United States of America v. Vacante et al, No. 1:2008cv01349 - Document 167 (E.D. Cal. 2010)

Court Description: MEMORANDUM DECISION RE: Defendant's Motion For Summary Judgment 105 , and Motion to Dismiss 124 ; Plaintiff United States Of America's Motion For Partial Summary Judgment 119 , signed by Judge Oliver W. Wanger on 5/20/2010. (Gaumnitz, R)

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1 2 UNITED STATES DISTRICT COURT 3 EASTERN DISTRICT OF CALIFORNIA 4 5 6 UNITED STATES OF AMERICA, 7 1:08-CV-01349-OWW-DLB Plaintiff, MEMORANDUM DECISION RE DEFENDANTS MOTION FOR SUMMARY JUDGMENT (Doc. 105) AND MOTION TO DISMISS (DOC. 124); PLAINTIFF UNITED STATES OF AMERICA S MOTION FOR PARTIAL SUMMARY JUDGMENT (Doc. 119) 8 9 10 v. FRANK A. VACANTE, et al., 11 12 Defendants. 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 I. INTRODUCTION. Plaintiff United States filed this action to reduce federal tax assessments to judgment and foreclose federal tax liens on real property on June 10, 2008. The tax assessments at issue are against husband and wife Frank and Ute Vacante and their alleged alter egos, Central Valley Insurance Services, Inc. ( CVIS ), and Instant Services, Inc. Before the Court for decision are several motions. The United States moves for summary judgment against Defendants Frank Vacante and Ute Vacante, proceeding pro se, seeking to reduce to judgment individual tax liabilities for tax years 2000 and 2004. In addition to reducing to judgment the individual tax liabilities assessed against Frank and Ute Vacante, Plaintiff moves to reduce to judgment Frank Vacante s Form 941 Employment Tax Liabilities for the tax periods ending June 30, 1993, September 30, 1993, December 28 1 1 31, 1993, March 31, 1994, June 30, 1994, September 30, 1994, and 2 December 31, 1994; 3 Frank 4 liabilities for the tax periods ending December 31, 1993 and 5 December 31, 1994. Vacante s Plaintiff also seeks to reduce to judgment Form 940 Federal Unemployment Tax ( FUTA ) 6 Pro se Defendants first motion, filed on November 30, 2009, 7 seeks entry of summary judgment on each cause of action contained 8 in the Second Amended Complaint ( SAC ). 9 summary judgment is appropriate because they did not have the 10 ability to pay CVIS s taxes, did not have knowledge of the past due 11 amounts, and did not take part in the financial decisions of CVIS. Defendants argue that 12 Defendants second motion, filed on December 16, 2009, also 13 seeks to dismiss the entire SAC on grounds that: (1) Defendants 14 were denied their due process rights during an unidentified appeals 15 proceeding; (2) Defendants have a binding pre-nuptial agreement; 16 (3) Revenue Officers Randy Reese and John Certini made material 17 misrepresentations 18 investigations; and (4) IRS manager Martha Rodriguez failed to 19 properly supervise Revenue Officers Reese and Certini. and false statements during their 20 Oral argument on these motions was held on February 26, 2010, 21 during which Mr. Vacante requested an extension of time to file a 22 supplemental 23 Vacante s request was granted and the Court set a supplemental 24 briefing schedule on the United States summary judgment motion 25 only.1 opposition Although the to the parties United arguments States in the motion. original Mr. and 26 27 28 1 Plaintiff s supplemental briefing was filed on March 12, 2010 and the United States responded on March 22, 2010. (Docs. 145 through 153.) 2 1 supplemental briefing are largely the same, there is one important 2 distinction: 3 Vacante in his supplemental opposition, the United States reduced 4 his Form 941 tax liabilities for the seven tax quarters in 1993 and 5 1994. 6 liabilities for the 1993 and 1994 tax years. 7 adjustments were 8 liabilities, i.e., 9 Vacantes individual income tax liabilities for tax years 2000 and 10 Based on the employment tax figures provided by Mr. The government also recalculated Mr. Vacante s Form 940 tax limited the to Mr. Vacante s did figures not However, the tax employment impact or tax reduce the 2004. 11 II. 12 13 FACTUAL BACKGROUND.2 This case arises out of the government s attempt to reduce to 14 judgment certain federal tax assessments made against Frank 15 Vacante, Ute Vacante, CVIS and Instant Services, Inc., and to 16 foreclose federal tax liens arising from federal tax liabilities 17 against five parcels of property owned by the Vacantes. 18 19 A. The Vacante s Insurance Businesses 20 Frank and Ute Vacante ( the Vacantes ), husband and wife 21 have, since 1987, owned and operated 22 businesses beginning in the 1980's. 23 30:9, 34:5-35:24.) a number of insurance (F. Vacante Dep. at 26:20- In 1993 and 1994, Frank Vacante s insurance 24 2 25 26 27 28 Defendants did not file their own separate statement of disputed facts, or admit or deny the facts set forth by the United States as undisputed. See Local Rule 56-260(b) ( Any party opposing a motion for summary judgment or summary adjudication shall reproduce the itemized facts in the Statement of Undisputed Facts and admit those facts that are undisputed and deny those that are disputed [....] ). 3 1 business operated as a sole proprietorship - VIF Insurance - and 2 employed several individuals, including Ute Vacante, Cynthia Burris 3 and Dan Belew III. 4 1995, the Vacante s incorporated the insurance business as Central 5 Valley Insurance Services, Inc. 6 The 7 Insurance Services, Inc. in 2001, at which time it was absorbed by 8 Instant Services, Inc., an existing real estate company owned by 9 the Vacantes. California (PSUF 15, 29-33; Doc. 145, 11:2-11:3.) Department of In (F. Vacante Dep. at 68:5-68:10.) Insurance closed Central (Id. at 70:5-70:12, 255:3-257:12.) Valley The Vacantes 10 operated Instant Services, Inc. from 2001 through 2005, issuing a 11 number of insurance policies and engaging in other financially- 12 related transactions.3 13 Following an investigation into the Vacantes delinquent 14 taxes, the IRS assessed employment tax liabilities and penalties 15 against Frank Vacante relating to VIF Insurance s outstanding 16 payroll liabilities for seven tax periods from June 30, 1993 17 through December 31, 1994. 18 failed to properly assess and pay his federal employment taxes - 19 Form 940 and 941 - based on his 1992 Form 1040 tax return, Ute 20 Vacante s 1994 W-2 and Form 1040 tax return, the business records 21 of CPA Daniel Burke, and the deposition testimony of Cynthia Burris 22 and Dan Belew III. 23 the Vacantes failed to properly pay their individual income taxes 24 for the 2000 and 2004 tax years. The IRS determined that Frank Vacante The IRS s investigation also determined that 25 26 27 28 3 The government asserts that the Vacantes operated several additional unincorporated insurance businesses out of Instant Service s location, utilizing the same personnel and sharing the same insurance broker s license to initiate and close deals. 4 1 At oral argument on February 26, 2010, Mr. Vacante disputed 2 these estimated amounts, and requested an extension of time to 3 oppose the United States motion. 4 his supplemental briefing, Mr. Vacante provided figures for wages 5 paid to workers Dan Belew and Cynthia Burris by VIF Insurance in 6 1993 and 7 According to Mr. Vacante, Mr. Belew and Ms. Burris were paid 8 $26,095 - $16,495 and $9,600 - in 1993. 9 Mr. Vacante contends that the two employees were paid commissions 10 of $17,479 (Mr. Belew) and $9,600 (Ms. Burris), for a total of 11 $27,079. 1994. He described On March 12, 2010, as part of the payments as commissions. As to the 1994 tax year, 12 The United States accepts Mr. Vacante s tax figures for 1993 13 and 1994, however, it contends that Mr. Vacante omits $75,000 in 14 wages paid to Mrs. Vacante in 1994. 15 that Mrs. Vacante signed, under penalty of perjury, a bank loan 16 document stating that she received $75,000 in wages from VIF 17 insurance 18 Insurance s W-2 for 1994, which stated that Ute Vacante received 19 $75,000 in wages from VIF insurance in 1994. 20 United States, the operative wage figures for the 1993 and 1994 tax 21 years are $26,095 and $102,079. 22 wages are the foundation for Mr. Vacante s 1993 and 1994 employment 23 tax liabilities (Form 940 and 941). in 1994. The United The United States contends States also submitted VIF According to the The $26,095 and $102,079 paid in 24 25 26 B. Form 1040 Tax Liabilities For Tax Years 2000 & 2004 1. 2000 Tax Year 27 In late 2006, the IRS, pursuant to 26 U.S.C. § 6020(b), 28 assessed income tax liabilities and penalties against Frank Vacante 5 1 and Ute Vacante for the 2000 tax year. (Doc. 120, Reece Dec. ¶ 4.) 2 The assessments were based on Frank and Ute Vacante s failure to 3 file Form 1040 Individual Tax Returns for the tax year ending 4 December 31, 2000. (Id.) 5 On April 7, 2008, the IRS received the Vacantes Joint Form 6 1040 Individual Tax Return for the tax year ending December 31, 7 2000. 8 and abated the earlier assessments to the extent they conflicted 9 with the joint return. (PSUF 1.) The IRS accepted the Vacantes untimely return (Reece Dec. ¶ 4.) The only offset to the 10 Vacantes 2000 tax liability was a $1.07 overpayment applied by the 11 IRS on March 28, 2007. (Doc. 120, Reece Dec. ¶ 6.) 12 On November 16, 2009, the IRS determined that Frank and Ute 13 Vacante failed to make estimated income tax payments for the 2000 14 tax year and issued a Form 4340, Certificate of Assessments, 15 Payments and Other Specified Matters for Frank A & Ute G. Vacante 16 for U.S. Individual Income Tax Return (Form 1040), for the tax 17 period ending December 31, 2000. 18 The Certificates of Assessments (known as Form 4340s ) detail the 19 amount in taxes the IRS believes the Vacantes owe for the 2000 tax 20 year, as well as any penalties, costs, and interest assessed to the 21 Vacantes due to their failure to make timely payments. 22 of December 1, 2009, the total outstanding balance of the federal 23 income tax liabilities due from Frank and Ute Vacante for the 2000 24 tax year, including interest, is $7,102.58.4 (Reece Dec. ¶ 6; Doc. 120-3.) (Id.) As (Reece Dec. ¶ 26; 25 26 27 28 4 According to the Form 4340, Defendants owe $6,336.38 in income tax liabilities, penalties, and interest assessments for the 2000 tax year. (Doc. 120-3.) The remaining $766.20 represents accrued, but unassessed, interest. (Reece Dec. ¶ 26.) 6 1 Doc. 121-3.) Defendants 2 dispute the accuracy of the IRS assessments, 3 arguing that their individual income tax issues were summarily 4 resolved pursuant to a $52,064.67 check they sent to the IRS on 5 October 29, 2004. 6 $52,064.67 was used to satisfy the Vacantes outstanding tax 7 liabilities for the 1993-1999 and 2001 years. It contends that the 8 Vacantes 2000 and 2004 tax liabilities were not satisfied by the 9 October 29, 2004 payment. According to the United States, however, the 10 2. 11 2004 Tax Year 12 On June 5, 2007, the IRS received the Vacantes Joint Form 13 1040 Individual Tax Return for the tax year ending December 31, 14 2004. 15 determined that Frank and Ute Vacante failed to make sufficient 16 income tax payments for the 2004 tax year; the only payments made 17 toward Frank and Ute Vacante s individual income tax liabilities 18 for the 2004 tax year were $1,134.00 in withholdings. 19 11.) (PSUF 9.) After reviewing the joint return, the IRS (PSUF 10- 20 On March 11, 2008, the IRS issued a Form 4340, Certificate of 21 Assessments, Payments and Other Specified Matters for Frank A & Ute 22 G. Vacante for U.S. Individual Income Tax Return (Form 1040), for 23 the tax period ending December 31, 2004. 24 4340s detail the amount in taxes the IRS asserts the Vacantes owe 25 in taxes for the 2004 tax year, as well as any penalties, costs, 26 and interest assessed to the Vacantes due to their failure to make 27 timely payments. 28 Ute Vacante s failure to timely pay their individual income tax (Id.) (Doc. 120-5.) The Form The assessments were based on Frank and 7 1 liabilities and for late-filing their Form 1040 tax Return. 2 12-13.) 3 the federal income tax liabilities due from Frank and Ute Vacante 4 for the 2004 tax year, including interest, is $4,258.17.5 5 Dec. ¶ 27; Doc. 121-4.) 6 (PSUF As of December 1, 2009, the total outstanding balance of (Reece Defendants acknowledge a $2,115.00 federal tax liability for 7 the 2004 tax year. Nevertheless, they dispute the accuracy of 8 their liability on grounds that the IRS levied the Vacante s bank 9 accounts and applied the money to items not owed by the Vacante s. 10 (Doc. 145, 10:21-10-:22.) The allocation and distribution of levy 11 payments is discussed in § V(A)(3), infra. 