UNITED STATES OF AMERICA v. Holmes et al

Filing 35

MEMORANDUM AND OPINION granting in part 28 MOTION for Summary Judgment and denying 26 Defendants MOTION for Summary Judgment. (Signed by Judge Kenneth M Hoyt) Parties notified.(chorace)

United States District Court
Southern District of Texas

ENTERED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
UNITED STATES OF AMERICA,
VS.
BARBARA L HOLMES, et al,
Defendants.

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August 16, 2016
David J. Bradley, Clerk

CIVIL ACTION NO. 4:15-CV-00626

MEMORANDUM OPINION AND ORDER
I.

INTRODUCTION
Pending before the Court is the defendants’, Barbara L. Holmes, individually, and as

independent executrix of the estate of Shirley H. Bernhardt, and Kevin W. Holmes, individually
(the “defendants”), motion for summary judgment and brief in support (Dkt. Nos. 26 and 27).
The plaintiff, the United States (the “Government”), has filed a response in opposition to the
motion (Dkt. No. 29) to which the defendants have filed a reply (Dkt. No. 32). Also before the
Court is the Government’s motion for summary judgment (Dkt. No. 28). The defendants have
filed a response to the Government’s motion (Dkt. No. 30) to which the Government has filed a
reply (Dkt. No. 31). After having carefully considered the motions, responses, replies, the
record, and the applicable law, the Court determines that the Government's motion for summary
judgment should be GRANTED in part and the defendants’ motion for summary judgment
should be DENIED.
II.

FACTUAL AND PROCEDURAL BACKGROUND
This suit is brought by the Government to collect an unpaid estate tax deficiency based

on the Internal Revenue Service’s (“IRS”) assessment surrounding the estate of Shirley H.

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Bernhardt1 (the “Estate”). Barbara Holmes is designated as the independent executrix of the
Estate. On July 16, 1998, the Estate filed a Form 706 estate tax return with the IRS for the 1997
tax year prepared by Kevin Holmes as the agent, and signed by Barbara Holmes. Kevin Holmes
is a certified public accountant, a tax lawyer, and is also married to Barbara Holmes. The return
reported an estate tax liability of $700,024.34, which was remitted by the Estate. On October 9,
1998, the IRS selected the Estate’s 1997 tax return for audit. On June 26, 2001, the IRS issued a
Notice of Deficiency against the Estate, determining that the gross estate should have been
increased from the $2,884,113.00 reported on the Estate’s tax return to $4,706,731.00. The
adjusted valuation resulted in an additional estate tax liability of $1,225,577.00. The Estate
contested the Notice of Deficiency in the United States Tax Court, and on June 8, 2004, the tax
court adopted a stipulated decision of the parties ordering a balance tax deficiency due to the IRS
in the amount of $215,264.70. This amount represented the sum of the net tax deficiency held to
be due of $263,843.70 less the total equitable recoupment2 offset of $48,579.00. The stipulated
decision also ordered that the Estate may claim a “State estate, inheritance, legacy or succession”
(“state estate”) tax credit of $40,534.50, which, in turn, would further reduce the balance
deficiency due. Lastly, the stipulated decision permitted the IRS to assess statutory interest.
On July 16, 2004, the IRS reassessed the estate tax deficiency reflecting a balance
deficiency due of $223,309.20 and added interest in the amount of $108,703.62. It is undisputed
that the IRS’s assessment was erroneous because it applied the state estate tax credit to the net

1

Shirley Bernhardt died testate on October 15, 1997.
Equitable recoupment is a judicial doctrine that allows a tax court to offset a tax deficiency owed to the IRS for a
particular year by overpayments made by a taxpayer to the extent that the taxpayer has overpaid his taxes relating to
that same transaction in a year barred by statute of limitations. See generally United States v. Dalm, 494 U.S. 596,
110 S. Ct. 1361, 108 L. Ed. 2d 548 (1990). In this case, the stipulated decision specifically provided for an offset of
the net deficiency due for the overpayments of income taxes made by the beneficiaries of the Estate as follows: a
payment of $174.00 made on April 15, 1998; a payment of $21,585.00 made on April 15, 1999; and a payment of
$26,820.00 made on April 15, 2000.
2

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deficiency instead of the balance deficiency due as stated in the stipulated order.

