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United States v. Brooks

United States District Court, D. South Carolina, Greenville Division

February 15, 2019

United States of America, Plaintiff,
Dennis D. Brooks, Barbara D. Brooks, Greenville County Tax Collector, Coach Hills Homeowner's Association, Inc., and the South Carolina Department of Revenue Defendants.


          Timothy M. Cain, United States District Judge

         Plaintiff United States of America (the “Government”) filed this action seeking to reduce to judgment outstanding federal income tax liabilities against Defendant Dennis D. Brooks (“Brooks”), and to foreclose federal tax liens on real property (“the Subject Property”) located at 10 Twin Oaks Court, Greenville, South Carolina, which is owned by Brooks and his wife, Defendant Barbara D. Brooks. (ECF No. 1). This matter is before the court on the Magistrate Judge's Report and Recommendation (“Report”) recommending that the court grant the Government's summary judgment motion against Brooks (ECF No. 111). (ECF No. 160).[1]Defendant Brooks timely filed objections (ECF No. 169), and the Government filed a reply (ECF No. 172). This matter is now ripe for review.

         I. Background/Procedural History

         The Government alleges that Brooks did not file federal income tax returns for the years 2000, 2005, 2006, 2007, and 2011. (ECF No. 111-2 at 2).[2] The Internal Revenue Service (“IRS”) calculated the amount of income tax due for those years using a zero cost basis for the sale of stocks and/or mutual funds and sent notices of the deficiencies by certified mail to Brooks' last known address. (ECF Nos. 111-2 at 3-5; 9-51; 158-1 at 20-21, 31-32, 41-42, 48-49, 61-62, 65, 69-70). The notices for tax years 2005, 2006, and 2011 were returned to the IRS marked as return to sender and “unclaimed.” (ECF No. 158-1 at 2-3, 4-5, 44-45, 67). The Secretary of the Treasury also gave notices to Brooks of the unpaid taxes and demanded payment. Id. at 5. Thereafter, the Secretary of the Treasury filed federal tax liens against the Subject Property. Id. at 5-6; 54-56.[3] The Government then filed this action seeking to reduce these liens to judgment against Brooks, to foreclose on the liens, and for the sale of the Subject Property. (ECF No. 1). As of August 6, 2018, the amount of the liens was $622, 849.14. (ECF No. 111-1 at 4).

         The Government also named the Coach Hills Homeowner's Association, Inc., the Greenville County Tax Collector (the “County”), and South Carolina Department of Revenue (“SCDOR”) as Defendants “pursuant to 26 U.S.C. § 7403(b) by virtue of liens [they might] claim against” the Subject Property. (ECF No. 1 ¶ 7-9).[4] Because Coach Hills failed to file an answer or otherwise participate in this case, a default judgment was entered against Coach Hills. (ECF No. 138). The Government, the County, and the SCDOR have entered into a stipulation regarding the priority of their respective tax liens. (ECF No. 52).[5]

         In his Answer, Brooks alleges that during the years in question, he suffered capital gains losses as a result of misrepresentations by his stock broker and that his stock broker had purchased unauthorized loaded mutual funds. (ECF No. 14 at 2). Brooks states that “the [IRS' assessed] amounts listed in the chart are erroneous as they did not take into account the cost basis for the years mentioned.” Id. He further alleges that he was not advised that he could challenge the notices of deficiency. Id. He argues that he has now completed the tax returns for the years in question, and he wants the IRS to process these returns. Id.

         On August 16, 2018, the Government filed the instant motion for summary judgment (ECF No. 111). The court entered a Roseboro Order explaining the summary judgment procedure and the consequences of failing to respond. (ECF No. 112).[6] The Roseboro Order was mailed to Brooks at his address of record, and it was not returned to the court. (ECF No. 115). Brooks did not respond, and on October 11, 2018, the magistrate judge entered a Report recommending that the motion be granted. (ECF No. 114). On October 16, 2018, rather than filing objections, Brooks filed a motion for an extension of time to respond to the summary judgment motion. (ECF No. 119). Brooks stated that he had not received a copy of the summary judgment motion and only became aware of it after receiving an email from the Government referring to the motion. Id. The Government filed a response in which it stated it did not object to Brooks being given an extension of time within which to file objections to the Report (ECF No. 122 at 2). The court declined to adopt the portion of the Report addressing the pending summary judgment motion and granted Brooks until November 16, 2018, to file a response to the motion for summary judgment. (ECF No. 125).[7] Further, the court recommitted the summary judgment motion to the magistrate judge for further handling. Id. On November 16, 2018, Brooks filed a response opposing the summary judgment motion (ECF No. 142), and the Government filed a reply on December 3, 2018 (ECF No. 152). Brooks subsequently filed additional attachments on December 6, 2018 (ECF No. 156), and the Government filed an amended reply on December 13, 2018 (ECF No. 158). The magistrate judge filed her Report on December 19, 2018, recommending the court grant the Government summary judgment (ECF No. 160), and on January 2, 2019, Brooks timely filed objections to the Report (ECF No. 169).[8]The Government has filed a reply to those objections. (ECF No. 172).

         II. Applicable Law

         A. Summary Judgment

         Summary judgment is appropriate only “if the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). In deciding whether a genuine issue of material fact exists, the evidence of the non-moving party is to be believed and all justifiable inferences must be drawn in his favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). However, “[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted.” Id. at 248. A litigant “cannot create a genuine issue of material fact through mere speculation or the building of one inference upon another.” Beale v. Hardy, 769 F.2d 213, 214 (4th Cir. 1985). “Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, disposition by summary judgment is appropriate.” Monahan v. County of Chesterfield, 95 F.3d 1263, 1265 (4th Cir. 1996).

