United States of America v. Hilliard et al
Filing
111
ORDER DENYING 92 Sealed motion for partial summary judgment, GRANTING IN PART, DENYING IN PART 61 MOTION for Summary Judgment Against Elaine T. Marshall for Donee Liability, DENYING 71 Sealed motion for summary judgment and to seal. (Signed by Judge Gray H. Miller) Parties notified.(rkonieczny)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
UNITED STATES OF AMERICA ,
Plaintiff,
v.
ROBERT S. MACINTYRE , Individually, and as
Temporary Administrator of the Estate of
James Howard Marshall II, et al.,
Defendants.
§
§
§
§
§
§
§
§
§
§
§
CIVIL ACTION H-10-2812
O RDER
Pending before the court is the United States’ motion for partial summary judgment against
Elaine T. Marshall for donee liability (Dkt. 61); Elaine T. Marshall’s cross-motion for partial
summary judgment and to seal (Dkt. 71); and Elaine T. Marshall’s motion for partial summary
judgment as to count XIII and motion to seal (Dkt. 92). Upon consideration of the motions,
responses, replies, sur-replies, and the applicable law, the United States’ motion for summary
judgment against Elaine T. Marshall (Dkt. 61) is GRANTED IN PART and DENIED IN PART AS
MOOT1 and Elaine T. Marshall’s cross-motion for summary judgment and to seal (Dkt. 71) is
DENIED. Elaine T. Marshall’s motion for partial summary judgment on count XIII (Dkt. 92) is
DENIED AS MOOT (See Dkt. 100) and motion to seal (Dkt. 92) is DENIED.
BACKGROUND
In 1995, J. Howard Marshall II (“JHM”) made indirect gifts to E. Pierce Marshall, Elaine T.
Marshall, the E. Pierce Marshall Jr. Trust, and the Preston Marshall Trust (collectively the “EPM
1
Some issues in the motion for summary judgment were eliminated as part of a stipulation filed by the parties.
Dkt. 78. W ith regard to those issues, the United States’ motion is DENIED AS M OOT. As to all other issues, the
motion is GRANTED.
DOnees”) when JHM sold his stock in Marshall Petroleum, Inc. back to the company below market
value, thereby increasing the value of the stock of the remaining stockholders, among whom were
the EPM Donees. The IRS assessed gift tax against JHM’s Estate, which JHM’s Estate challenged
in United States Tax Court. The parties reached an agreement, resolving the dispute over the gift
tax liability of the JHM Estate for the 1995 gift to the EPM Donees. The JHM Estate did not pay
its gift tax liability on these gifts.
In 2008, the IRS assessed the gift tax liability against the EPM Donees. At this time, the
EPM Donees have made payments to the IRS—assuming the court’s math is correct—equaling the
amount of the value of the gift received by each donee. However, they have paid none of the interest
assessed on the personal liability for late payment. The government now moves the court for
summary judgment on the scope of the donee liability of the EPM Donees. The EPM Donees have
cross-moved on the same issue.
SUMMARY JUDGMENT STANDARD
Summary judgment is proper if “the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to a judgment as a matter of law.” FED . R. CIV . P. 56(a); see
also Carrizales v. State Farm Lloyds, 518 F.3d 343, 345 (5th Cir. 2008). The mere existence of
some alleged factual dispute between the parties will not defeat an otherwise properly supported
motion for summary judgment; there must be an absence of any genuine issue of material fact.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247–48, 106 S. Ct. 2505 (1986). An issue is
“material” if its resolution could affect the outcome of the action. Burrell v. Dr. Pepper/Seven Up
Bottling Grp., Inc., 482 F.3d 408, 411 (5th Cir. 2007). “[A]nd a fact is genuinely in dispute only if
a reasonable jury could return a verdict for the non-moving party.” Fordoche, Inc. v. Texaco, Inc.,
463 F.3d 388, 392 (5th Cir. 2006).
2
The moving party bears the initial burden of informing the court of all evidence
demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S.
