Narine v. United States (In re Narine)

Chapter 7

DAVID A. HUBBERT Deputy Assistant Attorney General U.S. Department of Justice, Tax Division, DANIEL M. CAVES Trial Attorney, Tax Division U.S. Department of Justice Attorneys for Defendant United States of America

RACHEL S. BLUMENFELD Law Office of Rachel S. Blumenfeld Attorney for Plaintiff Anjanie Narine

MEMORANDUM DECISISON GRANTING DEFENDANT UNITED STATES OF AMERICA'S MOTION FOR SUMMARY JUDGMENT

Jil Mazer-Marino United States Bankruptcy Judge

INTRODUCTION

Anjanie Narine, the Plaintiff in this adversary proceeding, owes over $40,000 to Defendant United States of America for unpaid taxes and related penalties and interest. The debt stems from Plaintiff's failure to report over $90,000 of capital gains on her 2017 tax return. Plaintiff commenced this adversary proceeding to obtain a judgment that the indebtedness is dishchargeable. Defendant moved for summary judgment that the indebtedness is nondischargeable under 11 U.S.C. § 523(a)(1)(C) because the Plaintiff willfully attempted to evade or defeat the taxes owed. For the reasons set forth below, Defendant's motion for summary judgment is granted.

JURISDICTION

The Court has jurisdiction over this adversary proceeding under 28 U.S.C. § 1334(b), 28 U.S.C. § 157(a), and the Standing Order of Reference entered by the United States District Court for the Eastern District of New York dated August 28, 1986, as amended by the Order dated December 5, 2012. The Court may hear and determine this adversary proceeding because it is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I). This decision constitutes the Court's findings of fact and conclusions of law to the extent required by Rule 7052 of the Federal Rules of Bankruptcy Procedure.

PROCEDURAL HISTORY

Plaintiff filed a petition for relief under chapter 7, title 11 of the United States Code on February 15, 2022. In re Narine, Case No. 22-40269, ECF 1. On April 26, 2022, Plaintiff filed a complaint commencing this adversary proceeding. Comp., ECF 1. On June 9, 2022, Defendant New York State Department of Taxation and Finance answered the Complaint. Answer, ECF 4. On July 11, 2022, Defendant United States of America Internal Revenue Service ("Defendant")

answered the complaint. Answer, ECF 8. On September 1, 2023, Defendant filed its motion for summary judgment. Def.'s Mot. Summ. J., ECF 19. On January 7, 2024, Plaintiff filed her objection to the motion for summary judgment. Def. [sic] Anjanie Narine's Ver. Resp. Opp'n Def. Mot. Summ. J. (hereinafter, "Pl. Opp'n"), ECF 25. On February 9, 2024, Defendant filed its reply. Def. United States of America Reply to Debtor's Opp. To Summ. J. (hereinafter, "Def. Reply"), ECF 27, 28.

The Court held oral argument on the motion on April 18, 2024.

BACKGROUND

Plaintiff's Personal Background

Plaintiff was born in 1976. Def. United States of America's Rule 7056-1 Statement of Material Facts (hereinafter, "Def. Statement of Material Facts") ¶ 2, ECF 19-2. She has one daughter who was born in 2006. Id. at ¶ 4. Plaintiff suffered childhood trauma and was diagnosed with dissociative identity disorder. Pl. Opp'n ¶ 7.

Plaintiff went to college at night and received a Bachelors of Business Administration in Economics from Pace University in January 2000. Dep. Anjanie Narino (hereinafter "Tr.") 37:612; 42:1-3. In 1994, while at Pace University, Plaintiff worked part time at the accounting firm of Levine &Seltzer. Tr. 48:5-9. While there, Plaintiff formed a friendship with one of the firm's partners, Philip Seltzer, CPA. Def. Statement of Material Facts ¶ 3. Mr. Seltzer prepared the Plaintiff's tax returns through 2016 (i.e., the 2015 tax year). Tr. 49:5-10; 49:24-50:5. In 2016, the Plaintiff and Mr. Seltzer had a falling out and they did not speak again until 2020. Tr. 49:6-19. As set forth more fully below, Mr. Seltzer provided some tax assistance to the Plaintiff in 2020; however, the Plaintiff and Mr. Seltzer have not communicated since 2021. Tr. 50:2023.

Thereafter, Plaintiff worked as an executive assistant at different financial firms, including Morgan Stanley, Bank Boston, and UBS. Tr. 43:21-23. Her duties progressed from clerical duties to managing her employer's calendars and other aspects of her employer's lives. Tr. 44:4-10. Due to Plaintiff's mental illness, she has poor interpersonal skills and has been laid off or let go from almost every job she has had. Tr. 43:8-15. She has gone through approximately 20 different jobs. Tr. 43:17-18. In January 2023, Plaintiff stopped working altogether. Tr. 44:18-22.