Notice

containing the erroneous assessment was sent to Barbara Holmes. On September 15, 2004, the
Estate, through Kevin Holmes, responded to the assessment with its belief that it was inaccurate
and requested a second determination.
On December 27, 2004, the IRS placed the Estate’s case in the revenue officer queue for
collection, but the case was not assigned to a revenue officer until April 22, 2013. Subsequently,
on August 19, 2013, the IRS filed Notices of Federal Tax Liens in connection with the Estate’s
unpaid taxes. On September 27, 2013, the IRS sent the Estate, by certified mail, a final Notice of
Intent to Levy and Notice of Right to a Hearing. In the notice, the IRS advised the Estate of its
right to seek a Collection Due Process or Equivalent hearing (collectively, “CDP hearing”)
pursuant to 26 U.S.C. §§ 6320 and 6330. On October 5, 2013, Kevin Holmes responded to the
notice, by certified mail, with a Form 12153 request for a CDP hearing along with a Form 2848
power of attorney, properly executed by Barbara Holmes, authorizing Kevin Holmes to represent
the Estate in the hearing.
The IRS claims that part of the Estate’s October 5, 2013 package—specifically, the CDP
hearing request—was misplaced due to the federal government shutdown from October 1, 2013
to October 16, 2013. As a result, the IRS is unable to locate the original Form 12153 CDP
hearing request. However, the IRS was able to locate and process the Form 2848 Power of
Attorney that accompanied the request.
A dispute later arose regarding the timeliness of the Estate’s CDP hearing request. 3 On
May 2, 2014, Kevin Holmes mailed a letter containing a copy of the October 5, 2013 CDP
hearing request, stating that the original letter was sent by certified mail. On June 2, 2014, Kevin

3

To challenge the IRS’s notice of intent to levy, a taxpayer is required to submit a CDP hearing request to the IRS
within 30 days from the notice. Otherwise, the taxpayer is barred from challenging the levy. See 26 U.S.C § 6320.

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Holmes sent an additional letter reiterating the Estate’s position that the certified October 5, 2013
package containing the CDP hearing request was timely received. In that letter, the Estate also
withdrew its request for a CDP hearing, but demanded an equivalent hearing and requested a
copy of the IRS audit file in anticipation of the hearing. An additional request was sent on July
8, 2014. On July 11, 2014, the IRS notified the Estate that it accepted the Estate’s timely request
for a CDP hearing.
On March 10, 2015, the Government filed suit against Barbara Holmes individually and
in her official capacity as independent executrix of the Estate and Kevin Holmes, individually to
collect the unpaid estate tax liability. The Government asserts federal jurisdiction pursuant to 26
U.S.C. § 7402, 7403, and 7404 and 28 U.S.C. §§ 1340 and 1345. The Court addresses the
parties cross-motions for summary judgment.
III.

CONTENTIONS OF THE PARTIES
A.

The Defendants’ Contentions

The defendants acknowledge the tax liability, but contend that the Government’s
collection efforts against the Estate are barred by the ten-year limitations period set out in § 6502
of the Internal Revenue Code. Thus, the defendants urge the Court to grant summary judgment
in their favor.
B.

The Government’s Contentions

In response to the defendants’ motion, the Government argues that the statutory
limitation period had not expired when it filed suit because the limitation period was suspended
for 241 days pursuant to 26 U.S.C. § 6330 while the defendants’ CDP hearing was “pending”
from October 5, 2013 to June 2, 2014. Thus, the Government contends that the defendants’
motion is without merit as it met the statute of limitation and urge that summary judgment be

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granted in its favor reducing the unpaid tax deficiency to judgment in the amount of
$551,627.96. In addition, the Government also moves for summary judgment on the defendants’
counterclaim arguing that the defendants lack standing to bring their 26 U.S.C. § 7433
counterclaim for refund because they are not “taxpayers” as it applies to the statute.
IV.

