UNITED STATES OF AMERICA v. WILLIAMS et al

Filing 21

MEMORANDUM ORDER signed by JUDGE THOMAS D. SCHROEDER on 08/25/2017. This case comes before the court on the United States' motion for default judgment (Doc. 15 ). For the reasons that follow, the motion will be granted. (Taylor, Abby)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
UNITED STATES OF AMERICA,

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Plaintiff,
v.
MARLOWE WILLIAMS; MARLOWE
WILLIAMS FOUNDATION; SEVENTH SEAL
TRUST; and JACOBS LADDER EXPRESS
TRUST,
Defendants.

1:17-cv-00278

MEMORANDUM ORDER
This case comes before the court on the United States’
motion for default judgment (Doc. 15).

For the reasons that

follow, the motion will be granted.
The United States alleges the following: Defendant Marlowe
Williams Foundation (the “Foundation”) sought and received over
$600,000 in fraudulent tax refunds in tax years 2009 and 2010.
(Doc.

1

Marlowe

at

3,

¶ 10.)

Williams,

Foundation,

The

exercised
using

complete
its

tax

trustee,
control

refunds

Defendant
over

the

for

personal

purposes, such as paying off a car loan and mortgage.

(Id. at

3, ¶¶ 12-13.)

improperly

Foundation’s

The United States therefore seeks a judgment that

Williams is the Foundation’s legal alter ego and is personally
liable for its tax liabilities.

It further seeks to foreclose

on the real property located at 44692 Honeybee Circle, in New
London, North Carolina (“the Property”), which Williams and his

wife

acquired

in

1983.

(See

Doc.

16-4.)

In

2011,

after

Williams’s wife transferred to him her share of the property
(Doc.

16-5),

Williams

transferred

the

Property

for

nominal

consideration through Defendant Seventh Seal Trust to Defendant
“Jacobs [sic] Ladder Express Trust” (the “Trust”), whose trustee
is Williams’s son-in-law (Doc. 1 at 7, ¶ 42), for $10.
16-6; Doc. 16-7.)

(Doc.

After that transfer, Williams continued to

reside at the Property (Doc. 1 at 4, ¶ 22) and to pay the
Property’s mortgage, real estate taxes, utilities, and insurance
(id.

at

4,

¶ 19).

Williams

also

took

personal

income

tax

deductions for the Property’s real estate taxes and its mortgage
interest.

(Id. at 4, ¶ 20.)

The United States therefore seeks

a declaratory judgment that the Trust is Williams’s nominee for
the purpose of a federal tax lien and an order allowing the
United States to sell the Property to satisfy the Foundation’s
tax liabilities.
“Rule 55 of the Federal Rules of Civil Procedure authorizes
the entry of a default judgment when a defendant fails to plead
or

otherwise

defend

in

accordance

with

the

Rules.”

United

States v. Moradi, 673 F.2d 725, 727 (4th Cir. 1982) (citation
and internal quotation marks omitted).
motion

for

default

judgment

is

Even though the present

unopposed,

“the

court

must

exercise sound judicial discretion to determine whether default
judgment should be entered as a matter of right.”
2

EMI April

Music Inc. v. Rodriguez, 691 F. Supp. 2d 632, 634 (M.D.N.C.
2010).

“Upon

default

judgment,

a

plaintiff’s

factual

allegations, excluding determination of damages, are accepted as
true for all purposes.”

See Ins. Servs. of Beaufort, Inc. v.

Aetna Cas. & Sur. Co., 966 F.2d 847, 853 (4th Cir. 1992).

The

court may hold a hearing on the issue of damages but may forego
a

hearing

if

the

damages

are

uncontested.

Ins.

Servs.

of

Beaufort, Inc. v. Aetna Cas. & Sur. Co., 966 F.2d 847, 853 (4th
Cir. 1992).
In this case, the defaulting parties failed to respond to
the summons and complaint and failed to respond to the present
motion.