317, 323, 106 S. Ct. 2548 (1986). Only when the moving party has discharged this initial burden
does the burden shift to the non-moving party to demonstrate that there is a genuine issue of material
fact. Id. at 322. If the moving party fails to meet this burden, then it is not entitled to a summary
judgment, and no defense to the motion is required. Id . “For any matter on which the non-movant
would bear the burden of proof at trial . . . , the movant may merely point to the absence of evidence
and thereby shift to the non-movant the burden of demonstrating by competent summary judgment
proof that there is an issue of material fact warranting trial.” Transamerica Ins. Co. v. Avenell , 66
F.3d 715, 718–19 (5th Cir. 1995); see also Celotex, 477 U.S. at 323–25. To prevent summary
judgment, “the non-moving party must come forward with ‘specific facts showing that there is a
genuine issue for trial.’” Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587,
106 S. Ct. 1348 (1986) (quoting former FED . R. CIV . P. 56(e)).
When considering a motion for summary judgment, the court must view the evidence in the
light most favorable to the non-movant and draw all justifiable inferences in favor of the nonmovant. Envl. Conservation Org. v. City of Dallas, Tex., 529 F.3d 519, 524 (5th Cir. 2008). The
court must review all of the evidence in the record, but make no credibility determinations or weigh
any evidence; disregard all evidence favorable to the moving party that the jury is not required to
believe; and give credence to the evidence favoring the non-moving party as well as to the evidence
supporting the moving party that is uncontradicted and unimpeached. Moore v. Willis Ind. Sch.
Dist., 233 F.3d 871, 874 (5th Cir. 2000). However, the non-movant cannot avoid summary judgment
simply by presenting “conclusory allegations and denials, speculation, improbable inferences,
unsubstantiated assertions, and legalistic argumentation.” TIG Ins. Co. v. Sedgwick James of Wash.,
3
276 F.3d 754, 759 (5th Cir. 2002); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en
banc). By the same token, the moving party will not meet its burden of proof based on conclusory
“bald assertions of ultimate facts.” Gossett v. Du-Ra-Kel Corp., 569 F.2d 869, 872 (5th Cir. 1978);
see also Galindo v. Precision Am. Corp., 754 F.2d 1212, 1221 (5th Cir. 1985).
ANALYSIS
A.
United States and Elaine T. Marshall’s Cross-Motions for Summary Judgement
1.
Interest on Donee Liability
Section 6324(b) governs liens for gift taxes. It reads in relevant part
[U]nless the gift tax imposed by chapter 12 is sooner paid in full or
becomes unenforceable by reason of lapse of time, such tax shall be
a lien upon all gifts made during the period for which the return was
filed, for 10 years from the date the gifts are made. If the tax is not
paid when due, the donee of any gift shall be personally liable for
such tax to the extent of the value of such gift.
26 U.S.C. § 6324(b). In this case, JHM’s estate failed to pay the gift taxes assessed on the 1995 gifts
to the EPM Donees.
The parties do not dispute that § 6324(b) operates to impose liability on the donee for the
unpaid gift taxes and resulting interest attributable to the donor—at least up to the amount of each
individual gift. Nor do they argue the fact of the gifts, the amounts of the gifts, or the amount of the
interest accrued by JHM on the gifts.2 Where the parties part ways is on the issue of the
government’s ability to charge interest pursuant to §§ 6601 and 66213 on the unpaid donee liability
created by § 6324(b). The government perceives the obligations of the donor and donee as two
2
The parties do not dispute, that pursuant to 26 U.S.C. § 6601(e) the “tax” transferred by § 6324 includes
interest. § 6601(e)(1) (“Any reference in this title . . . to any tax imposed by this title shall be deemed also to refer to
interest imposed by this section on such tax.”).
3
These section together operate to impose and set the rates for interest on underpayments.
4
distinct liabilities and argues that only the obligation of the donor is capped. The EPM Donees argue
that the plain language of § 6324(b) caps all donee liability and that the government’s second
obligation—the separate donee liability—is not supported by a plain language reading of the Tax
Code. The Fifth Circuit has not spoken to this issue. And, the few circuits that have addressed it
have taken opposing positions.
The government contends that it may charge interest on the amounts owed by the EPM
Donees in excess of the amount of the gifts received and urges the court to follow the reasoning of
the Eleventh Circuit in Baptiste v. Commissioner 29 F.3d 1533 (11th Cir. 1994). In Baptiste, the
Eleventh Circuit held that § 6324(a)(2)4 imposes an independent liability on the donee separate from
the tax liability of the donor and not subject to limitations imposed on the donor’s transferred
liability. Thus, the court determined that § 6601 applied to impose interest on the donee’s
independent obligation.
In Baptiste, the transferee inherited one third of a $150,000 life insurance policy. Id at 1535.
