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United States v. Bigley

United States District Court, D. Arizona

December 3, 2014

UNITED STATES OF AMERICA, Plaintiff,
v.
MICHAEL A. BIGLEY, et al., Defendants.

ORDER

H. RUSSEL HOLLAND, District Judge.

Motions to Dismiss; Motions for Protective Order, Joinder and Sanctions

The Bigley and Kelso defendants move to dismiss plaintiff's complaint.[1] These motions are opposed.[2] The Bigley defendants also move for a protective order, for joinder, and for Rule 11 Sanctions.[3] These motions are opposed.[4] Oral argument has not been requested on any of the pending motions and is not deemed necessary.

Facts

Plaintiff is the United States of America. Defendants are Michael A. Bigley, Carolyn E. Bigley, Robert B. Kelso, Raeola D. Kelso, and ISA Ministries. The Bigley defendants and the Kelso defendants are proceeding pro se.

Plaintiff has brought this action "to reduce the outstanding federal tax liabilities assessed against [the Bigley defendants] to judgment and to foreclose federal tax liens on real property."[5] "This action [has been] commenced pursuant to 26 U.S.C. §§ 7401 and 7403, at the direction of the Attorney General of the United States, with the authorization and sanction and at the request of the Chief Counsel of the Internal Revenue Service (IRS)[.]"[6]

Plaintiff alleges that on May 17, 2002, the Bigleys acquired title to real property that is commonly referred to as 3115 E. Park Avenue, Gilbert, Arizona.[7] Plaintiff further alleges that "[o]n May 2, 2008, " the Bigleys "purported to transfer title to the real property at issue to ISA Ministries via a quitclaim deed."[8] Plaintiff alleges that "[t]he transfer claimed exemption pursuant to Arizona Revised Statute § 11-1134(a)(7), which indicates that the transfer was a deed of gift.'"[9] Plaintiff further alleges that "[o]n May 15, 2009, ISA Ministries purported to transfer title to the real property at issue to" the Kelso defendants "via a corporate special deed."[10] Plaintiff alleges that the Kelso defendants and ISA Ministries are "mere nominee[s] or alter ego[s]" of the Bigley defendants "who have now and have at all relevant times been the actual beneficial owners of the real property at issue."[11]

Plaintiff alleges that in 2009 and 2010, the IRS recorded tax liens against Mr. Bigley for tax years 2004, 2005, 2006, and 2007.[12] Plaintiff alleges that in 2010, the IRS recorded tax liens against Mrs. Bigley for tax years 2004, 2005, and 2006.[13] And, plaintiff alleges that in 2011, the IRS recorded tax liens against ISA Ministries and the Kelsos as the nominees and/or alter egos of the Bigleys.[14]

In its first claim for relief, plaintiff seeks to reduce federal tax assessments to judgment. Plaintiff alleges that taxes and penalties of $214, 912.78 have been assessed against Mr. Bigley.[15] Plaintiff alleges that it has given Mr. Bigley timely notice of these assessments and has made a demand for payment, but that Mr. Bigley "has neglected, refused, or failed to make payment of the assessed amount...."[16] Plaintiff further alleges that Mr. Bigley "petitioned the United States Tax Court to contest the merits of the notice of deficiency by the IRS for the 2004 tax year. The Tax Court issued a decision in favor of the IRS, sustaining the deficiency determinations for the 2004 tax year, and additionally sanctioned [Mr.] Bigley for filing frivolous submissions with the Tax Court."[17] Plaintiff also alleges that $24, 834.87 in taxes and penalties have been assessed against Mrs. Bigley.[18] Plaintiff alleges that it has given Mrs. Bigley timely notice of these assessments and has made a demand for payment, but that Mrs. Bigley "has neglected, refused, or failed to make payment of the assessed amount...."[19]

In its second claim for relief, plaintiff seeks a determination that the Kelsos and ISA Ministries were the nominees or alter egos of the Bigleys. Plaintiff alleges that Mr. Bigley opened a bank account for ISA Ministries in November 2007 and listed the Gilbert address as the account address and that the Bigleys "had access to the ISA Ministries checking account and regularly accessed it to pay their personal expenses."[20] Plaintiff further alleges that the Kelsos are related to the Bigleys because Mrs. Kelso is Mr. Bigley's sister.[21]

In its third claim for relief, plaintiff asserts a fraudulent transfer claim against the Bigleys, alleging that the transfers to both ISA Ministries and the Kelsos were fraudulent.

In its fourth claim for relief, plaintiff seeks to foreclose the federal tax liens encumbering the real property at issue. Plaintiff alleges that "[u]nder 26 U.S.C. § 7403(c), [it] is entitled to a decree of sale of the real property at issue to enforce its tax liens."[22]

The Bigley defendants and the Kelso defendants now move to dismiss plaintiff's complaint. The Bigley defendants also move for a protective order, to join KLA-Tencor and Ameriplan as parties, and for Rule 11 Sanctions.

Bigley Defendants' Motion to Dismiss

The Bigleys argue that this court lacks subject matter jurisdiction. "Under Rule 12(b)(1), a defendant may challenge the plaintiff's jurisdictional allegations in one of two ways." Leite v. Crane Co., 749 F.3d 1117, 1121 (9th Cir. 2014). "A facial' attack accepts the truth of the plaintiff's allegations but asserts that they are insufficient on their face to invoke federal jurisdiction.'" Id . (quoting Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004)). "The district court resolves a facial attack as it would a motion to dismiss under Rule 12(b)(6): Accepting the plaintiff's allegations as true and drawing all reasonable inferences in the plaintiff's favor, the court determines whether the allegations are sufficient as a legal matter to invoke the court's jurisdiction." Id . "A factual' attack, by contrast, contests the truth of the plaintiff's factual allegations, usually by introducing evidence outside the pleadings." Id . "When the defendant raises a factual attack, the plaintiff must support [its] jurisdictional allegations with competent proof under the same evidentiary standard that governs in the summary judgment context." Id . (citation omitted).

