United States v. Gordon

563 F.Supp.3d 660

UNITED STATES of America, Plaintiff

v.Curtis GORDON, Jr., Defendant

CIVIL ACTION NO. 3:18-CV-00734-GNS-CHL

United States District Court, W.D. Kentucky, Louisville Division.

Signed September 27, 2021

Catriona M. Coppler, Kristina Marie Portner, U.S. Department of Justice, Washington, DC, for Plaintiff.

Kyle G. Bumgarner, Richard A. Thomason, Thomas N. Kerrick, Kerrick Bachert PSC, Bowling Green, KY, Thomas E. Clay, Clay Daniel Winner PLC, Louisville, KY, for Defendant.

MEMORANDUM OPINION AND ORDER

Greg N. Stivers, Chief Judge

This matter is before the Court on Plaintiff's Motion for Summary Judgment (DN 37). The motion is ripe for adjudication. For the reasons outlined below, the motion is GRANTED .

I. BACKGROUND

Plaintiff United States of America ("Plaintiff") filed this action seeking to impose federal income tax and civil fraud penalties against Defendant Curtis Gordon, Jr. ("Defendant") for the 2003, 2004, and 2005 tax years. (Am. Compl. ¶¶ 5-13, DN 21). Defendant was previously indicted for and convicted of willfully filing false income tax returns for the relevant tax years in violation of 26 U.S.C. § 7206(1). (Second Superseding Indictment, DN 37-4; Am. J., DN 37-3).

Plaintiff contends that Defendant's tax liability consists of both underlying tax liabilities and deficiency liabilities. (Pl.’s Mem. Supp. Mot. Summ. J. 1, DN 37-1). Underlying tax liability is the amount that the IRS assesses that the taxpayer owes based on the taxpayer's return. Callahan v. Comm'r , 130 T.C. 44, 50 (2008) (citations omitted). Before underlying tax liabilities established by an IRS assessment can be collected, "the IRS must notify the taxpayer of (1) the IRS’ intent to levy the [taxpayer's property], [and] (2) the taxpayer's right to a collection due process hearing" to challenge the underlying tax liability. Cropper v. Comm'r , 826 F.3d 1280, 1282 (10th Cir. 2016) ; see also 26 U.S.C. §§ 6630(a)(1), 6331(d)(1). Deficiency liability, on the other hand, is established when the taxpayer owes more than the amount shown as due on his or her tax return. 26 U.S.C. § 6211(a). For a deficiency liability, the IRS must send the taxpayer a notice of deficiency at which point the taxpayer can challenge the claimed deficiency in Tax Court. Gray v. Comm'r , 140 T.C. 163, 170 (2013) ; 26 U.S.C. § 6211(a).

Defendant's underlying tax liability for 2003, 2004, and 2005 was assessed by the IRS in 2007 and 2011. (Pl.’s Mot. Summ. J. Ex. 9, at 2-3, 13-14, DN 37-11 [hereinafter Form 4340s]). Defendant contends that both the 2007 and the 2011 assessments were based on inaccurate tax returns. (Def.’s Resp. Pl.’s Mot. Summ. J. 4-5, 7, DN 57). For the 2007 assessment, Defendant asserts that an indirect method was used to calculate his tax liability because his records for the years at issue were inaccessible due to the criminal investigation against him. (Def.’s Resp. Pl.’s Mot. Summ. J. 4-5). For the 2011 assessment, Defendant states that he did not file the return used for the assessment. (Def.’s Resp. Pl.’s Mot. Summ. J. 7). Furthermore, Defendant contends he did not receive notice of the underlying tax liabilities from the 2007 assessment until August 29, 2011. (Form 4340s, at 3, 13, 22). In fact, the IRS’ own records reflect that the notice was "reversed" and then "rescinded." (Form 4340s, at 4, 14, 22). Defendant claims the IRS never notified him of the 2011 assessment at all. (Def.’s Resp. Pl.’s Mot. Summ. J. 8).

On December 13, 2013, Defendant received a Notice of Deficiency ("Notice of Deficiency") informing him he owed back taxes and civil fraud penalties totaling $77,236.25 for the 2003, 2004, and 2005 tax years. (Pl.’s Mot. Summ. J. Ex. 7, DN 37-9 [hereinafter Notice of Deficiency]). The Notice of Deficiency stated that if Defendant wanted to challenge this determination he had 90 days to file a petition in the U.S. Tax Court. (Notice of Deficiency 1). The Notice of Deficiency also referenced the "total underpayment" owed by Defendant from the 2007 and 2011 assessments—i.e., the original "underlying liability" for 2003, 2004, and 2005. (Notice Deficiency 9).