The estate challenged in tax court the amount of the tax deficiency assessed by the IRS on the
transfer. Id. Later, the estate entered into a stipulation with the government that the deficiency was
$62,378.48 and the tax court entered judgment for that amount. Id. at 1536. When the estate failed
to pay the estate taxes, the IRS assessed the deficiency against Baptiste as transferee. Id. The IRS
4
The Eleventh Circuit examined § 6324(a), which addresses estate tax, not gift tax. However, gift tax and estate
tax provisions are in pari materia and must be construed together. United States v. Davenport, 484 F.3d 321, 328 n.11
(5th Cir. 2007). Section 6324(a)(2) reads in relevant part
Liability of transferees and others.--If the estate tax imposed by chapter 11 is not paid when due, then
the . . . transferee. . . who receives, or has on the date of the decedent's death, property included in the
gross estate . . . to the extent of the value, at the time of the decedent's death, of such property, shall
be personally liable for such tax.
26 U.S.C. § 6324(a)(2).
5
assessed the transferee liability at $50,000—the amount of Baptiste’s inheritance. Id. Additionally,
the IRS charged interest on the unpaid transferee liability. Id.
In holding that the government could charge interest on the personal liability created by
§ 6324(a), the Eleventh Circuit examined the nature of the obligation at issue. Id. at 1541. It found
that transferee liability essentially involved two separate obligations. The first obligation was the
obligation of the transferor—the estate. That obligation was a tax obligation imposed on the estate
by chapter 11 of the tax code, collected as a tax by the government, and subject to interest like any
other tax. The amount of that obligation when it shifted to the transferee was governed by § 6324(a)
and, thus, limited to the amount of the transferred property. Therefore, under the facts of Baptiste,
at the moment the obligation shifted to the transferee, the deficiency, including any interest assessed
on that deficiency, could not exceed $50,000—the value of the property Baptiste received.
The second obligation was the obligation of the transferee. The Eleventh Circuit held that
this second obligation was a personal liability of the general sort imposed by federal law. Id. The
court arrived at this conclusion for two main reasons. First, the language of § 6324 does not create
a tax on the transferee but instead requires the transferee to satisfy the tax liability of the transferor.
Id. And second, the court pointed to the fact that unlike collecting a tax liability, to collect these
personal liabilities the government must use the separate mechanism provided by§ 6901(a). The
court reasoned that if the transferee liability was a tax liability, § 6901(a) would be rendered
superfluous—“a statutory construction that is both disfavored and unlikely.” Id.
Next the court examined whether the Code imposed any interest on the liability and whether
the limitation outlined in § 6324 applied to the interest—if any—on the liability. Looking again to
the language of § 6901(a), the court stated that the section specified the liability would be “subject
to the same provisions and limitations” as the underlying tax from which the liability arose. Id. at
6
1542. (quoting 26 U.S.C. § 6901(a)). And, the court noted that charging interest on the personal
liability would comport with “the traditional rule that one who possesses funds of the government
must pay interest for the period that person enjoys the benefit of same.” Id. Having determined that
the transferee’s personal liability was subject to interest pursuant to § 6901, the court then moved
to the question of whether the limitation in § 6324(a) applied to cap the amount of interest on the
personal liability to the value of the property transferred and concluded that it did not. Id. Although
the court did not directly, separately analyze the question of the cap, it concluded that since § 6601
was applied to the personal liability through § 6901, and § 6901 imposed no limit on the amount of
interest, Congress did not intend to limit the interest on the transferee’s personal liability. Id. The
court noted that limiting the interest to the value received would “create a system which encourages
transferees to retain assets of the estate, at the expense of the government, for as long as possible
with no adverse consequences.” Id. at 1542 n. 9. Last, the court held that Baptiste was liable to the
government beginning the day the estate tax was due and not paid by the estate, and Baptiste was in
possession of the transferred assets.5 Therefore, the court affirmed the district court’s grant of
summary judgment for the government, which imposed interest on Baptiste’s personal liability from
the date the estate tax was due and unpaid.
The government argues that the Eleventh Circuit’s construction of the Code regarding a
transferee’s interest on his personal obligation under § 6324 comports best with the Code taken as
a whole. Additionally, the government points to the language of § 6901 which states that the
government may collect the personal liability in the same manner as a tax, rather than merely stating
that the transferor’s tax liability becomes the transferee’s tax liability. Therefore, the government
5
See 26 U.S.C. §§ 6601(a); 6601(b)(5) (combining to make the date on which the interest begins to run, the
date the tax is due and unpaid); § 6324(a)(2) (specifying that a transferee who receives property is liable).