SUMMARY JUDGMENT STANDARD
Rule 56 of the Federal Rules of Civil Procedure authorizes summary judgment against a

party who fails to make a sufficient showing of the existence of an element essential to the
party’s case and on which that party bears the burden at trial. See Celotex Corp. v. Catrett, 477
U.S. 317, 322 (1986); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc).
The movant bears the initial burden of “informing the district court of the basis for its motion”
and identifying those portions of the record “which it believes demonstrate the absence of a
genuine issue of material fact.” Celotex, 477 U.S. at 323; see also Martinez v. Schlumber, Ltd.,
338 F.3d 407, 411 (5th Cir. 2003). Summary judgment is appropriate where “the pleadings, the
discovery and disclosure materials on file, and any affidavits show that there is no genuine issue
as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(c).
If the movant meets its burden, the burden then shifts to the nonmovant to “go beyond the
pleadings and designate specific facts showing that there is a genuine issue for trial.” Stults v.
Conoco, Inc., 76 F.3d 651, 656 (5th Cir. 1996) (citing Tubacex, Inc. v. M/V Risan, 45 F.3d 951,
954 (5th Cir. 1995); Little, 37 F.3d at 1075). “To meet this burden, the nonmovant must
‘identify specific evidence in the record and articulate the ‘precise manner’ in which that
evidence support[s] [its] claim[s].’” Stults, 76 F.3d at 656 (citing Forsyth v. Barr, 19 F.3d 1527,
1537 (5th Cir.), cert. denied, 513 U.S. 871, 115 S. Ct. 195, 130 L. Ed. 2d 127 (1994)). It may

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not satisfy its burden “with some metaphysical doubt as to the material facts, by conclusory
allegations, by unsubstantiated assertions, or by only a scintilla of evidence.” Little, 37 F.3d at
1075 (internal quotation marks and citations omitted). Instead, it “must set forth specific facts
showing the existence of a ‘genuine’ issue concerning every essential component of its case.”
Am. Eagle Airlines, Inc. v. Air Line Pilots Ass'n, Intern., 343 F.3d 401, 405 (5th Cir. 2003)
(citing Morris v. Covan World Wide Moving, Inc., 144 F.3d 377, 380 (5th Cir. 1998)).
“A fact is material only if its resolution would affect the outcome of the action, . . . and
an issue is genuine only ‘if the evidence is sufficient for a reasonable jury to return a verdict for
the [nonmovant].’” Wiley v. State Farm Fire and Cas. Co., 585 F.3d 206, 210 (5th Cir. 2009)
(internal citations omitted). When determining whether a genuine issue of material fact has been
established, a reviewing court is required to construe “all facts and inferences . . . in the light
most favorable to the [nonmovant].” Boudreaux v. Swift Transp. Co., Inc., 402 F.3d 536,
540 (5th Cir. 2005) (citing Armstrong v. Am. Home Shield Corp., 333 F.3d 566, 568 (5th Cir.
2003)). Likewise, all “factual controversies [are to be resolved] in favor of the [nonmovant], but
only where there is an actual controversy, that is, when both parties have submitted evidence of
contradictory facts.” Boudreaux, 402 F.3d at 540 (citing Little, 37 F.3d at 1075 (emphasis
omitted)). Nonetheless, a reviewing court is not permitted to “weigh the evidence or evaluate the
credibility of witnesses.” Boudreaux, 402 F.3d at 540 (quoting Morris, 144 F.3d at 380). Thus,
“[t]he appropriate inquiry [on summary judgment] is ‘whether the evidence presents a sufficient
disagreement to require submission to a jury or whether it is so one-sided that one party must
prevail as a matter of law.’” Septimus v. Univ. of Hous., 399 F.3d 601, 609 (5th Cir. 2005)
(quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251–52 (1986)).

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V.

ANALYSIS & DISCUSSION
A.