12 13 C. Form 941 Tax Liabilities - Frank Vacante 14 IRS records indicate that Frank Vacante did not file Form 941 15 Employment Tax Returns for his sole proprietorship for the tax 16 periods ending June 30, 1993, September 30, 1993, December 31, 17 1993, March 31, 1994, June 30, 1994, September 30, 1994, and 18 December 31, 1994. 19 employed several individuals during this time, yet failed to make 20 federal tax deposits of withheld income and FICA tax. Mr. Vacante, 21 however, maintains he was not required to withhold or pay Form 941 22 taxes because his employees paid their own self-employment taxes 23 during the 1993 and 1994 tax years. 24 question were According to the United States, Frank Vacante treated as He claims the employees in independent contractors and paid 25 26 27 28 5 According to the Form 4340, Defendants owe $3,528.44 in income tax liabilities, penalties, and interest assessments for the 2004 tax year. (Doc. 121-4.) The remaining $729.73 represents accrued, but unassessed, interest. (Reece Dec. ¶ 27.) 8 1 commissions. 2 Because Frank Vacante did not file Form 941 Employment Tax 3 Returns for his sole proprietorship for the 1993 and 1994 tax 4 years, the IRS calculated the employment taxes based on wages paid 5 by 6 However, the United States recalculated Mr. Vacante s Form 941 7 employment 8 documentation produced by Mr. Vacante on March 12, 2010. According 9 to the United States, the operative wage figures for the 1993 and 10 Frank Vacante tax in 1992 liabilities and other third for tax year party information. 1993 based on the 1994 tax years are $26,095 and $102,079. 11 1. 12 1993 13 On December 13, 2007, the IRS issued a Form 4340, Certificate 14 of Assessments, Payments and Other Specified Matters for Frank 15 Vacante, Frank Vacante Insurance for Employer s Quarterly Federal 16 Tax Return (Form 941), for the tax periods ending June 30, 1993, 17 September 30, 1993, and December 31, 1993. 18 10.) 19 Returns or to pay withholding taxes for his sole proprietorship for 20 the 1993 tax year, the IRS calculated the employment taxes based on 21 the wages paid by Frank Vacante in 1992. 22 United States recalculated Mr. Vacante s Form 941 employment tax 23 liabilities 24 produced on March 12, 2010 (i.e., wages of $26,095). (Docs. 120-8 to 120- Because Frank Vacante failed to file Form 941 Employment Tax for tax year 1993 (PSUF 17.) pursuant to the However, the documentation 25 As of December 1, 2009, the total outstanding balance of the 26 Form 941 tax liabilities due from Frank Vacante for the June 30, 27 1993, September 30, 1993, and December 31, 1993 tax periods, 28 9 1 including interest, is $24,241.28.6 (Doc. 153-2, ¶¶ 10-13.) 2 2. 3 1994 4 On December 13, 2007, the IRS issued a Form 4340, Certificate 5 of Assessments, Payments and Other Specified Matters for Frank 6 Vacante, Frank Vacante Insurance for Employer s Quarterly Federal 7 Tax Return (Form 941), for the tax periods ending March 31, 1994, 8 June 30, 1994, September 30, 1994, and December 31, 1994. 9 120-11 to 120-14.) Initially, because Frank Vacante failed to file 10 Form 941 Employment Tax Returns or to pay withholding taxes for his 11 sole proprietorship for the 1994 tax year, the IRS calculated the 12 Vacante s 13 information, including the deposition testimony of Cynthia Burris 14 and Dan Belew III. 15 Vacante s Form 941 liability using Ute Vacante s 1994 W-2 filing, 16 which 17 proprietorship. 18 recalculated Mr. Vacante s Form 941 employment tax liabilities for 19 tax year 1994 pursuant to the documentation produced on March 12, 20 2010 (i.e., wages of $102,079). employment stated she tax liability (PSUF 30-31.) was (PSUF paid on third party The IRS also reconstructed $75,000 29.) based (Docs. by Frank However, the Vacante s United sole States 21 As of December 1, 2009, the total outstanding balance of the 22 Form 941 tax liabilities due from Frank Vacante for the March 31, 23 1994, June 30, 1994, September 30, 1994, and December 31, 1994 tax 24 25 26 27 28 6 Specifically, Mr. Vacante owes $7,259.84 in Form 941 employment taxes for the tax period ending June 30, 1993; $8,549.15 for the tax period ending September 30, 1993; and $8,432.29 for the tax period ending December 31, 1993. (Doc. 153-2. ¶¶ 10-13.) 10 1 periods, including interest, is $123,443.49.7 2 18.) (Doc. 153-2. ¶¶ 14- 3 D. 4 Form 940 FUTA Tax Liabilities - Frank Vacante 1. 5 1993 & 1994 Tax Years 6 IRS records indicate that Frank Vacante did not file a Form 7 940, Employer's Annual Federal Unemployment Tax Return, for the tax 8 periods ending December 31, 1993 and December 31, 1994. 9 42.) (PSUF 24, According to the United States, Frank Vacante employed 10 several individuals during 1993 and 1994, yet failed to make 11 federal tax deposits of withheld FUTA taxes. 12 Vacante maintains that his employees paid their own self-employment 13 taxes during the 1993 and 1994 tax years, therefore he did not owe 14 Form 940 or 941 taxes. (PSUF 43.) Mr. 15 On December 13, 2007, the IRS issued a Form 4340, Certificate 16 of Assessments, Payments and Other Specified Matters for Frank 17 Vacante, Frank Vacante Insurance, for Employer s Annual Federal 18 Unemployment Tax Return (Form 940), for the tax periods ending 19 December 31, 1993 and December 31, 1994. (Docs. 121 to 121-2.) 20 Because Frank Vacante failed to file Form 940 FUTA Returns for 21 either 1993 or 1994, the IRS based its FUTA calculations on two 22 sources: (1) payments to workers by Mr. Vacante in 1992, to 23 establish Mr. Vacante s 1993 FUTA liability; and (2) payments of 24 $111,912 paid to workers by Mr. Vacante in the tax year 1994 - 25 7 26 27 28 Specifically, Mr. Vacante owes $28,615.09 in Form 941 employment taxes for the tax period ending March 31, 1994; $32,079.29 for the tax period ending June 30, 1994; $31,729.16 for the tax period ending September 30, 1993; and $31,019.95 for the tax period ending December 31, 1994. (Doc. 153-2, ¶¶ 14-18.) 11 1 $27,987/quarter - to establish Mr. Vacante s 1994 FUTA liability. 2 (PSUF 3 Vacante s Form 940 tax liabilities for the 1993 and 1994 tax years 4 pursuant to the documentation produced on March 12, 2010 (i.e., 5 wages of $26,095 and $102,079). 25, 44.) However, the United States recalculated Mr. 6 As of December 1, 2009, the total outstanding balance of the 7 Form 940 FUTA tax liability due from Frank Vacante for the December 8 31, 1993 tax period, including interest, is $832.71. 9 ¶ 20.) 10 (Doc. 153-2. Mr. Vacante owes $3,063.85 in Form 940 FUTA taxes for the tax period ending December 31, 1994. (Doc. 153-2. ¶ 22.) 11 12 E. Summary of Tax Liability - Government Figures 13 1. Frank Vacante 14 Type of Tax Tax Period Unpaid Balance of Assessments Balance Due w/ Interest Form 1040 2000 $6,336.38 $7,102.58 Form 1040 2004 $3,528.44 $4,258.17 Form 941 6/30/93 $4,914.47 $7,259.84 Form 941 9/30/93 $5,809.83 $8,549.15 19 Form 941 12/31/93 $5,730.41 $8,432.29 20 Form 941 3/31/94 $19,446.22 $28,615.09 21 Form 941 6/30/94 $21,800.42 $32,079.29 22 Form 941 9/30/94 $21,450.29 $31,729.16 23 Form 941 12/31/94 $21,080.49 $31,019.95 24 Form 940 12/31/93 $565.88 $832.71 Form 940 12/31/94 $2,082.11 $3,063.85 15 16 17 18 25 TOTAL DUE:8 151,581.30 26 27 8 28 The interest and other statutory accruals were calculated on December 1, 2009 and may now be higher. Mr. Vacante s federal 12 1 2. Ute Vacante 2 Type of Tax Tax Period Assessment Date Unpaid Balance of Assessments Balance Due w/ Interest 4 Form 1040 2000 11/16/09 $6,336.38 $7,102.58 5 Form 1040 2004 3/11/08 $3,528.44 $4,258.17 3 6 TOTAL DUE:9 $11,360.75 7 8 F. 9 On May 15, 2002, the United States filed an action against 10 Frank Vacante in U.S. District Court for the Eastern District of 11 California, 12 Vacante, No. 02-CV-5565-OWW-DLB. 13 litigation to reduce to judgment certain outstanding Form 940 and 14 941 tax assessments against Defendant Frank Vacante - operating his 15 sole proprietorship as VIF Insurance - for the 1989 and 1990 tax 16 years. 17 copies of the summons and complaint, but did not respond to the 18 complaint or otherwise appear in the action. Mr. Vacante s default 19 was taken on September 10, 2002. Prior Federal Court Judgment Against Frank Vacante Fresno (Doc. 1.10) Division, entitled United States v. Frank The United States initiated Defendant Vacante was properly served with (Doc. 9.) 20 On November 14, 2002, the United States moved for default 21 judgment against Frank Vacante in the amount of his outstanding tax 22 23 24 25 employment tax liability - stemming from unpaid Form 940 and 941 taxes - was reduced on March 22, 2010. (See Doc. 153-1 through 153-5.) 9 26 The interest and other statutory accruals were calculated on December 1, 2009 and may now be higher. 27 10 28 All citations in § II(F) refer to United States v. Frank Vacante, No. 02-CV-5565-OWW-DLB. 13 1 liabilities. (Doc. 10.) Mr. Vacante did not oppose the motion, 2 nor did he move to set aside the entry of default. 3 States motion for default judgment against Frank Vacante was 4 granted on March 7, 2003. 5 entered in the amount of $21,087.91, plus interest, penalties, and 6 other statutory additions. 7 unpaid. (Doc. 14.) The United The default judgment was (Doc. 128-2.11) The judgment remains (Id.) 8 III. 9 PROCEDURAL BACKGROUND. 10 The United States filed a complaint on June 10, 2008 to reduce 11 to judgment outstanding federal tax assessments against Frank 12 Vacante, 13 foreclose federal tax liens arising from federal tax liabilities 14 against property owned by the Vacantes, to adjudicate that Frank 15 and Ute Vacante are alter egos of CVIS, and to establish successor- 16 in-interest liability regarding the Vacante s various insurance 17 entities.12 18 19 20 Ute Vacante, CVIS, and Instant Services, Inc., to (Doc. 1.) On July 21, 2008, Defendants filed their Answer to Plaintiff s Complaint. On September 14, 2009, Plaintiff filed the operative SAC, 21 22 23 24 25 26 27 28 11 Citation refers to 1:08-CV-01349-OWW-DLB. 12 The United States also named Pacific Bell Directory, Stanislaus County Tax Collector, Everett J. & Willie Jean Rodrigues, Washington Mutual Bank, Beneficial California, Inc., New Century Mortgage Corporation, Franchise Tax Board, Union Bank of California, Northern California Collection Services, Inc., Turlock Irrigation District, Merced County Tax Collector, Terry L. Blake dba Blake Electric, and Deutsche Bank National Trust Company as Defendants. According to the United States, each party is named in this action because it may claim an interest in real property that is subject to this action. (Doc. 90, ¶¶ 8-20.) 14 1 advancing fifteen causes of action: (1) To Reduce to Judgement 2 Federal Tax Assessments Relating to the Vacantes Unincorporated 3 Business Against Frank Vacante; (2) To Reduce to Judgement Federal 4 Income Tax Assessments and Tax Assessments (Relating to CVIS) Made 5 Pursuant to 26 U.S.C. § 6672 Against Frank Vacante; (3) To Reduce 6 to Judgement Federal Tax Assessments (Relating to CVIS) Made 7 Pursuant to 26 U.S.C. § 6672 Against Ute Vacante; (4) To Reduce to 8 Judgement Federal Tax Assessments Against CVIS; (5) To Reduce to 9 Judgement Federal Tax Assessments Against Instant Services, Inc.; 10 (6) To Determine that CVIS is a Successor in Interest to the 11 Vacantes Unincorporated Business; (7) 12 Services, Inc. is a Successor in Interest to CVIS; (8) 13 Determine that Ute Vacante is an Alter Ego of CVIS; (9) To 14 Determine that Ute Vacante is an Alter Ego of Instant Services, 15 Inc.; (10) To Determine that Frank Vacante is an Alter Ego of CVIS; 16 (11) To Determine that Frank Vacante is an Alter Ego of Instant 17 Services, Inc.; (12) To Foreclose Federal Tax Liens Against Ute 18 Vacante on the Lander Avenue Property; (13) To Foreclose Federal 19 Tax Liens Against Ute Vacante on the Minaret Avenue Property; (14) 20 To Foreclose Federal Tax Liens Against Frank Vacante on the Lupin 21 Lane Property; 22 and 23 Foreclose Federal Tax Liens Against Frank and Ute Vacante on the 24 August Avenue Property. 25 Ute To Determine that Instant To (15) To Foreclose Federal Tax Liens Against Frank Vacante on the Snedigar Road Property; and (16) To (Doc. 90, ¶¶ 148-201.) On November 30, 2009, Defendants moved for summary judgment on 26 each cause of action contained in the SAC. 27 argue that summary judgment is appropriate because they did not 28 have the ability to pay CVIS s taxes, did not have knowledge of the 15 (Doc. 105) Defendants 1 past due amounts, and did not take part in the financial decisions 2 of CVIS. 3 Undisputed Facts, as required by Rule 56-260, Local Rules of 4 Practice. Defendants, however, did not file a Statement of 5 On December 14, 2009, the United States moved for summary 6 judgment against Defendants Frank Vacante and Ute Vacante, seeking 7 to reduce to judgment certain tax liabilities against Frank Vacante 8 and Ute Vacante. 