United States of America v. Isakson et al, No. 3:2014cv05630 - Document 34 (W.D. Wash. 2015)
Court Description: ORDER denying 31 Motion for Summary Judgment by Judge Benjamin H. Settle.(TG)
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United States of America v. Isakson et al Doc. 34 1 2 3 4 5 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT TACOMA 6 7 UNITED STATES OF AMERICA, 8 9 10 Plaintiff, v. MICHAEL R. ISAKSON, et al., 11 CASE NO. C14-5630 BHS ORDER DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT Defendants. 12 13 This matter comes before the Court on the United States of America’s motion for 14 summary judgment (Dkt. 31). The Court has considered the pleadings filed in support of 15 and in opposition to the motion and the remainder of the file and hereby denies the 16 motion for the reasons stated herein. 17 I. PROCEDURAL HISTORY 18 On August 8, 2014, the Government filed a complaint against Defendants Heritage 19 Chiropractic Clinic, Joy L. Isakson, Michael R. Isakson, JP Morgan Chase Co., Pierce 20 County, and J & M Charitable Foundation to foreclose federal tax liens on two properties. 21 Dkt. 1. 22 ORDER - 1 Dockets.Justia.com 1 On September 2, 2015, the government filed a motion for summary judgment 2 against Michael and Joy Isakson (“Isaksons”) and J&M Charitable Foundation (“J&M”) 3 (collectively “Defendants”). Dkt. 31. On September 21, 2015, Defendants responded. 4 Dkt. 32. On September 25, 2015, the government replied. Dkt. 33. 5 II. FACTUAL BACKGROUND 6 Michael and Joy Isakson married in 1976. Dkt. 31, Exh. 1, Michael Isakson 7 Deposition (“MI Dep.”) at 26:25. Michael has worked as a licensed electrician since 8 1977 and is the couple’s primary source of income. Id. at 42:14-16. The Isaksons have 9 three adult children: Michael Jr., Jeffrey, and Michelle. Id. at 89:1-8. The Isaksons have 10 also raised another child, D.M, since the age of four even though they do not have legal 11 custody of him. Id. at 58:18-59:17. 12 On November 15, 1977, the Isaksons acquired a parcel of real property located at 13 3725 South K Street, Tacoma, Washington (the “Tacoma Property”) via a Statutory 14 Warranty Deed. Dkt. 31, Exh. 3; MI Dep. at 127:19-128:2. The Isaksons use the Tacoma 15 Property as their personal residence and have lived there continuously since 1977. Id. at 16 128:7-8; Dkt. 31, Exh. 2, Joy Isakson Deposition (“JI Dep.”) at 55:11-22. 17 On July 2, 1993, the Isaksons acquired a parcel of real property located at 4101 18 Lakeridge Drive E., Sumner, Washington (the “Lake Tapps” Property) via Quitclaim 19 Deed from Joy Isakson’s father, Harold E. Fernald. Dkt. 31, Exh. 4; MI Dep. at 144:1620 25. The Isaksons have continuously used the lakefront property for recreational 21 purposes. JI Dep. at 37:19-23, 66:23-25, 70:3-7. 22 ORDER - 2 1 On October 17, 2006, the Isaksons created J&M. MI Dep. at 88:12-17, 89:21-24; 2 Dkt. 31, Exh. 5 (“Trust Agreement”). In 2007, the IRS issued the Isaksons an employee 3 identification number for J&M, and they opened a bank account for the foundation 4 thereafter. MI Dep. at 88:12-17, 89:21-24. Michael personally provided the money 5 required to open the bank account, which amounted to a few hundred dollars. Id. at 6 87:22-88:6. 7 On September 29, 2007, the Isaksons transferred the Tacoma Property to J&M via 8 Quitclaim Deed. Dkt. 31, Exh. 7. The Isaksons claim that they received ten dollars in 9 consideration for the property but admitted that no money actually changed hands. Id.; 10 MI Dep. 133:17-18. On the same day, the Isaksons also transferred the Lake Tapps 11 Property to J&M via Quitclaim Deed. Dkt. 31, Exh. 8. According to the deed, the 12 Isaksons received ten dollars in consideration for the property, but again no money 13 changed hands. Id.; MI Dep. at 148:3–5. 14 On April 15, 2009, the Isaksons electronically filed a joint income tax return for 15 the 2008 tax year using what the government claims was a “fraudulent OID tax scheme.” 16 Dkt. 31, Exh. 9; MI Dep. at 81:15-83:22. On the form, the Isaksons listed their total 17 income as $671,229.00 and claimed $597,386.00 in withholdings. Dkt. 31, Exh. 9. The 18 government asserts that both of these numbers were false “in order to illegally obtain a 19 refund to which [the Isaksons] were not entitled.” Dkt. 31 at 10. On April 24, 2009, the 20 Isaksons received a tax refund of $393,132.00, which was direct deposited in their joint 21 account. Dkt. 31, Exh. 10. 22 ORDER - 3 1 Although the Tacoma Property had already been transferred to J&M, the Isaksons 2 used $81,500.00 of the refund money to pay off the mortgage on the Tacoma Property. 