Statute of Limitations

The Court finds that the Government’s suit is not barred by the applicable statute of
limitations. Under 26 U.S.C. § 6502(a)(1), the Government generally has ten years from the date
of assessment to commence proceedings in federal court to collect the tax imposed. See United
States v. Warden, 59 F.3d 1242 (5th Cir. 1995). However, under 26 U.S.C. § 6330(e):
“if a hearing is requested under subsection (a)(3)(B), the levy actions which are
the subject of the requested hearing and the running of any period of limitations
under section 6502 (relating to collection after assessment), section 6531 (relating
to criminal prosecutions), or section 6532 (relating to other suits) shall be
suspended for the period during which such hearing, and appeals therein, are
pending.”
As the defendants exhort, the Treasury Regulations further clarify the suspension period
for purposes of § 6330 noting the following:
[t]he suspension period commences on the date the IRS receives the taxpayer's
written request for a CDP hearing. The suspension period continues until the IRS
receives a written withdrawal by the taxpayer of the request for a CDP hearing or
the Notice of Determination resulting from the CDP hearing becomes final upon
either the expiration of the time for seeking judicial review or upon exhaustion of
any rights to appeals following judicial review. . . .
Tres. Reg. § 301.6330-1(g)(2).
The defendants argue that because the October 5, 2013 CDP hearing request was
misplaced by the IRS, the Government is unable to establish that it received the request for
purposes of suspending the limitation period, or at the very least, the request was not received
until May 2, 2014, when the Estate resent a copy of the original request. The Court finds that the
defendants are precluded from raising this argument in equity by the estoppel doctrine applicable
in tax cases known as “quasi estoppel” or the “duty of consistency.” The duty of consistency
prevents a taxpayer from taking one position one year, and a contrary position in a later year,

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after the limitations period has run. Union Carbide Corp. v. United States, 612 F.2d 558, 566
(Ct. Cl. 1979); Johnson v. C.I.R., 162 F.2d 844 (5th Cir. 1947).
“The elements of the duty of consistency are: (1) a representation or report by the
taxpayer; (2) on which the Commission has relied; and (3) an attempt by the taxpayer after the
statute of limitations has run to change the previous representation or to recharacterize the
situation in such a way as to harm the Commissioner.” Herrington v. C.I.R., 854 F.2d 755, 758
(5th Cir. 1988). “If this test is met, the Commissioner may act as if the previous representation,
on which he relied, continued to be true, even if it is not. The taxpayer is estopped to assert the
contrary.” Id.
The defendants lodge two arguments asserting that the duty of consistency is inapplicable
in this case. First, while the defendants are correct in arguing that the duty of consistency does
not apply to questions of law, this case clearly presents a question of fact—whether the IRS
received the October 5, 2013 request as well as a question of law—whether the statute of
limitation has run. The duty of consistency applies in such cases. See id. at 758; see also
LeFever v. C.I.R., 100 F.3d 778, 788 (10th Cir. 1996) (holding that the duty of consistency
applies if the inconsistency involves a question of fact or a mixed question of fact and law.).
Second, the defendants argue that the duty of consistency is applicable only when a taxpayer
adopts a factual representation for one tax year and adopts a different factual representation for a
different tax year. The Court is not compelled to recognize this narrow interpretation of the
principle. Courts have held the duty of consistency to apply in cases, such as the instant action,
where a taxpayer has taken one position, garnering a tax benefit over many years, and attempts to
change its position to garner another benefit. See Estate of Ashman v. C.I.R., 231 F.3d 541, 544
(9th Cir. 2000) (citing R.H. Stearns Co. of Boston, Mass., v. United States, 291 U.S. 54, 60, 54 S.

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Ct. 325, 328, 78 L. Ed. 647 (1934)); Building Syndicate Co. v. United States, 292 F.2d 623, 626
(9th Cir. 1961); see also Alamo Nat'l Bank v. Commissioner, 95 F.2d 622, 623 (5th Cir. 1938).
In the instant case, the defendants have garnered the benefit of avoiding the tax deficiency for
many years, and now change their factual representation in an attempt to garner a judicial shield
of protection from liability. Thus, the principle applies.
Turning to substance, all elements of the duty of consistency are met here. First, the
Government concedes that it misplaced the October 5, 2013 request allegedly due to the
government shut down in October 2013. At that time, the defendants aggressively demanded a
CDP hearing, representing that the IRS timely received the request. See 26 U.S.C. § 6320(3)(B).
For example, in a letter dated May 2, 2014, Kevin Holmes acting as the attorney for the Estate,
stated, in relevant part: “. . . I mailed you a certified letter dated October 5, 2013 which included
both my power of attorney for the estate and a request for a collection due process or equivalent
hearing. I know you received it because it was in the package which contained my Form 2848
Power of Attorney for the estate. . . .” (Dkt. No. 26, Ex. C, Part 4 at 3; Dkt No. 28, Ex. 9).
In addition, Kevin Holmes sent another letter also acknowledging that he timely sent the
October 5, 2013 request. (Dkt No. 28, Ex. 10). Second, the IRS relied on this representation by
accepting the CDP hearing request as timely submitted, granting the defendants the benefit of a
hearing. Finally, the defendants’ argument, that the IRS did not receive the October 5, 2013
request, is contrary to their previous representation.

