U.S. v. Anderson, CIV.A.2:04-0332-23BG.

364 F.Supp.2d 569

UNITED STATES of America, Plaintiff, v. Sam ANDERSON and Shawn Anderson, Defendants.

No. CIV.A.2:04-0332-23BG.

United States District Court, D. South Carolina, Charleston Division.

December 15, 2004.

John H. Douglas, US Attorneys Office, Charleston, SC, for Plaintiff.

Sam Anderson, N. Charleston, SC, Pro se.

Shawn Anderson, N. Charleston, SC, Pro se.

ORDER

DUFFY, District Judge.

This matter is before the court upon the United States Magistrate Judge's recommendation that Plaintiff United States of America's Motion for Summary Judgement be granted. The record contains a report and recommendation of the magistrate ("the R&R"), which was made in accordance with 28 U.S.C. § 636(b)(1)(B). A party may object, in writing, to a report and recommendation within ten days after being served with a copy of that report. 28 U.S.C. § 636(b)(1). Defendants Sam and Shawn Anderson have timely filed objections to the R&R.

This court is charged with conducting a de novo review of any portion of the Magistrate Judge's R&R to which a specific objection is registered and may accept, reject, or modify, in whole or in part, the recommendations contained in that R&R. 28 U.S.C. § 636(b)(1). Having reviewed the entire record, including Defendants' objections, the court concludes that the R&R accurately summarizes the facts and law applicable to this matter, and correctly grants summary judgment to the Government. Defendants' objections are wholly without merit, and simply reiterate arguments made to, and rejected by, the Magistrate. For example, Defendants continue to argue that "[t]here is no statute imposing legal liability of income tax on the Defendants" and that principles of peonage and the 13th Amendment preclude a "forcible direct tax on the labor of a human being." (Obj. at 1, 3). Accordingly, the R&R is adopted in whole and incorporated into this Order, and the Government's motion for summary judgment is granted.

It is, therefore, ORDERED, for the foregoing reasons that Plaintiff United States of America's Motion for Summary Judgment is GRANTED. Judgment is hereby entered in favor of Plaintiff in the amount of $10,695.36, plus interest, penalties, and costs, accruing according to law from July 15, 2004 to the date of entry of judgment.

AND IT IS SO ORDERED.

REPORT AND RECOMMENDATION OF THE MAGISTRATE JUDGE

KOSKO, United States Magistrate Judge.

I. INTRODUCTION

The United States of America, as Plaintiff ("Plaintiff"), brought this action pursuant to 26 U.S.C. § 7405 to recover a federal tax refund erroneously paid to the defendants, Sam Anderson and Shawn Anderson (collectively, the "Defendants"), who are residents of North Charleston, South Carolina.

Pursuant to the provisions of Title 28, United States Code Section 636(b)(1)(B) and Local Rule 73.02(B)(2)(c), this case was referred to the undersigned United States Magistrate Judge to review the pleadings and submit findings and recommendations to the District Court, which has jurisdiction of this matter pursuant to 28 U.S.C. §§ 1340 and 1345, and 26 U.S.C. §§ 7402(a) and 7405.

II. PRO SE STATUS OF DEFENDANTS

The Defendants are pro se litigants, and thus their pleadings are accorded liberal construction. Hughes v. Rowe, 449 U.S. 5, 9, 101 S.Ct. 173, 66 L.Ed.2d 163 (1980) (per curiam); Estelle v. Gamble, 429 U.S. 97, 97 S.Ct. 285, 50 L.Ed.2d 251 (1976); Haines v. Kerner, 404 U.S. 519, 92 S.Ct. 594, 30 L.Ed.2d 652 (1972); Loe v. Armistead, 582 F.2d 1291 (4th Cir.1978); Gordon v. Leeke, 574 F.2d 1147, 1151 (4th Cir.), cert. denied, Leeke v. Gordon, 439 U.S. 970, 99 S.Ct. 464, 58 L.Ed.2d 431 (1978).

Pro se pleadings are held to a less stringent standard than those drafted by attorneys. Hughes, 449 U.S. 5, 101 S.Ct. 173, 66 L.Ed.2d 163 (1980). The mandated liberal construction afforded to pro se pleadings means that if the court can reasonably read the pleadings to state a valid claim on which the plaintiff could prevail, it should do so, but a district court may not rewrite pleadings to include claims or defenses that never were presented. Barnett v. Hargett, 174 F.3d 1128 (10th Cir.1999). Likewise, a court may not construct the plaintiff's legal arguments for him (Small v. Endicott, 998 F.2d 411 (7th Cir.1993)) or "conjure up questions never squarely presented" to the court. Beaudett v. City of Hampton, 775 F.2d 1274, 1278 (4th Cir.1985), cert. denied, 475 U.S. 1088, 106 S.Ct. 1475, 89 L.Ed.2d 729 (1986). Finally, the Court cannot ignore a clear failure in the pleading to allege facts supporting a claim or defense cognizable in a federal district court. Weller v. Department of Social Services, 901 F.2d 387 (4th Cir.1990).

