United States District Court, D. Arizona
JAMES A. TEILBORG SENIOR UNITED STATES DISTRICT JUDGE
Pending before the Court is Plaintiff Michael Don Greene’s Motion for Summary Judgment. (Doc. 41). The United States of America (“United States”) filed a response, (Doc. 43), to which Mr. Greene replied, (Doc. 47). The Court now rules on the motion.
The background of this case has been detailed by the Court as follows:
Mr. Greene and his former wife (“the Greenes”) filed a joint 1990 tax return on or about March of 1991. (Doc. 1 at 2). The joint return was a 1040 tax return which reflected an adjusted gross income (“AGI”) of $74, 714.42, a taxable income of $44, 968.00, and withholding credits of $9, 803.76. Id. The Greenes reported a tax liability of $8, 450.00 in the 1040 return, and received a refund of $934.00. (Doc. 13-1 at 3). Mr. Greene also filed a corporate return for the 1990 taxes of his 100% personally-owned corporation, MDG Inc. (Doc. 1 at 2).
In 1992, the Internal Revenue Service (“IRS”) opened an examination of the Greenes’ 1990 tax returns. (Doc. 1 at 2). The IRS completed its examination of the 1990 tax returns in 1997. Id. After the examination, IRS account records reflected the Greenes’ 1990 AGI as [negative] $493, 879.58 with a taxable income of $0.00. Id. The 1990 IRS examination work-papers also alleged unreported income of $888, 496.75 to MDG Inc. Id. at 3. The IRS issued a Statutory Notice of Deficiency reflecting a deficiency of $269, 830.00, a fraud penalty of $191, 939.00, and an accuracy penalty of $2, 782.00. (Doc. 13-1 at 4).
The IRS determined that Mrs. Greene was not liable for the entire tax liability resulting from the 1990 Notice of Deficiency. (Doc. 13-1 at 4). Thus, the IRS assessed taxes on two separate accounts: one Joint Master File account, and one separate Non-Master File account (“NMF 1”) for Mr. Greene individually. Id. at 4-5. An amount of approximately $202, 000.00 was assessed to the Joint Master File account of Mr. and Mrs. Greene. Id. at 5. The remaining portion of the deficiency, approximately $350, 000.00, was assessed to the separate NMF 1 account under Mr. Greene’s name only. Id. After the IRS applied the assessment to the Joint Master File account, the IRS granted Mrs. Greene innocent spouse relief from the joint and several liability. Id. The full liability of the Joint Master File was then transferred to a second separate Non-Master File account (“NMF 2”) against Mr. Greene only. Id. Thus, the liability shown on the Joint Master File account was reduced to $0.00. Id. After Mrs. Greene received innocent spouse relief, “Mr. Greene’s liability was tracked in the two separate assessment files, NMF 1 and NMF 2.” Id.
In 2012, the United States and Mr. Greene settled a refund suit for Mr. Greene’s 1995 tax year. (Doc. 13-1 at 6). ‘The liability tracked in NMF 2 was paid in full’ when $170, 124.00 of the settlement amount was offset against Mr. Greene’s 1990 tax liability. (Doc. 17 at 5). Meanwhile, NMF 1 has an outstanding balance of $761, 101.46 with more interest accruing daily. (Doc. 13-1 at 6).
Mr. Greene filed the instant suit seeking a refund for the $170, 124.00 offset against NMF 2. (Doc. 1 at 5).
Greene v. United States, 2014 WL 6666996, at *1-2 (D. Ariz. Nov. 24, 2014); see (Docs. 19 at 1-2; 33 at 1-3).
On June 30, 2015, Mr. Greene filed an amended Form 1040X with the IRS and is now seeking summary judgment on his tax refund claim in the amount of $169, 354.00. See (Docs. 46-2 at 75-76; 47 at 3). Mr. Greene made this modification because he concedes that his 1990 taxable income should be adjusted by adding certain interest income and a state income tax refund. (Doc. 38 at 8).