Indeed, this subsequent inconsistent

representation recharacterizes the defendants’ situation in a way that harms the IRS. Thus, the
duty of consistency precludes the defendants from asserting that the statute of limitations bars the
Government’s collection efforts.

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Accordingly, the Court finds that the applicable limitation period was tolled when the
IRS received the Estate’s CDP hearing request on October 5, 2013 4, until June 2, 2014, when the
hearing request was withdrawn. Therefore, as a matter of law, the Government’s motion for
summary judgment is appropriate and should be granted.
B.

Estate Tax Liability for the 1997 Tax Year

The Government argues that the defendants owe unpaid estate taxes, interest, and
penalties in the amount of $551,627.96, as of April 29, 2016, for the 1997 tax year. With regard
to tax liability calculations, the Government is entitled to a legal presumption of correctness and
the taxpayer has the burden to prove by a preponderance of evidence that the determination was
erroneous. See United States v. Fior D'Italia, Inc., 536 U.S. 238, 242–43, 122 S. Ct. 2117, 153
L. Ed. 2d 280 (2002); United States v. Lochamy, 724 F.2d 494, 497–98 (5th Cir. 1984) (quoting
Carson v. United States, 560 F.2d 693, 696 (5th Cir. 1977)).
The Government presents evidence indicating that the Estate’s tax liability is based on
the amount assessed in the stipulated order of the tax court of $215,264.70 less the state estate
credit of $40,534.50 and refund of $3.06 yielding a balance deficiency due of $174,727.14. (See
Dkt No. 28, Ambuehl Declaration at ¶ 2, Ex. 1). The amount also includes failure to pay
penalties and interest added in the amount of $55,783.80, as well as statutory interest and lien
filing fees added in the amount of $321,117.02. See id; see also 26 U.S.C. §§ 6601, 6621, and
6651(a)(3). The record also reveals that Barbara Holmes signed the stipulated order on behalf of
the Estate, agreeing that “interest [would] be assessed as provided by law on any deficiency due.
. . .” (Dkt No. 28, Ex. 1 at 3). Thus, the Government has met its summary judgment burden.
The burden now shifts to the defendants to show that there is a genuine issue of material
fact with regard to the Government’s assessment. The defendants concede to the underline tax
4

The Court accepts the postmark date of the package as the date of receipt. See 26 U.S.C. § 7502.

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liability, but dispute the interest and penalties. Specifically, the defendants argue that the IRS
erroneous recalculated assessment resulted in inaccurate interest and penalty calculations. The
Government acknowledges the IRS’s erroneous calculation subsequent to the tax decision, but
establishes that it rectified the mistake in its complaint to the Court. As such, the defendants
urge, first, that the interest should be abated pursuant to 26 U.S.C. § 6404(e) given the erroneous
calculation. The Court agrees with the Government that the Court lacks jurisdiction to make a
determination on abating the interest. Hinck v. United States, 550 U.S. 501, 127 S. Ct. 2011, 167
L. Ed. 2d 888 (2007) (holding that the “Tax Court provides exclusive forum for judicial review
of IRS'S refusal to abate interest.”). The unrefuted record reflects that the Government corrected
the inaccuracy in the IRS’s initial assessment in its current suit. Thus, the Court finds no further
reason to abate the interest as the defendants insist.
Next, the defendants argue that they are not liable for penalties because they “possessed
reasonable cause for not paying the tax deficiency” due to the IRS’s inaccurate assessment.
Section 6651 of the Internal Revenue Code provides that the IRS may assess a .5 percent penalty
against a taxpayer for failure to pay unless it is shown that “such failure is due to reasonable
cause and not due to willful neglect[.]” 26 U.S.C. § 6651(a)(3). The taxpayer bears a heavy
burden of proving reasonable cause and the absence of willful neglect. Staff IT, Inc. v. United
States, 482 F.3d 792, 798 (5th Cir. 2007) (citing United States v. Boyle, 469 U.S. 241, 245, 105
S. Ct. 687, 690, 83 L. Ed. 2d 622 (1985)). “Reasonable cause may be found where a taxpayer
shows that he or she was unable to pay the tax or would suffer an undue hardship, despite
exercising ordinary care and prudence in providing for payment.” E.J. Harrison & Sons, Inc. v.
C.I.R., 102 T.C.M. (CCH) 13 (T.C. 2011) (citing 26 C.F.R. § 301.6651-1). Willful neglect is

