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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