U.S. v. WELDON, (E.D.N.C. 2002)

TERRENCE W. BOYLE, United States District Judge

This matter is before the Court on a Motion for Partial Summary Judgment filed by Defendant Larry C. Weldon ("Weldon"), a Motion for Summary Judgment filed by the Plaintiff United States (the "Government"), and a Motion for Leave to Amend Complaint filed by the Government. In the underlying action, the Government seeks to reduce to judgment federal tax assessments for several of Weldon's tax years and to foreclose federal tax liens against certain parcels of real property. For the following reasons, the Government's motions are GRANTED, and Weldon's Motion for Partial Summary Judgment is rendered MOOT.

In its original Complaint, filed April 13, 2000, the Government sought to reduce to judgment tax assessments made against Weldon for tax years 1982, 1983, 1984, 1986, 1989, 1990, 1993, 1994, and 1995, and to foreclose its resulting liens against Weldon's interests in three parcels of real property. For the years 1993, 1994, and 1995, Weldon filed Forms 1040 with the Internal Revenue Service (IRS) which reported a tax due. For each of these forms, Weldon signed the jurat at the bottom of the Form 1040; however, among the schedules submitted with each form, Weldon included a letter in which he stated that he refused to self-assess the tax he reported as due, and denied liability for such tax.

On July 24, 2001, Weldon filed a Motion for Partial Summary Judgment, asserting that the assessments and tax liens for tax years 1993, 1994 and 1995 were invalid as a matter of law. The Government then indicated that it had come to its attention that the letters included by Weldon in his Forms 1040 for tax years 1993, 1994 and 1995, which disclaimed the very forms they accompanied, invalidated the tax returns for those years, and thus that the Government must assess taxes against Weldon for those years through tax deficiency procedures. Accordingly, on September 24, 2001, the United States moved to amend its complaint, asserting that it no longer sought to enforce through the instant action Weldon's tax liabilities for tax years 1993, 1994, and 1995.

In a motion for summary judgment, the movant must demonstrate the lack of a genuine issue of material fact for trial. Fed.R.Civ.P. 56(c); See Celotex Corp. v. Catrett, 477 U.S. 317 (1986). If that burden is met, the party opposing the motion must "go beyond the pleadings" and come forward with evidence of a genuine factual dispute. Id. at 324 (1986). In other words, the nonmoving party "may not rest upon the mere allegations or denials" in her pleadings, but must "set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party." Fed.R.Civ.P. 56(e); See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986) (explaining that conclusory allegations are not sufficient to defeat a motion for summary judgment).

As an initial matter, Federal Rule of Civil Procedure 15(a) provides that "[a] party may amend the party's pleading once as a matter of course at any time before a responsive pleading is served. . . . Otherwise a party may amend the party's pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires." The United States Supreme Court has observed that "[i]n the absence of any apparent or declared reason such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, futility of the amendment, etc. the leave sought should, as the rules require, be `freely given.'" Forman v. Davis, 371 U.S. 178, 182 (1962);see also Davis v. Piper Aircraft Corp., 615 F.2d 606, 613 (4th Cir. 1980).

In the instant case, Weldon contends that the amendments proposed by the Government would unduly prejudice him because, should they be allowed, he would have to "relitigate" issues before the United States Tax Court which he asserts are currently ripe for determination before this Court. See Defendant's Response in Opposition to United States' Motion for Leave to Amend Complaint. As the United States indicates, however, the issues of enforcement of tax liens for Weldon's tax years 1993, 1994 and 1995 are not, in fact, ripe, because Weldon disclaimed his Forms 1040 for those tax years by means of accompanying letters. Consequently, those claims are not properly before this Court. Moreover, while the Government's failure to recognize these disclaimers as invalidations of the Forms 1040 could, perhaps, be construed as negligent, there is no indication that the Government has acted in bad faith, with dilatory motive, or with intent to cause undue delay. Because leave to amend must be freely given, and because there is no indication of bad faith or undue prejudice to Weldon, the Government's Motion for Leave to Amend is granted, and the Clerk is directed to file the Government's proposed Amended Complaint. Further, because the Amended Complaint does not allege claims against Weldon with respect to tax years 1993, 1994 and 1995, Weldon's Motion for Partial Summary Judgment is rendered moot.

In its Motion for Summary Judgment, the Government seeks to reduce to judgment assessments for income taxes, penalties and interests against Weldon for tax years 1982, 1983, 1984, 1986, 1989 and 1990, and to foreclose federal tax liens against three parcels of real property located in Dare County, North Carolina. See Weldon v. United States, 957 F. Supp. 777 (E.D.N.C. 1997), aff'd 129 F.3d 1262 (4th Cir. 1997),cert. denied, 525 U.S. 1040 (1998) (determining that the Government had valid tax liens against Weldon's property and rights to property arising as a result of Weldon's tax liabilities for his tax years 1982, 1983, 1984, 1986, 1989 and 1990). Based on IRS examinations of Weldon's tax returns for 1982, 1983, 1984, and 1986, and based on assessments of Weldon's 1989 and 1990 tax returns, in which Weldon reported taxes due but did not pay them, the Government asserts that Weldon, as of December 31, 1999, was indebted to the United States in the amount of $1,076,188.48, plus interest accruing from that date pursuant to Internal Revenue Code §§ 6601, 6621. E.g., Declaration of Charles Little; Amended Complaint at 7, ¶ A.