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defined as “a conscious, intentional failure or reckless indifference.” Staff IT, Inc., 482 F.3d at
798.5
Here, the Court concludes that the defendants have not demonstrated reasonable cause
because the defendants failed to exercise ordinary care and prudence under this fact specific
circumstance. The record is clear that Kevin Holmes is a CPA and practicing tax attorney. (See
Dkt. No. 26, Ex. E, K. Holmes Depo. at 8:3 – 9:25). While the Court recognizes that Kevin
Holmes sent a response to the IRS challenging its initial calculation, to allow the defendants to
avoid payment of the acknowledged tax liability and penalties for years would run afoul of
Congress’ intended purpose in enacting the statute. See Boyle, 469 U.S. at 245 (“Congress'
purpose in the prescribed civil penalty was to ensure timely filing of tax returns to the end that
tax liability will be ascertained and paid promptly.”). Arguably, this is a case of willful neglect
because Kevin Holmes is a tax attorney familiar with the duties mandated by the tax laws, or at
the very least, possessed the capacity to competently promote a prompt resolution of the matter.
The duty to promptly pay a tax liability always remains on the taxpayers. See Id. (“Prompt
payment of taxes is imperative to the Government, which should not have to assume the burden
of unnecessary ad hoc determinations.”) Finally, the Court notes that Kevin Holmes had an
interest in the Estate. Policy will not allow a beneficiary, especially one who has taken the oath
of a practicing attorney, to circumvent the laws to his benefit. Thus, the Court finds that the
defendants did not establish reasonable cause for failing to pay the tax deficiency based on the
IRS’s erroneous calculation.

5

The fifth circuit noted that, “[t]he analysis in Boyle only concerned failure-to-file penalties under § 6651(a)(1) and
not failure-to-pay or failure-to-deposit penalties under §§ 6651(a)(2) and 6656, respectively. The language
concerning the relevant standard is identical in all three provisions. Thus, we find no reason to treat the language in
§ 6651(a)(1) differently from that in §§ 6651(a)(2) and 6656.” Id. (citing E. Wind Indus., Inc. v. United States, 196
F.3d 499, 504 n. 5 (3d Cir. 1999)). The Court also finds the language in § 6651(a)(3) identical to this standard.

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However, the Government concedes to additional credits for income tax payments made
against the estate tax liability outside of the stipulated order of the tax court as follows:
$65,120.00, $31,325.00, and $15,980.00 for the 1999, 2001, and 2002 tax years, respectively.
(See Dkt No. 28 at pg. 22; Ambuehl Declaration at ¶ 3, Ex. 2). The credits yield a balance estate
tax deficiency due of $296,680.67, which the Court adopts.6
C.

The Defendants’ Counterclaim for Refund

The Government has also moved for summary judgment on the defendants’ counterclaim.
The defendants brought the counterclaim under 26 U.S.C. § 7433, which, in relevant part, states:
If, in connection with any collection of Federal tax with respect to a taxpayer, any
officer or employee of the [IRS] recklessly or intentionally, or by reason of
negligence, disregards any provision of this title, or any regulation promulgated
under this title, such taxpayer may bring a civil action for damages against the
United States in a district court of the United States.
The Government challenges the defendants’ standing to bring this counterclaim because
they are not taxpayers within the meaning of § 7433. The Court disagrees. Notwithstanding, the
defendants counterclaim fail for two reasons. First, the defendants counterclaim complains of
the IRS’s erroneous assessment. However, the law is clear that a taxpayer cannot seek damages
under § 7433 for improper assessment of taxes. See Shaw v. United States, 20 F.3d 182, 184 (5th
Cir. 1994). Next, the defendants failed to demonstrate a prima facie case for their § 7433 claim.
“Determining liability under Section 7433 is a two-step process: first, a [counter-]plaintiff must
prove that the IRS intentionally, recklessly, or negligently disregarded part of Title 26 in
connection with the collection of the plaintiff's federal tax liability and, second, the plaintiff must
provide evidence of damages.” Whitney v. United States, No. EDCV1501472ABDTBX, 2015
WL 11197828, at *2 (C.D. Cal. Dec. 9, 2015). To satisfy the first step of the Court’s inquiry,
6