While working as an executive assistant at the different financial firms, Plaintiff learned how to trade securities. Tr. 45:2-16, 20-22. Plaintiff started trading securities in or around 2013. Tr. 46:2-7. In 2017, Plaintiff lost her job and started day trading securities using her own cash and retirement funds. Tr. 47:1-8.

Facts Related to Plaintiff's Tax Liability

From at least 2016 and until January 31, 2019, Plaintiff held accounts with Vanguard Brokerage Services including an individual brokerage account and a traditional IRA brokerage account. Def. Statement of Material Facts ¶ 6; Tr. 173:20-174:23.

In the early months of 2017, Plaintiff sold the following stocks from her Vanguard brokerage account on the dates and in the amounts listed below:

Date	Stock	Number of Shares	Total Proceeds	Original Cost	Net gain
01/27/2017	Tesla, Inc.	113	$28,417	$21,816	$ 6,601.81
01/27/2017	Tesla, Inc.	625	$157.178.14	$107,849.00	49,239.59
02/01/2017	Apple, Inc.	1,010.413	$130,333.44	$93,349.99	36,983.45
Total	$92,824.85 [1]

Prior to preparing her 2017 tax return, Plaintiff received Forms 1099 reporting the capital gains described in above chart, as well as $2,427 in dividends from the same Vanguard account. Def. Statement of Material Facts ¶ 16. The gains and dividends were reported on a year-end tax information statement from Vanguard. Id.

Plaintiff self-prepared her 2017 federal income tax return using an online program called E-file.com. Def. Statement of Material Facts ¶ 15; Tr. 93:21-95:25. Plaintiff followed on-screen prompts to enter information into her tax return. Def. Statement of Material Facts ¶ 15; Tr. 96:14. Plaintiff followed an on-screen prompt to enter the $2,427 of dividends reported on her Vanguard year-end statement into the Schedule B, Interest and Ordinary Dividends of her 2017 tax return. Def. Statement of Material Facts ¶ 17; Tr. 96:5-17. She followed on-screen prompts to complete various other lines, forms, and schedules on her 2017 tax return. Id.

Plaintiff reported an adjusted gross income of $85,152 and reported that she was due a refund of $8,449. Def. Statement of Material Facts ¶ 15; Tax Return Summary at 2-3, Def. Statement Material Facts, Ex. 4, ECF 19-7. She filed the return on June 4, 2018. Id. The IRS credited (offset) $5,227.46 to an outstanding unpaid liability for tax year 2015 and refunded $3,221.54. Id.

Plaintiff did not report the $92,914 in capital gains reported on her Vanguard year-end statement on her 2017 tax return. Def. Statement of Material Facts ¶ 18; Tr. 100:18-101:10. Plaintiff testified at her deposition that she did not recall seeing a prompt for capital gains and losses and that her failure to report them was a mistake. Id.; Tr. 100:21-101:4. She does not dispute that taxes on the capital gains are due. Tr. 101:6-10.

Plaintiff also over-reported her health savings account contribution for 2017, reporting $761 in contributions while a third-party report showed only $125. Def. Statement of Material

Facts ¶ 19; Tr. 105:19-24.

On April 15, 2019, the Defendant mailed a CP2000 notice to Plaintiff, which proposed changes to her 2017 tax liability. Def. Statement of Material Facts ¶ 20. It notified her that she had underreported her 2017 income by $93,550 due to the unreported capital gains and the misreported health savings account contribution. Id. The notice informed her that she would be liable for an additional $23,801 in federal income tax. The notice also informed her that she would be liable for a tax understatement penalty of $4,760, a failure-to-file penalty of $1,535, and accrued interest of $1,755. Id. The proposed amount due as of the notice date was $31,851. Id.

On July 8, 2019, the IRS sent Plaintiff a CP3219A, Statutory Notice of Deficiency. Def. Statement of Material Facts ¶ 21. It informed Plaintiff of her right to challenge the deficiency with the U.S. Tax Court within 90 days if she disagreed, or if she agreed, to pay immediately or to receive a bill. Id. It also informed her that if she did not respond or petition the Tax Court, that the IRS would assess the additional tax, penalties, and interest and send a bill demanding payment. Id. On October 1, 2019, Plaintiff consented to the assessment and collection of the deficiency. Def. Statement of Material Facts ¶ 22. Also, in October 2019, Plaintiff contacted the IRS and inquired about an installment agreement for her 2017 tax liability, but the IRS requested that she file her 2018 tax return first. Def. Statement of Material Facts ¶ 23. Plaintiff recalls being in talks with the IRS and that the talks stalled, but does not recall other details. Tr. 110:11-13. Plaintiff did not obtain a payment plan and then started to receive deficiency notices. Tr. 110:1-5, 13-16. On November 11, 2019, the IRS assessed the 2017 liability and sent a notice and demand for payment. Def. Statement of Material Facts ¶ 25. The IRS sent Plaintiff...