Defendant then filed suit in U.S. Tax Court in 2014. (Pl.’s Mot. Summ. J. Ex. 5, at 1-2, DN 37-7 [hereinafter Tax Ct. Order & Decision]). The issue in the Tax Court action was whether Defendant owed the deficiency liabilities and civil penalties described in the Notice of Deficiency for tax years 2003, 2004, and 2005. (Tax Ct. Order & Decision 1-2). Defendant also contended before the Tax Court that the 2011 assessment was based on tax returns he had not filed. (Pl.’s Mem. Supp. Mot. Summ. J. 3). Prior to trial, however, in November 2015, the parties signed a stipulation ("Stipulation") "represent[ing] the agreement as to all adjustments in the statutory notice of deficiency dated December 13, 2013, for petitioner's 2003 through 2005 tax years." (Pl.’s Mot. Summ. J. Ex. 8, at 1-3, DN 37-8 [hereinafter Stipulation]). The Stipulation further stated that "the parties agree that this stipulation resolves all issues in this case with respect to the petitioner's 2003 through 2005 tax years." (Stipulation 3).

The Stipulation not only provided the agreed-upon deficiency amount was correct, but it also reduced Defendant's underlying tax liability. (Stipulation 1-2). Specifically, the parties agreed to adjustments for a $10,000 mortgage interest deduction for 2004, a $10,000 decrease in reported gross receipts for 2005, and a $59,090 increase in a mortgage expense deduction for 2005. (Stipulation 1-2). Under the Stipulation, Defendant owed a deficiency of $50 and civil fraud penalties totaling $58,073.25. (Tax Ct. Order & Decision 2). On April 11, 2016, the Tax Court entered the corresponding judgment which described the Stipulation as "resolv[ing] all issues in this case with respect to [Defendant's] 2003 through 2005 tax years." (Tax Ct. Order & Decision 1).

In 2019, the IRS issued a new assessment based on the 2007 assessment, the 2011 assessment, and the adjustments agreed upon in the Stipulation. (Form 4340s, at 1-28). The changes in the Stipulation led to a reduction of $1,163 to the original 2004 underlying tax liability and a $24,321 reduction for 2005. (Stipulation 1-2; Form 4340s, at 17, 26).

Plaintiff subsequently filed this action and has moved for summary judgment. (Pl.’s Mot. Summ. J., DN 37). The motion is ripe for decision.

II. JURISDICTION

This Court has subject-matter jurisdiction of this matter based upon 28 U.S.C. §§ 1331, 1340, 1345, and 26 U.S.C. § 7402.

III. STANDARD OF REVIEW

Summary judgment is appropriate when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "[A] party moving for summary judgment may satisfy its burden [of showing] that there are no genuine issues of material fact simply ‘by pointing out to the court that the [non-moving party], having had sufficient opportunity for discovery, has no evidence to support an essential element of his or her case.’ " Minadeo v. ICI Paints , 398 F.3d 751, 761 (6th Cir. 2005) (quoting Street v. J.C. Bradford & Co. , 886 F.2d 1472, 1479 (6th Cir. 1989) ). Similarly, the movant may meet its burden by offering evidence negating an essential element of the non-moving party's claim. See Dixon v. United States , 178 F.3d 1294, 1999 WL 196498, at *3 (6th Cir. 1999).

After the movant either shows "that there is an absence of evidence to support the nonmoving party's case," or affirmatively negates an essential element of the non-moving party's claims, the non-moving party must identify admissible evidence that creates a dispute of fact for trial. See Celotex Corp. v. Catrett , 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ; Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). While the Court must view the evidence in a light most favorable to the non-moving party, the non-moving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). "The mere existence of a scintilla of evidence in support of the plaintiff's position [is] insufficient; there must be evidence on which the jury could reasonably find for the plaintiff." Anderson , 477 U.S. at 252, 106 S.Ct. 2505.

IV. DISCUSSION

A. Res Judicata

Plaintiff asserts that Defendant is precluded from challenging his tax liability due to the doctrine of res judicata. (Pl.’s Mem. Supp. Mot. Summ. J. 6). Defendant, however, contends that Plaintiff is precluded from relying on res judicata because it was not raised in a pleading and that the doctrine is inapplicable. (Def.’s Resp. Pl.’s Mot. Summ. J. 15-22).

1. Waiver

The doctrine of res judicata provides that a party may not bring a claim when: (i) there is a prior final decision on the merits by a court with jurisdiction; (ii) the case is between the same parties; (iii) the issue was or should have been litigated in the prior action; and (iv) an identity of the causes of the action. Westwood Chem. Co., Inc. v. Kulick , 656 F.2d 1224, 1229 (6th Cir. 1981). In the context of tax litigation, "if a claim of liability or non-liability relating to a particular tax year is litigated, a judgment on the merits is res judicata as to any subsequent proceeding involving the same claim and the same tax year." Golden v. Comm'r , 548 F.3d 487, 495 (6th Cir. 2008) (quoting Comm'r v. Sunnen , 333 U.S. 591, 598, 68 S.Ct. 715, 92 L.Ed. 898 (1948) ).

The Sixth Circuit has specifically held that res judicata can be raised for the first time in a summary judgment motion. In Raub v. Moon Lake Property Owners’ Association , 718 F. App'x 407 (6th Cir. 2018), the Sixth Circuit concluded that the defendants had not waived their res judicata argument by asserting res judicata in a summary judgment motion even though they had failed to raise the...