Plaintiff alleges that the court "has jurisdiction over this action pursuant to 28 U.S.C. §§ 1340 and 1345 and 26 U.S.C. §§ 7402 and 7403."[23] 28 U.S.C. § 1340 provides, in pertinent part, that "[t]he district courts shall have original jurisdiction of any civil action arising under any Act of Congress providing for internal revenue[.]" 28 U.S.C. § 1345 provides, in pertinent part, that "[e]xcept as otherwise provided by Act of Congress, the district courts shall have original jurisdiction of all civil actions, suits or proceedings commenced by the United States[.]" "Under 28 U.S.C. §§ 1340 and 1345, Federal District Courts have jurisdiction to enforce federal tax liens." United States v. Sarman, 699 F.2d 469, 470 (9th Cir. 1983). 26 U.S.C. § 7402(a) provides that

[t]he district courts of the United States at the instance of the United States shall have such jurisdiction to make and issue in civil actions, writs and orders of injunction, and of ne exeat republica, orders appointing receivers, and such other orders and processes, and to render such judgments and decrees as may be necessary or appropriate for the enforcement of the internal revenue laws.

And, 26 U.S.C. § 7403 authorizes the Attorney General to file a civil action in district court "in any case where there has been a refusal or neglect to pay any tax" and gives the district court jurisdiction

to adjudicate all matters involved therein and finally determine the merits of all claims to and liens upon the property, and, in all cases where a claim or interest of the United States therein is established, may decree a sale of such property, by the proper officer of the court, and a distribution of the proceeds of such sale according to the findings of the court in respect to the interests of the parties and of the United States.

Although all four of these provisions appear to give the court jurisdiction over this action to reduce federal tax assessments to judgment and to foreclose on the federal tax liens at issue, the Bigleys argue that any exercise of this jurisdiction would be premature because they have filed an appeal of the Tax Court decisions.[24] Because they have filed an appeal, the Bigleys argue that the Tax Court's decisions are not final and thus not yet reviewable.

The Bigleys' argument is based on 26 U.S.C. § 6213, which sets out the procedures by which a taxpayer may petition the Tax Court after receiving a notice of deficiency. Section 6213 provides that "no levy or proceeding in court for [tax] collection shall be made, begun, or prosecuted... until the decision of the Tax Court has become final." 26 U.S.C. § 6213(a). Pursuant to 26 U.S.C. § 7481, "a decision of the Tax Court becomes final in 90 days if it is not appealed." Abatti v. C.I.R., 86 T.C. 1319, 1323 (Tax Court 1986). If an appeal is taken, the decision of the Tax Court does not become final until no further appeals can be taken. 26 U.S.C. § 7481. In other words, "[w]hile the judicial review is taking place, the Commissioner must suspend his activities with respect to assessment and collection of the tax, but when those proceedings are completed, he may then proceed to assess and collect any tax found to be due." Id.

The Bigleys' reliance on Section 6213(a) and Abatti are misplaced because Section 6213 has no application here. Section 6213 sets forth the procedures that apply when a taxpayer files a petition with the Tax Court seeking a redetermination of the IRS's administrative determination that there is a tax deficiency.[25] Section 6213 proceedings are deficiency proceedings. Here, Mr. Bigley petitioned the United States Tax Court to contest the merits of the notice of deficiency by the IRS for the 2004 tax year. Bigley v. C.I.R., Case No. 14223-08, 2010 WL 610707 (T.C. Feb. 22, 2010). The Tax Court "sustained" the IRS' "deficiency determination" and "grant[ed the IRS's] motion for a penalty and require[d Mr. Bigley] to pay a penalty to the United States pursuant to section 6673(a)(1) of $5, 000." Id. at *2. This order became final "on May 24, 2010."[26] The IRS subsequently assessed the 2004 tax year deficiencies, additions to tax, and accrued interest and sent Mr. Bigley a Final Notice of Intent to Levy and Notice of Your Right to a Hearing as well as a lien notice.[27] Mr. Bigley then requested a collection due process (CDP) hearing to contest the proposed levy and requested a hearing in response to the lien notice.[28] "A CDP hearing is a specific administrative procedure, set out in I.R.C. § 6330, through which taxpayers may challenge proposed collection actions brought by the IRS." Golden v. C.I.R., 548 F.3d 487, 492 (6th Cir. 2008) (emphasis added). The appeals that are currently pending involve the Tax Court decisions in Mr. Bigley's collection cases which were brought pursuant to "Section 6320 and/or 6330[.]"[29]

Although Section 6213 has no application here because Mr. Bigley's pending appeals involve his collection cases, and not a deficiency proceeding, Section 6330, which applies to collection cases, also contains a suspension clause. While a CDP hearing and any appeals thereof are pending, "the levy actions which are the subject of the requested hearing and the running of [certain] period of limitations [are] suspended." 26 U.S.C. § 6330(e)(1); see also, 26 C.F.R. § 301.6330-1(g) ("the periods of limitation under section 6502 (relating to collection after assessment)... are suspended until... the determination resulting from the CDP hearing becomes final by expiration of the time for seeking judicial review or the exhaustion of any rights to appeals following judicial review").

However,

The IRS... may levy for other taxes and periods not covered by the CDP Notice if the CDP requirements under section 6330 for those taxes and periods have been satisfied. The IRS also may file NFTLs [notice for tax liens] for tax periods and taxes, whether or not covered by the CDP Notice issued under section 6330, and may take other non-levy collection actions such as initiating judicial proceedings to collect the tax shown on the CDP ...

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