7
urges this court to adopt the Eleventh Circuit’s approach and allow interest to be applied to the EPM
Donees’ personal liabilities.
The EPM Donees disagree with the Eleventh Circuit’s decision in Baptiste. First, they argue
that the court ran afoul of a basic principle of construction for tax statutes when it improperly
construed the tax statute to create liability by implication. Second, they contend that the court should
not have looked to the legislative history to construe the tax statute without first finding that the
statute was ambiguous. Third, the EPM Donees argue that the statute is plain on its face and the
court’s holding that donee liability is a nontax personal liability runs counter to the clear language
in the statute. Moreover, they urge that even if the statute was ambiguous, all ambiguity should be
resolved against the taxing entity.
Fourth, they argue that the Eleventh Circuit’s reliance on § 6901(a) is misplaced, because
they argue that the government can collect donee liability under § 6324 without using § 6901(a)—as
they have done in this case. Additionally, § 6901 may not be used to increase the donee’s liability
because it does not create substantive liability, but rather provides an alternate procedure for
collection. Last, the EPM Donees argue that the government’s use of the word taxpayer at various
junctions illustrates the fact that “no one really thinks donee liability is ‘nontax’ in any meaningful
way.” Dkt. 71 at 17.
Instead, the EPM Donees urge the court to adopt the Third Circuit’s reasoning in Poinier v.
Commissioner, 858 F.2d 917 (3rd Cir. 1988).6 In Poinier, the transferees challenged the tax court’s
decision that the government could charge interest on the donees’ liability created by § 6324(b). The
Third Circuit agreed and reversed the tax court’s decision. The main reason for the reversal was that
6
The court notes that the Eighth Circuit in Baptiste v. Commissioner, 29 F.3d 433 (8th Cir. 1994) has adopted
the Third Circuit’s reasoning in Poinier. However, since it did so without expanding on Poinier, the court does not
discuss it here.
8
the court could “point to no specific code provision imposing such an independent liability on a
transferee.” Id. at 920. The court explained that § 6901 could not be an independent basis for the
liability because it “‘neither creates nor defines a substantive liability but provides merely a new
procedure by which the Government may collect taxes.’” Id. (quoting Comm’r v. Stern, 357 U.S.
39, 42, 78 S. Ct. 1047 (1958)). Also, the court pointed out that § 6601(f)(2) of the 1970 version of
the Tax Code specifically prohibited imposing interest on interest. Id. at 922 (quoting 26 U.S.C. §
6601(f)(2) (1970)). Last, the court argued that Congress could easily have intended to limit the total
liability of donees to the value of the gift received because the instances in which the amount of the
gift was smaller than the deficiency were relatively rare, alleviating the necessity of deterring donees
from delaying paying their personal liabilities as long as possible.
Although both the Third and Eleventh Circuits’ reasoning is persuasive, the court agrees with
and adopts the holding of the Eleventh Circuit for the following reasons. As a threshold matter, the
court disagrees with the EPM Donees’ argument that § 6324(b) unambiguously limits all donee
liability. Both the Third and the Eleventh Circuit examined the legislative history and went to great
pains to construe the statute. They both found it to be less than clear on its face. In fact, it could be
argued that because after careful examination of the statute, the courts construed it in opposite ways,
the statute must be ambiguous. Regardless, the court finds that although the statute is clear about
the cap on the amount of the donor’s liability transferred to the donee, it does not clearly address—if
at all—the donee’s responsibilities after that point.
Just as there are two parties to a gift—the donor and the donee, there are two different
possible deficiencies—that of the donor and that of the donee. One is the donor’s chapter 12 liability
for the gift itself, including interest and penalties. The other is the donee’s liability under § 6601 for
interest on using the government’s money. Section 6324(b) imposes the chapter 12 liability on the
9
donee, but limits that liability to the amount of the gift received. This makes perfect sense because
otherwise a donee who received only 5% of an enormous gift could be responsible for the entirety
of the gift tax in an amount far exceeding the gift he received based solely on the donor’s
actions—or, more accurately, inaction. So, the amount for which the donee may be held responsible
as a result of another’s failure to pay gift tax is capped.
