The opinion of the court was delivered by: Koeltl, District Judge.
The standard for granting summary judgment is well established. Summary
judgment may not be granted unless "the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment as a
matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett,
477 U.S. 317, 322, 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); Gallo v. Prudential Residential Servs., Ltd. Partnership,
22 F.3d 1219, 1223 (2d Cir. 1994). In determining whether summary
judgment is appropriate, a court must resolve all ambiguities and draw
all reasonable inferences against the moving party. See Matsushita Elec.
Indus. Co., Ltd. v. Zenith Radio Co., 475 U.S. 574, 587, 106 S.Ct. 1348,
89 L.Ed.2d 538 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654,
655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962)); see also Gallo, 22 F.3d at
1223. Summary judgment is improper if there is any evidence in the record
from any source from which a reasonable inference could be drawn in favor
of the nonmoving party. See Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29,
37 (2d Cir. 1994). "In considering the motion, the court's responsibility
is not to resolve disputed issues of fact but to assess whether there are
factual issues to be tried." Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11
(2d Cir. 1986), cert. denied; 480 U.S. 932, 107 S.Ct. 1570, 94 L.Ed.2d
762 (1987). Because the defendants Joseph Letscher and Irene Letscher
Vingo appear pro se, their pleadings, "however inartfully pleaded," must
be held to less stringent standards than formal pleadings drafted by
lawyers. Estelle v. Gamble, 429 U.S. 97, 106, 97 S.Ct. 285, 50 L.Ed.2d
251 (1976); Patrick v. LeFevre, 745 F.2d 153, 160 (2d Cir. 1984).
On a motion for summary judgment, once the moving party meets its
initial burden of demonstrating the absence of a genuine issue of
material fact, the nonmoving party must come forward with specific facts
to show there is a factual question that must be resolved at trial. See
Fed.R.Civ.P. 56(e); see also Cornett v. Sheldon, 894 F. Supp. 715, 724
(S.D.N.Y. 1995). A party opposing summary judgment must produce evidence
in the record and "may not rely simply on conclusory statements or on
contentions that the affidavits supporting the motion are not credible."
Ying Jing Gan v. City of New York, 996 F.2d 522, 532 (2d Cir. 1993); see
Wyler v. United States, 725 F.2d 156, 160 (2d Cir. 1983); Cornett, 894
F. Supp. at 724; see also Ali v. Bank of New York, 934 F. Supp. 87, 91
There is no genuine dispute with respect to the following facts. In
March 1993, Mr. Letscher was convicted of willfully evading the payment
of federal taxes for the years 1986 and 1987, and of failing to file
federal income tax returns for the years 1984 and 1985. See United States
v. Letscher, No. 91 Cr. 331(KC), judgment (S.D.N.Y. July 20, 1993),
attached as Ex. C to Declaration of Kathleen Zebrowski dated Sept. 25,
1998 ("9/25/98 Zebrowski Decl."). Mr. Letscher was sentenced to 33 months
imprisonment, followed by 3 years supervised release. See id. At
sentencing, Judge Kenneth Conboy determined that Mr. Letscher's actions
warranted an enhanced sentence under the federal sentencing guidelines.
See United States v. Letscher, 40 F.3d 1237, slip op., at 2-3 (2d
Cir. Oct. 26, 1994), attached as Ex. D to 9/25/98 Zebrowski Decl. The
district court found that a two level increase in the offense level was
warranted because of Mr. Letscher's use of sophisticated means of
concealing income through his use of unincorporated business
organizations and the abuse of W-4 forms. The Court found a further two
level increase was warranted based on the defendant's perjury during
trial, material misrepresentations to Government agents, and "flooding
the court" with frivolous and redundant motions during the two years
prior to trial. The Court also found that a three-level upward departure
was justified based on Mr. Letscher's filing frivolous post-trial
criminal complaints against the Internal Revenue Service (the "IRS") and
the Assistant United States Attorney who prosecuted the case and Mr.
Letscher's attempts to file liens against property owned by Government
personnel. See id. at 2.
The judgment of conviction and sentence were affirmed by the Court of
Appeals for the Second Circuit. See id. The Court of Appeals noted that
the evidence at trial showed that Mr. Letscher had:
engaged in a systematic, long-term plan to evade the
payment of income taxes. He minimized and even
eliminated withholding taxes by submitting false
Internal Revenue Service ("IRS") W-4 forms to
employers, resulting in the underwithholding of
significant taxes. Letscher then failed to file tax
returns to report income earned from these employers.
He also created sham organizations to conceal real
In his own defense, Mr. Letscher did not dispute that he earned income
during the years charged in the indictment, or that he had not filed tax
returns. See id. at 2. Rather, he contended that he did not believe that
individuals are required to file tax returns or pay taxes. See id. He
therefore argued that he had a good faith misunderstanding of the federal
tax laws. See id.