9 seeks to: (1) reduce to judgment Frank and Ute Vacante s individual (Doc. 119.) In particular, the United States 10 tax liabilities for tax years 2000 and 2004; 11 judgment Frank Vacante s Form 941 Employment Tax Liabilities for 12 the tax periods ending June 30, 1993, September 30, 1993, December 13 31, 1993, March 31, 1994, June 30, 1994, September 30, 1994, and 14 December 31, 1994; 15 940 Federal Unemployment Tax liabilities for the tax periods ending 16 December 31, 1993 and December 31, 1994. (3) (2) reduce to reduce to judgment Frank Vacante s Form 17 On December 16, 2009, Defendants moved to dismiss the entire 18 SAC on grounds that: (1) Frank Vacante never signed a lease for 19 office space in Turlock on May 23, 1994; (2) 20 denied their due process rights during an unidentified appeals 21 proceeding; (3) Defendants have a binding pre-nuptial agreement; 22 (4) Revenue Officers Randy Reese and John Certini made material 23 misrepresentations 24 investigations; and (5) IRS manager Martha Rodriguez failed to 25 properly supervise Revenue Officers Reese and Certini. (Doc. 124.) 26 The United States filed its opposition to Defendants summary and false Defendants were statements their 27 judgment motion on January 25, 2010. 28 its opposition, Plaintiff submitted: (1) a Memorandum opposing the 16 (Doc. 128.) during In support of 1 motion ( Memorandum ); (2) a Statement of Facts in Support of its 2 Opposition; (3) the Declaration of G. Patrick Jennings; and (4) 3 Certificates of Assessments for the relevant tax periods at issue 4 in this case. (Docs. 128-129.) 5 The United States opposes summary judgment on grounds that 6 there remains a genuine issue of material fact concerning whether 7 the Vacantes are responsible parties or acted willfully under 8 26 U.S.C. § 6672. 9 that Defendants claim for damages should be denied because they 10 have not counterclaim[ed] for such a remedy, and so their claim is 11 not part of this suit. (Doc. 128.) The United States also maintains (Id. at 2:11-2:13.) 12 On February 4, 2010, Plaintiff United States filed its Reply 13 and Motion to Strike Vacantes Memorandum of Points Against Partial 14 Summary Judgment. 15 reply was Defendants Memorandum of Points Against Partial Summary 16 Judgment. (Doc. 132.) Attached to the United States The United States explains: Frank Vacante sent a memorandum in opposition to the United States Motion for Partial Summary Judgment to counsel for the United States. This document has not appeared on ECF and does not appear to have been filed with the Court. The mailroom at counsel s building received this document on the afternoon of Friday January 29, 2010, and counsel received this document on the morning of February 1, 2010. 17 18 19 20 21 22 (Doc. 132, 2:1-2:6.) The United States moves to strike Defendants Memorandum of 23 24 Points Against 25 opposition to Plaintiff s summary judgment motion, on grounds that 26 it 27 Practice. 28 discussed in § V(A)(1), infra. does not Partial comply with Summary the Judgment, Rule i.e., 78-230(c), Defendants Local Rules of The issue of timeliness under Local Rule 78-230(c) is 17 1 Defendants Memorandum of Points Against Partial Summary 2 Judgment, includes over 180-pages of exhibits: (1) photocopies of 3 more than 75 cancelled checks from payor VIF Insurance Services 4 to payee West America Bank; (2) federal tax deposit slips; (3) 5 taxpayer account statements; (4) confidential IRS correspondence 6 re: overpayments and levy notices; (5) photocopies of Form 941 7 Employment Tax Returns for the tax periods ending June 30, 2001, 8 September 30, 2001, December 31, 2001, March 31, 2002, June 30, 9 2002, September 30, 2002, December 31, 2002, March 31, 2003, March 10 31, 2004, June 30, 2005, September 30, 2006; (6) photocopies of 11 Form 940 FUTA taxes for the tax periods ending December 31, 2001 12 and December 31, 2002; and (7) photocopies of Form 1040 tax 13 liabilities for the 1993, 1994, and 2000 tax periods. 14 pgs. 1-99, to 136-2, pgs. 1-81.) 15 independently tabbed or otherwise identified.13 (Doc. 136, Defendants exhibits were not 16 On February 12, 2010, the United States filed its Opposition 17 to Frank Vacante s Motion to Dismiss, arguing that Vacante s 18 Motion to Dismiss is a series of allegations that two IRS Officers 19 [made material misrepresentations] denying them due process. 20 (Doc. 141, 2:5-2:8.) According to the government, because Vacante 21 has not raised these claims in a prior proceeding [...] it is 22 23 24 25 26 27 28 13 Defendants included a document entitled Defendants Memorandum of Points in Opposition to Summary Judgment Against Central Valley Insurance Inc. and Instant Service Inc. as part of Defendants lengthy filing. According to Defendants, summary judgment against Central Valley Insurance Inc. and (or) Instant Service Inc. would prejudice the proceedings against Defendants Ute Vacante and Frank Vacante [...] they would be done in repairable [sic] harm. Here, the United States has not moved for summary judgment against either Central Valley Insurance Inc. or Instant Service Inc. The document is irrelevant to the present motions. 18 1 improper to raise them now after discovery is closed. (Id. at 2 2:13-2:15.) 3 be raised pursuant to 26 U.S.C. § 7433, which Mr. Vacante has 4 failed to do. The government also asserts that such claims can only 5 The parties appeared before the Court on February 26, 2010 for 6 argument on the motions filed by the Vacantes and the United 7 States. 8 time to oppose the United States motion. 9 request and continued the hearing to April 19, 2010.14 During the hearing, Mr. Vacante requested an extension of The Court granted the 10 Defendants filed four documents on March 12, 2010: (1) an 11 opposition to the United States motion for summary judgment; (2) 12 a Points and Memorandum in Support of Summary Judgment Motion; 13 (3) a Points and Memorandum in Support of Motion to Dismiss [for] 14 Failure of Due Process; and (4) a Points and Memorandum in 15 Support of Jury Trial Motion. 15 16 acknowledged that VIF Insurance had payrolls of $42,245 in 1993 and 17 $49,248.64 in 1994. 18 In their opposition, Defendants The United States filed its supplemental briefing on March 22, 19 2010.16 20 mirrors its original filings: 21 inadmissible evidence is insufficient to generate a genuine dispute The substance of the United States supplemental briefing Defendants unauthenticated and 22 23 24 25 26 14 The court also set a supplemental briefing schedule: Mr. Vacante s opposition was due on or before March 12, 2010 and any response was due on or before March 22, 2010. (Doc. 142.) 15 Defendants filed a Motion for Jury Trial on December 2, 2009. (Doc. 106.) Defendants March 12, 2010 filing is interpreted as a supplement to their original motion. 27 16 28 Two of the documents were filed prior to March 22, 2010. (Docs. 150 & 151.) 19 1 of material fact on the issue of tax liability. The United States 2 also recalculated Mr. Vacante s Form 940 and 941 employment tax 3 liabilities for the 1993 and 1994 tax years pursuant to the 4 documentation produced on March 12, 2010. 5 States, there is substantial documentary evidence demonstrating the 6 Vacantes tax liabilities for the relevant tax periods. According to the United 7 IV. 8 9 10 A. LEGAL STANDARDS. Motion For Summary Judgment/Adjudication Summary judgment/adjudication is appropriate when "the 11 pleadings, the discovery and disclosure materials on file, and any 12 affidavits show that there is no genuine issue as to any material 13 fact and that the movant is entitled to judgment as a matter of 14 law." Fed. R. Civ. P. 56(c). 15 responsibility of informing the district court of the basis for its 16 motion, 17 depositions, answers to interrogatories, and admissions on file, 18 together with the affidavits, if any, which it believes demonstrate 19 the absence of a genuine issue of material fact." Celotex Corp. v. 20 Catrett, quotation 21 omitted). and 477 identifying U.S. 317, The movant "always bears the initial those 323 portions (1986) of (internal the pleadings, marks 22 Where the movant will have the burden of proof on an issue at 23 trial, it must "affirmatively demonstrate that no reasonable trier 24 of fact could find other than for the moving party." 25 Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007). 26 respect to an issue as to which the non-moving party will have the 27 burden of proof, the movant "can prevail merely by pointing out 28 that there is an absence of evidence to support the nonmoving 20 Soremekun v. With 1 party's case." Soremekun, 509 F.3d at 984. 2 When a motion for summary judgment is properly made and 3 supported, the non-movant cannot defeat the motion by resting upon 4 the 5 non-moving party must set forth, by affidavit or as otherwise 6 provided in Rule 56, specific facts showing that there is a 7 genuine issue for trial. 8 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986)). A 9 non-movant's bald assertions or a mere scintilla of evidence in his 10 favor are both insufficient to withstand summary judgment. FTC v. 11 Stefanchik, 559 F.3d 924, 929 (9th Cir. 2009). 12 must 13 affirmative evidence from which a jury could find in his favor. 14 Id. (emphasis in original). "[S]ummary judgment will not lie if [a] 15 dispute about a material fact is genuine, that is, if the 16 evidence is such that a reasonable jury could return a verdict for 17 the nonmoving party." 18 whether a genuine dispute exists, a district court does not make 19 credibility determinations; rather, the "evidence of the non-movant 20 is to be believed, and all justifiable inferences are to be drawn 21 in his favor." allegations show a or denials genuine of its own pleading, rather the Soremekun, 509 F.3d at 984. (quoting issue of material fact Anderson, 477 U.S. at 248. [A] non-movant by presenting In determining Id. at 255. 22 23 B. Motion to Dismiss 24 Under Federal Rule of Civil Procedure 12(b)(6), a motion to 25 dismiss can be made and granted when the complaint fails to state 26 a claim upon which relief can be granted. 27 12(b)(6) is appropriate where the complaint lacks a cognizable 28 legal theory or sufficient facts to support a cognizable legal 21 Dismissal under Rule 1 theory. 2 (9th Cir. 1990). 3 To Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 sufficiently state a claim for relief and survive a 4 12(b)(6) motion, a complaint does not need detailed factual 5 allegations but the [f]actual allegations must be enough to raise 6 a right to relief above the speculative level. Bell Atl. Corp. v. 7 Twombly, 550 U.S. 544, 555 (2007). 8 or a formulaic recitation of the elements of a cause of action 9 will not do. Id. Mere labels and conclusions Rather, there must be enough facts to state a 10 claim to relief that is plausible on its face. Id. at 570. In 11 other words, [t]o survive a motion to dismiss, a complaint must 12 contain sufficient factual matter, accepted as true, to state a 13 claim to relief that is plausible on its face. 14 --- U.S. ----, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) 15 (internal quotation marks omitted). The plausibility standard is 16 not akin to a probability requirement, but it asks for more than a 17 sheer possibility that a defendant has acted unlawfully. Where a 18 complaint with 19 defendant's 20 possibility and plausibility of entitlement to relief. 21 (internal citation and quotation marks omitted). pleads facts liability, that it are stops merely short of Ashcroft v. Iqbal, consistent the line a between Id. 22 In deciding whether to grant a motion to dismiss, the court 23 must accept as true all well-pleaded factual allegations. Iqbal, 24 129 S.Ct. at 1950. 25 true allegations that are merely conclusory, unwarranted deductions 26 of fact, or unreasonable inferences. 27 Warriors, 266 F.3d 979, 988 (9th Cir. 2001); see, e.g., Doe I v. 28 Wal-Mart Stores, Inc., --- F.3d ----, 2009 WL 1978730, at *3 (9th A court is not, however, required to accept as 22 Sprewell v. Golden State 1 Cir. July 10, 2009) ( Plaintiffs' general statement that Wal-Mart 2 exercised control over their day-to-day employment is a conclusion, 3 not a factual allegation stated with any specificity. 