3 MI Dep. 85:23-86:7, 177:10-20; JI Dep. 107:6-24. The Isaksons withdrew nearly 4 $200,000 in cashier’s checks, which they then used to pay off credit cards and donate 5 money to their church. MI Dep. 85:23-86:10, 177:24-178:19, JI Dep. 107:25-110:6. The 6 remainder of the refund money is in cash in a safe at the Tacoma Property. MI Dep. 7 86:11-22. 8 On May 24, 2010, a duly authorized delegate of the Secretary of the Treasury 9 made timely assessments against the Isakson for unpaid federal income taxes for the tax 10 year ending December 31, 2008, in the amount of $597,361.00 and interest in the amount 11 of $24,479.63. Dkt. 31, Exh. 11. Thereafter, the Isaksons received multiple letters from 12 the IRS informing them of their tax liabilities. 13 In August 2010, the Isaksons submitted a Form 1040X Amended U.S. Individual 14 Income Tax Return for the 2008 tax year. Dkt. 31, Exh. 16. On that filing, the Isaksons 15 stated that their originally reported adjusted gross income of $658,418 should be reduced 16 by $597,361 to $61,057. Id., Exh. 17. The amended return also admitted that their 17 original reporting of federal income tax withholding of $597,361 should actually be $0. 18 Id. In the explanation of changes, the Isaksons stated: “[T]his return corrects the prior 19 submittal per the recent Court decisions. The IRS never answered the 1099-OID 20 questions for the past three years.” Id. At his deposition, Mr. Isakson admitted that he 21 filed the amended return, but could not explain the rationale set forth in the explanation 22 of changes. MI Dep. 174:10-176:8. The Isaksons further conceded that the original ORDER - 4 1 return was incorrect, and that the amended return reflects their correct income and 2 liability for 2008. MI Dep. 123:5-12; JI Dep. 91:10-16. 3 On October 17, 2011, after receiving and processing the 2008 amended tax return, 4 the IRS adjusted the tax assessments against the Isaksons accordingly. Dkt. 31, Exh. 11. 5 Further, on October 24, 2011, the IRS assessed a $5,000 penalty against Mr. Isakson 6 under 26 U.S.C. § 6702 for filing the original frivolous return. Id., Exh. 17. The IRS has 7 been able to collect small amounts of the unpaid taxes through forced collection, but a 8 large balance persists. Dkt. 31, Exh. 11. On November 28, 2011 and November 26, 9 2012, the IRS assessed penalties against the Isaksons under 26 U.S.C. § 6651 for their 10 failure to pay. Id. As of August 8, 2014, the total balance that the Isaksons owed the IRS 11 was $498,896.30. Dkt. 31, Exh. 18. 12 On June 29, 2010, a delegate of the Secretary of the Treasury recorded in the 13 County Auditor of Pierce County a Notice of Federal Tax Lien against “Michael R. & 14 Joy L. Isakson” for the 2008 income tax year. Dkt. 31, Exh. 7. On May 11, 2011, a 15 delegate of the Secretary of the Treasury recorded in the County Auditor of Pierce 16 County a Notice of Federal Tax Lien identifying “J & M Charitable Foundation as 17 nominee, alter ego, and/or transferee of Michael R. & Joy L. Isakson” and referencing the 18 United States’ tax lien for the 2008 year. Id. 19 After the Tacoma Property was transferred to J&M, the Isaksons’ use of the 20 Tacoma Property did not change in any meaningful way. The Isaksons continued to use 21 the property as their residence and did not pay any rent to J&M. MI Dep. at 134:17-23. 22 ORDER - 5 1 Prior to the transfer of the Tacoma Property to J&M, the Isaksons provided shelter, free 2 of charge, to various individuals with whom they were friendly. JI Dep. 62:9-63:12. 3 Similarly, the Isaksons’ use of the Lake Tapps Property did not change in any 4 meaningful way after it was transferred to J&M. Prior to the transfer, the Isaksons visited 5 the property to swim, and they invited families to swim and enjoy the property with them. 6 JI Dep. 37:19-23, 66:23-25. 7 III. DISCUSSION 8 A. Summary Judgment Standard 9 Summary judgment is proper only if the pleadings, the discovery and disclosure 10 materials on file, and any affidavits show that there is no genuine issue as to any material 11 fact and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). 12 The moving party is entitled to judgment as a matter of law when the nonmoving party 13 fails to make a sufficient showing on an essential element of a claim in the case on which 14 the nonmoving party has the burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 15 323 (1986). There is no genuine issue of fact for trial where the record, taken as a whole, 16 could not lead a rational trier of fact to find for the nonmoving party. Matsushita Elec. 17 Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (nonmoving party must 18 present specific, significant probative evidence, not simply “some metaphysical doubt”). 