At his criminal trial, Mr. Letscher testified that he filed tax returns
and paid his taxes until 1980. (Tr.*fn1 at 648.) In 1981, he began
listening to and reading materials prepared by Irwin Schiff, a tax
protester. (Tr. at 651.) Starting from late 1980, Mr. Letscher attended
several seminars hosted by Mr. Schiff. (Tr. at 700.) He also subscribed
to newsletters prepared by Mr. Schiff. (Tr. at 702-03.) On the basis of
information from Mr. Schiff and Mr. Letscher's own research, Mr. Letscher
decided not to file any more tax returns because he could not find any
law which required him to do so. (Tr. at 675, 708.)
In or about March 1987, Mr. Letscher went to Hawaii to learn about,
among other things, "trusts." (Tr. at 744-45.) There, he met Michael
Kailing, an accountant who is not a party to this action, who was
allegedly knowledgeable about trusts. (Tr. at 746-47, 758.) Shortly
afterwards, Mr. Letscher formed New York Investment International, Inc.
("NYII") and named Mr. Kailing, whom Mr. Letscher had allegedly known for
only a few months, as the trustee. (Tr. at 747, 751, 758.) Mr. Letscher
funded the trust in part with his own paychecks. (Tr. at 901.) In 1987,
he deposited approximately $22,895 into the NYII account. (Tr. at
993-94.) He also stated that he served as the "agent-president" of NYII
and his sister, Irene Letscher Vingo, was the secretary of NYII. (Tr. at
897, 900.) Mr. Letscher had signing and deposit authority over the trust
account. (Tr. at 902.)
Mr. Letscher also testified that in 1969, his mother executed a deed
transferring title to the property at 113 Glover Avenue in Yonkers, New
York (the "Property") to him and his sister, Irene Letscher Vingo,
reserving a life estate. (Tr. at 708-10.) In 1972, when their mother
died, Mr. Letscher and Ms. Vingo obtained full title to the Property.
(Tr. at 711.) In January 1988, Mr. Letscher transferred his interest in
the Property to NYII. (See Indenture dated Jan. 4, 1988 and Sch. A
attached as Ex. G to 9/25/98 Zebrowski Decl.)
Mr. Letscher testified that he personally incurred expenses to maintain
the Property during 1983-1987. (Tr. at 834.) He stated that he fixed the
plumbing in the house and also made some of the premium payments to
maintain the insurance on the Property. (Tr. at 834.) Moreover, he
testified that he occasionally lived at the Property. (Tr. at 846.)
In April 1992, the Government, through the IRS District Office,
assessed the defendant for unpaid federal income taxes, interest, and
penalties for the tax years 1981 through 1990. (See Letter from Shirley
Peterson dated Apr. 21, 1992 ("4/21/92 Peterson Letter"), attached as
Ex. A to Supplemental Declaration of Michael Kelly dated Dec. 30, 1998
("12/30/98 Kelly Supp. Decl.").) The total amount assessed as of April
21, 1992 was $314,793. (See id.) Notices of assessment and demands for
payment for the assessed liabilities were sent to Joseph Letscher
individually and to NYII, Joseph Letscher, sole proprietor. (See id.;
Decl. of Michael Kelly dated Sept. 24, 1998 ("9/24/98 Kelly Decl.")
On or about April 23, 1992 and April 24, 1992, the Government filed
notices of federal tax liens reflecting these assessments against both
Mr. Letscher and NYII with the Registers of New York and Westchester
Counties, respectively. (See 9/24/98 Kelly Decl. ¶ 5.)
As of September 16, 1998, the sum of $532,116.50 in tax liabilities was
due and owing to the United States for the tax years 1981 through 1990.
(See 9/24/98 Kelly Decl. ¶ 9.)
On February 10, 1995, the Government commenced this action to reduce to
judgment the assessment of tax liabilities against Mr. Letscher, and to
enforce and foreclose federal tax liens on the defendant's interest in
the Property. (See Compl.) The complaint also names as defendants the
following parties: Irene Letscher Vingo, a tenant in common of the
Property; the New York State Tax Commission and the National Westminster
Bank ("the Bank"), which may have liens on the Property; and John Does
1-5 and Jane Does 1-5, who are unidentified individuals residing at the
Property. Since the filing of the complaint, Francis Haviland and Mary
Haviland and no others have been identified as the residents at the
On July 17, 1996, the Clerk of the Court entered a default against each
of the defendants. (See Clerk's Cert. dated July 17, 1996, attached as
Ex. B to Order to Show Cause dated July 17, 1996 ("7/17/96 OTSC").) The
Government then moved by order to show cause for a default judgment
against the defendants. (See 7/17/96 OTSC.) Mr. Letscher then filed an
answer to the complaint, and promptly filed a voluntary petition for
bankruptcy. On January 12, 1998, the Bankruptcy Court dismissed Mr.
Letscher's petition. (See Order dated Jan. 12, 1998, attached as Ex. H to
9/25/98 Zebrowski Decl.)
In September 1998, the Government filed this motion for summary
judgment reducing the assessment of tax liabilities against Mr. Letscher
to judgment and foreclosing the federal tax liens on the Property. Mr.