In an action to collect a tax assessment, a timely assessment is given an initial presumption of correctness. E.g., Higginbotham v. United States, 556 F.2d 1173, 1175 (4th Cir. 1977). Consequently, at the outset, taxpayers typically have the burden of producing evidence sufficient to refute the validity of an assessment. See Foster v. Commissioner of Internal Revenue, 391 F.2d 727, 735 (4th Cir. 1968); see also Higginbotham, 556 F.2d at 1175 (holding that a taxpayer must prove by a preponderance of the evidence that the Government's assessment is erroneous, and, once that burden is met, the Government, not the taxpayer, must prove how much the taxpayer actually owes).

In the case sub judice, the Government has proffered a certificate of assessments and payments for the relevant years. The Government has thus established a presumption that there is a valid assessment of income tax, penalties, and interest against Weldon, and the burden falls upon Weldon to prove by a preponderance of evidence that the Government's assessment is erroneous. E.g., id. Weldon, however, has not responded to the Government's motion, and apparently rests solely on his own affidavit and the materials attached thereto, which consist entirely of conclusory allegations and other materials irrelevant to the instant motion. These materials are insufficient to establish by a preponderance of the evidence that the Government's determination of the taxes, penalties, and interest owed by Weldon is erroneous. Consequently, there remains no genuine issue of fact for trial regarding the indebtedness of Weldon to the United States, and the Government is entitled to summary judgment of that issue. Fed.R.Civ.P. 56.

The Government next asserts that the tax liens against Weldon's property and rights to property include interests in three parcels of real property acquired by Weldon in 1982 and 1983. These properties are located in Atlantic Township of Dare County, North Carolina, and in a subdivision known as Kitty Hawk Beach, Dare County, North Carolina. See United States Exhibits A, B and C. During August and September, 1992, Weldon transferred his interest in these parcels to Margaret Weldon, Weldon's mother, as Trustee for a stated consideration of $10.00.

When a person is assessed a tax and neglects or refuses to pay it, a federal tax lien arises in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person. E.g., 26 U.S.C. § 6321. In 1990 and 1991, the Government made assessments against Weldon with respect to his tax years 1982, 1983, 1984, 1986, 1989, and 1990, gave Weldon notice of these assessments, and appropriately demanded payment on the dates of the assessments. See Weldon, 957 F. Supp. 777. As a result, federal tax liens arose on the dates of the assessments, and such liens attached to Weldon's interests in the above-mentioned real properties in Dare County, North Carolina. Upon Weldon's transfer of his interests in these parcels to Margaret Weldon in 1992, the properties were transferred subject to the federal tax liens that had previously attached to Weldon's interests. Consequently, federal tax liens remain attached to these properties, and the United States may proceed to foreclose the liens and initiate sale of the above-mentioned real properties in order to satisfy the tax liabilities of Weldon. E.g., 26 U.S.C. § 7403.

For the reasons described above, the Government's Motion for Leave to Amend Complaint is GRANTED, and the Clerk is directed to file the proposed Amended Complaint. Because the Government's amendments withdraw its claims with regard to Weldon's tax years 1993, 1994 and 1995, Weldon's Motion for Partial Summary Judgment is DENIED as MOOT. The Government's Motion for Summary Judgment is GRANTED, and Defendant Larry C. Weldon is declared indebted to the United States of America in the amount of $1,076,188.48, plus interest accruing from December 31, 1999. Moreover, the Court determines and declares that the United States has valid tax liens attaching to all property and rights to property held by Weldon. Accordingly, the Court hereby orders foreclosure and sale of the above-mentioned properties in Dare County, North Carolina. The proceeds of such sale shall be distributed to the United States in satisfaction of the tax liabilities of Weldon.

Decision by Court. This action came to trial or hearing before the Court. The issues have been tried or heard and a decision has been rendered.

IT IS ORDERED AND ADJUDGED that on March 20, 2001, default judgment was entered against Defendants Margaret C. Weldon, Trustee, Ashton Pully, Trustee, Cenrura Bank, Charles H. Foy, Jr., and Dare County, North Carolina.

IT IS FURTHER ORDERED on February 22, 2002, that the Plaintiff's Motion to Amend the Complaint is ALLOWED and Defendant Larry C. Weldon's Motion for Partial Summary Judgment is DENIED as MOOT. The Government's Motion for Summary Judgment is GRANTED and Defendant Larry C. Weldon is declared indebted to the United States of America in the amount of $1,076,188.48, plus interest accruing from December 31, 1999. Moreover, the Court determines and declares that the United States has valid tax liens attaching to all property and rights to property held by Weldon. Accordingly, the Court hereby orders foreclosure and sale of the above-mentioned properties in Dare County, North Carolina. The proceeds of such sale shall be distributed to the United States in satisfaction of the tax liabilities of Weldon. (BOYLE, Terrence W., Chief United States District Judge)

JUDGMENT FILED AND ENTERED.