4 accept Plaintiffs' unwarranted conclusion in reviewing a motion to 5 dismiss. ). We need not 6 V. 7 DISCUSSION. 8 A. The United States Motion 9 The United States moves for summary judgment against Frank 10 Vacante and Ute Vacante for the assessments of unpaid income taxes 11 and penalties for the 2000 and 2004 tax years. 12 23.) 13 Frank Vacante as to: (1) his liabilities for Form 941 Employment 14 Taxes for the periods ending June 30, 1993, September 30, 1993, 15 December 31, 1993, March 31, 1994, June 30, 1994, September 30, 16 1994, and December 31, 1994; and (2) his liabilities for Form 940 17 FUTA taxes for the periods ending December 31, 1993 and December 18 31, 1994. (Doc. 119, 2:21- The United States also moves for summary judgment against (Id. at 2:23-3:2.) In an action to collect federal taxes, the government bears 19 20 the initial burden of proof. 21 (9th Cir. 2004) (quoting Palmer v. I.R.S., 116 F.3d 1309, 1312 (9th 22 Cir. 1997)). The government's burden can be met by presenting 23 federal tax assessments. 24 1288, 1293 (9th Cir. 1983). 25 Payments ("Form 4340s") are highly probative and in the absence of 26 contrary evidence, are sufficient to establish a tax assessment was 27 properly made and notice and demand for payment were sent. 28 Huff v. United States, In re Olshan, 356 F.3d 1078, 1084 United States v. Stonehill, 702 F.2d 10 Certificates of Assessments and F.3d 23 1440, 1445 (9th Cir. See 1993) 1 ("Generally, courts have held that IRS Form 4340 provides at least 2 presumptive evidence that a tax has been validly assessed ...."); 3 Hughes 4 ("Official certificates, such as Form 4340, can constitute proof of 5 the fact that the [tax] assessments were actually made."). v. United States, 953 F.2d 531, 535 (9th Cir. 1992) 6 When supported by a minimal factual foundation, the IRS 7 assessments for taxes and related penalties are entitled to a 8 presumption of correctness and the burden shifts to the taxpayer to 9 show the assessment is incorrect. Palmer, 116 F.3d at 1312. See In re Olshan, 356 F.3d at 10 1084; If the taxpayer fails to rebut 11 the presumption, the government is entitled to judgment as a matter 12 of law. 13 1993) (finding taxpayers' declaration that they did not receive 14 notice of the tax assessment was insufficient to show a genuine 15 issue of fact for trial where IRS presented Form 4340s. See Hansen v. United States, 7 F.3d 137, 138 (9th Cir. 16 The United States has submitted Form 4340s calculating the 17 Vacante s tax liabilities and the related penalties for 2000 and 18 2004, (Docs. 120-3 & 120-5), and Frank Vacante s employer tax 19 liabilities and related penalties for 1993 and 1994, (Docs. 120-8 20 to 121-2), along with Revenue Officer Randy Reece s Declaration 21 supporting those assessments. (Dec. of R. Reece ¶¶ 4-25; Doc. 153- 22 2, ¶¶ 10-22.) 23 States has submitted bank account records, the income tax returns 24 for 25 documents, and the deposition testimony of Frank Vacante and 26 Cynthia Burris. 27 4.) 28 the declaration of IRS Agent Randy Reece and several corresponding Ute and In further support of the assessments, the United Frank Vacante (W-2 and 1040's), associated tax (Docs. 120-2, 120-4, 120-6, 120-7, 122-2 to 122- As to the subsequent adjustments, the United States submitted 24 1 account transcripts. (Doc. 133-1 to 133-7.) Because the United 2 States showing exceeds the minimal factual foundation necessary, 3 the assessments receive a presumption of correctness and the burden 4 of proof shifts to Frank and Ute Vacante to demonstrate any error. 5 1. 6 7 Defendants Opposition17 Defendants advance three arguments questioning the accuracy of 8 the United States Form 4340s. First, as to their Form 1040 tax 9 liabilities, Defendants assert that [a] check was issued by 10 Fidelity National Title Co. in favor of the IRS in the amount of 11 $52,064.67 [...] [t]his amount paid 1040 taxes for 1997, 1998, 12 1999, 2000, and 2001, including all interest and penalties. (Doc. 13 136, 1:20-1:22.) 14 individual income tax liabilities were satisfied pursuant to a levy 15 on their social security benefits. 16 [a]ll 941 and 940 taxes for 6/30/93, 9/30/93, 12/31/93, 3/31/94, 17 6/30/94, 9/30/94, 12/31/94 were paid. Second, Defendants argue that their outstanding Third, Defendants contend that Three people worked at VIF 18 19 17 20 21 22 23 24 25 26 27 28 On February 4, 2010, the United States objected to Defendant's opposition brief as untimely. According to the United States, "[a]ny opposition to the [government's motion] had to be filed with the Court by January 29, 2010 [...] as the Vacantes failed to file a timely opposition, they are not entitled to be heard [...] at oral argument." (Doc. 132, 2:8-2:11.) Defendants' "Memorandum of Points Against Partial Summary Judgment," i.e., its opposition to the government's motion, was filed with this Court on January 29, 2010, within the time-frame provided by Rule 78-230(c). (Doc. 136.) Although the document did not appear on the docket until February 8, 2010, the face of the document reveals two information stamps - "Received" and "Filed" stamps - both indicating the document was received/filed on January 29, 2010. (Id.) Defendants' opposition was timely and the government's motion to strike is DENIED. It is also MOOT as the parties were permitted to file supplemental briefing. 25 1 Insurance in 1993 and 1994 [...] all three paid there [sic] taxes 2 on Form 1040, including self-employment tax, Medicare, and federal 3 and state tax. 4 focus of Defendants original and supplemental briefing. (Doc. 136, 2:1-2:4.) These arguments were the 5 2. 6 Form 1040 Liabilities 7 Defendants first argument is based on their belief that all 8 outstanding 1040 tax liabilities were resolved pursuant to an 9 October 29, 2004 check from Fidelity National Title to the IRS. 10 According to Defendants, the $52,064.67 check satisfied all 1040 11 liabilities and left a surplus of $6000.00, which was not returned 12 or otherwise explained.18 13 While the United States does not dispute that it received the 14 $52,064.67 check in 2004, it argues that check was credited to the 15 Vacantes Form 1040 tax liabilities for 1993-1999 and 2001, not the 16 2000 or 2004 tax periods. 17 check satisfied 18 however, [n]o part of the proceeds received on October 29, 2004, 19 was [sic] posted to the year at issue in this suit. 20 2:18-2:22.) 21 To support the its According to the United States, the liabilities position, for the those years government in full, (Doc. 132, submitted the 22 Vacantes Account Transcripts for Form 1040 income tax liabilities 23 for the relevant tax years. 24 the $52,064.67 check was credited to the outstanding Form 1040 tax 25 liabilities for the 1993, 1994, 1995, 1996, 1997, 1998, 1999, and The Account Transcripts indicate that 26 27 28 18 Defendants do not dispute that they owed and failed to pay $2,115 in federal tax income for the 2004 tax year. (See Doc. 145, at 10:21 ( The $2115 due for year 2004's 1040 is correct. ).) 26 1 2001 tax periods, not against the 2000 and 2004 Form 1040 tax 2 liabilities:19 3 Tax Year 4 Liability on Amount Posted 10/29/04 Fully Record Satisfied? (Doc., Pg.) 5 1993 $6,897.38 $6,897.38 Yes 133-2, 2-3 6 1994 $8,879.65 $8,879.65 Yes 133-2, 4-5 7 1995 $6,076.52 $6,076.52 Yes 133-2, 6-7 8 1996 $7,549.93 $7,549.93 Yes 133-2, 8-9 9 1997 $10,720.41 $10,720.41 Yes 133-2, 10-1 1998 $5,950.55 $5,950.55 Yes 133-2, 12-3 1999 $3,129.30 $3,129.30 Yes 133-2, 14-5 2001 $2,860.93 $2,860.93 Yes 133-2, 16-7 10 11 12 TOTALS: $52,064.67 $52,064.67 13 14 Here, despite Defendants argument that the $52,064.67 payment 15 satisfied their individual income tax liabilities from 1993-1999 16 and 2001 - $52,064.67 - as well as their individual income tax 17 liabilities from 2000 and 2004 - $11,360.75 -, no documentary 18 evidence was offered to support such a claim. For example, 19 Defendants do not produce a single document memorializing a below 20 market global settlement or provide any other explanation for the 21 disparity. Defendants claims are merely conclusory allegations, 22 which are insufficient to defeat the government s request for 23 summary judgment. See, e.g., Hanson v. United States, 7 F.3d 137, 24 25 26 27 28 19 The government's proffer of the Form 4340s, establishing a presumption of tax liability, and the subsequent production of the Vacante s Form 1040 Account Transcripts for the relevant tax years, constitute substantial evidence that the $52,064.67 payment did not reduce the Vacantes Form 1040 income tax liabilities for the 2000 and 2004 tax periods. 27 1 138 (9th Cir. 1993) ( [nonmoving party] cannot rely on conclusory 2 allegations unsupported by factual data to create an issue of 3 material fact. ). 4 1999 and 2001 individual income tax liabilities totaled $52,064.67, 5 which matches identically with their November 29, 2004 payment. 6 Absent evidence that Defendants $52,064.67 payment satisfied more 7 than $52,064.67 of tax liability or that the tax assessments were 8 incorrect, Defendants have not met their burden for defeating the 9 government s summary judgment motion. Defendants also do not contest that their 1993- 10 At oral argument on February 26, 2010, Defendants emphasized 11 that they paid year 2000 taxes including interest and penalties in 12 full on October 29, 2004. 13 United States asserted that was impossible for the proceeds to 14 offset the Vacantes 2000 individual tax liabilities because no 15 assessments existed for tax year 2000 at the time of payment 16 [October 29, 2004]. 17 position. 18 first assessment against the Vacantes for tax year 2000 was made on 19 December 25, 2006. 20 did not exist in 2004, it was not satisfied pursuant to the 21 Vacantes October 29, 2004 check. 22 declarations/submissions, there is no evidence that the October 29, 23 2004 payment resolved the Vacantes 2000 individual income tax 24 liabilities. 25 In its supplemental briefing, the The evidence supports the United States In particular, the relevant Form 4340 shows that the (Doc. 120-3.) Here, because the tax liability Setting aside Defendants own That is not the end of the analysis, however. on April 19, 2010, Defendants 26 argument 27 supplemental briefing erased all uncertainty concerning when they 28 filed their Form 1040 taxes for the 2000 tax year. 28 claimed During oral that their In particular, 1 the Vacantes referred to several certified mail receipts which were 2 attached to their supplemental opposition. (Doc. 145, pgs. 37-39.) 3 The receipts allegedly relate to their Form 1040 taxes for the 2000 4 tax year. 5 that they mailed - and paid - their 2000 Form 1040 taxes in May of 6 2002. 7 identify the receipts or establish their origin - by declaration or 8 otherwise; there is no way to validate his claims concerning the 9 certified receipts. In this regard, the documents are not properly 10 authenticated and are stricken from the summary judgment record. 11 See Conkey v. United States, 545 F. Supp. 2d 1013, 1016-17 (N.D. 12 Cal. 2008) (striking two certified mail envelopes because they were 13 not properly authenticated); see also Harris v. Freedom of Info. 14 Unit Drug Enforcement Admin., No.06-CV-0176-R, 2006 WL 3342598 at 15 *1 (N.D. Tex. Nov. 17, 2006) (striking certified mail receipts on 16 grounds that they [we]re not properly authenticated. ). According to the Vacantes, these receipts demonstrate This argument is a nonstarter. First, Mr. Vacante fails to Even assuming the unauthenticated receipts are admissible as 17 18 evidence, the record contradicts the Vacantes unsupported 19 assertion that these receipts are proof that they mailed their Form 20 1040 tax returns in May 2002. As the undisputed evidence submitted 21 by the Government demonstrates, the Vacantes neither filed nor paid 22 their 2000 Form 1040 taxes in 2002; rather, they did not submit 23 their tax return until April 7, 2008. 24 Form 1040 for tax year 2000, filed in April 2008); Doc. 120, ¶ 4.) 25 The Vacantes have come forward with no admissible evidence to rebut 26 this record. 27 /// 28 /// (See Doc. 120-2 (Vacantes There is no genuine dispute of material fact. 29 3. 1 Social Security Levy Payments 2 Defendants next argue that their outstanding individual income 3 tax liabilities were satisfied pursuant to a levy on their social 4 security benefits. 