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Joseph Carione v. United States of America

March 22, 2012


The opinion of the court was delivered by: Hurley, District Judge:


Before the Court is plaintiff's motion to hold defendant in contempt for failing to properly calculate interest on the Amended Judgment previously entered in this case. (See docket no. 44.) Plaintiff also seeks an order directing defendant to recalculate the interest, as well as sanctions in the form of attorney's fees associated with bringing his motion. For the reasons that follow, plaintiff's motion is granted in part, and denied in part.*fn1


The facts underlying plaintiff's original claims in this action are set forth in the Court's March 17, 2005 Memorandum and Order in which the parties' cross motions for summary judgment were granted in part and denied in part, see Carione v. United States, 368 F. Supp. 2d 186 (E.D.N.Y. 2005)("Carione I"), as well as in the Court's May 2, 2005 Order denying defendant's subsequent motion for reconsideration, Carione v. United States, 368 F. Supp. 2d 196 (E.D.N.Y. 2005). A familiarity with these facts is therefore assumed for present purposes; only those facts necessary to address the instant motion will be recounted below.*fn2

This action arises from an overpayment that plaintiff made to his federal taxes in the late 1990s. In October 1999, plaintiff filed a tax return for the 1998 tax year which included a reported capital gain from the 1998 sale of his commercial trash-hauling business, Grand Carting, Inc ("Grand Carting").*fn3 The cited capital gain, however, never actually inured to plaintiff's benefit in 1998. Rather, the proceeds of the sale were deposited in escrow pursuant to a post-indictment restraining order entered by this Court following plaintiff's 1996 indictment for violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961. Plaintiff nevertheless paid the entirety of his 1998 tax liability, including $49,400 for the sale of Grand Carting on September 18, 2000.*fn4 In August of 2000, the proceeds of the sale were transferred from the escrow account to the United States in satisfaction of the forfeiture judgment entered against plaintiff in his criminal case.

Plaintiff then brought the instant civil action, asserting, inter alia, that he did not owe taxes on the sale of Grand Carting because he never possessed "dominion or control" over its proceeds. This Court concluded in Carione I that plaintiff was correct "insofar as the sale proceeds remained in escrow," Carione I, 368 F. Supp. 2d at 192, but that he eventually received a "taxable economic benefit in 2000 when the proceeds of the asset sale were used to satisfy the outstanding criminal forfeiture order," id. at 194.*fn5 The 1998 sale was therefore deemed a taxable event in the year 2000, rather than 1998. Id. The Court then entered judgment (hereinafter, the "Amended Judgment") *fn6 in favor of plaintiff, awarding him "an overpayment credit, as of September 19, 2000,*fn7 to his 1998 income tax account" totaling $54,783.48. (See Amended Judgment dated 11/27/06, docket no. 41.)

What ensued is the subject of plaintiff's instant motion. Plaintiff describes the Amended Judgment as the fruits of a "successful refund suit" against the United States. (Affirmation of James O. Druker, counsel to plaintiff ("Druker Aff.") ¶ 2.) Yet to plaintiff's surprise, instead of receiving what he perceived would be a windfall for the tax years involved, he was instead "issued a deficiency notice for [the tax year] 2000 in the amount of $88,914." (Druker Aff. ¶ 8.) In other words, what plaintiff expected would be a $54,783.48 win, actually resulted in a significant loss.

This apparent incongruity came about through the differing methods by which defendant calculated interest on what plaintiff was credited and on what he owed. Consistent with the Amended Judgment in this case, defendant credited plaintiff's 1998 taxes with the appropriate overpayment. (Defendant's Memorandum in Opposition to Plaintiff's Motion ("D's Opp.") at 1, 5-6.) After adding interest on the original overpayment-calculated from September 18, 2000 (the date that plaintiff made the overpayment) through April 15, 2011 (the date that his payments on the year 2000 taxes were due)*fn8 - and after giving plaintiff "the benefit of additional abatements," his total credit came to $63,067.85. (See D's Opp. at 5-6 (citing plaintiff's IRS "Account Transcript," attached to the Druker Aff. as Exhibit B).) Defendant also applied that credit, pursuant to 26. U.S.C. § 6402, towards plaintiff's 2000 taxes, the year in which plaintiff was deemed to have received a taxable economic benefit from the sale of Grand Carting, and the year for which the tax liability from that sale would be assessed.

Of course, the Court did not determine until years after the fact that the taxable event occurred in 2000 instead of 1998. Payment on income taxable in the year 2000 was due on April 15, 2001, and, according to defendant, plaintiff had not paid the portion of his 2000 taxes related to the Grand Carting sale by that due date.*fn9 Defendant therefore began running interest on the 2000 underpayment on the date it was originally due, viz., April 15, 2001. In other words, on April 15, 2001, defendant started the running of interest on plaintiff's underpayment (the money owed to the Government), but stopped the running of interest on his overpayment (the money owed to plaintiff). The end result was that on April 20, 2009, when defendant issued an assessment on plaintiff's 2000 taxes, the amount of the underpayment with interest had far exceeded the amount of the overpayment with interest, creating a negative balance. (Druker Aff. ¶¶ 25, 32, Ex. C.)

Plaintiff's instant motion argues that defendant's method of calculating interest is not only "violates both the letter and the spirit of the judgment," (DrukerAff. ¶ 2) but is also "simply wrong," (Memorandum of Law in Support of Motion for Contempt ("P's Memo") at 5).



Defendant states that it calculated the interest on plaintiff's overpayment in accordance with 26 U.S.C. § 6611(b)(1). That provision reads as follows:

(b) Period. Such interest shall be allowed and paid as follows:

(1) Credits. In the case of a credit, from the date of the overpayment to the due date of the amount ...

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