III. BACKGROUND

This case arises out of the investigation by the Internal Revenue Service ("IRS") of the filing of fraudulent tax returns for trusts¹ as a vehicle for individual taxpayers to obtain, as tax refunds, their lifetime or annual social security earnings made to the Social Security Administration. Information available on the Internet advised individual taxpayers to file a United States Income Tax Return for Estates and Trusts ("Form 1041"), on which the individuals would list lifetime or annual social security taxes paid and request that those taxes be refunded.² The Criminal Investigation Division of the IRS identified over 7,000 participants who are involved in these filings, including the Defendants.³

On or about December 24, 1998, Defendants executed and filed with the IRS a Form SS-4, Application for Employer Identification Number ("EIN"), on behalf of a trust identified as the "Sam and Shawn Anderson Trust" (the "Trust"). On the Form SS-4, Defendants identified themselves as trustees of the Trust. On January 5, 1998, the IRS assigned EIN 57-6180278 to the Trust.

Also on or about December 24, 1998, Defendants executed and filed their IRS Form 1041, on behalf of the Trust, for the 1997 tax year.⁴ On the Form 1041, the Defendants reported the following:⁵

Total Income                   $140,002.00
Fiduciary Fees                 $140,002.00
Exemption                      $  7,950.00
Taxable Income                 $ (7,950.00)
Federal Income Tax Withheld    $ 41,786.00
Overpayment                    $ 41,786.00

The IRS received the Form 1041, and on February 9, 1999, issued a refund (the "Refund")⁶ in the amount of $42,083.00 (which included $297.54 in interest) to the Trust. The check was endorsed by each of the Defendants. The check was paid by the United States Treasury on February 23, 1999.⁷

Thereafter, the IRS determined that the Refund was issued in error to the Trust.⁸ Between August 2000 and August 2003, the IRS collected $36,415.56 from the Defendants in partial repayment of the Refund.⁹

IV. PROCEDURAL HISTORY

On February 4, 2004, within five years of the payment of the Refund, the Plaintiff timely filed this action, pursuant to 26 U.S.C. 7405, to recover the Refund paid to Defendants. [1-1] Section 7405(b) of the Internal Revenue Code provides the Plaintiff with a civil cause of action to recover taxes "erroneously refunded." 26 U.S.C. S 7405(b); see, e.g., Hutchins v. Internal Revenue Service, 67 F.3d 40, 42 (3d Cir.1995); Clark v. United States, 63 F.3d 83 87 (1st Cir.1995) (internal quotation omitted) ("taxpayers who receive erroneous refunds owe the IRS because they have been unjustly enriched"); see also United States v. Russell Mfg. Co., 349 F.2d 13, 16 (2d Cir.1965) ("[an action by the government to recover a tax refund is an action for restitution]").

The Plaintiff alleged that Defendants had obtained the Refund fraudulently, by means of misrepresentation of material facts, and that the Trust was established for the purpose of obtaining a tax refund based on misrepresentations made on the Form 1041. Plaintiff further alleged that neither the Trust nor the Defendants had made income tax payments in any amount whatsoever. The Plaintiff alleged that the sum of $5,667.98, plus interest¹⁰ from February 9, 1999 to the date of payment, was due and owing from the Defendants. Pursuant to 26 U.S.C. §§ 6602 and 6621, taking in to account the funds collected by the IRS, Plaintiff alleged that the Defendants owed the sum of $10,695.36 as of July 15, 2004, plus interest, penalties, and costs calculated to the date of entry of judgment.¹¹

After the time for discovery had expired, the Plaintiff moved for summary judgment, contending, pursuant to 26 U.S.C. § 7405, that it was entitled to recover the Refund issued to the Defendants. [11-1] The Defendants, in turn, filed a memorandum opposing the Plaintiff's right to recover the Refund. [13-1]

V. SUMMARY JUDGMENT STANDARD

The determination of a motion for summary judgment is governed by the holding in Celotex Corporation v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986):

[T]he plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial. In such a situation there can be no "genuine issue as to any material fact," since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial.

It is important to add that unsupported speculation by a non-moving party is insufficient to defeat a summary judgment motion. Felty v. Graves-Humphreys Co., 818 F.2d 1126 (4th Cir.1987). Similarly, genuine disputes of material facts are not demonstrated by the bald statements of a non-moving party in affidavits or depositions. Stone v. University of Md. Medical Sys. Corp., 855 F.2d 167 (4th Cir.1988).

VI. ANALYSIS

The Plaintiff served interrogatories, requests for production, and requests for admissions on the Defendants in order to determine whether the Defendants' claims made on the Trust's Form 1041 could be substantiated. In response...