The United States has submitted sworn declarations and

other factual evidence detailing Williams’s tax liability and
the

relationship

among

Defendants.

The

court

concludes that default judgment is appropriate.
concludes
evidence

that
to

the

allow

United

the

States

court

to

has

decide

The court also

proffered
the

therefore

issue

sufficient
of

damages

without an evidentiary hearing.
“To establish a prima facie case of tax liability, the
government need only ‘introduce[] into evidence the certified
copies of the certificates of assessment.’”

United States v.

Parr, No. 3:10-CV-00061, 2011 WL 4737066, at *2 (W.D. Va. Oct.
6, 2011) (quoting United States v. Pomponio, 635 F.2d 293, 296
(4th Cir. 1980) (citation omitted)).
3

“Once the United States

establishes a prima facie case, the burden shifts to defendants
to

prove

that

the

erroneous . . . .”

[government’s]

determination

was

Id. (quoting Pomponio, 635 F.2d at 296).

In

this case, the United States has established the Foundation’s
tax liability through the declaration of Carolyn Coleman, an
Internal Revenue Service (“IRS”) officer assigned to the case
(Doc.

16-10),

and

through

IRS

records,

including

certified

copies of 2009 and 2010 tax assessments (Doc. 16-2).

These

documents reflect a tax liability of $386,192.17 for tax years
2009 and 2010.
also

provided

(Doc. 16-10 at 2, ¶ 5.)
declarations

that

The United States has

Williams,

the

Foundation’s

trustee, has never been engaged in military service (Doc. 16-9
at 1, ¶ 4; Doc. 16-3), see 50 U.S.C. § 501 et seq., and that he
is not an infant or incompetent (Doc. 16-9 at 2, ¶ 5).
establishes

the

United

States’

prima

facie

case

for

This
the

Foundation’s tax liability, which Defendants have not rebutted.
The court finds that this tax liability is attributable to
Williams in his individual capacity because under North Carolina
law, he is the legal alter ego of the Foundation.
States

v.

Scherping,

187

F.3d

796,

802

(8th

See United
Cir.

1999)

(“Generally, federal courts will look to state law to determine
whether an entity is an alter ego of a taxpayer.” (citations
omitted)).

The United States may collect tax liabilities from a

taxpayer’s legal alter ego.

Id. at 801.
4

In North Carolina, a

party is the legal alter ego of an entity when (1) he had
complete control of the entity, (2) he used that control to
commit fraud or violate a statutory duty, and (3) the fraud or
violation caused the injury at issue.

United States v. Greer,

383

2005)

F.

Supp.

2d

861,

867

(W.D.N.C.

(citing

Glenn

v.

Wagner, 313 N.C. 450, 455, 329 S.E.2d 326, 330 (1985)), aff’d,
182 F. App’x 198 (4th Cir. 2006).
Williams

meets

all

three

criteria.

The

United

States

alleges that he had complete control over the Foundation as its
trustee.
his

(Doc. 1 at 1.)

control

over

the

It further alleges that Williams used

Foundation

to

claim

over

$600,000

in

fraudulent refunds (id. at 3, ¶ 10), part of which he used for
personal purposes, such as paying off a car loan and mortgage
(id. at 3, ¶¶ 12-13), satisfying the second and third elements
of the alter-ego test.
Default judgment will therefore be entered declaring that
Williams is the Foundation’s alter ego.

Default judgment will

further be entered for the United States against Williams and
the Foundation.
Williams’s tax liabilities give rise to a federal tax lien,
which attaches to all property he owns.

26 U.S.C. §§ 6321-22.

The United States may foreclose on that lien if Williams fails
to satisfy the underlying tax liabilities.

5

Id. § 7403(a).

The

United

States

seeks

foreclosure

of

the

Property.

Williams and his then-wife acquired the Property in 1983 (Doc.
16-4), and his wife eventually transferred her interest in it to
him

(Doc.