5 Vacante s Social Security was levied in the amount of $398.00 6 [monthly] starting in May of 2006 for period of 24 months, and 7 Mr. Vacante s Social Security was levied in the amount of $127.00 8 a month for 23 months. Specifically, Defendants contend that Mrs. (Doc. 136, 1:23-1:25.) 9 The United States does not dispute that it levied Defendants 10 social security benefits, however, it asserts that most of the 11 levy payments were posted to tax periods not at issue in this 12 suit. (Doc. 132. 3:16-3:17.) According to the declaration of IRS 13 Agent Randy Reece, attached to the United States February 4, 2010 14 reply, the IRS identified several levy payments made from the 15 Vacantes social security stipends in 2006 and 2007. 16 payments, however, did not offset the tax obligations forming the 17 substance of this litigation:20 These levy 19 The IRS received levy payments in the amount of $398 a month, beginning in March of 2006 and ending in December of 2006 [...] 20 On March 6, 2006, a levy payment in the amount of $398 18 21 22 23 24 25 26 27 28 20 The government also contends that Defendants considerable tax issues make it nearly impossible to substantiate their assertions: [I]t is difficult to find where particular payments were posted, as the Vacantes have at different points in time had outstanding federal tax liabilities for ten different years, outstanding trust fund recovery penalties for multiple years, and outstanding Form 941 employment tax liabilities for numerous quarters. (Doc. 132, 3:1-3:5.) 30 1 2 3 4 was posted to the Form 941 employment tax liabilities of VIF Insurance for the quarter ending March 31, 1995 [...] On April 25, 2006, and May 24, 2006, levy payments in the amount of $398 were posted to the Form 941 employment tax liabilities of VIF Insurance for the quarter ending March 31, 1993 [...] 5 6 7 8 9 10 11 On June 23, 2006, a levy payment in the amount of $398 was posted to the Form 1040 individual federal income tax liabilities for Ute Vacante for 1994. When the Vacantes late-filed a Joint Income Tax Return for 1994, the IRS abated the individual assessments against Ute Vacante, and assessed federal income tax liabilities against the Vacantes jointly for 1994, per their late-filed return. Part of the $398 levy payment covered lien fees incurred by the IRS related to Ute Vacante s 1994 federal tax liabilities. The remainder was transferred as a credit toward the trust fund recovery penalties assessed against Ute Vacante for the tax period ending December 31, 1998 [...] 12 13 14 On August 3, 2006, September 3, 2006, October 3, 2006, November 3, 2006, and December 3, 2006, levy payments in the amount of $398 were posted to the Form 941 employment tax liabilities of VIF Insurance for the quarter ending March 31, 1993 [...] 15 16 17 18 19 20 21 22 The IRS received levy payments in the amount of $409 each month beginning in January of 2007 and ending in May of 2007 [...] On January 3, 2007, January 25, 2007, February 21, 2007, March 26, 2007, and April 25, 2007, levy payments in the amount of $409 were posted to the Form 941 employment tax liabilities of VIF Insurance for the quarter ending March 31, 1993 [...] On May 23, 2007, a levy payment in the amount of $409 was posted to the Form 941 employment tax liabilities of VIF Insurance for the quarter ending June 30, 1993 [...] 23 24 25 26 27 On December 26, 2007, the IRS received a levy payment in the amount of $1309.05. On January 24, 2007, and on February 28, 2007, the IRS received levy payments in the amount of $134.40. On March 28, 2007, the IRS received a levy payment in the amount of $120.30 [...] the[se] levy payments were posted to the trust fund recovery penalties assessed against Frank Vacante for the tax period ending December 31, 1998 [...] 28 31 1 (Dec. of R. Reese, Doc. 133, ¶¶ 6-15.) 2 A graphical representation of Defendants levy payments shows 3 that the payments did not offset the tax obligations forming the 4 substance of the government s motion:21 5 6 Levy Date Amount 7 3/6/06 $398 Form 941 - Qtr End 3/31/95 Doc. 133, Ex.2 8 4/25/06 $398 Form 941 - Qtr End 3/31/93 Doc. 133, Ex. 3 9 5/24/06 $398 Form 941 - Qtr End 3/31/93 Doc. 133, Ex. 3 10 6/23/06 $398 Form 1040 - U. Vacante Posted Acct Record Doc. 133, Ex. 4 ( 94) & Trust Fund Penalty 11 8/3/06 $398 Form 941 - Qtr End 3/31/93 Doc. 133, Ex. 3 9/3/06 $398 Form 941 - Qtr End 3/31/93 Doc. 133, Ex. 3 10/3/06 $398 Form 941 - Qtr End 3/31/93 Doc. 133, Ex. 3 11/3/06 $398 Form 941 - Qtr End 3/31/93 Doc. 133, Ex. 3 15 12/3/06 $398 Form 941 - Qtr End 3/31/93 Doc. 133, Ex. 3 16 1/3/07 $409 Form 941 - Qtr End 3/31/93 Doc. 133, Ex. 3 17 1/25/07 $409 Form 941 - Qtr End 3/31/93 Doc. 133, Ex. 3 18 2/21/07 $409 Form 941 - Qtr End 3/31/93 Doc. 133, Ex. 3 19 3/26/07 $409 Form 941 - Qtr End 3/31/93 Doc. 133, Ex. 3 20 4/25/07 $409 Form 941 - Qtr End 3/31/93 Doc. 133, Ex. 3 5/23/07 $409 Form 941 - Qtr End 6/30/93 Doc. 133, Ex. 5 12/27/06 $130 Trust Fund Penalty - F. 12 13 14 21 22 Doc. 133, Ex. 6 Vacante (Qtr End 12/31/98) 23 1/24/07 $134 Trust Fund Penalty - F. Doc. 133, Ex. 6 24 Vacante (Qtr End 12/31/98) 25 2/28/07 $134 Trust Fund Penalty - F. Doc. 133, Ex. 6 26 27 28 21 Chart produced from data contained in Docs. 133-2 to 133-7. 32 1 2 Vacante (Qtr End 12/31/98) 3/28/07 $120 Trust Fund Penalty - F. 3 Doc. 133, Ex. 6 Vacante (Qtr End 12/31/98) 4 5 Similar to § V(A)(1), the United States provides substantial 6 evidence establishing that the levy payments were used to offset 7 other 8 liabilities at issue in this litigation. 9 provide only two documents supporting their litigation position: 10 (1) an October 11, 2004 letter from the IRS to Instant Services, 11 Inc. describing a $52.84 Form 940 tax liability stemming from 2003 12 tax year, (Doc. 136, pgs. 82-83); and (2) a June 13, 2005 letter 13 from the IRS to Instant Services, Inc. outlining a $17,092.11 14 Form 941 tax arrearage stemming from the quarter ending December 15 31, 2001. 16 federal tax liabilities of the Defendants, not the Defendants, in contrast, (Doc. 136-2, pgs. 61-63.) Neither document is relevant to the issues presented by the 17 government s motion. 18 employment taxes levied against Instant Services, Inc. for the 2001 19 and 2003 tax periods. 20 relation to the issues raised in the United States motion - i.e., 21 Form 940 22 Vacante s sole proprietorship for the 1993 and 1994 tax periods. 23 Defendants continue to conflate and confuse the issues raised in 24 the Second Amended Complaint with those raised by the government s 25 motion for summary judgment. 26 evidence is insufficient to rebut the presumption of correctness and Form The two letters relate to Form 940 and 941 In this regard, the letters bear little 941 employment taxes levied against Frank They are not identical. 27 28 33 Defendants 1 arising from the Form 4340s submitted by the government.22 2 4. 3 4 Form 940 and 941 Employment Taxes Mr. Vacante argues that the government unfairly and without 5 proper documentation assessed employment taxes against VIF 6 Insurance for the 1993 and 1994 tax years. 7 no employment tax for the years at issue because the monies Ute 8 Vacante, Dan Belew, and Cynthia Burris received from VIF Insurance 9 during those years did not constitute wages or income. He asserts that he owes Instead, 10 the employees in question were treated as independent contractors 11 and paid commissions. 12 by observing that the taxpayer bears the burden of persuasion in 13 this litigation. 14 self-serving declaration, there exists adequate competent evidence 15 to support the assessments in question. The government responds to this argument It also contends that, despite Mr. Vacante s 16 To determine whether a factual dispute exists as to Mr. 17 Vacante s employment tax liabilities, it is necessary to harmonize 18 the arguments advanced - and evidence presented - by the parties 19 during the two stages of briefing. In his original opposition, Mr. 20 Vacante did not submit a signed declaration, relying instead on 21 unsigned tax returns and various bank records. Mr. Vacante 22 23 22 24 25 26 27 28 The same reasoning applies to the documents submitted by Defendants on March 11, 2010. To oppose the government s motion, Defendants submit: (1) photocopies of Form 1040 tax liabilities for the 1993, 1994, 1995, 1996, 1997, 1998, 1999, 2000 and 2001 tax periods; (2) Frank and Ute Vacante s 1987 pre-marital agreement; and (3) a Notice a Federal Tax Lien. It is unclear how these documents demonstrate that Defendants outstanding tax liabilities were satisfied pursuant to a levy on their social security benefits. 34 1 asserted VIF Insurance employees paid their own federal employment 2 taxes during these two tax years, therefore any assessments against 3 Defendants for this period were meritless: All 941 and 940 taxes for 6/30/93, 9/30/93, 12/31/93, 3/31/94, 6/30/94, 9/30/94, 12/31/94 were paid. Three people worked at VIF Insurance in 1993 and 1994. Dan Belew III, Ute Vacante, and Cynthia (Nunes) Burris. All three paid there (sic) taxes on Form 1040, including self employment tax, Medicare, and federal and state tax. The total payroll for VIF Insurance for 1993 was $42,245.00 and 1994 was $49,248.64. The figures used by the Plaintiff are completely without foundation. After 10 years the United States has only produced three people who worked at VIF. 4 5 6 7 8 9 10 (Doc. 136, 2:1-2:4.) 11 The government responded with a number of evidentiary 12 objections. According to the government, Mr. Vacante did not 13 produce evidence or the possibility that he can produce evidence 14 sufficient to overcome the presumption that the tax assessments 15 levied by the IRS are correct. Specifically, as to Cynthia Burris, 16 the government contended that [t]he Vacantes did not include any 17 evidence that Cynthia (Nunes) Burris paid self-employment taxes. 18 (Doc. 132, 4:14-4:15.) The government correctly cited Rivera v. 19 National R.R. Passenger Corp., 331 F.3d 1074, 1078 (9th Cir. 2003) 20 for the proposition that an unsupported assertion of self-payment 21 does not create a genuine dispute of fact. 22 As to Dan Belew III, the government argued that 23 unauthenticated and unsigned tax returns do not demonstrate that 24 the assessment was incorrect: 25 26 27 28 The Vacantes included with their memorandum copies of Form 1040 Tax Returns that they claim are the tax returns of Dan Belew, III. However, these returns are not signed, and the Vacantes have no evidence that they are authentic or filed with the IRS. Furthermore the Vacantes have submitted no evidence that Dan 35 Belew, III ever paid any self-employment tax. 1 2 (Doc. 132, 4:15-4:19.) 3 The government similarly objects to the use of Frank and Ute 4 Vacante s Form 1040 tax returns to rebut the presumption of 5 correctness: 6 The Vacantes included purported Form 1040 Tax Returns for Frank and Ute Vacante for 1993 and 1994, but these returns are unsigned and the Vacantes have submitted no evidence that they are authentic. 7 8 9 (Doc. 132, 4:20-4:22.) 10 The government s evidentiary objections are well-taken. In 11 this Circuit, unauthenticated and unsigned tax returns are 12 insufficient to place any material fact in controversy. See Bias 13 v. Moynihan, 508 F.3d 1212, 1224 (9th Cir. 2007) ( Rule 56(e) of 14 the Federal Rules of Civil Procedure requires that a proper 15 foundation be laid for evidence considered on summary judgment. 16 The documents must be authenticated [....] ); see also Nat l Steel 17 Corp. v. Golden Eagle Ins. Co., 121 F.3d 496, 502 (9th Cir. 1997) 18 ( Conclusory allegations [...] without factual support, are 19 insufficient to defeat summary judgment. ); Cristobal v. Siegel, 20 26 F.3d 1488, 1494 (9th Cir. 1994) ( We have repeatedly held that 21 unauthenticated documents cannot be considered in a motion for 22 summary judgment. ). Courts require the party claiming error to 23 affirmatively produce evidence demonstrating that the assessment 24 was incorrect, which Mr. Vacante did not do in his original 25 opposition. 26 However, during oral argument on February 26, 2010, the Court 27 instructed Mr. Vacante on the relevant legal standards, namely 28 36 1 Federal Rule of Civil Procedure 56(e). 2 extension of time to file supplemental briefing, which was granted. 3 As part of his supplemental briefing, Mr. Vacante did not submit a 4 formal declaration, but his supplemental opposition to the motion 5 for 6 afforded pro se parties in complying with procedural requirements, 7 see Lucas v. Miles, 84 F.3d 532, 535 (2d Cir. 1996), satisfies the 8 requirements. 