To this end, the Government argues that the $296,680.67 is owed by Kevin and Barbara Homes individually.
Whereas, the Government argues that the $551,627.96 is owed by Barbara Holmes as the executrix of the Estate.
The Court rejects this proposition.

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“the taxpayer must demonstrate that the IRS did not follow the prescribed methods of acquiring
assets.” Shaw, 20 F.3d at 184.
In this case, to collect the unpaid taxes, the IRS elected to file a federal tax lien against
the Estate. In doing so, the defendants aver that the IRS disregarded 26 U.S.C. § 6320(a) in
failing to provide proper notice by sending the notice to the wrong address. It is undisputed that
the IRS agent sent the notice to Barbara Holmes’ old address. A question remains, however, as
to whether this act was committed by the IRS agent with the requisite intent to establish § 7433
liability. Assuming arguendo that the defendants establish § 7433 liability, the defendants fail to
establish damages. As evidence of damages, the defendants aver that the notice of federal tax
lien caused them to be denied application to refinance their home mortgage. In support of this
averment, the defendants proffer an unauthenticated letter dated November 7, 2014, from Julie
Parish (“Parish”), Senior Banking Center Manager of Amergy Bank. (See Dkt No. 19, Ex. C at
6; see also Dkt No. 28, Parish Depo. at 4:11–15). The letter indicates that Kevin Holmes’
application to refinance his mortgage loan was denied due to the federal tax lien. Id. The letter
also indicates that had the refinance been completed, Kevin Holmes would have saved “a
minimum of $300.00 dollars a month.” Id. As a result, the defendants assert that they suffered
damages in the amount $98,630.66. (See Dkt. No. 19 at ¶ 16).
The Court finds that this unsworn statement is incompetent summary judgment evidence.
This letter does not defeat the Government’s motion for summary judgment because the
document itself is unauthenticated, the statement contain in it are unsworn, and does not indicate
that the statements are made from personal knowledge as required by Federal Rule of Civil
Procedure 56(e). See Cruz v. Aramark Servs., Inc., 213 F. App'x 329, 333 (5th Cir. 2007) (citing
Duplantis v. Shell Offshore Inc., 948 F.2d 187, 191 (5th Cir. 1991). Thus, the defendants’

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counterclaim fails to raise a genuine issue of material fact to survive summary judgment. As
well, “. . . unauthenticated documents cannot be considered in support of a motion for summary
judgment.” United States v. Heerwagen, 993 F.2d 1543 (5th Cir. 1993) (citation omitted).
Moreover, the letter is a hearsay document, is highly speculative, and constitutes an insufficient
bases for an award of damages.

In fact, Parish’s sworn deposition testimony completely

contradicts several statements contained in the document as well as the defendants’ arguments.
(See Dkt No. 28, Parish Depo. at 4:11–15, 11:1 – 12:20, 13:15-22, 14:17-20, 15:6-11, 15:17 –
16:1, 17:20 – 18:3). Therefore, as a matter of law, summary judgment is appropriate in favor of
the Government.
However, the Court recognizes that the IRS made errors in this matter. As a result, the
Court in equity is not persuaded that judgment should be rendered against Kevin and Barbara
Holmes in their individual capacities. Therefore, to the extent that relief is sought against Kevin
and Barbara Holmes individually, the Court denies the Government’s motion for summary
judgment.
VI.

CONCLUSION
Based on the foregoing analysis and discussion, the Government’s motion for summary

judgment is GRANTED in part. Further, the defendants’ motion for summary judgment is
DENIED.
SIGNED on this 16th day of August, 2016.
___________________________________
Kenneth M. Hoyt
United States District Judge

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