Letscher opposes the motion and has cross-moved for summary judgment on
As to the other defendants, the Government obtained a new Certificate
of Default dated June 18, 1999 from the Clerk of the Court. (See Clerk's
Certif. dated June 18, 1999, attached as Ex. B to Order to Show Cause
dated June 18, 1999 ("6/18/99 OTSC").) The Government then moved by Order
to Show Cause for a Default Judgment. (6/18/99 OTSC.) Defendant Vingo
then filed an answer to the complaint. (See Ans. dated July 26, 1999). By
letter dated September 21, 1999, the Government advised the Court that
the Government has settled its action against Ms. Vingo and that a
stipulation will be submitted. (See Letter of Kathleen Zebrowski dated
Sep. 21, 1999.) The other defendants did not respond to the Order to Show
Cause and, after finding that the Government's motion was justified, by
Order dated July 8, 1999, this Court granted a default judgment against
the State Tax Commission, the Bank, Francis Haviland, and Mary Haviland.
(See Order dated July 8, 1999.)
The Government moves for summary judgment on the first cause of action
to reduce the federal tax assessments against Mr. Letscher to judgment
and to foreclose on the federal tax liens.
With the exception of civil fraud penalty assessments, an IRS notice of
tax deficiency is presumed to be correct. See Moretti v. Comm'r of
Internal Revenue, 77 F.3d 637, 643 (2d Cir. 1996); Andrew Crispo
Gallery, Inc. v. Comm'r of Internal Revenue, 16 F.3d 1336, 1341 (2d Cir.
1994); Schaffer v. Commm'r of Internal Revenue, 779 F.2d 849, 857 (2d
Cir. 1985); Carter v. United States, 717 F. Supp. 188, 191 (S.D.N.Y.
1989). In general, there are two aspects to this presumption of
correctness: the procedural burden of going forward with the evidence and
the substantive burden of persuasion. See Schaffer, 779 F.2d at 857. A
taxpayer challenging the asserted deficiency has the burden of proving
that the deficiency is incorrect by a preponderance of the evidence. See
Moretti, 77 F.3d at 643; Schaffer 779 F.2d at 857-58.
In this case, the IRS District Director sent a notice of deficiency to
Mr. Letscher on April 21, 1992. (See 4/21/92 Peterson Letter; see also
26 U.S.C. § 6861.*fn2) The
notice clearly informed Mr. Letscher that the following cumulative
amounts were due and owing for tax years 1981 through 1990: $107,539 in
taxes, $111,012 in penalties, and $96,242 in interest. (See 4/21/92
Peterson Letter.) The letter also provided a breakdown of these charges.
(See id.) Attached to the letter was a copy of Form 2644 which contained
the IRS Examination Division's recommendation of the jeopardy assessment
of deficiency. (See Form 2644 attached as Ex. A to Supplemental
Declaration of Michael Kelly dated Dec. 30, 1998 ("12/30/98 Kelly Supp.
Decl.").) Moreover, the Government has also submitted verified
Certificates of Assessments and Payments to support the assessment. (See
Certs. of Assessments and Payments attached as Ex. C to Supplemental
Declaration of Kathleen Zebrowski dated January 5, 1999 ("1/5/99
Zebrowski Supp. Decl.").) Thus, except for the civil fraud penalties, the
assessment of tax liabilities as reflected in the notice of deficiency is
entitled to a presumption of correctness.
With respect to the civil fraud penalties, they "can be imposed if the
Commissioner proves by clear and convincing evidence that [the]
taxpayer acted with an intent to evade paying taxes." Schiff v. United
States, 919 F.2d 830, 833 (2d Cir. 1990) (citation omitted). Fraud can be
proved by circumstantial evidence, including: "(1) consistent and
substantial understatement of income, (2) failure to maintain adequate
records, (3) failure to cooperate with an IRS investigation, (4)
inconsistent or implausible explanations of behavior, and (5) awareness
of the obligation to file returns, report income and pay taxes." Id.
(citation omitted). The Court of Appeals for the Second Circuit has made
it clear that the fraud penalty can be upheld on a motion for summary
judgment when there is clear and convincing evidence. Id.
In this case, Mr. Letscher failed to file tax returns for ten
consecutive years and engaged in conduct evincing a clear intent to evade
taxes. He was convicted of willful tax evasion for the years 1986 and
1987 and for failure to file federal income tax returns for 1984 and
1985. His conviction was affirmed on appeal. Mr. Letscher established
NYII, a trust which he described as an irrevocable trust and which he
understood was not to be used for personal expenses. Yet, he conceded
that he drew numerous checks on the NYII account for personal expenses.
He also transferred the Property at 113 Glover Avenue to NYII, yet he
continued to treat the Property as personal property by paying expenses
on the Property and by living in the Property from time to time.
Moreover, the trial judge who sentenced Mr. Letscher on his criminal
conviction determined that a two-level increase of the baseline sentence
under the federal ...