9 of perjury, Mr. Vacante denies that VIF Insurance had the financial 10 capacity to employ three individuals during the relevant tax 11 years - and that the individuals were independent contractors. 12 He 13 incorrectly based on Central Valley Insurance Services, not VIF 14 Insurance: summary also judgment, construed with Mr. Vacante requested an the leniency typically In his declaration, which was signed under penalty asserts that the IRS employment tax figures 1. Frank Vacante owned and operated VIF services as his sole proprietorship property from 1983-1994. 2. Frank Vacante notified the IRS on January 3, 1993 that he no longer had employees. 3. No payroll tax was due from Frank Vacante or VIF Insurance during the periods 3/31/93, 6/30/93, 9/30/93, 12/31/93, 3/31/94, 6/30/94, 9/30/94 or 12/31/94. 21 4. VIF s business was 95% high risk auto insurance. 22 5. In November 1989, the people of California passed Prop 103, the California Insurance Initiative. 6. Prop 103 limited how insurance companies rated policies, restricted profit and dictated rate reductions of 10%. 7. Many of the insurance companies VIF represented were working with a 10-15% margin at the time. It was not feasible to comply with the new laws so a majority of the companies withdrew from the California market. Many of the remaining companies placed a moratorium on new business. VIF insurance 15 16 17 Insurance and sole 18 19 20 23 24 25 26 27 28 37 were went from representing greater than 100 insurance companies to fewer than 10 in a matter of months. 1 2 8. VIF Insurance Services went from selling approximately 90-100 new policies per month in 1989, to less than 15-25 per month by 1993. 9. Due to changes in billing practices by the insurance companies, VIF s residual income fell sharply from 1990-1994. These billing practices were designed to cancel policies. 10. Due to the reduction of business and clientele, VIF Insurance did not need an office staff. 11. All day to day business was handled by Mr. & Mrs. Vacante after January 1993. 12. All direct sales were handled by Dan Belew and Cynthia Nunes. Both were licensed agents and appointed by the insurance companies being represented. This is mandated by the California Department of Insurance and is an industry standard practice for direct sales. 13. 14 The total payroll for VIF Insurance Services in 1993 was $42,245. 15 A. Frank Vacante and Ute Vacante received $16,150 and paid all taxes due, including federal income tax, social security tax, self employment tax and Medicare on Form 1040. B. Dan Belew III received $16,495 as commission reported on form 1099 to the IRS. Mr. Belew III paid all the tax due including federal income tax, social security tax, self employment tax and Medicare on his Form 1040. C. Cynthia Nunes received $9,600 as commission reported on form 1099 to the IRS. Ms. Nunes (Burris) has testified under oath during deposition in this matter that she paid all federal income tax, social security tax, self employment tax and Medicare tax due on her Form 1040. 3 4 5 6 7 8 9 10 11 12 13 16 17 18 19 20 21 22 23 24 25 14. The total payroll for VIF Insurance Services in 1994 was $49,248. 26 A. 27 28 Frank Vacante and Ute Vacante received $22,170 and paid all taxes due, including federal income tax, social security tax, self employment tax and Medicare on Form 1040 for the year 1994. 38 B. Dan Belew III received $17,478.64 as commission reported on form 1099 to the IRS. Mr. Belew III paid all the tax due including federal income tax, social security tax, self employment tax and Medicare on his Form 1040. C. 1 Cynthia Nunes received $9,600 as commission reported on form 1099 to the IRS. Ms. Nunes (Burris) has testified under oath during deposition in this matter that she paid all federal income tax, social security tax, self employment tax and Medicare tax due on her Form 1040 [...] 2 3 4 5 6 7 2[]. Forms 940 and 941 filed by the IRS are not based on interview or investigation for the tax periods 3/31/94, 6/30/94, 9/30/94 or 12/31/94. Assessments for these periods are incorrectly based on Forms 940 and 941 filed by the IRS on a different business. Central Valley Insurance Services was the sole proprietorship of Dan Belew III [...] 8 9 10 11 12 (Doc. 145, 11:2-12:26, 14:1-14:6.) 13 The government responds that Mr. Vacante has still offered 14 nothing to counter the evidence provided by the government, i.e., 15 the Form 4340s are sufficient to establish that the tax assessments 16 were correctly made. 17 evidence on grounds that it is unauthenticated, contains hearsay, 18 and was not made on the basis of his personal knowledge. 19 government is correct; 20 are inadmissible to establish a genuine issue of material fact. 21 See Bias, 508 F.3d at 1224. 22 containing hearsay and statements lacking personal knowledge. Despite 23 these The government also objects to Mr. Vacante s The unauthenticated and unsigned tax returns The same is true as to documents evidentiary objections, Mr. Vacante has 24 submitted sufficient evidence to make out a triable issue as to 25 whether, in 1993 and 1994, Ute Vacante, Dan Belew and Cynthia 26 Burris were treated as independent contractors. 27 two conflicting interpretations on whether the workers at issue 28 were independent contractors 39 or employees. Here, there are Mr. Vacante 1 declares that the individuals were paid commissions, did not have 2 specific job responsibilities or work functions, and operated 3 largely outside a manager or boss. 4 Additionally, 5 employment tax on his VIF Insurance income in 1993 and 1994, and 6 that Ms. Burris reported $764.00 in self-employment tax in 1994. 7 (Doc. 153, 4:22-4:25, 9:3-9:4.) 8 the IRS in 1993 that he did not have any employees and, according 9 to his declaration, reconfigured his office structure based on it is undisputed that (Doc. 145 at 11:2-14:6.) Mr. Vacante paid self- Mr. Vacante also communicated to 10 dialogue with an IRS Agent. (Doc. 145, pg. 43; Doc. 145, 12:15- 11 13:5.) All of these facts weigh in favor of independent contractor 12 status. 13 This is contrary to the government s characterization of 14 individuals working at VIF Insurance during the relevant time 15 periods. 16 liabilities against Mr. Vacante based on wages paid by him in 1992, 17 the deposition testimony of Cynthia Burris, and Ute Vacante s 1994 18 W-2 filing, which stated she was paid $75,000 by VIF insurance. 19 However, the United States reduced Mr. Vacante s Form 940 and 941 20 tax liabilities for 1993 and 1994 based on figures he provided on 21 March 12, 2010, where he describes the payments as commissions. 23 22 Because Mr. Vacante s wage figures - the commissions - were 23 accepted 24 assessments still provide the foundation for the government s Initially, by the the government government, it is assessed unclear employment if the tax original 25 26 27 23 28 Doc. 145 at 12:6-12:7 ( Dan Belew III received $16,495 as commission []. ) (emphasis added). 40 1 argument.24 2 Even assuming the original assessments provide the basis for 3 the government s characterization, there is a triable issue as to 4 whether Mr. Vacante treated Ute Vacante, Dan Belew, and Cynthia 5 Burris as employees for tax purposes in 1993 in 1994. 6 to Ms. Burris deposition testimony, it is an insufficient basis to 7 resolve the issue of employee vs. independent contractor status. 8 In her deposition, Ms. Burris does not clearly describe her duties, 9 whether she invested in the insurance business or the generation of 10 insurance leads, the level of professionalism required, or any 11 number of circumstances relevant to whether an individual is an 12 employee or an independent contractor for federal tax purposes. 13 See United States v. Porter, 569 F. Supp. 2d 862 (S.D. Iowa 2008) 14 (analyzing the twenty factors to consider when examining whether 15 sufficient 16 relationship). 17 considered herself 18 employee. (Doc. 153, 9:3-9:4 ( Th[e] [tax] return filed by Ms. 19 Burris [in 1994] reported $764 in self-employment tax [....] .) control existed to establish an With respect employer-employee There is also record evidence that Ms. Burris to be an independent contractor, not an 20 The same reasoning applies to the government s reliance on the 21 wages paid by VIF Insurance in 1992 and the $75,000 in wages 22 allegedly paid to Ute Vacante in 1994. First, the government s 23 24 25 26 27 24 As to the nature of the employees' employment relationship, the government s motion lacks a fully developed factual record. See, e.g., Porter, 569 F. Supp. 2d at 872-74; see also Greco v. United States, 380 F. Supp. 2d 598, 608-16 (M.D. Pa. 2005). The facts submitted by the government concerning the Vacantes § 6672 liability do not provide a complete picture of the employment relationship. 28 41 1 reliance on 1992 figures is contradicted by Mr. Vacante s 2 declaration, in which he explains how the insurance business 3 contracted following intense regulation. 4 regulatory oversight resulted in a severe reduction in VIF s 5 workforce in 1993. 6 26th s oral argument that he forged his wife s signature to obtain 7 a bank loan. 8 bank that Ute Vacante made $75,000 in 1994 in order to invest in 9 his insurance business and get back on his feet. This added cost and Second, Mr. Vacante explained during February According to Mr. Vacante, he misrepresented to the Contrary to the 10 government s assertions, forging a signature is not dispositive of 11 the independent contractor vs. employee issue, which is factually 12 intensive. 13 *6 14 contractor vs. employee] case must stand on its own facts, in light 15 of all the existing circumstances, and that no one facet of the 16 relationship is generally determinative. ) (citation omitted). 17 Moreover, the credibility of a witness is an issue for the jury. 18 See, e.g., Bourns, Inc. v. Raychem Corp., 331 F.3d 704, 714 (9th 19 Cir. 2003). 20 a disputed fact issue based on Mr. Vacante s assertion that he 21 fabricated this amount to obtain a bank loan to save his business. 22 In an abundance of caution and in light of Mr. Vacante's pro 23 se status, viewing the evidence in a light most favorable to him, 24 there is a question of fact concerning whether Mr. Vacante treated 25 his employees as independent contractors during the relevant tax 26 periods. (6th See Peno Trucking, Inc. v. C.I.R., 296 F. App x 449 at Cir. 2008) ( It is settled that each [independent Whether Mrs. Vacante did not have $75,000 in income is According to Mr. Vacante, the employees in question were 27 28 42 1 treated as independent contractors and paid commissions.25 2 believed, a dispute exists whether Mr. Vacante s workers were 3 independent contractors during the relevant tax periods. 4 necessary to resolve factual issues surrounding the nature of the 5 employees' working relationship and the level of investments made 6 by these individuals.26 7 is DENIED on this issue. If Trial is The government's summary judgment motion 8 A factual dispute exists whether and to what extent Mr. 9 Vacante treated Ute Vacante, Dan Belew and/or Cynthia Burris as 10 employees or independent contractors. 11 appear to be unfamiliar with the Federal Rules of Evidence, and 12 what 13 preparing for trial, Defendants must become familiar with the constitutes admissible evidence Defendants are pro se and under those rules. In 14 15 25 16 17 18 19 20 21 22 23 24 25 26 27 28 There is record evidence declaration. See § V(A)(4), infra. 26 to support Mr. Vacante s The Court notes the responsive burden for a party in a tax case, see, e.g., Greco v. United States, 380 F. Supp. 2d 598 (M.D. Pa. 2005), and that an employer s self-serving characterization of a worker does not dictate the status of the worker. See generally Seattle Opera v. N.L.R.B., 292 F.3d 757, 764 n. 8 (D.C. Cir. 2002) (noting that if an employer could confer independent contractor [i.e., non-employee] status through the absence of payroll deductions there would be few employees falling under the protection of the Act. ); see also State Farm Fire & Cas. Co. v. Luciano's Landscaping Service, Inc., No. 97-2132, 1998 WL 103376 at * 3 (E.D. Pa. Feb. 24 ,1998)( It would be both illogical, and quite possibly against public policy, to allow an employer's self-serving characterization of a worker to dictate the status of that worker [...] [i]f such were the case, all an employer would have to do is label his workers casuals or independent contractors or some other handy euphemism, and by that simple act the employer could escape expenses for [all employer taxes]. ). Although a close call, taking the evidence in Mr. Vacante s favor, there is a question of fact concerning whether Mr. Vacante treated his employees as independent contractors. 