19 See also Fed. R. Civ. P. 56(e). Conversely, a genuine dispute over a material fact exists 20 if there is sufficient evidence supporting the claimed factual dispute, requiring a judge or 21 jury to resolve the differing versions of the truth. Anderson v. Liberty Lobby, Inc., 477 22 ORDER - 6 1 U.S. 242, 253 (1986); T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d 2 626, 630 (9th Cir. 1987). 3 The determination of the existence of a material fact is often a close question. The 4 Court must consider the substantive evidentiary burden that the nonmoving party must 5 meet at trial – e.g., a preponderance of the evidence in most civil cases. Anderson, 477 6 U.S. at 254; T.W. Elec. Serv., Inc., 809 F.2d at 630. The Court must resolve any factual 7 issues of controversy in favor of the nonmoving party only when the facts specifically 8 attested by that party contradict facts specifically attested by the moving party. The 9 nonmoving party may not merely state that it will discredit the moving party’s evidence 10 at trial, in the hopes that evidence can be developed at trial to support the claim. T.W. 11 Elec. Serv., Inc., 809 F.2d at 630 (relying on Anderson, 477 U.S. at 255). Conclusory, 12 nonspecific statements in affidavits are not sufficient, and missing facts will not be 13 presumed. Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871, 888-89 (1990). 14 B. Government’s Motion 15 When a taxpayer neglects or refuses to pay taxes, the IRS may, upon notice, levy 16 upon the delinquent taxpayer’s property. 26 U.S.C. § 6331(a). 17 In this case, the only dispute is whether the government may levy upon the 18 properties that the Isaksons transferred to J&M. On this issue, the government asserts 19 two theories under which it may levy upon the properties in question: (1) J&M is the alter 20 ego of the Isaksons and (2) the Isaksons fraudulently transferred the properties. Dkt. 31 21 at 20-28. With regard to the former, it is a borderline case whether material questions of 22 fact remain for trial. Because the government is the moving party and has the burden of ORDER - 7 1 proof at trial, its “showing must be sufficient for the court to hold that no reasonable trier 2 of fact could find other than for the moving party.” Calderone v. United States, 799 F.2d 3 254, 259 (6th Cir. 1986) (citation omitted); see also Southern Calif. Gas Co. v. City of 4 Santa Ana, 336 F.3d 885, 888 (9th Cir. 2003). While the Isaksons’ contentions that J&M 5 is not an alter ego are weak at best (Dkt. 32 at 10-14), the Court is unable to conclude that 6 no reasonable trier of fact would find in their favor. Thus, the Court declines to 7 thoroughly address this issue because the other theory is dispositive. 8 With regard to the government’s alternative theory, Washington has adopted the 9 Uniform Fraudulent Transfer Act. RCW 19.40.041. Under that statute, a transfer is 10 fraudulent if the transfer is made 11 12 13 14 Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor: (i) Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or (ii) Intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due. 15 Id. The government argues that the facts establish a fraudulent transfer under this portion 16 of the statute while the Isaksons argue that questions of fact exist. While the Court 17 agrees with the government that no reasonably equivalent value was exchanged, the 18 Court finds that questions of fact exist on each of the other alternative elements. Material 19 questions of fact exist mainly because eighteen months passed between the transfer of the 20 properties and the filing of the relevant tax return. For example, a reasonable juror could 21 conclude that, when the transfers were made, the Isaksons were neither engaged in nor 22 ORDER - 8 1 were about to engage in a business transaction that would sufficiently decrease their 2 remaining assets. Similarly, whether they intended to incur or reasonably believed that 3 they would incur significant debt at the time of transfer is an open question of fact. The 4 Isaksons attending a conference and/or obtaining some tax defiler information before or 5 around the time of the transfer definitely weighs in the governments’ favor, but the Court 6 is unable to conclude as a matter of law that no reasonable juror could believe the 7 Isaksons’ story. Therefore, the Court denies the government’s motion on this issue 8 because questions of fact remain for trial. 9 10 IV. ORDER Therefore, it is hereby ORDERED that the government’s motion for summary 11 judgment (Dkt. 31) is DENIED. 12 Dated this 4th day of November, 2015. A 13 14 BENJAMIN H. SETTLE United States District Judge 15 16 17 18 19 20 21 22 ORDER - 9
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