That liability triggers an obligation in the donee. Donee liability is not a tax. It may not be
collected as a tax. Instead the government must use one of two separate mechanisms. The first is
to file suit against the donee and obtain a personal judgment against him. The government has
chosen that option here. The second is to make an assessment through § 6901. Either of these
methods may be subject to interest on the donee’s separate obligation to pay. First, § 6901 expressly
states that the liability is “subject to the same provisions and limitations as in the case of the taxes
with respect to which the liabilities were incurred.” § 6901(a). Since the gift tax of the donor is
subject to interest under §§ 6601 and 6621, the donee liability is also. And that makes sense. The
interest is charged based on the failure of the donee to pay, not the donor. It was equitable to cap the
donee’s responsibility for the actions of another, but if he chooses not to pay his own liability that
is a different matter.
Additionally, the court agrees with the Eleventh Circuit that the Tax Code treats the donee
liability as a different obligation. The Tax Code does not state that the obligation is a tax assessed
on the donee, instead it calls the obligation a liability. And, although the government need not use
§ 6901 to collect the liability, it may not simply assess and collect the liability as a tax without either
bringing suit or using § 6901. If the donee liability were a tax, neither of these mechanisms would
be necessary. In § 6324(b) the statute reads that “[i]f the tax is not paid when due, the donee of any
gift shall be personally liable for such tax to the extent of the gift.” §6324(b) (emphasis added). The
10
phrase “to the extent of the gift” is modifying the word “tax” in this sentence. Therefore, the cap is
on the tax. And the tax is the donor’s obligation. Also, the court notes that the Third Circuit’s
strongest argument—that § 6601(f) expressly forbids paying interest on interest—is no longer valid.
Congress amended § 6601 and removed that provision. Last, although it dealt with a prior version
of the Tax Code, the Fifth Circuit has held that old § 311—the predecessor to § 6901—allowed the
assessment of interest on a transferee’s liability. Patterson v. Sims, 281 F.2d 577, 580–81 (5th Cir.
1960). For all of these reasons, the court adopts the Eleventh Circuit’s rule in Baptiste. Section
6324(b) imposes an independent liability on the donee that is not capped by the liability limitation
language in § 6324(b). The donee’s independent liability is subject to § 6601, including the interest,
beginning on the date on which the EPM Donees had the gift in their possession, and the gift tax was
due and unpaid by JHM’s estate.
2
Motion to Seal
The EPM Donees also move the court to seal the motions and exhibits. For the same reasons
articulated by the court in response to Defendant Eleanor Pierce Stevens (Dkt. 100), the motion is
DENIED.
B.
Elaine T. Marshall’s Motion for Partial Summary Judgment as to Count XIII
Defendant Elaine T. Marshall has also moved for summary judgment on Count XIII, the
government’s alternative claim for additional donee liability. Since, the court’s order on Eleanor
Pierce Stevens’s motion for summary judgment (Dkt. 100) moots that claim, the motion is DENIED
AS MOOT.
CONCLUSION
Pending before the court is the United States’ motion for partial summary judgment against
Elaine T. Marshall for donee liability (Dkt. 61); Elaine T. Marshall’s cross-motion for partial
11
summary judgment and to seal (Dkt. 71); and Elaine T. Marshall’s motion for partial summary
judgment as to count XIII and motion to seal (Dkt. 92).
For the reasons articulated above, the United States motion (Dkt. 61) is GRANTED IN
PART and DENIED IN PART AS MOOT. The court holds that the EPM Donees are liable to the
United States for the interest assessed pursuant to §§6601 and 6621 on their separate personal
liabilities created by §6324(b) as a result of the failure of JHM’s Estate to pay the gift taxes assessed
against it for the 1995 gift. As explained in this court’s order of March 28, 2012 (Dkt. 100), the
amount of the gifts has been previously determined by the tax court as reflected in the 2002
Stipulation of Settled Issues between the government and JHM’s Estate. The United States is hereby
ORDERED to submit to the court a proposed judgment against the EPM Donees calculating the
statutory interest on the EPM Donees’ gift, plus statutory prejudgment—if any, and post judgment
interest beginning on the date that the Donor’s obligation was due and unpaid, and the EPM Donees
were in possession of the gift.
Additionally, Elaine T. Marshall’s cross motion for summary judgment and to seal (Dkt. 71)
is DENIED.
And, Elaine T. Marshall’s motion for partial summary judgment on count XIII (Dkt. 92) is
DENIED AS MOOT.
It is so ORDERED.
Signed at Houston, Texas on June 7, 2012.
___________________________________
Gray H. Miller
United States District Judge
12
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?