43 1 Federal Rules of Evidence, the Federal Rules of Civil Procedure, 2 and the Rules of the United States District Court for the Eastern 3 District of California ( Local Rules ).27 4 5. 5 6 Conclusion on the United States Motion After viewing the entirety of the evidence in the Vacantes 7 favor, 8 evidence does not raise a genuine issue of fact on the issue of 9 Form 1040 income tax liabilities for the 2000 and 2004 tax years. 10 Summary judgment is GRANTED in favor of the United States on this 11 issue.28 12 drawing all inferences in their favor, the Vacantes However, as to employment tax, Mr. Vacante has created a 13 genuine dispute as to whether he treated his employees as 14 independent contractors during the relevant tax periods. 15 issue must be determined by the trier of fact. 16 motion is DENIED as to Mr. Vacante s employment tax liabilities - This The United States 17 18 19 20 21 27 The Federal Rules of Civil Procedure are available at: http://www.law.cornell.edu/rules/frcp/. The Federal Rules of Evidence are available at: http://www.law.cornell.edu/rules/fre/. A copy of the Court's Local Rules may be obtained from the Clerk's Office. 28 22 23 24 25 26 27 28 Pursuant to 26 U.S.C. §§ 6601(a) and (e)(2)(A), 6621, and 6622, the United States is entitled to statutory interest on income taxes and associated penalties imposed as of the date of notice and demand, which accrues daily until paid in full. See Purcell v. United States, 1 F.3d 932, 943 (9th Cir. 1993). Once a court validates a tax assessment, awarding statutory interest is mandatory. See id. (noting that § 6601(e)(2)(A) is a "binding statutory directive" to award interest). Thus, the Court GRANTS summary judgment with respect to the statutory interest on the tax assessments and penalties described above and ORDERS that judgment be entered against Frank Vacante and Ute Vacante for those income tax liabilities and associated penalties plus statutory interest. 44 1 Forms 940 and 941 - for the 1993 and 1994 tax years. 2 3 B. Defendants Motion for Summary Judgment 4 Defendants move for summary judgment, arguing that they did 5 not have the requisite control over CVIS s finances and employees 6 to hold them liable. 7 transcripts 8 demonstrate that they did not have the ability to pay CVIS s taxes, 9 did not have knowledge of the past due amounts, and did not take of Mariela According to Defendants, the deposition Perez, Dan Belew III, and Ira White 10 part in the financial decisions of CVIS.29 11 not attach the deposition transcripts of Mrs. Perez, Mr. Belew, or 12 Mr. 13 undisputed facts as required by Local Rule 56-260.30 White; they also do not attach a Defendants, however, do separate statement of 14 The government primarily opposes Defendants motion on grounds 15 that it is unintelligible and does not comply with Local Rule 56- 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Defendants also allege that the Revenue Officer John Certini made with malice false and misleading statements, leading Defendants [to] los[e] over one million dollars [...] and seven hundred thousand dollars in income. (Doc. 105, 4:3-4:14.) Defendants also include a prayer for attorney s fees [and] damages. (Id. at 4:21.) The United States maintains that the claim for damages should be denied because [Defendants] have not counterclaim[ed] for such a remedy, and so their claim is not part of this suit. (Doc. 128, 2:11-2:13.) The government is correct. Here, Defendants have yet to raise an affirmative cause of action against the United States. To the extent Defendants motion raises affirmative claims, the motion is DENIED. 30 Defendants filing consists of a single four-page document, which, as best understood, challenges the government s attempt to collect employment taxes from Central Valley Insurance Services, Inc., one of the entities owned by Defendants. 45 1 260.31 The government also maintains that there remains genuine 2 issues of 3 responsible parties or acted willfully under 26 U.S.C. § 6672, 4 the likely subjects of Defendants motion. material fact concerning whether Defendants are 5 Local Rule of Civil Procedure 56-260(a) provides, in part, 6 that summary judgment motions shall be accompanied by a statement 7 of undisputed facts that shall enumerate discretely each of the 8 specific material facts relied upon in support of the motion. 9 E.D. Cal. R. 56-260(a). That rule also provides that the movant 10 shall cite the particular portions of any pleading, affidavit, 11 deposition, interrogatory answer, admission, or other document 12 relied upon to establish that fact. 13 neither includes nor is accompanied by a separate statement of 14 material facts. Since Defendants carry the burden of setting forth 15 facts that establish a genuine issue of material fact, their 16 failure to present those facts is fatal to their motion for summary 17 judgment. 18 Local Rule 56-260(a) and is DENIED. 19 Id. Defendants motion The motion fails to comply with the requirements of Assuming, arguendo, there remains that Defendants a genuine motion issue of was properly 20 supported, material fact 21 concerning whether the Vacantes are responsible parties or acted 22 willfully under 26 U.S.C. § 6672. 23 argue that the deposition testimony [of several former employees] In their motion, Defendants 24 25 26 27 28 31 Defendants moving papers are severely lacking. Defendants fail to identify a subject(s) - or claim(s) - targeted by their motion and do not include a memorandum of points and authorities, a separate statement of undisputed facts, or supporting exhibits. In this regard the motion does not comply with Rule of Civil Procedure 7(b). 46 1 clearly shows that Defendants did not have the ability to pay over 2 taxes of Central Valley Insurance, Inc. 3 As best understood, this argument corresponds to the government s 4 tax assessments against the Vacantes pursuant to 26 U.S.C. § 6672 5 and, to a lesser degree, to the claim that the Vacantes are 6 directly liable for the taxes of CVIS based on an alter ego theory. (Doc. 105, 1:17-1:19.) 7 The Internal Revenue Code requires employers to withhold 8 federal social security and individual income taxes from the wages 9 of their employees. See 26 U.S.C. §§ 3102(a), 3402(a). Although 10 an employer collects this money each salary period, payment to the 11 federal government 12 interim, the employer holds the collected taxes in a special fund 13 in trust for the United States. 26 U.S.C. § 7501(a). 14 are known as trust fund taxes. See Slodov v. United States, 436 15 U.S. 238, 243 (1978). takes place on a quarterly basis. In the These taxes If an employer fails to pay over collected trust fund taxes, 16 17 the 18 effectuating the collection and payment of trust fund taxes who 19 willfully fail to do so are made personally liable for a penalty 20 equal to the amount of the delinquent taxes under 26 U.S.C. § 21 6672. 22 relevant part: 23 24 25 26 officers or employees of the Slodov, 436 U.S. at 244-45. employer responsible Section 6672 provides, in Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax ... shall ... be liable to a penalty equal to the total amount of the tax ... not collected, or not accounted for and paid over. 27 26 U.S.C. § 6672. 28 47 for 1 For the purposes of § 6672, a person includes an officer or 2 employee of a corporation ... who ... is under a duty to perform 3 the act in respect of which the violation occurs. 4 6671(b). Thus, an individual is liable for a penalty under Section 5 6672 if (1) he is a "responsible person"; and (2) if he acts 6 willfully in failing to collect or pay over the withheld taxes. 7 Davis v. United States, 961 F.2d 867, 869-70 (9th Cir. 1992).32 26 U.S.C. § 8 1. 9 Responsible Person 10 The Ninth Circuit has consistently identified persons who have 11 "the final word as to what bills should or should not be paid, and 12 when" as "responsible" persons under § 6672. 13 States, 1 F.3d 932, 936 (9th Cir. 1993). 14 word if 15 significant 16 regardless of whether he exercised such control in fact." Purcell, 17 1 F.3d at 937. 18 status, duty, and authority, not knowledge. Davis, 961 F.2d at 873 19 (upholding the trial court's finding of "responsible person" based 20 on the plaintiff's position as the president, member of the board, 21 and major shareholder, even though the plaintiff had no knowledge 22 of the tax default). 23 an individual's power to determine how the corporation conducts its 24 financial affairs; the duty to ensure that withheld employment that person control had over "the the Purcell v. United A person has the final authority required corporation's to exercise financial affairs, In other words, responsibility is a matter of "Authority turns on the scope and nature of 25 32 26 27 28 Defendants appear to argue that they cannot be held liable pursuant to § 6672 because they were not responsible persons and did not willfully fail to pay the delinquent trust fund taxes. (Doc. 105, 1:17-4:2.) The government disagrees, arguing there are factual disputes as to the Vacantes culpability under § 6672. 48 1 taxes are paid over flows from the authority that enables one to do 2 so." Purcell, 1 F.3d at 936. 3 In the absence of an admission of responsibility, there are 4 various factors which are indicative of significant control. These 5 factors 6 corporate bylaws, his ability to sign checks, his status as an 7 officer or director, and whether he could hire and fire employees. 8 Hochstein v. United States, 900 F.2d 543, 547 (2nd Cir. 1990); see 9 Jones, 33 F.3d at 1140 (approving use of the Hochstein factors). 10 Other courts have identified additional factors, such as whether 11 the individual held stock in the corporation and whether the 12 individual s signature is on the employer s federal quarterly and 13 other tax returns. 14 (3rd Cir. 1994). include the individual's duties as outlined in the Greenberg v. United States, 46 F.3d 239, 243 15 The United States has submitted evidence that Defendants were 16 owners of CVIS during the relevant tax periods, had sizeable 17 entrepreneurial 18 authority, controlled the financial affairs of the company, and 19 were CVIS s only corporate officers. 20 Facts in Support of Opposition to Motion for Summary Judgment, Doc. 21 128-2, No. 4, 9.) 22 Vacante had the authority to hire and fire employees, which he 23 exercised on a number of occasions. 24 also had explicit signature authority over CVIS s bank accounts. 25 (Id.) 26 interests in the company, had check signing (United States Statement of There is also evidence in the record that Frank (Id. at 7, 10.) Ute Vacante Significantly, Defendants do not offer any evidence that they 27 lacked the authority to pay CVIS s taxes. 28 States, 31 F.3d 837, 839 (9th Cir. 1994) (distinguishing the 49 See Alsheskie v. United 1 district court's finding that the plaintiff was not a responsible 2 party from a case where "the record contained no evidence that ... 3 the responsible party was without authority to pay the taxes."). 4 Defendants arguments regarding their responsibility focus almost 5 entirely on the delegation of responsibility to Ute Vacante s son, 6 Dan Belew III. 7 established that the duty to ensure that withholding taxes are 8 collected and paid over to the government is nondelegable. 9 Purcell, 1 F.3d at 936 (responsibility to pay taxes cannot be This argument is not well-taken. It is well- See 10 delegated); 11 1995)( an otherwise responsible person does not avoid liability 12 under section 6672 by delegating his authority to another. ); 13 Thomsen 14 ( delegation will not relieve one of responsibility; liability 15 attaches to all those under the duty set forth in the statute. ). 16 The evidence introduced by the parties on the question of 17 responsibility is conflicting and susceptible of at least two 18 reasonable 19 Defendants motion is DENIED as to this issue. v. Keller v. United States, 46 F.3d 851, 854 (8th Cir. United States, 887 interpretations for F.2d the 12, tax 17 (1st periods Cir. at 1989) issue. 20 2. 21 Willfulness In the Ninth Circuit, willfulness under § 6672 is defined as 22 23 a "voluntary, conscious and intentional 24 creditors over the United States." 