II. Legal Standard
Summary judgment is appropriate when “the movant shows that there is no genuine issue as to any material fact and that the moving party is entitled to summary judgment as a matter of law.” Fed.R.Civ.P. 56(a). A party asserting that a fact cannot be or is genuinely disputed must support that assertion by “citing to particular parts of materials in the record, ” including depositions, affidavits, interrogatory answers or other materials, or by “showing that materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.” Id. at 56(c)(1). Thus, summary judgment is mandated “against a party who fails to make a showing sufficient to establish the existence of an element essential to that party’s case, and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
Initially, the movant bears the burden of pointing out to the Court the basis for the motion and the elements of the causes of action upon which the non-movant will be unable to establish a genuine issue of material fact. Id. at 323. The burden then shifts to the non-movant to establish the existence of material fact. Id. The non-movant “must do more than simply show that there is some metaphysical doubt as to the material facts” by “com[ing] forward with ‘specific facts showing that there is a genuine issue for trial.’” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (quoting Fed.R.Civ.P. 56(e) (1963) (amended 2010)). A dispute about a fact is “genuine” if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The non-movant’s bare assertions, standing alone, are insufficient to create a material issue of fact and defeat a motion for summary judgment. Id. at 247-48. Further, because “[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge, . . . [t]he evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor” at the summary judgment stage. Id. at 255 (citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59 (1970)); Harris v. Itzhaki, 183 F.3d 1043, 1051 (9th Cir. 1999) (“Issues of credibility, including questions of intent, should be left to the jury.” (citations omitted)).
At the summary judgment stage, the trial judge’s function is to determine whether there is a genuine issue for trial. There is no issue for trial unless there is sufficient evidence favoring the non-moving party for a jury to return a verdict for that party. Liberty Lobby, Inc., 477 U.S. at 249-50. If the evidence is merely colorable or is not significantly probative, the judge may grant summary judgment. Id. Notably, “[i]t is well settled that only admissible evidence may be considered by the trial court in ruling on a motion for summary judgment.” Beyene v. Coleman Sec. Servs., Inc., 854 F.2d 1179, 1181 (9th Cir. 1988).
Finally, in a taxpayer lawsuit for a refund of tax, the taxpayer bears the burden of proving overpayment of tax. See Watts v. United States, 703 F.2d 346, 348 (9th Cir. 1983) (citing Martinez v. United States, 669 F.2d 568, 569 (9th Cir. 1981)); Lewis v. Reynolds, 284 U.S. 281, 283 (1932).
In support of his motion for summary judgment, Mr. Greene sets forth five arguments. First, Mr. Greene contends that because an IRS examination work-paper stated that Mr. Greene had a 1990 taxable income of $0.00, an overpayment must necessarily exist. (Doc. 38 at 5-6). Second, Mr. Greene argues that the IRS improperly attributed $888, 496.75 of income to Mr. Greene in his personal capacity despite the income being reported on the corporate tax return of Mr. Greene’s solely owned and operated company, MDG, Inc. (“MDG”). (Id. at 6-7). Third, Mr. Greene asserts that he is entitled to summary judgment regarding a claimed Schedule C deduction. (Id. at 7). Fourth, Mr. Greene alternatively argues that any tax paid by MDG because it reported the $888, 496.75 as corporate income should be credited under the doctrine of “equitable recoupment” towards Mr. Greene’s personal tax liability if the income is ultimately attributed to him. (Id. at 9). Finally, Mr. Greene alternatively asserts that certain deductions noted in the IRS’s work-papers were not applied against the deficiency amount. (Id. at 8-9). The Court will analyze each argument in turn.
A. IRS Examination
Mr. Greene first contends that because the “IRS records post audit reflect AGI of [negative] $493, 879 (net loss) and Taxable Income of $0.00 . . . [the United States] is without lawful basis to determine a tax deficiency on the $0.00 Taxable Income and that an overpayment exists.” (Id. at 5-6). Thus, ...