United States of America v. Johnson, Jr. et al

Filing 68

ORDER re 50 Motion for Summary Judgment; 50 Motion for Default Judgment.(Signed by Judge Nelva Gonzales Ramos) Parties notified.(amireles, )

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
CORPUS CHRISTI DIVISION
UNITED STATES OF AMERICA,
VS.
TONE JOHNSON, JR., et al,
Defendants.

§
§
§ CIVIL ACTION NO. 2:12-CV-00097
§
§
§
§
ORDER

Before the Court is the United States’ Motion for Summary Judgment (D.E. 50).
The United States (Government) seeks summary judgment against Tone Johnson, Jr. and
Geraldine M.B.S. Johnson (collectively, Taxpayers) regarding income tax assessments
for tax years 1997 and 1998 and the foreclosure of tax liens. The Government also seeks
a default judgment or summary judgment against the Taxpayers’ daughter, Geralynn
McB Johnson (Transferee), to the extent that she has taken title to any of the properties
subject to the tax liens. After the Motion was filed, Geralynn McB Johnson appeared and
answered (D.E. 51); therefore this motion will be treated as one for summary judgment
against her. D.E. 50, p. 15. For the reasons set out below, the Motion is GRANTED IN
PART AND DENIED IN PART.
LIMITATIONS
Taxpayers and Transferee have each pled limitations as an affirmative defense.
D.E. 42, 43, 51. The Government is subject to a ten-year statute of limitations from the
date of assessment. 26 U.S.C. § 6502(a). It is undisputed that the assessment date is
February 11, 2002. D.E. 50; 50-2, pp. 2-3; 50-3, pp. 2-3. At issue is whether the
1/7

expiration of limitations was extended due to the Taxpayers’ Offer In Compromise and
application for a Taxpayer Assistance Order.
Taxpayers do not deny having made an Offer in Compromise applicable to the
1997 and 1998 tax years on February 4, 2003. Neither do they deny that the Government
acted upon that Offer on February 10, 2003. If the Offer was rejected on its merits, the
statute of limitations would be extended for the six days the Offer was under
consideration and for at least another 30 days during which the Taxpayers could file an
appeal. 26 C.F.R. § 301.7011-1(g)(1), and (k). However, if the Government determines
that the offer was made solely for purposes of delay, it may return the offer. In that case,
the statute of limitations is suspended only for the time that the Government had the offer
under consideration—not any additional 30-day or appeal period. 26 C.F.R. § 301.70111(g)(4).
The Government contends that the Offer was presented solely for purposes of
delay and thus returned it, claiming a suspension of limitations for only six days. D.E.
50, p. 5; D.E. 50-4.

Taxpayers argue that the Government is playing games with

semantics with respect to whether the offer was “returned” or “rejected.” D.E. 55/56,
p. 5.

However, given that the Government’s argument benefits the Taxpayers by

application of only a 6-day suspension as opposed to a 36-day suspension, the Taxpayers’
complaint is moot. Thus the Offer in Compromise extended limitations for six days.
Limitations is also suspended during the time that a taxpayer applies for and
obtains a decision on a Taxpayer Assistance Order.

26 U.S.C. § 7811(d).

It is

undisputed that the Taxpayers applied for a Taxpayer Assistance Order with respect to
2/7

the 1997 and 1998 tax years on June 27, 2011 and that it was denied on August 9, 2011—
a period of 43 days. D.E. 50, pp. 6-7; 50-5. While Taxpayers claim a different timeline
applies, they do not articulate a legal or factual basis for their claim. The Court holds that
the application for a Taxpayer Assistance Order extended limitations for an additional 43
days.
The ten-year statute of limitations would have expired on February 11, 2012.
Because of the additional 49 days permitted by law and by the demonstrated facts herein,
limitations did not expire until March 31, 2012, not counting any additional extension
due to the deadline falling on a weekend. This action was filed on March 29, 2012,
within the applicable period of limitations. D.E. 1. The Court GRANTS the Motion
(D.E. 50), holding that this action is not barred by limitations.
While neither the Taxpayers nor Transferee pled laches as an affirmative defense,
they have raised it in their Response. First, the laches argument is moot for failure to
plead it. Fed. R. Civ. P. 8. Second, laches is not available against the Government in its
capacity as the Internal Revenue Service because its actions in assessing and collecting
tax liability results from its sovereign capacity, enforcing a public right or protecting the
public interest. Fein v. United States, 22 F.3d 631, 634 (5th Cir. 1994).
Third, laches does not apply here, where the matter is governed by a statute of
limitations and the action was taken within that statute.

Id.

Last, Taxpayers and

Transferee have failed to provide admissible evidence of the Government’s inexcusable
lack of diligence or that such delay prejudiced Taxpayers or Transferee.

