The opinion of the court was delivered by: KENNETH R. FISHER
(1) Declare the federal tax liens assessed against all property and rights to property of defendant Nancy McCombs-Ellison valid;
(2) Enter judgment for the plaintiff against defendant Nancy McCombs-Ellison in the amount of $ 30,035.07 plus interest from the date of assessment;
(3) Set aside a transfer to defendants Kelly and Mary McCombs of property located at 74 Meadow Creek Lane, Rochester, New York, as fraudulent.
(4) Order that the federal tax liens on the property, located at 74 Meadow Creek Lane, Rochester, New York, be foreclosed and the property sold free and clear of titles, liens, claims or interests of any defendants.
This matter was tried before me on March 19, 1992, pursuant to 28 U.S.C. § 636(c) upon consent of the parties and by order of District Court Judge David G. Larimer, dated February 28, 1992. Immediately prior to trial, the government filed a trial brief with the court on March 17, 1992, in which it set forth its position in the case.
At trial, the government, relying on the arguments presented in its brief, argued that the filing of the assessments established a prima facie finding of liability on the part of the defendants because of the presumption of correctness of the assessments. The government then argued that
as a tax assessment is presumed to be correct, a taxpayer who has been assessed under [26 U.S.C.] Section 6672 is presumed to be both "responsible" and "willful" and has the burden of proving, by a preponderance of the evidence, that she does not owe the tax claimed by the government.
Government's Trial Brief, pp.3-4. The government further argued that a lien in the amount of $ 26,925.79 was created on June 14, 1982, the date of assessment, which lien immediately attached to the property located at 74 Meadow Creek Lane, then owned by Ms. McCombs-Ellison. A Certificate of Assessment and Penalty was filed in the Monroe County Clerk's Office on September 22, 1982.
The government further argued that the facts also established a presumption of insolvency, a presumption which established prima facie that Ms. McCombs-Ellison fraudulently conveyed the 74 Meadow Creek Lane property to her daughters, Kelly and Mary McCombs, on September 15, 1982. In its case-in-chief, the government introduced 23 documents into evidence. After the first 22 of these exhibits were admitted into evidence, the government rested without presenting any witnesses.
Defendants Ms. McCombs-Ellison and Robert McCombs immediately moved for summary judgment on the basis that the government failed to establish a prima facie case of liability on the part of the defendants. Defendants Kelly and Mary McCombs moved to dismiss the complaint, on the grounds that the government failed to prove all the elements necessary to establish a prima facie case of fraudulent conveyance.
For the reasons set forth below, these motions are denied.
The following is my opinion and memorandum of decision finding the facts specifically in accordance with Fed. R. Civ. P. 52(a).
A. Spinnaker Pole Corporation and Port and Starboard
Ms. McCombs-Ellison and Mr. Ellison were also partners of an entity called "The Port and Starboard," ("Port and "Starboard") of which they held 60% and 40% interests, respectively. On May 14, 1979, Port and Starboard purchased the Edgewater Restaurant ("Edgewater") for $ 235,000.00. To pay for the restaurant, Port and Starboard gave Edgewater a mortgage in the amount of $ 185,000.00. Ms. McCombs-Ellison supplied the remaining $ 50,000.00 by taking out a mortgage for that amount on her house at 74 Meadow Creek Lane, Rochester, New York. Transcript of Trial Proceedings, March 19, 1992, at p.35, lines 23-28 ("Transcript"). The restaurant was then leased to and operated by Spinnaker Pole, for a monthly rental payment of $ 2,724.75 to Port and Starboard. Government Exhibit 18, P 17.
Business at the Edgewater did well for a while. There came a time, however, when Port and Starboard was unable to make its monthly mortgage payments to Edgewater. Edgewater filed a foreclosure action against Port and Starboard on April 10, 1981. Government Exhibit 6. Port and Starboard then filed for bankruptcy under Chapter 11 on April 24, 1981. Government Exhibit 7, Complaint, P 1. Spinnaker Pole also filed for bankruptcy in September, 1981.
It is undisputed among the parties that Spinnaker Pole
incurred federal withholding and unemployment tax liabilities for the tax periods beginning October 1, 1979 through September 30, 1981 in the amount of $ 26,925.79 which were assessed on June 14, 1982. A Federal Tax Lien for these assessed liabilities was filed in the Monroe County Clerk's Office on September 22, 1982. Spinnaker Pole incurred additional federal withholding and unemployment tax liabilities for the tax periods beginning October 1, 1981 through June 30, 1982 in the amount of $ 3,091.28 which were assessed on April 16, 1984. A Federal Tax Lien for these assessed liabilities was filed in the Monroe County Clerk's Office on June 21, 1984.
Government's Trial Brief, pp.1-2.
The government now seeks to reduce these liens, totalling $ 30,035.07, to judgment and foreclose them against property previously owned by Ms. McCombs-Ellison, located at ...