Fourth Investment LP v. United States, No. 11-56997 (9th Cir. 2013)
Annotate this CaseAppellants brought quiet title actions challenging tax liens filed by the IRS against certain commercial and residential properties. Appellants held legal title to these properties. The liens arose from assessments against taxpayers based on the IRS's claim that appellants held the relevant properties as nominees of taxpayers on the assessment dates. On appeal, appellants argued that California did not recognize nominee ownership. The court held, however, that California law did recognize a nominee theory of property ownership; the district court did not err in concluding that appellants held title to the McCall and Fourth properties as nominees of taxpayers; and the district court rejected appellants' joinder claim under Federal Rule of Civil Procedure 19(a) where appellants have not established that the absent entities at issue were necessary parties under Rule 19(a) and the district court properly resolved appellants' ownership interests in the McCall and Fourth properties in their absence. Accordingly, the court affirmed the judgment.
Court Description: Tax. The panel affirmed the district court’s decision denying appellants’ quiet title claims to remove federal tax liens encumbering their real properties and upholding the validity of tax liens filed by the Internal Revenue Service. The tax liens arose from assessments against taxpayers Susanne and Don Ballantyne, based on the IRS’s claim that appellants held the properties as nominees of taxpayers as the result of a series of complex transactions involving shell entities created and controlled by taxpayers. The panel held that California law unambiguously recognizes the existence of nominee ownership. Moreover, although state courts have not precisely specified the factors relevant to the analysis, the panel predicted that the California Supreme Court would evaluate nominee status in light of the criteria set forth in relevant federal cases. The panel explained that courts should look initially to state law to determine what rights the taxpayer has in the property the Government seeks to reach and, after determining that the taxpayer has a property interest under state law, the courts should look to federal law to determine whether the taxpayer’s rights qualify as property or a property right within the compass of the federal tax lien legislation. The panel then considered a six-factor test under federal law to determine nominee ownership and held that, in this case, the district court properly determined that appellants were taxpayers’ nominees.
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