Both are

required in order to prove a laches defense. See generally, Abraham v. Alpha Chi
3/7

Omega, 708 F.3d 614, 622 (5th Cir. 2013) (elements of laches affirmative defense). The
Court denies any request to apply laches to this case.
HOMESTEAD
The Government seeks a judgment that homestead rights do not preclude
foreclosure. Taxpayers contend that the Government is not entitled to foreclose a lien on
their Buckingham Estates property because they claim the protections of the Texas
homestead exemption. The Government’s right to collect for tax liabilities extends to any
property “of whatever nature” the taxpayer owns. 26 U.S.C. § 7403(a). This has been
construed to preempt state exemptions, such as homestead exemptions. United States v.
Rodgers, 461 U.S. 677, 103 S.Ct. 2132 (1983); Harris v. United States, 764 F.2d 1126,
1130 (5th Cir. 1985).
Taxpayers suggest that ignoring their homestead rights is unjust as to “a decorated
Vietnam military hero turned physician and his wife who do not deserve to have their
home seized.” D.E. 55, p. 6. While the Supreme Court has held that homestead rights
will not prevent the foreclosure of a tax lien, the Court did recognize an element of
discretion with respect to the manner and order in which foreclosures are authorized
against certain properties. Rodgers, supra.
The Court GRANTS the Government’s Motion (D.E. 50) to the extent that it seeks
judgment that the Texas homestead exemption does not prevent foreclosure of tax liens
on property. Because the Court does not issue a final judgment as a result of the Motion
due to matters addressed below, the issue of discretion in authorizing foreclosure on
certain properties and the order of foreclosure may be addressed in later proceedings.
4/7

TRANSFEREE LIABILITY
The Government seeks summary judgment that its liens attached to certain
properties owned by the Taxpayers before those properties were transferred to Transferee
and that the transfer does not extinguish its lien. D.E. 50, pp. 12-15. It is undisputed that
the Taxpayers acquired the Dunbar property on October 27, 1995 and transferred it to
Transferee on July 7, 2004. D.E. 50-12; 50-13. It is also undisputed that Geraldine
M.B.S. Johnson acquired the Gardendale property on June 13, 2000 and transferred it to
Transferee on July 7, 2004.

D.E. 50-14; 50-15.

It is also undisputed that the

Government’s lien attached to the properties as of February 11, 2002 and were perfected
against third parties as of August 19, 2002. See 26 U.S.C. §§ 6321-23; D.E. 50-2; 50-3.
There is no question that a tax lien, once it attaches, follows the property and is
enforceable against a subsequent transferee. Western Nat’l Bank v. United States, 812
F.Supp. 703, 705-06 (W.D. Tex. 1993), aff’d, 8 F.3d 253 (5th Cir. 1993). See also United
States v. Avila, 88 F.3d 229, 233 (3rd Cir. 1996); Han v. United States, 944 F.2d 526, 529
(9th Cir. 1991). Taxpayers and Transferee do not dispute this proposition of law. D.E.
55/56, p. 7. Instead, they assert that the matter is complicated by the statute of limitations
argument, which this Court has already disposed of, and principles behind a default
judgment, which is no longer applicable now that Transferee has appeared and answered.
The Court GRANTS the Motion (D.E. 50) with respect to its request for judgment
that the Government’s lien attached to the Dunbar and Gardendale properties and is still
enforceable against those properties despite the transfer of the properties to Transferee.

5/7

LIQUIDATION OF AMOUNT DUE
AND AUTHORIZATION OF FORECLOSURE
The Government seeks a summary judgment against Taxpayers that it is entitled to
the sum of $302,077.31 for unpaid taxes for the tax years 1997 and 1998, together with
penalties, and interest. D.E. 50-2, 50-3, 50-4. Taxpayers, in response, assert that the
balance the Government seeks was enhanced or their ability to pay was compromised by
“old games” and “confusing tactics,” the amount sought is not accurate, and that certain
payments have not been properly credited.

The Government’s proof includes its

Certificate of Assessments, Payments and Other Specified Matters showing a zero
balance for tax year 1997 (D.E. 50-2) and a balance of only $141,844.93 for tax year
1998 (D.E. 50-3).
While the Motion asserts that the Certificates do not reflect all penalties and
interest and while the Declaration of Paula Wilkins asserts that the entire indebtedness is
$31,951.88 for tax year 1997 and $270,125.43 for tax year 1998 (D.E. 50-4), this
evidence is conclusory at best. Given that Taxpayers specifically contest the amount
based on an assertion of the failure to credit $92,000 levied from Geraldine M.B.S.
Johnson’s IRA on February 28, 2012 (D.E. 55/56, p. 14), there is a disputed issue of
material fact regarding the total amount owed. The Court DENIES the Motion (D.E. 50)
with respect to its request for liquidation of the amount owed and authorization of
foreclosure in that amount.

6/7

CONCLUSION
For the reasons set out above, the Court GRANTS IN PART the Motion for
Summary Judgment (D.E. 50) and holds that limitations does not bar this action; the
defense of laches does not bar this action; Texas homestead exemptions do not prevent
foreclosure of any tax lien; and the federal tax lien has attached to the Dunbar and
Gardendale properties and is enforceable against Transferee. The Court DENIES IN
PART the Motion with respect to its request for a liquidated money judgment and
authorization to foreclose the Government’s liens because there are disputed issues of
material fact regarding the credits and debits applicable to the Taxpayers’ account and
because issues of equity have been raised regarding the manner and order of the
foreclosure of the liens on Defendants’ respective properties.
ORDERED this 5th day of April, 2013.

___________________________________
NELVA GONZALES RAMOS
UNITED STATES DISTRICT JUDGE

7/7