         B. Tax Assessment

         It is well-settled that a tax assessment is entitled to a presumption of correctness. United States v. Fior D'Italia, 536 U.S. 238, 242 (2002); see also United States v. Pomponio, 635 F.2d 293, 296 (4th Cir. 1980). Therefore, the burden is on the taxpayer to overcome this presumption by persuading the finder of fact, by a preponderance of the evidence, that the assessment is incorrect. United States v. Janis, 428 U.S. 433, 440 (1976). A taxpayer challenging such an assessment must establish the correct amount, if any, of taxes due. United States v. Sage, 412 F.Supp.2d 406, 416 (S.D.N.Y. 2006); see also Helvering v. Taylor, 293 U.S. 507, 514-15 (1935). This burden cannot be satisfied merely by self-serving statements from the taxpayer. Liddy v. Commiss'r of Internal Revenue, 808 F.2d 312, 315-16 (4th Cir. 1986). If no countervailing proof is introduced, “the trial court [is] . . . justified, in fact required, to enter summary judgment for the amount of the taxes proved to be due.” United States v. Dixon, 672 F.Supp. 503, 507 (M.D. Ala. 1987) (quoting Lane v. United States, 328 F.2d 602, 603 (5th Cir. 1964)). Additionally, the IRS may properly assign a cost basis of zero when the taxpayer fails to establish his basis in a given stock sale. See Coloman v. Comm'r of Internal Revenue, 540 F.2d 427 (9th Cir. 1976).

         III. Discussion

         In this case, the Government is seeking to reduce to judgment federal income tax assessments against Brooks for the tax years 2000, 2005, 2006, 2007, and 2011, and to foreclose the related federal tax liens against Brooks' real property located at 10 Twin Oak in Greenville, South Carolina. In its motion for summary judgment, the Government contends that it is undisputed that federal income tax assessments have been made against Brooks for the tax years 2000, 2005, 2006, 2007, and 2011, and that Brooks owes $622, 849.14 in back taxes and penalties. (ECF No. 111). The Government argues that the assessments are presumed to be correct, and Brooks has failed to produce admissible evidence sufficient to rebut that presumption. (ECF No. 111-1 at 7). Specifically, the Government contends that the documents that Brooks seeks to rely upon, including 1040 tax returns prepared only after this action was filed and alleged business records, are inadmissible hearsay. Id. at 9. Moreover, the Government contends Brooks' uncorroborated and self-serving testimony regarding the cost basis is insufficient as a matter of law. Id. at 10. The Government also argues that the facts establish that federal tax liens have properly attached to the Subject Property. (ECF No. 111 at 1). The Government asks the court to enter judgment against Brooks in the amount of $622, 849.14, plus penalties and interest that continue to accrue, and also order the foreclosure and sale of the Subject Property. (ECF No. 111-1 at 12).

         In his response, Brooks first argues that he never received the notices of deficiency from the IRS and that the Government has not presented any proof that the notices were sent. (ECF No. 142 at 1-3, 4-5, 7). Second, Brooks contends that the IRS failed to take into account the cost basis of the mutual funds, and that, if the IRS had included the proper cost basis, the IRS would have determined that Brooks had a net capital gains loss for the years in question and actually did not owe any taxes. Id. at 3. Brooks contends that the 1040 tax returns he has proffered are not hearsay and are admissible under Federal Rule of Evidence 803(6). Id. at 6. Finally, Brooks contends that the Government failed to provide him with copies of his 1099-B forms during discovery. Id. at 6-7, 9.

         In her Report, the magistrate judge addressed Brooks' argument regarding discovery, determined that Brooks has not been diligent in pursuing discovery, and recommended that the court deny his requests to compel the production of 1099-B forms and deny his request for more discovery. (ECF No. 160 at 7-8). On the merits of the summary judgment motion, the magistrate judge determined that the Government has shown that there is not a genuine issue of material fact regarding whether the deficiency notices had been properly sent to Brooks. Id. at 11. The magistrate judge also determined that the proffered 1040 tax forms cannot be considered for purposes of deciding this summary judgment motion because they are hearsay. Id. at 13-14. She concluded that Brooks had not rebutted the presumption of correctness that attaches to the tax assessments made against him. Id. at 14-15. Further, the magistrate judge determined that Brooks' own vague, uncorroborated, and self-serving testimony that he had some basis in the stocks is also insufficient to meet his burden of establishing his basis. Id. at 14. Turning to Brooks' objections, the court will address each in turn below.

         In his objections, Brooks first contends that the magistrate judge erred by failing to view the facts in a light most favorable to him. (ECF No. 169 at 1). He does not point to any specific error, but rather states that the magistrate judge evaluated “every aspect of the ‘summary judgment record'” in a light most favorable to the Government. Id. The court finds that this objection is a general, conclusory objection which does not warrant de novo review and is without merit. Orpiano v. Johnson, 687 F.2d 44, 47 (4th Cir. 1982). Accordingly, the court must only satisfy itself that there is no clear error. See Diamond v. Colonial Life & Acc. Ins. Co., 416 F.3d 310, 315 (4th Cir. 2005). Upon ...

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