25 F.3d 939, 942 (9th Cir. 1996) (quoting Klotz v. United States, 602 26 F.2d 920, 923 (9th Cir. 1979)). The Ninth Circuit holds that "[i]f 27 a responsible person knows that withholding taxes are delinquent, 28 and uses corporate funds to pay other expenses..., our precedents 50 act to prefer other Phillips v. United States, 73 1 require that the 2 'willful.'" Buffalow v. United States, 109 F.3d 570, 573 (9th Cir. 3 1997) (quoting Phillips, 73 F.3d at 942). 4 recognizes 5 willfulness. 6 person had actual knowledge that payroll taxes were not being 7 collected or paid over, and thereafter made payment to a non-IRS 8 creditor. 9 he or she acted in "reckless disregard of whether the taxes [were] two failure to ways by pay withholding which the taxes be deemed The Ninth Circuit government can establish First, the government may show that the responsible Second, a responsible person may be deemed "willful" if 10 being paid over." 11 responsible 12 standard if he (1) clearly ought to have known that (2) there was 13 a grave risk that withholding taxes were not being paid and if (3) 14 he was in a position to find out for certain very easily.). person Phillips, 73 F.3d at 942 (stating that a is liable under the reckless disregard 15 A review of the summary judgment evidence reveals a genuine 16 and heated dispute on the ultimate issue of whether Defendants 17 clearly ought to have known that there was a grave risk that 18 withholding taxes were not being paid and if she was in a position 19 to find out for certain very easily. 20 Frank Vacante acted with reckless disregard by failing to ensure 21 that 22 delinquency. 23 government relies on the fact an IRS Revenue Officer contacted Mr. 24 Vacante over a dozen times to inform him of the delinquency. (Id.) 25 In addition, Judgment was entered against Mr. Vacante in 2003 26 concerning failure to pay trust fund recovery penalties for his 27 business in 1989 and 1990. 28 Vacante avoided paying the judgment against him, chang[ing] the CVIS s taxes were paid The government contends that after (Doc. 128-2, No. 2.) (Id.) 51 learning about its tax To support its contention, the According to the government, Mr. 1 name of the business to Central Valley and set[ting] 2 figurehead to conceal his interest in the business. 3 up a 13:21-13:22.) (Doc. 128, 4 As to Ute Vacante, the government emphasizes that she was the 5 chief financial officer of CVIS, had express signing authority, and 6 certainly knew that the business had bounced a number of checks and 7 was in financial distress. 8 the IRS Revenue Officer s dozen calls to the Vacantes, alerting 9 them to the tax delinquency, and her marriage to Frank Vacante had previously been The government additionally points to 10 who held liable under § 6672. These 11 circumstances, the government argues, created a risk that CVIS was 12 delinquent and made it incumbent upon Ute Vacante to ensure that 13 the government was being paid before making payments to non-IRS 14 creditors. 15 The government contends that this evidence creates a genuine 16 issue of material fact as to willfulness and supports a denial of 17 Defendants summary judgment motion. 18 A reasonable jury, considering all the evidence, could find that 19 Frank 20 willfully as those terms are defined by § 6672. Defendants motion 21 for summary judgment is DENIED. and Ute Vacante were The government is correct. responsible persons and/or acted 22 23 C. Defendants Motion to Dismiss 24 Defendants filed their motion to dismiss on December 16, 2009, 25 two days after the December 14, 2009 deadline for the filing of 26 27 28 52 1 dispositive motions set by the Amended Scheduling Order.33 2 Original Scheduling Order in this case set the deadline for filing 3 dispositive motions on November 2, 2009. 4 11, 2009, the United States moved to extend discovery and modify 5 the scheduling order. 6 arguing that the United States already had over eighteen thousand 7 pages of documents [and] all credit card information Defendants 8 have or can acquire. 9 granted on September 11, 2009 and the dispositive motion deadline 10 11 (Doc. 75.) (Doc. 66.) The On September Defendants opposed the motion, (Doc. 88.) was continued to December 14, 2009. The United States motion was (Doc. 89.) Federal Rule of Civil Procedure 16 vests the district court 12 with early control over cases toward a process of judicial 13 management that embraces the entire pretrial phase, especially 14 motions and discovery. 15 Cir. 2009) (quoting Fed. R. Civ. P. 16 advisory committee's note, In re Arizona, 528 F.3d 652, 657 (9th 16 33 24 Attached to Defendants Motion to Dismiss are the affidavits of Alice Nicastro, Dan W. Belew III, Michele Harvery, and Ira White. (Doc. 124, Exhs. 1, A-D.) Each affidavit is signed under penalty of perjury and challenges the statements attributed to them by Revenue Officer John Certini. For example, Mr. Belew states that the statements attributed to me in [Certini s] report to appeal page 13 line 38d are not true [...] I have never been involved in an appeals hearing of any kind either in person or by phone. An unidentified excerpt, apparently page 12 of Mr. Certini s report (Bates Stamp US01035), is attached to Mr. Belew s affidavit: He (Dan) further stated that the real owners are Frank and Ute Vacante (his mother and stepfather) and that he was nothing but a figurehead. 25 (Doc. 124, Exh. B.) 17 18 19 20 21 22 23 26 27 28 The affidavits of Alive Nicastro, Michele Harvery, and Ira White also challenge statements attributed to them by Mr. Certini, attaching the relevant excerpt to their signed affidavit. No other supporting evidence is provided. 53 1 1983 Amendment). 2 pretrial phase of litigation, including the authority to determine 3 the preclusive effect of a pretrial order. 4 Recreations, Inc., 975 F.2d 604, 607 (9th Cir. 1992) (quoting 5 Miller v. Safeco Title Ins. Co., 758 F.2d 364, 369 (9th Cir. 6 1985)). 7 strike a motion on the basis that it is untimely filed according to 8 the 9 Nevertheless, before the final pretrial conference the scheduling 10 order may be modified upon a showing of good cause and with the 11 judge's consent. 12 at 608 (noting that the deadlines set by the scheduling order 13 govern the action unless modified by the court ). 14 good cause inquiry primarily considers the diligence of the 15 party seeking the [modification of the order]. 16 at 609. 17 Courts have broad discretion in supervising the Johnson v. Mammoth It is not an abuse of discretion for a court to deny or timetable set by the scheduling order. Id. at 610. Fed. R .Civ. P. 16(b)(4); see Johnson, 975 F.2d The Rule 16 Johnson, 975 F.2d Defendants have not attempted to show that the pretrial 18 schedule could not reasonably have been met despite their 19 diligence. See id. (quoting advisory committee notes to Rule 16). 20 In particular, Defendants do not provide a single reason for 21 failing to comply with the Rule 16 Scheduling Order in this case. 22 More problematic is that Defendants did not request an extension of 23 the December 14, 2009 deadline despite previously objecting to 24 Plaintiff s motion for an extension; they also filed the motion 25 without seeking leave of Court. 26 their failure to follow the deadlines under the Modified Scheduling 27 Order and Federal Rules of Civil Procedure was anything more than 28 inadvertence - or something more flagrant. Defendants do not establish that 54 Plaintiff does not 1 provide a sufficient basis on which the Court may permit a late 2 filing under Rule 16. 3 Allowing Defendants motion to dismiss, without a showing of 4 diligence or good cause, prejudices the United States and imposes 5 on the management of the Court s docket. 6 1060 ("In these days of heavy caseloads, trial courts ... set 7 schedules and establish deadlines to foster the efficient treatment 8 and resolution of cases."); Mammoth Recreations, Inc., 975 F.2d at 9 610 ( Disregard[ing] the [scheduling] order would undermine the 10 court's ability to control its docket, disrupt the agreed-upon 11 course 12 cavalier. ) 13 of the litigation, and reward See Wong, 410 F.3d at the indolent and the Defendants motion to dismiss is also deficient under Rule 14 7(b) of the Federal Rules of Civil Procedure. 15 that all motions filed with the court detail with sufficient 16 particularity the grounds therefor. 17 of Rule 7(b) has generally been interpreted liberally. See Intera 18 Corp. v. Henderson, 428 F.3d 605, 613 (6th Cir. 2005); see also Roy 19 v. Volkswagenwerk Aktiengesellschaft, 781 F.2d 670, 670-71 (9th 20 Cir. 1985). 21 provide the opposing party with sufficient information to respond, 22 and the Court with sufficient information to rule on the motion. 23 Registration Control Sys., Inc. v. Compusystems, Inc., 922 F.2d 24 805, 808 (Fed. Cir. 1990). 25 this standard. 26 Defendants unintelligible arguments with the corresponding actions 27 filed by the government. 28 Rule 7(b) requires The specificity requirement However, at a minimum, it must be applied so as to Defendants motion does not satisfy At this time, it is not possible to reconcile In addition, as the government's opposition to Defendants' 55 1 motion to dismiss recognizes, Defendants have failed to show that 2 they have exhausted the administrative remedies required by 26 3 U.S.C. § 7433(d) and 26 C.F.R. § 301.7433-1(d)-(e). 4 § 7433(d)(1) ( A judgment for damages shall not be awarded under 5 subsection (b) unless the court determines that the plaintiff has 6 exhausted the administrative remedies available to such plaintiff 7 within the Internal Revenue Service. ); see also 26 C.F.R. § 8 301.7433-1(d)-(e) (detailing the procedures for a taxpayer to 9 exhaust administrative remedies). While Defendants appear to argue 10 that they exhausted their administrative remedies by corresponding 11 with various IRS officials, a large volume of correspondence does 12 not equate to exhaustion of remedies. 13 claim [...] shall be sent in writing to the Area Director, Attn: 14 Compliance Technical Support Manager of the area in which the 15 taxpayer currently resides. ). 16 Defendants filed any administrative claim(s) under 26 U.S.C. § 17 7433(d) or Treasury Regulation § 301.7433-1(e). See 26 U.S.C. See id. ( An administrative Here, there is no evidence that 18 Defendants motion to dismiss is untimely and does not comply 19 with Rule 7(b) of the Federal Rules of Civil Procedure. Defendants 20 also fail to exhaust administrative remedies required by 26 U.S.C. 21 § 7433(d). The motion is DENIED and the merits are not considered. 22 /// 23 /// 24 /// 25 /// 26 /// 27 /// 28 /// 56 V. 1 CONCLUSION. 2 For the foregoing reasons: 3 (1) The government s motion for summary judgment is GRANTED 4 in part and DENIED in part. Defendants fail to identify any facts 5 rebutting the legitimacy of the government s Form 4340s as to the 6 2000 and 2004 tax assessments. 7 factual dispute exists whether and to what extent Mr. Vacante 8 treated Ute Vacante, Dan Belew and/or Cynthia Burris as employees 9 or independent contractors. However, as to employment tax, a 10 (a) 11 Defendant Frank Vacante is indebted to the United 12 States for unpaid federal income tax liabilities for the tax year 13 2000 and 2004 in the amount of $11,360.75 as of December 1, 2009, 14 plus further interest and statutory additions as allowed by law; 15 16 (b) Defendant Ute Vacante is indebted to the United 17 States for unpaid federal income tax liabilities for the tax year 18 2000 and 2004 in the amount of $11,360.75 as of December 1, 2009, 19 plus further interest and statutory additions as allowed by law; 20 (c) 21 Mr. Vacante has created a genuine dispute as to 22 whether he treated his employees as independent contractors during 23 the relevant tax periods. 24 trier of fact. This issue must be determined by the The United States motion is DENIED on this issue. 25 26 (2) Defendants motion for summary judgment is DENIED as it 27 fails to comply with the requirements of Local Rule 56-260(a). 28 Additionally, a reasonable jury, considering all the evidence, 57 1 could find that Frank and Ute Vacante were responsible persons and 2 acted willfully as those terms are defined by § 6672; and 3 (3) 4 Defendants motion to dismiss is untimely and does not 5 comply with Rule 7(b) of the Federal Rules of Civil Procedure. 6 The motion is DENIED. 7 8 The United States shall submit a form of order consistent 9 with, and within five (5) days following electronic service of, 10 this memorandum decision. 11 12 IT IS SO ORDERED. 13 Dated: aa70i8 May 20, 2010 /s/ Oliver W. Wanger UNITED STATES DISTRICT JUDGE 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 58

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