)
motion to dismiss does not need detailed factual allegations.”
Id. (citing Sanjuan v. Am. Bd. of Psychiatry & Neurology, Inc.,
40 F.3d 247, 251 (7th Cir. 1994), which stated that complaints
“are supposed to be succinct” and “need not contain elaborate
factual recitations”).
Many of the nominee factors that the United States has
alleged--e.g., that Kenneth and Hazel control, possess, and enjoy
the Rye property, and that Kenneth transferred funds to the Trust
in anticipation of federal tax liabilities--need no further
elaboration.

They have a clear, commonsense meaning.

See Iqbal,

129 S. Ct. at 1950 (noting that the Rule 12(b)(6) analysis is “a
context-specific task that requires the reviewing court to draw
on . . . common sense”).

The only factor for which further

explanation might have been helpful is the alleged “close
relationship” between Kenneth and the Trust.

Even as to that

factor, however, the complaint provides at least some detail,
alleging that Kenneth formed the Trust in 1996 and is its sole
beneficiary.

So the allegation is not entirely “unadorned.”

at 1949 (citing Twombly, 550 U.S. at 555).
The bottom line is that it would be reasonable to infer,
from the facts alleged in the complaint, that the Trust is
holding legal title to the Rye property merely as nominee for
8

Id.

Kenneth Isaacson, who (together with Hazel) still enjoys some or
all of the benefits of true ownership.
is “plausible on its face.”
U.S. at 570).

That theory of recovery

Id. at 1949 (quoting Twombly, 550

The United States is therefore entitled to proceed

with discovery on the nominee theory.

IV.

Conclusion
For the reasons set forth above, the Trust’s motion to

dismiss4 is DENIED.
SO ORDERED.

Joseph N. Laplante
United States District Judge
Dated:
cc:

July 15, 2011

Andrea A. Kafka, Esq.
David M. Klemm, Esq.
Edward DeFranceschi, Esq.
James Everett, Esq.
Mary K. Ganz, Esq.

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Document no. 62 (as renewed by document no. 103).
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