16-5).

Then,

in

2011,

Williams

transferred

the

Property through the Seventh Seal Trust to the Trust, whose
trustee is Williams’s son-in-law (Doc. 1 at 7, ¶ 42), for $10.
(Doc. 16-6; Doc. 16-7.)

After that transfer, Williams continued

to reside at the Property (Doc. 1 at 4, ¶ 22) and to pay the
Property’s mortgage, real estate taxes, utilities, and insurance
(id. at 4, ¶ 19).

Williams also took tax deductions for the

Property’s real estate taxes and its mortgage interest.

(Id. at

4, ¶ 20.)
The United States contends that the Trust is Williams’s
nominee for the purpose of his tax lien.

In determining nominee

status for this purpose, the court considers eight factors:
(1) the treatment by the taxpayer of the asset as his
own; (2) control over the [alleged nominee] by the
taxpayer or a close relationship between them; (3) use
of the [alleged nominee’s] funds to pay personal
expenses of the taxpayer; (4) transfer of the property
to the [alleged nominee] for a nominal sum; (5) the
fact
that
the
[alleged
nominee]
supported
the
taxpayer; (6) whether the taxpayer expended personal
funds for the property; (7) whether the taxpayer
enjoys the benefit of the property; and (8) whether
the record titleholder interfered with the taxpayer’s
use of the property.
United States v. Holland, 637 F. Supp. 2d 315, 320 (E.D.N.C.
2009) (citing Greer, 383 F. Supp. 2d at 867) (internal quotation
6

marks

omitted)

(alterations

in

original),

amended

on

other

grounds on reconsideration, No. 5:07-CV-445-BO, 2009 WL 3166852
(E.D.N.C. Aug. 13, 2009), aff’d, 396 F. App’x 937 (4th Cir.
2010), and aff’d, 396 F. App’x 937 (4th Cir. 2010).
The

court

finds

that

the

Trust

is

Williams’s

nominee.

Williams treated the Property as his own by living in it.

He

had a close relationship to the Trust in that his son-in-law was
the trustee.

He did not use proceeds from the Property to pay

his personal expenses, but he did profit from tax deductions the
Property afforded him.

His transfer of the Property was for

$10, a nominal sum, and he paid taxes on the Property.

Finally,

he enjoyed the benefit of the Property by residing on it.

The

record does not indicate that the Trust ever interfered with
Williams’s use of the Property.
Because

the

court

finds

that

the

Trust

is

Williams’s

nominee for the Property’s purposes, Williams’s tax liens attach
to the Property.
its sale.

Judgment will therefore be entered ordering

For all these reasons,

IT IS ORDERED that the United States’ motion for default
judgment (Doc. 15) is GRANTED as follows:
1.

Default judgment will be entered for the United States

against Williams and the Foundation in the amount of $386,192.17
as of February 13, 2017, plus penalties and interest pursuant to

7

26 U.S.C. §§ 6201(a)(3) and 6651 after that date until the full
amount is paid.
2.

Williams is declared the alter ego of the Foundation

and that the United States may collect the Foundation’s tax
liabilities from Williams personally.
3.

The Seventh Seal Trust is declared to have no interest

in the real property that is the subject of this civil action
and shall take nothing from a sale of the real property.
4.

The Jacobs Ladder Express Trust is declared to hold

title to the real property that is the subject of this civil
action as Williams’s nominee.
5.

The federal tax liens arising from the Foundation’s tax

liabilities attach to the Property (44692 Honeybee Circle, in
New London, North Carolina).
6.

The tax liens on the Property are adjudged foreclosed,

and the United States is authorized to sell the Property in
accordance

with

the

Order

of

Sale

entered

contemporaneously

herewith.
A Judgment and Order of Sale will be entered accordingly.

/s/
Thomas D. Schroeder
United States District Judge
August 25, 2017

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